When it comes to revenue, the Yanks are in a league of their own
Forbes released its latest Business of Baseball rankings earlier this month
The Yankees made $441 million last year, $173 million more than the No. 2 team
Every team except one spent at least 80% of their revenue on baseball operations
Forbes has its awesome new Business of Baseball rankings up. I love these numbers for several reasons, one being that, year after year, within hours of them being released, people all over baseball will gripe that the numbers are WAY off. No, they are WAAAAAAAAYYYY off. We didn't make that much money last year! Our team isn't worth that much! And so on. This ALWAYS happens. And since I have come to believe over the years that baseball people simply do not have the capacity to tell the truth about their business numbers, this bellowing convinces me that the Forbes numbers are pretty solid.
The thing I want to focus on this year is the "revenues" column of the Forbes' numbers. I have never hidden the fact that I failed out of accounting, but I was in it just long enough to learn that "revenue" is "money or something like that." So, no, I didn't really learn what it means. But, fortunately, there's a Forbes key, and that key says that revenue is the income drawn by a team "before taxes, interest and "amortization.*"
*Whatever the heck that is.
This is just a little bit different. You know, we focus a lot on team payrolls... and those payroll numbers can be pretty stark. This year, for instance, the Yankees $206 million payroll is $44 million more than any other team and at least double the payroll of 22 teams (and six times the payroll of the Pittsburgh Pirates).
But people who know a lot more about accounting and such have told me for a long time that payroll is not the issue -- REVENUE is the issue. And when you look at the Forbes numbers, yes, it does seem to ring true that salaries are driven by revenue and not the other way around... that is to say that your ticket price didn't go up because Roy Halladay got a $60 million extension, but instead Roy Halladay got a $60 million extension because of the price of your Philadelphia ticket (and all the other Phillies revenue streams -- the Phillies made $233 million in revenue in 2009, sixth-most in baseball).
According to the Forbes numbers, every team in baseball, except the Florida Marlins (who are a WHOLE other story) spent at least 80% of their revenue on baseball operations last year. There were differences in how much teams spent, sure. The percentages ranged from the Detroit Tigers (who spent 116% of their revenue -- they lost almost $30 million in 2009), to the Marlins (who spent just 68% -- the San Diego Padres are next at 80%). Seventeen teams spent 90% or more on baseball operating expenses, so at least in financial terms you would have to say that most teams ARE trying.
And, once you know how much a team spent on baseball, you can estimate pretty accurately how much they spent on payroll -- it tends to be just a touch more than half. That's about what it costs to pay for a Major League Baseball payroll. There are outliers, of course. The Cubs, using the win-now mentality that has won them so many World Series over the last 90 years or so, spent the highest percentage of their baseball money on payroll, 62.1%. That's what you get when you spend $100 million on Zambrano, Soriano, Ramirez, Lee, Lilly, Fukudome and Dempster.
And the Padres, as an example, spent only 34.2% of their baseball money on payroll... the Padres pared down payroll, as we know, and supposedly are trying to rethink they way they do things. They put more of their money into scouting and development -- this is best seen by the Padres drafting and signing of Boras client Donovan Tate last year for, by far, the biggest signing bonus in team history.
But the whole theme that some teams TRY to win while other DO NOT TRY to win -- well, even if there is some truth in that statement, it's almost certainly overblown. Let's put it this way:
If you had to pick one team out there that is TRYING to win, you probably would say the New York Yankees.
If you had to pick one team out there this is NOT TRYING to win, you would probably say the Kansas City Royals.
OK, well, last year, according to the Forbes numbers, the Yankees made $441 million in revenue* and spent about $416 million on baseball. That means they spent 94.4% of their revenue on baseball, a nice high percentage.
And the Royals? Well, they only made $155 million in revenue, and they spent about 146 million. That means they spent 94.3% of their revenue on baseball.
*According to Kurt Badenhausen over at Forbes, revenue figures INCLUDE revenue-sharing -- that is to say the Yankee revenue numbers are calculated AFTER the $100-plus million they give to revenue-sharing. And the Royals revenue numbers are calculated AFTER the $30-plus million that they took out.
So as impossible as it seems, according to the Forbes numbers, the Royals and Yankees in 2009 spent almost exactly the same percentage of available money on winning baseball games. Sure, there could be some accounting tricks involved -- I'm not clever enough to pick these out -- but even so I think this would absolutely shock most people. It shocked the heck out of me.
The truth seems to be that the Yankees are NOT spending some out-of-control amount of money on payroll. Quite literally the opposite is true. The Yankees payroll is almost exactly in line with their revenue.
Percentage of Revenue Spent on Payroll
So this is what we have here: The Yankee difference is that they make much, much, much, much, much, much, more money than any other team in baseball. I suppose everybody understands this on a gut level, but when you look at the Forbes numbers (and remember, this is AFTER revenue-sharing) you see how stark it really is:
Top Five Revenue Teams
Bottom Five Revenue Teams
Now, look at that again. The Yankees pulled in $173 million more than the No. 2 team in baseball, their city mates. They Yankees essentially made $200 million more than the Chicago Cubs. This is mind-boggling. And, of course the Yankees made about $300 million more than the bottom five teams.
Now, sure, some of this upsurge in revenue -- no team has ever made anything close to $441 million in revenue before -- is due to the new Yankee Stadium. But basically, this is a good look at reality. The Yankees are the biggest team in the biggest city. The Yankees are a global brand. The Yankees have, through their own good efforts and their various other advantages, been the most dominant sports franchise in American sports. Yankees fans will point out that the team really built up this monetary juggernaut stone by stone... and it's not their fault that other teams didn't do the same.
Well, hey, you can decide for yourself just how much of the Yankees' revenue is due to their location plus their television market and how much of it is due to their good business sense, but either way, when you actually look at the numbers you realize how ridiculous it is for Yankees fans to say that Kansas City and Pittsburgh and Oakland should just "try harder." There is no trying hard enough to make up anything close to the gap. Yes, a few teams have the resources to at least battle the Yankees advantage -- though the Mets' horror show is living proof that you can screw up with a lot of money.
But it doesn't matter how nice a ballpark they build in Pittsburgh, or how much they win in Oakland, or if they go to 3D baseball on television in Cincinnati. It doesn't matter how much they may tinker with revenue-sharing and luxury taxes... the Yankees' revenue stream is so enormous, it will give them a gigantic competitive advantage that should make them the favorites to win every... single... year. True, they won't win every single year because of baseball's quirks -- the fluctuations of age, the vagaries of a short series, the forcefulness of a hot starting pitcher, the volatile state of free agency, the overconfidence that winning breeds and so on. And there will be shifts in baseball; that's one great thing about the game. Nothing is permanent.
But it's good to look at the Forbes numbers just to comprehend what's really happening out there right now. Since the 1994-95 strike, the New York Yankees have won 57.9% of their games -- that's 94 wins per year. That's the most in baseball -- more even than the Atlanta Braves, who were so dominant for so long. The Yankees have won 100 games five times. They have made the playoffs every year but one. They have won the toughest division in baseball 11 of the 15 seasons. They have won five World Series and two other pennants, and it took a Boston miracle to beat them in the Championship Series in 2004. And still, you get the distinct impression from many Yankees fans that they feel -- they KNOW -- that the Yankees have underachieved.
You know what? The Forbes numbers suggest that those Yankees fans are right.
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