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Baseball's shell game
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December 7, 2001: 5:05 p.m. ET
Financial data show teams owned by broadcasters shift revenue.
A twice-weekly column by Staff Writer Chris Isidore
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NEW YORK (CNN/Money) - As if Enron Corp. wasn't enough proof why you can't trust all the financial numbers you read, now comes baseball Commissioner Bud Selig claiming the game is losing an unprecedented amount of money even as he admits it has never been more popular.
In Congressional testimony Thursday, the commissioner dismissed as "nonsense" claims from the union and other critics that his economic data showing $344 million in operating losses were not complete.
But you don't have to look any lower than the second line on the commissioner's spreadsheet -- local television, radio and cable revenue -- to question the legitimacy of the league's numbers, and its arguments for such significant financial help as concessions from the players, the closing of two franchises and the continuation of an exemption from antitrust laws.
Simply put, the teams that have common ownership with their primary broadcasters are choosing to take significantly lower than market prices for those broadcast rights. They're letting the broadcast units of the corporate family book the larger profit, and leaving larger losses in place for the team itself.
The biggest money loser -- at $68.9 million last year according to the league data -- is the Los Angeles Dodgers, which is owned by Fox Entertainment Group Inc. (FOX: Research, Estimates), whose Fox Sports Net unit has local broadcasts for the overwhelming majority of the league's teams, including the Dodgers.
The Dodgers play in the No. 2 media market in the country, only about 20 percent smaller than No. 1 New York. But the team reported less than half the broadcast revenue of the New York Yankees and only 60 percent of the rights package for the Yanks' cross-town rivals, the Mets.
More incredibly, the Texas Rangers' broadcast revenue is only about 7 percent less than the Dodgers', despite playing in a market that is far less than half the size of Los Angeles. The Rangers' broadcast partner? Fox Sports Net, of course.
In Chicago the Chicago Cubs are not only more popular than their cross-town rival White Sox, they have the advantage of putting their games on WGN's cable superstation for national distribution. WGN is owned by Cubs' owner Tribune Co. (TRB: Research, Estimates). Yet the Cubs are reporting 22 percent less broadcast revenue than the White Sox.
The same questions can be raised by the numbers from the Atlanta Braves, owned by AOL Time Warner Inc. (AOL: Research, Estimates), as is cable superstation WTBS, which carries its games. AOL also owns CNN/Money. The Braves, which have made it to postseason every year since 1991, posted broadcast revenue of just under $20 million, which put it just ahead of the revenue for the Detroit Tigers, next on the broadcast revenue list, which has had far less on- and off-field success than the Braves in the last decade.
Spokespeople for the league and the various teams and broadcasters said they couldn't comment on the rights agreements, or did not return phone calls seeking comment.
But the reason for playing these games with the rights is far more than a desire to bolster the argument that baseball is in financial distress -- it's to keep the other owners from digging deeper into those teams' pockets.
Each team has to kick 20 percent of net local revenue into a pot which is then split among all 30 teams. The league's 16 richest teams gave the other 14 a total of $166.9 million this past season.
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Baseball Commissioner Bud Selig, shown here testifying before the House Judiciary Committee Thursday, released financial data that raised as many questions as they answered. | |
If the teams owned by their broadcasters keep their revenue down, they keep their profit sharing payments down. If the Dodgers had a broadcast rights deal at even 80 percent of the value of the Mets' deal, rather than 60 percent, it would have cost the team nearly $2 million more in revenue sharing payments.
Bob Starkey, a financial advisor to Major League baseball, said that there is an audit conducted annually on all these transactions between the teams and their corporate parents for purposes of assuring that revenue if fairly accounted represented and distributed. And he said that the audit, which includes an examination of comparable broadcast agreements, has made adjustments in payments in the past. But he confirmed the numbers released Thursday are not audited and do not include that examination.
The other two interesting facts in the financial data released Thursday are that despite talk of skyrocketing player salaries, player payrolls equated to only 55.5 percent of the league's overall revenue, not a huge jump from the 53 percent figure from 1996 through 2000 seasons, and less than the 67 percent figure in 1995, the first year of the current labor contract.
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Of course it looked slightly worse than that when the spreadsheet on baseball's Web site included benefits costs along with the more commonly listed cost of salaries, which raised the total by 8 percent.
Also, despite Selig's statement that two teams need to be closed to help the league's finances, team losses would not have been noticeably smaller if the league had two fewer teams.
If the two most discussed candidates for contraction -- the Minnesota Twins and Montreal Expos -- had been eliminated before the start of the 2001 season, it would have raised the revenue sharing payments of each team by an average of only $3 million, or a fraction of the cost to each team in the league from closing those franchises. 
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