The Return of Mike Brown — WFNY Top 10 Cleveland Sports Stories of 2013: No. 3
December 27, 2013
Will Browns be motivated enough to dash Steelers playoff hopes?
December 27, 2013
Promo shot of FirstEnergy Stadium from ClevelandBrowns.com
Yesterday the rumor mill started churning all across Cleveland starting in Berea. Tony Grossi reported that the Browns are ending their nearly 40-year relationship with the Cleveland Clinic. Grossi’s report goes on to indicate that while these deals aren’t supposed to be tied together, the Browns appear poised to switch to University Hospitals (UH) for actual services and also as the major hospital sponsor. Finally, the big deal is rumored to be $30 million over 10 years. And while I truly don’t begrudge the Browns their revenues, that’s the part that continues to stick out to me. It’s pretty amazing how big the business of the NFL has become, including right here in Cleveland since Jimmy Haslam bought the team.
In the wake of a stadium deal with the city of Cleveland, where the Browns got the city to pay $2 million a year for 15 years to help fund $120 million in stadium improvements, it’s noteworthy just how much revenue the Browns seem to be deriving from the building that they don’t even actually own. If you’re keeping score at home, the Browns have signed a deal with FirstEnergy that pays them $6 million for 17 years, add in the reported University Hospitals deal at $3 million per year for ten years, and the Browns have contractually guaranteed revenues of $9 million per year for at least a decade. They also have reimbursement money coming from the city to the tune of $2 million per year. That puts the Browns’ investment of $120 million in lots of perspective. Already, without any football revenues entering the equation, the Browns have reported revenues and reimbursements of $162 million coming their way. In the first ten years alone, the Browns will collect $110 million.
And good for them. Professional sports teams are valuable assets and they’re supposed to put off huge sums of money in profits. At the same time, it’s up to us to scrutinize those revenues in the case of any business that gets heavily subsidized by public funds.
If you believe Forbes’ estimates, the Browns 2012 revenue was $264 million and their operating income was 17.1 million. The Browns aren’t overly profitable compared to other teams, so it only makes sense that Jimmy Haslam’s new crew, headed up by Alec Scheiner, would do wondrous jobs monetizing the team. The average operating income in the NFL in 2012 according to Forbes was $44.2 million on revenues of $286.5 million. The income as a percent of revenue averaged 15.4% while the Browns averaged only 6.5%.
It’s an equation that these guys know very well because they’ve done it for other teams around the league. They see the carrot at the end of the stick. If they increase revenues and just reach the average operating income percentage, the Browns could more than double the reported $17.1 million that Forbes thinks they have in operating income.
I remember when the Browns hired Scheiner away from the Cowboys, that I couldn’t help but wonder if that pissed off Jerry Jones to lose one of his guys, but now it occurs to me that he probably doesn’t even consider it like his guy being hired “away.” The NFL is only stronger if each of the teams in the league is thriving. Letting Scheiner leave the Cowboys juggernaut—$539 mil in reported revenue and $250.7 in operating income, 46.5% income as a percentage of revenue—to join the Browns and their 6.5% income percent makes lots of sense. If you own a mansion in a neighborhood, you want to make sure the other homes in the neighborhood are looking good too. That’s the only way the NFL can continue to sign TV deals rich enough to pay each team an estimated $200 million per year annually even before a single ticket or jersey is sold.
Obviously these numbers aren’t real unless you know the actual values down the entirety of the financial statements. Forbes might be close, but accounting has a funny way of making profits and expenses and cash a very confusing conversation. Make no mistake though, the Browns were big business before Joe Banner and company showed up and they’re even bigger now, even without any kind of tangible turnaround in the NFL standings.
Just by nature of the nearly-free lease the Browns signed in 1999, they were able to walk into Cleveland and create $6 million per year in revenue from FirstEnergy that didn’t exist before they bought the team. I’m not here to say it’s good, bad or otherwise, but keep it in mind the next time you get into the conversation about stadium deals and leases and city reimbursement payments.
It’s great to own the Browns. And profitable, too.
33 Comments
Devil’s Advocate: A lot of posts like this never seem to mention the money generated by having the Browns in Cleveland. Whether it’s local businesses on game day or sales tax through merchandise sales.
I’m really not choosing a side here, and not trying to point the finger at Craig, because he’s not the only one whose made this omission.
The NFL is a juggernaut, and generate a lot of money for their owners, but a lot of other people, businesses, and municipalities (in and around these cities) benefit from having teams in these cities.
I wish I had been paid for making the same switch I know I’ve provided as much entertainment here as that pathetic football team has downtown!
To bad you can’t include the fans too.
I’m a little lost. Craig – are you saying these are bad things? I don’t think the financial decisions they’ve made have been bad at all. If they help the on field performance, then I hope for them to continue to make them.
Why?
The money brought in from ticket sales and sales tax is negligible when compared with the public funds used to build and renovate stadiums for billionaire owners. It’s always a losing proposal for every city, this isn’t news.
No, it’s not negligible. I’m sure area businesses would gladly trade their share of the public funds for the coin they make on Sundays.
LoL that’s capitalism at it’s best way to go! The Indians can use $ as a crutch but not the Cleveland Browns. If there was one team in this town who should be penalized monetarily it should be the Cleveland Browns. They owe their fans hell they own everyone who lives within 50 miles of Cleveland a refund for yet another pathetic waste of a season.
As soon as they help please let me know.
Several studies have shown that cities providing funds for stadiums always — ALWAYS — get the short end of the stick. The benefit to the local economy doesn’t even approach the millions of dollars cities sacrifice. A good place to start is here: http://www.fieldofschemes.com/
Spending a dollar to get ten cents back isn’t my idea of a sustainable economic plan. They (the city) could simply give the 10 cents to the local businesses and keep the other 90 for themselves.
Spending a dollar to get ten cents back isn’t my idea of a sustainable economic plan. They (the city) could simply give the 10 cents to the local businesses and keep the other 90 for themselves.
I suppose Haslam will have to resign his seat on the Cleveland Clinic Board of Trustees. What a smarmy hypocrite.
Haslam a year ago: “I love the Cleveland Clinic.”
Haslam today: “Hey Clinic, hit the bricks, you cheapskates. Money talks, bull**** walks. I love UH now.”
I understand that business is business. So they shouldn’t try to act like it’s anything more than that.
I suppose Haslam will have to resign his seat on the Cleveland Clinic Board of Trustees. What a smarmy hypocrite.
Haslam a year ago: “I love the Cleveland Clinic.”
Haslam today: “Hey Clinic, hit the bricks, you cheapskates. Money talks, bull**** walks. I love UH now.”
I understand that business is business. So they shouldn’t try to act like it’s anything more than that.
We all would do and say the same thing as Haslam (with regards to the Cleveland Clinic), if put in the same situation.
So the businesses don’t like it?
Outside of the Sin Tax, what funds were used? This is an actual question, not snark.
“I’ll say anything. I’ve done commercials for Coke and Pepsi. I don’t give a ____ what comes out of my mouth. I say what it takes. Whatever it takes, thats what I’m saying. If you wanna know the truth, cant even taste the difference. Surprise! All I know is, Pepsi paid me most recently so… it tastes better.”-Dave Chappelle, on Coke vs. Pepsi (seems relevant here)
The front office insists that a well run business will translate to success on the field. I am skeptical but needless to say that is all I give a damn about.
Just pointing out how much new revenue they’ve announced just in the last 12 months via deals. Not making huge judgement, really. I’ve talked extensively about the stadium deal with the city, so I don’t need to rehash that. Just thought with the UH deal, it was worth putting it all together in one post.
I’m at work so I don’t have the exact amount that is raised by the sin tax (or where the remaining percentage came from), but here’s something to consider – The Browns will have paid off roughly $70 million on the stadium when the sin tax expires in 2015. That leaves them to find about $200 million from somewhere to finish paying it off, should the voters reject the sin tax on the next ballot.
I’m sure the small percentage of local businesses in the Greater Cleveland Area that are actually near the stadium or are sports bars may benefit a little from the extra activity, for the 8 home games per year. But the rest of the local businesses that aren’t in that area are actively hurt by it. If you take the $143 the average fan supposedly spends on gameday (http://money.cnn.com/2013/09/07/pf/football-prices/), that’s $143 that’s not going to local businesses. Since studies have shown that most people spend roughly the same amount of their income each year on entertainment/recreational activities, the presence of a professional team tends to reduce the per capita income of the entire metropolitan area, since it redirects money away from local businesses to the professional franchise (owners, players, non-taxable-league, etc.). It’s Economics 101 — the substitution effect.
(You can look up Coates and Humphreys, 2004, or find a summary here: http://news.illinois.edu/news/04/1117stadiums.html. But any review of economic studies on this stuff comes to more or less the same conclusion.)
Not all of us. There are actually people who don’t run businesses in order to squeeze every last penny out of every single relationship.
I’m not doubting this one bit, but I would argue that Spending $143 on a Sunday seems better for the economy rather than ordering a $20 pizza, and watching the game at home. Sidenote: I didn’t take economics in school.
I don’t see the reason for voting against the Sin Tax.
So the Cleveland Clinic got nothing out of the partnership?
What they’re finding is that most people (either consciously, or not) spend the same total amount per year on that stuff. So you still spend all $143 of those dollars. But instead of spending them at the Browns game, you maybe get that pizza at home, go out to dinner another night, see a movie, etc. You spend the same total amount, but spread out to more businesses than just the Browns, which benefits the wages of a more Cleveland-area-based employees.
I’m the kind of person that still does those other things and spends the money in Cleveland. I believe I’m good for my local economy (Stark County area) by purchasing tailgating supplies, gas, etc. Then good for Cleveland economy buying merchandise, food, and beers on Sundays. My buddies are the same, but we also treat Sundays like mini vacations.
I believe you and won’t dispute that. But what the researchers were finding is that you’re the exception to the rule — on average, most people cap their spending at a certain amount. So if a sports team goes away (like in a strike-shortened season), instead of saving that money, most people spend it locally on other forms of entertainment. That boosts the overall local economy. On the reverse side, when a city goes from not having a team to having one, instead of ADDING to their usual entertainment spending with additional sports-team-spending (as you do), most people actually REPLACE a portion of their spending on things that go to the sports team (tickets, concessions, etc.). That depresses the local economy. If everyone behaved like you did then you’d be 100% right — sports teams would be good or at least neutral for the local economy. Unfortunately, most people just substitute their dollars.
This will be very relevant if the Browns leave a lot of cap room available again next season.
Cap room is one thing and its important tool to help create an even playing field, but actual real dollars are wildly uneven throughout the NFL and when it comes down to it, real dollars are what pay the players and coaches. Most fans are deluded into thinking that we’re magically not using all our cap room because Joe Banner just doesn’t want to. In the real world, this team is financially less competitive than most teams in the league. Some people angrily question the over the 30 million Banner left on the table instead of looking at it from a realistic perspective. If you aren’t making the money you can’t spend the money.
Being a billionaire (barely) doesn’t mean you have unlimited funds. On the contrary, after spending most of his net worth to buy the team, and burdened by escalating legal costs, Jimmy needs to save every penny he can. This should change when there’s a cap floor but until that’s enforced poor teams like the Browns were going to save as much cash as possible. Don’t be fooled into thinking extra zeros means you can spend more, its all relative to those around you and competitively, in the actual cash department, the Browns have been just as bad as their on-field play.
Let me know, too. All that profit sure helps the Cowboys, doesn’t it?
So where do these not-for-profit hospitals come up with $30 to give to a football team? Something about having a hospital sponsor a football team when it should be spending that money on patients or passing the savings to patients doesn’t sit well with me.