Changes Coming as MLB Claims $3.1B in Losses, Cubs Among Those Shifting Scouting Model
When someone is quick to offer you information that paints them in a very positive or sympathetic light, particularly if they go on to repeat it frequently without prompting, you tend to sense they’re feeding you a line. Like how Major League Baseball and its owners so readily discuss their industry as though it’s some non-profit charity that seeks only to entertain the masses with very little opportunity for financial gain.
That idea was central to the league’s proposals to players for the 2020 season, as owners tried to convince everyone that they really don’t make much money. To that end, a league official told Evan Drellich of The Athletic that the league generated only $3 billion in revenue this season against $6.1 billion in expenses. What’s more, MLB claims it had expected to operate at a loss even without the pandemic, with costs of $10.2 billion and revenues of $10 billion.
Such figures are questionable enough on their own, but what makes them really interesting is that MLB took in $10.7 billion in revenue last year and entered 2020 riding a 17-year run of increasing revenues. I find it hard to swallow the projection of nearly a billion-dollar drop, particularly when the league just inked a new broadcast-rights deal with Turner Sports that will net $3.7 billion through 2028. That comes out to $535 million annually, a 65% increase over the previous deal that paid $325 million per year.
If I didn’t know any better, I’d say it’s almost as though a cadre of billionaires has both the motivation and the means by which to obfuscate baseball’s fans and labor force. But surely they wouldn’t be engaged in any sort of creative accounting, like when they claimed back in May that EBITDA — earnings before interest, taxes, depreciation, and amortization — has been within $250 million of break-even in every year since 2010.
“Anyone who quotes profits of a baseball club is missing the point,” Paul Beeston, a former Toronto Blue Jays executive and former president of MLB once said. “Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss, and I can get every national accounting firm to agree with me.”
Setting aside the obvious impact of the pandemic, specifically when it comes to playing in empty ballparks, MLB and its clubs crying poor is nothing new. Then-commissioner Bud Selig testified before Congress in 2002 that baseball had an operating loss of more than $200 million in the past season and that only two teams had made money over the previous five years. That ran directly contrary to Forbes’ calculation of a $75 million operating profit in 2001.
Though we’re talking about figures from nearly two decades ago, owners and league execs are still singing the same song to downplay the amount of money they’re making. As Forbes laid out in a piece titled “Is Baseball Really Broke,” there may be some questionable inclusions among the reported losses.
Why the difference between our figures and the MLB’s? For starters, MLB includes “non-cash” charges in its cash flow numbers. Specifically, the league subtracts ballpark depreciation expenses. For teams that finance their own stadiums, like the San Francisco Giants and Detroit Tigers, ballpark depreciation runs over $5 million per team annually. Another reason why MLB reports big losses is it inflates losses at the minor league level by including all expenses, but not including revenue from affiliates.
And as Drellich wrote, MLB and club financial numbers “never include the money owners make from ancillary revenues, such as their stake in regional sports networks.” Since those books are sealed up tight, there’s no way to fully verify or refute their claims. Except there does exist one pretty solid string of evidence to prove beyond a shadow of a doubt that baseball is a profitable enterprise.
Even as team values keep going up, billionaires keep tripping over one another to buy those teams when they come up for sale. Wall Street tycoon Steve Cohen recently agreed to purchase the Mets, an absolute laughingstock of an organization, for $2.4 billion. And while you could just chalk that up to a wealthy playboy looking for a shiny new toy, it’s harder to explain away the presence of multiple former MLB execs in group trying to land an expansion team in Nashville.
Do you really think people who’ve been involved in the game at upper levels of team and/or league management would put up the kind of scratch it takes to start a new franchise if they weren’t absolutely certain to rake in profits?
Not that it really matters, since the reality of the situation is that the Cubs laid off over 100 employees this season and other teams will be doing the same. The losses are being felt on both the business and baseball sides, with those working in ticket sales hit particularly hard simply because they couldn’t sell tickets this season and don’t know when they’ll be able to do so again.
Scouting is another area being hard by the sweeping changes, with the Cubs joining teams like the Astros and Orioles by transitioning to a more video-based model rather than traditional live assessments. These teams say they believe it’s a matter of adapting to new technology, but it feels like an immediate cost-cutting measure at the possible future expense of more holistic talent evaluation.
As much as I favor the newer metrics and high-tech analysis available today, there’s no way to replace some of the old-school methods of getting to know a young player and seeing who they are as a person. Who knows, though, maybe the continued advancement of our ability to connect remotely will bridge the gap between technology and humanity.
What it all comes down to is that Major League Baseball is a multi-billion-dollar business being presided over almost exclusively by ruthless businessmen and lawyers. Rather than trying not to lose money as they claim, it’s about trying to make as much money as possible. So if there’s a way to squeeze the same profits out of a smaller payroll, you can be damn sure teams are going to find a way to do just that.
“I think there’s a real split between baseball-side leaders and business-side leaders,” said another decision-maker. “Where business-side leaders see the baseball side as an expense, and then when you win, they share the glory, but when you lose it’s your fault and in the meantime, it’s just an expense. I think they see the proliferation of jobs on the baseball side as largely unnecessary.”
Sounds a lot like the Cubs, huh? And pretty much every other team out there, if we’re being honest. I’m not sure whether that makes it better or worse, but I suppose coming to terms with the sport’s monolithic nature does actually help. Hate the business, love the game, at least until the former completely overshadows the latter.