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What’s a Few Million Dollars Among Friends?

Reader LynchMob points out that according to Forbes, the Padres had the fifth highest operating income in 2009. Well, color me surprised.

Michael Ozanian and Kurt Badenhausen have been publishing this report for several years (Badenhausen discusses their methods with Biz of Baseball’s Maury Brown). Here are operating incomes of National League West teams for each of the past five years:

            2010*    2009     2008     2007     2006     Total
Team       $M Rk    $M Rk    $M Rk    $M Rk    $M Rk     $M Rk**
Dodgers  33.1  4  16.5 17  20.0 14  27.5  2  13.4 18  110.5 11
Padres   32.1  5  22.9 11  23.6 10   5.2 29  13.0 19   96.8 14.8
Giants   23.5 11  22.9 12  19.9 15  18.5 15  11.2 20   96.0 14.6
Rockies  20.1 13  24.5 13  26.2  8  23.9  6  16.3 15  111.0 11
D'backs  -0.6 29   3.9 26   5.9 26   6.4 28  21.8  9   37.4 23.6

*Year report was issued; numbers are for previous year. Click column head to view report at Forbes.
**Average rank, reports issued 2006-2010.

In case you’re wondering, the Florida Marlins have had the highest operating income in MLB in three of the past four years (finishing second to the Washington Nationals in 2008). The Detroit Tigers have finished last each of the past two years (and it hasn’t been close), taking over for the New York Yankees, who pulled up the rear in 2008 (the Boston Red Sox were second-to-last that year). Basically, the Red Sox and Yankees are paying for the Marlins to exist, which doubtless makes Jeffrey Loria very happy.

Here are total values for that same period:

           2010    2009    2008    2007    2006    Total
Team      $M Rk   $M Rk   $M Rk   $M Rk   $M Rk    $M Rk
Dodgers  727  4  722  4  694  4  632  4  482  4  3427  4
Giants   483  9  471  9  494  8  459  7  410 11  2317  8.8
Padres   408 15  401 16  385 19  367 16  354 14  1915 16
Rockies  384 19  373 20  371 21  317 22  298 20  1743 20.4
D'backs  379 20  390 19  379 20  339 21  305 19  1792 19.8

Disclaimer: Financial stuff is not my beat. I hesitate to offer interpretations of these numbers but thought you might find them interesting. Maybe someone smarter than I am can make sense of all this or at least lend me a tin foil hat when the conspiracy theories start to fly.

* * *

Meanwhile, back at the Internet…

Boom shakalaka…

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10 Responses »

  1. Too bad that a team that made more money than the Yankees last year couldn’t afford its best player…

  2. Um, Steve, we didn’t make more money than the Yankees.

  3. I guess I should note that I said that tongue-n-cheek before I get a big long response about how not all revenue is considered in this analysis and how it does not account for stadium debt, etc.

  4. A few interesting things pop out from the Forbes article:

    1) The numbers are a little overstated, because they are BEFORE taxes, interest, amortizations, etc. Basically, it is just revenue minus direct expenses.

    2) The Padres have a decent bit of debt (half their value!).

    3) I view it as a good thing. While I would obviously love for them to grow payroll a bit, if you look at the total revenue, it’s not a particularly high number, so the Padres are successfully controlling cost. If you look at a lot of the teams with higher revenues (and payrolls), you’ll notice that most of them aren’t as profitable as the Padres.

    4) While it’s a lot more complicated than straight addition and subtraction, re-signing Adrian would have cut the team’s profit approximately IN HALF (assuming he signed in the $15-20 mil range). Put another way, does anyone think bringing back Adrian back would have driven revenue up enough to cover that gap? From a pure business standpoint, trading him was the best option. And, that money was basically immediately re-invested in a new middle infield, CF and bullpen arms (I know there were trades, but players needed to be signed to replace those that were shipped off… though why did one of them have to be Chad Qualls?).

    Taking my business hat off and putting back on my trusty (and dusty) Padres hat, I wish they had kept Adrian around, but at least the team is financially stable.

  5. Three things to keep in mind about these numbers:

    1: The books are closed. All of theses numbers are estimates.
    2: Operating income is earning before interest and taxes. A team with a high level of debt service needs that same level of operating income just to be cash flow neutral.
    3: The Padres debt consists mostly of non-callable bonds. This means that they have an extremely large interest-only loan with a 100% balloon payment somewhere on the horizon. A prudent business would be stockpiling cash, for that day.

  6. Geoff,
    Those are the numbers for the 2009 season. That article came out in April.

  7. What I find particularly interesting is the strategy used by different teams to make money. Teams like the Padres and Marlins are going for the high year-over-year income. Teams like the Red Sox and Yankees instead are willing to have no income year-over-year, but their franchises grow in total worth after they consistently win. My Grandma always said, “there’s more than one way to skin a cat.”

    The Padres have apparently decided it is too risky to spend ridiculous amounts of money in an attempt to “grow” the “legend” of the franchise and thus increase the value of the franchise. This makes sense if the team believes that no matter how well it performs, the total possible market for the franchise will never be enough to justify spending more money. This helps to explain why small-market teams don’t spend more money.

    My hunch is that the Padres pocket a few seasons of revenue, until the new ownership is able to comfortably take over. Then, slowly increase the spending indexed to the operating income year-over-year. Only question is, what is the Padres magic number, i.e., will they be happy with $10/$20/$30 million year-over-year?

  8. @Steve: Hey, I thought it was funny.

    @Russell: Correct. Still interesting, though.

  9. GY … thanks for this posting … I think it’s good for all of us to keep this perspective of the big picture in mind … and thanks to the commenters here who broaden the perspective!

    One question I have is, what does “total values” mean??? The first table is “operating income”, and I understand that … but the second table is “total values” … which doesn’t tell me what the values represent? Is it “revenue”? I’m missing something … hope it’s not obvious …

  10. In reading Peter Friberg’s analysis of the Padres’ starting pitching, I was gratified that he thought more highly of the staff than Bleacher Report, who rated them 21st. One thing stuck out though. He managed to mention Clayton Richard, Wade LeBlanc, and Cory Luebke without ever mentioning that they’re all lefthanded. It doesn’t matter anymore?