Do Be Careful What You Wish For (if the Atlanta Braves are to be Sold)

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Aug 23, 2015; Houston, TX, USA; General view of Minute Maid Park during the game between the Houston Astros and the Los Angeles Dodgers. Mandatory Credit: Troy Taormina-USA TODAY Sports

Doing the Math

For example: Jim Crane, the Astro’s owner, is worth approximately $2 billion. His team is worth $800 million, according to Forbes. They also peg his annual revenue at $175 million. However…

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He has a substantial debt that he’s paying off from the prior ownership… roughly $270 million.
Though the team is valued at $800m, that’s not money he can spend.
Bottom line: Forbes suggests that their ‘Operating Income’ – revenues before taxes, interest, etc. – is only $21.6 million.

So why doesn’t Crane spend that $20 million on the team? Well… he is, actually:

"Since Crane purchased the Astros, the team has renovated the Diamond Club, main concourse and Mazda Club Level, installed a new sound system, refurbished the players’ clubhouse and installed new grass on the playing field, according to the release."

But moreover, there are other changes to the Astros’ stadium on the drawing board:

"The removal of Tal’s Hill and renovation of Minute Maid’s center field is a $15 million project, according to the release. Pricing for other aspects of the renovations were not released."

Things like this are part of the deal with being an owner – it’s not just about pumping cash into the major league team. There are lots of additional expenses.

Back Home Again

Similarly to Minute Maid Park’s issues, recall that the Braves cited maintenance on Turner Field as one reason for pulling the plug on that venue… an annual cost that the team ultimately decided to pour into a new facility. Note also that International player development has now become “a thing” that teams are having to budget more monies for. Player costs in general continue to rise. Costs are continuing to escalate across the board… essentially chewing up increases in revenues that have been obtained from MLB, Network, and local TV sources.

Even the planning for SunTrust Park required details that increased some costs up front – for the purpose of helping out the fans:

"There was about a 70-foot elevation change from one side of the project to the other when we first started. How we were going to lay out the village on that topography was really interesting. At one point, it was an Italian village kind of thing kind of cascading down. By the time we got through with all of the retail development professionals, we flattened the whole thing. It cost us a lot more money to take out all the rock. (Braves CEO Terry McGuirk)"

This isn’t about being an apologist for Liberty Media and their handling of the Atlanta Braves, but it is intended to be something of a reality check.

All that said, there is an end to these means: Terry McGuirk believes that the Braves will be able to get back into that Top 10 in payroll… and should start heading for that goal in 2017 as he told the Atlanta Business Chronicle 2 weeks ago:

"ABC: Can we expect to see a top 10 payroll team? TM: I think that’s where we want to be. I think we would expect ourselves to be. The proof is in the pudding. We have to have all of this coalesce and work. Our confidence level is so high that it’s as close to being in our plans as we can get it right now as far as our operating plan and how everything we are doing. ABC: When can we expect to see the Braves in the top 10 in terms of payroll? TM: I won’t give you a timetable, but you will start seeing major jumps 1/1/17."

But note this from McGuirk as well, from the same interview:

"We’ve never really lost money with the Braves. Baseball is not a widely profitable business. If you took all of the free-cash flow of all of the 30 teams, it’s pretty much zero. That’s sort of a fairly well known fact. If you actually, do have free cash flow, you’re among a minority. We have always managed the team to at least break even on free cash flow or make a little. Sometimes we’ve made more than a little. But, that puts in a minority in this business."

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What does that mean?

It means that baseball operations are more a labor of love and not a profit-generating business. Some owners will choose to spend more – and that will come with the price of actually losing money in the process.

Not everyone does that. No everyone has the means to do that. And as stated before, that’s clearly not a sustainable business model. That’s exactly why when we as fans clamor for another owner to show up with an open checkbook, we should really be cautious. ‘Rich people’ didn’t get that way through frivolous spending. Most of them got there by being smart about business. That’s why when I suggested Jim Kennedy as a possible buyer for the team, I was looking for someone with a net worth well beyond the expected sales price and someone with assets well beyond that who could add more to the team (as Ted Turner did) as might be needed. But as we have seen… such owners do not grow on tress.

So be careful what you ask for: like Forrest Gump’s box of chocolates, you never know just what/who you might get. If the team is sold, you might end up wishing to have Liberty Media back.

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