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Sunday, May 17, 2020

Rob Manfred estimates $4 billion loss for MLB team owners if no baseball in 2020

MLB commissioner Rob Manfred tried to put a dollar figure on baseball not being played at all this season because of the coronavirus pandemic.

Manfred told CNN’s Anderson Cooper and Dr. Sanjay Gupta on Thursday that the 30 clubs could lose about $4 billion combined if there are no games. Cooper did not follow up on how Manfred arrived at that estimate.

Manfred said teams are willing to stage games behind closed doors at the start of the season and not take in revenue from fans. MLB is estimated to be a $10 billion industry.

“Playing in empty stadiums is not a great deal for us economically,” he said. “Our owners are committed to doing that because they feel it’s important that game be back on the field and that the game be a sign of a beginning to return to normalcy to American life the way we’ve always enjoyed it.”

 

RoyalsRetro (AG#1F) Posted: May 17, 2020 at 05:14 PM | 21 comment(s) Login to Bookmark
  Tags: fake news

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   1. Russlan thinks deGrom is da bomb Posted: May 18, 2020 at 11:40 AM (#5951647)
I guess that means they make 4 billion a year under normal circumstances, about 135 million for each club every year. Something to think about when a club talks about losing money.
   2. RoyalsRetro (AG#1F) Posted: May 18, 2020 at 12:49 PM (#5951687)
Seems like that undercuts their leverage against the union in asking for further pay cuts.
   3. RoyalsRetro (AG#1F) Posted: May 18, 2020 at 02:28 PM (#5951713)
Maybe I am misunderstanding, but Manfred says they'll lose $4 billion if they don't play ANY games, even though they wouldn't have to pay any more player salaries (other than the $170M they already paid in March). But if they DO play this year and have to pay half the player salaries, they STILL stand to lose $4 billion?

Doesn't this suggest that it is not the player salaries they need to be cut, but all the other expenses instead?
   4. Karl from NY Posted: May 18, 2020 at 04:16 PM (#5951777)
Right. That's saying that fanless games would only break even *before* paying player salaries, that the stadium and operational expenses would equal the revenue. Which could be true by MLB's typically cooked books since those operational expenses probably include a lot of executive and family pay.

But he means it the other way around -- he's making fanless games sound bad in order to rally the cause and argument for fan-attended games. And he's not saying it but he has to be thinking about the whales -- having the stadium at 20% capacity is fine if that 20% do 80% of the spending on the luxury boxes and premium food and booze and all.
   5. Zach Posted: May 18, 2020 at 07:45 PM (#5951846)
Some back of the envelope math...

Say total revenues are $10B, with player salaries $5B, fixed nonlabor expenses of $4.5B, and $0.5B (5%) profit.

Tickets / concessions are ~40% of revenue, so call it $4B, with $6B from broadcasts.

Send tickets to 0 and cut broadcasts in half to get $3B in revenue. Cut salaries in half to get $2.5B and add to fixed nonlabor expenses to get $7B. $7B - $3B = $4B loss.

Send tickets and broadcasts to zero, and salaries to zero as well. Loss now equals fixed nonlabor expenses, for a $4.5B loss.

Which is more or less what Manfred is saying.

   6. Zach Posted: May 18, 2020 at 07:56 PM (#5951847)
Doing the math like this also suggests that the players don't have a lot of potential upside above the deal they've got. Using the made up numbers above, there's only $0.5B of difference between playing a half season and not playing at all. That's 10% of the normal salaries, or 16% of the reduced salaries.

So a knock down drag out fight over wages could maybe yield 15% more salary than what's on the table right now, or more likely result in no season and no salary.

Offering players 50% of revenue would give players $1.5B in salary and owners $1.5B. Subtract $4.5B to get a $3B loss.

Interestingly, that would even the pain between players and owners:

Players get $5B - $1.5B = $3.5B less
Owners get $0.5B - ($3B) = $3.5B less
   7. Zach Posted: May 18, 2020 at 07:59 PM (#5951849)
I'd say the owners have slightly more leverage right now, because their losses are almost the same ($0.5B) between having a season and not having a season, while the players lose out on $2.5B if the season is canceled.

But not that much more leverage, because canceling the season would damage relationships with fans and broadcasting companies.
   8. Cleveland (need new name) fan Posted: May 18, 2020 at 08:54 PM (#5951860)
Say total revenues are $10B, with player salaries $5B, fixed nonlabor expenses of $4.5B, and $0.5B (5%) profit.


I disagree with your made-up numbers. Players received, IIRC, 42% of the revenue last year. Draft picks and minor leaguers probably added another percent or 2, so player salaries should be $4.4B. Fixed nonlabor expenses include lots of expenses that go to 0 if no games are played like travel, field maintenance, marketing and ticketing departments, scouts etc. Most of the remaining is likely things like debt service and front office salaries (including those payed to the owners). If the players aren't getting paid, why should the front office people get their salary? So you need to drop the fixed nonlabor expenses to something like $3 - $3.5B. I would be interested how your analysis changes if you use my made-up numbers versus yours.
   9. Stevey Posted: May 19, 2020 at 09:13 AM (#5951935)
Say total revenues are $10B, with player salaries $5B, fixed nonlabor expenses of $4.5B, and $0.5B (5%) profit.

Tickets / concessions are ~40% of revenue, so call it $4B, with $6B from broadcasts.

Send tickets to 0 and cut broadcasts in half to get $3B in revenue. Cut salaries in half to get $2.5B and add to fixed nonlabor expenses to get $7B. $7B - $3B = $4B loss.

Send tickets and broadcasts to zero, and salaries to zero as well. Loss now equals fixed nonlabor expenses, for a $4.5B loss.


There is zero point zero chance that these numbers are even close to correct.

Also, much of your "fixed nonlabor expense" is "compensation to the owner and his family".
   10. Zach Posted: May 19, 2020 at 12:47 PM (#5951997)
Also, much of your "fixed nonlabor expense" is "compensation to the owner and his family".

If that were true, teams would sell for much more than they do.
   11. Ron J Posted: May 19, 2020 at 01:00 PM (#5952000)
#10 Been a while since we've had access to a team's books but I do remember that the Noll reported that a consultant with a familiar name (George Steinbrenner) was being paid a fair amount more than any of the Yankee players.
   12. Zach Posted: May 19, 2020 at 01:28 PM (#5952008)
#11 -- yes, but if I buy the Yankees, I can fire any Steinbrenners and move that consultant salary into the profit column.
   13. Mayor Blomberg Posted: May 19, 2020 at 01:42 PM (#5952011)

If that were true, teams would sell for much more than they do.

No. Combining your hypothetical numbers and #11, say that moves to $50M now, then the actual profit would be 40.55 B INSTEAD OF 0.5.
   14. Zach Posted: May 19, 2020 at 04:25 PM (#5952090)
You think baseball generates $4.55 billion a year in profit?
   15. Zach Posted: May 19, 2020 at 04:31 PM (#5952093)
Because if spending $500M on operations generates $10B in revenue and $4.5B in profit, why on earth wouldn't you scale up a bit? You're leaving money on the table!

That level of profitability is closer to a drug cartel than a major American business.
   16. Stevey Posted: May 19, 2020 at 04:57 PM (#5952103)
That level of profitability is closer to a drug cartel than a major American business.


Well, the owners do have an antitrust-exempt cartel that has huge public subsidies ...



If that were true, teams would sell for much more than they do.



We just saw some of the poorest teams sell for over a billion dollars. If teams had $0.5B in profit, or an average of $17M/team, that would be a profit multiplier of almost 60. That ain't close to whatever the real number is. A franchise worth $1B is probably generating a minimum of $50M in profit/compensation to the owner a year.
   17. Stevey Posted: May 19, 2020 at 05:04 PM (#5952106)
And, using the more accurate numbers of 10.7B in revenue, 4.2B in player salaries, and keeping the 4B that Manfred says MLB will lose as fixed expenses, gets us to 2.5B in profit, or an average of $83M/team.
   18. Zach Posted: May 19, 2020 at 07:43 PM (#5952141)
They're competing in a saturated sports and television market.

And 60 does not sound like an unreasonable multiplier for something that is often a rich man's plaything.
   19. Stevey Posted: May 20, 2020 at 02:10 AM (#5952201)
Its such a completely unreasonable number that it would get you laughed out of Finance 101.

And yes "playthings" that owners are willing to commit labor violations to keep costs down, and now shut down a season rather than lose a piddling 1/60th of the value of.
   20. BrianBrianson Posted: May 20, 2020 at 03:02 AM (#5952205)
Baseball teams are profitable under basically all circumstances short of apocolypes and can be run by drunk idiots; I'm comfortable believing people buy them at relatively small profit margins because they're the most risk-free investment you can make. Not less than say, 5%, but given they're as secure as say, government bonds, there's sense in accepting low profit to cost.
   21. Stevey Posted: May 20, 2020 at 09:25 AM (#5952227)
and can be run by drunk idiots


Maybe, but what we're seeing is teams hiring armies of quants to keep player salaries as low as possible. They're not being run by drunk idiots, they're being run to maximize profit.

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