A small, but interesting, piece from baseball ownership stooge Peter Gammons, laments in advance the bad contracts that will be given out this winter.
But there's some good stuff in there, in terms of identifying what the Commissioner's office thinks teams should be spending. Gammons includes this snippet:
Here are some of the facts from the Commissioner's Office confidential memo to clubs:
- Two-thirds of the clubs were profitable in 2005. Here is the breakdown: 2000 (14), 2001 (7), 2002 (2), 2003 (8), 2004 (15), 2005 (22). And that's with the accountants breaking down the books.
- Teams are at the break-even point when 54 percent of their revenues go into payroll. The aggregate profit of clubs below 54 percent in 2005 was $265 million, the aggregate loss of the seven clubs whose payroll was more than 54 percent of revenues was $118 million.
But what's interesting about this is the Commissioner's memo with 54% of revenues as the breakeven point. The Commissioner's office is obviously going to be motivated to make that percentage figure as low as possible -- they want to keep salaries down, after all -- so that may be more of a baseline, but let's assume it is correct.
The reason why management argued earlier for a 55% figure is that baseball teams generally don't generate positive cash flow. They are good investments because they appreciate dramatically in value despite even a negative cash flow -- even if ownership is showing a loss year-in, year-out, they generally make that money back, plus a very healthy profit, when they sell.
So we can use the Commissioner's 54% figure as a baseline for what a responsible owner should spend on payroll for his team.
So, what are Rangers revenues?
We know that they got about $40 million this year from revenue sharing, the national TV deal, money from baseball's central fund -- the stuff every team gets -- plus the naming rights to TBIA.
What about the rest? Well, after the 2001 season, BP's Doug Pappas had an eight part series that broke down what MLB reported each team received. Yeah, the numbers are four years old, but it gives us something to work with...
Per BP, in 2001, the Rangers got $50,664,000 in attendance revenue, $25,284,000 from local media deals, and $34,561,000 "other local operating revenues" -- parking, concessions, luxury boxes, etc.
That's a total of $110,509,000 -- in 2001. Let's be conservative, and say that, over that four year period, those revenues have increased only 10% -- about 2% per year. That would mean that, when added to the $40 million the Rangers got from MLB and naming rights in 2005, the team brought in about $160 million in revenues.
Now, if we apply the Commissioner's formula, a team with those revenues should be spending $86.4 million on payroll -- or about $30 million more than what the Rangers spent on payroll last year.
So let's remember that when Tom Hicks talks about the need for "financial flexibility" and staying within a reasonable budget.
This is a team that should have a payroll in the mid-$80s. This is a team that, if the owners had been successful in pushing through a salary cap in 1994, would have likely have been required to have had a payroll in the mid-$80s.
The fact that they don't is a reflection of Tom Hicks' stewardship of this team.