Diamond economics

Baseball owners have mastered shrewd accounting practices

Good news, Red Sox fans: Your beloved franchise is guaranteed to blow away an all-time baseball record this season, whether it pulls another September fade or wins its first World Series since Babe Ruth was sold to the hated Yankees.

Something juicy like team home runs or come-from-behind wins? Probably not.

See, no matter what happens on the field, the Sox appear destined to chalk up the highest ever losses in sports history. The financially strapped Los Angeles Dodgers, if you trust the characterization, set the mark last season, reporting losses of $69 million -- $30 million, alone, in tax write-offs.

You may recall the Red Sox were just sold to a group led by John Henry for a record $700 million, after true free-agency bidding. But right off the bat, Harvard law professor Paul Weiler predicts first-year losses of at least $70 million, making Henry either a shrewd cookie or valedictorian of the Enron School of Economics.

Weiler puts the ex-Florida Marlin boss in the smart cookie mix, like the whole gang of baseball owners. The good professor doesn't side with either camp in baseball's latest labor dispute, though he has a vested interest as a Red Sox season ticket-holder for almost 25 years. Yet he claims the Red Sox, Dodgers and every new ownership group the last three decades has inherited a "legal bonanza.''

Average Player Salaries
	$4.2 million
	$2.25 million
	$1.5 million
	$1.2 million

What he's talking about is a tax law allowing owners to depreciate their players over a five-year period, as if they were farm equipment. The total is 50 percent over the time span, and so the annual depreciation in the value of the team is routinely written off on financial records. "This legal rule was actually generated by a major tax law victory won by Bud Selig in his former baseball role, as a new owner when Selig bought the Seattle Pilots for $11 million in 1969 and moved them to his hometown of Milwaukee,'' says Weiler, author of Leveling the Playing Field. "It was a terrible legal verdict that was won by a guy 30 years ago in a different world.''

So, when the Commissioner Selig goes to Washington these days claiming baseball losses of $519 million, be forewarned that about $175 million is amortization and another $110 million is due to interest payments on debt. And almost half of baseball's losses are from four teams owned by media companies, among them AOL-Time Warner, whose properties include the Atlanta Braves and CNNSI.com.

Consider the numbers posted after the L.A. Dodgers sold for $311 million to Rupert Murdoch in 1998. The club reportedly lost more than $100 million the last two seasons, including $69 million last year despite drawing 3,000,000 fans and generating revenues of $143 million.

The game's third-highest payroll of $116 million was a huge factor, particularly since the team spent $4 of every $5 on player salaries.

But perhaps as telling, the Dodgers generated broadcast rights worth a very modest $27 million, far below market value. It seems the rights were "sold'' in-house to Fox cable, another branch of the same entertainment conglomerate, Murdoch's News Corp.

League Gap in Salaries Top-to-Bottom Teams (2000) NFL Top 3 $87 million Bottom 3 $56 million Top-Bottom Ratio 1.55-to-1 NBA Top 3 $80 million Bottom 3 $30 million Top-Bottom Ratio 2.67-to-1 NHL Top 3 $60 million Bottom 3 $21 million Top-Bottom Ratio 2.85-to-1 MLB Top 3 $111 million Bottom 3 $31 million Top-Bottom Ratio 3.6-to-1 Source: Harvard law professor Paul Weiler, author of "Leveling the Playing Field

Why have Fox financially benefit at the expense of the Dodgers?

"Because you don't have any revenue sharing amongst CNN, Fox and the other broadcast companies,'' Weiler offers. "You have revenue sharing, though, amongst the Dodgers, the Angels, the Braves and the other franchises. That is the reason.''

Despite evidence to the contrary, Weiler swears the industry has flourished recently, citing the surge in revenues that have helped dramatically hike franchise values. The sale price for his hometown Red Sox, he says, went from $14 million to $700 million in the last 25 years. Of course, the average big-league salary is now $2.25 million, a whopping 76 times the average worker's paycheck.

And so, the four lower box seats he paid $8 each for in 1979 -- and occasionally shares with Harvard colleague Alan Dershowitz -- will run him $60 apiece this summer at Fenway Park, perhaps the priciest ticket in baseball. But Weiler isn't pointing fingers at the owners or players, instead saying a significant factor is the growing appeal of the game and the monopoly enjoyed by the Red Sox, a large-market club with just 33,000 seats to sell.

The real shocker is Weiler believes baseball's two sides can still reach a peaceful settlement. First, he says, the owners need to end the contraction talk and move the Montreal Expos to Washington or its suburbs, but not before working out a deal with Baltimore Orioles owner Peter Angelos for the loss of his regional territory.

Finally, the players and owners have to move toward a payroll standard system, one with both a ceiling for teams like the Yankees and Arizona Diamondbacks and also a floor to prevent frugal owners from dumping pricey players and pocketing the money.

That's all fine, except the professor overlooks that neither side trusts the other enough now to agree on what day it is, let alone financial numbers.

Mike Fish is a senior writer for CNNSI.com.

Comments? To e-mail Fish, click here.

 

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