2013 payroll / flexibility

[torts]

The Brewers have an internal budget of around $85MM for 2013, a significant drop from the team's record $101MM payroll from 2012, Tom Haudricourt of the Milwaukee Journal Sentinel writes. The drop has been attributed to management's desire to retain flexibility for future moves and an unwillingness to spend on what the Brewers felt was an overinflated pitching market. Haudricourt hears from a source that the Brewers "lost several million dollars" in 2012

 

Read more at http://www.mlbtraderumors.com/#ELPM6GcucgVLReCi.99

 

 

so this is pretty interesting, I think, and I really like the fact that they didnt pull the trigger on any of the FA SP arms out there. currently payroll is at $76 million, they've already sold a million tickets for the season, almost as quickly as they did last off-season when they still had Greinke and Marcum coming off a playoff run.. maintain the flexibility in payroll to add in the summer if needed, and if not, keep that space to extend players this fall, or sign some other FA players if they dont.

 

also, HighandTight lost his prediction, and I won my bet.

[JimH5]

I'm disappointed that they lost money last year. I don't know how much more they can get from fans. Ticket prices, parking, merchandise, concessions. . .there isn't a lot of missed opportunity there. I would think the key is in the local tv & radio money, and I just don't know where that can go, unless they plan to do their own network.

 

So if the max they will be able to spend in the future is up around $90MM, that doesn't bode well as the Cubs & Cardinals have more room, and neither of them seem to be spending foolishly.

[umphrey]

I'm disappointed that they lost money last year. I don't know how much more they can get from fans. Ticket prices, parking, merchandise, concessions. . .there isn't a lot of missed opportunity there. I would think the key is in the local tv & radio money, and I just don't know where that can go, unless they plan to do their own network.

 

So if the max they will be able to spend in the future is up around $90MM, that doesn't bode well as the Cubs & Cardinals have more room, and neither of them seem to be spending foolishly.

 

Make the playoffs

[RobDeer 45]

I like what they are doing. I think we need to opperate more like this. Rely on young guys and keep the payroll down and when you are in a situation to win, make short term moves that don't hurt the future, to help boost that. I'm sometimes torn between always being competitive or going for it, then having to rebuild. I think I like steady but I don't think I'd change what we did a few years back, going for more. It was an amazing run.

[Warning Track Power]

Being in a small market, I will be happy if the Brewers can consistently win between 80-85 games, with the occassional push to the low 90s and a playoff appearance every 3 years or so. To me this is the reality of the current economics of baseball and being in a small market. Even with the presence of the equally small market Reds and Pirates, we are likely not to be able to overcome the spending power of the Cubs and Cards without an incredibly saavy front office like the Rays.

 

However, even wishing for the Rays type of saavy is difficult for me given the immense turnover on the roster every few years. I love continuity. I would have preferred to have Braun, Weeks, Fielder, Hardy & Hart comprise 5/8 of the starting lineup for a decade. Not because they all were HOF or the best at their positions, but because I long for the days when the economics allow for the Brewers to be rewarded for a few years of excellent drafting. I know this is unreasonable in the current marketplace but there is nothing like rooting for a team of homegrown players.

[Roderick]

The Brewers have an internal budget of around $85MM for 2013, a significant drop from the team's record $101MM payroll from 2012, Tom Haudricourt of the Milwaukee Journal Sentinel writes. The drop has been attributed to management's desire to retain flexibility for future moves and an unwillingness to spend on what the Brewers felt was an overinflated pitching market. Haudricourt hears from a source that the Brewers "lost several million dollars" in 2012

 

That $101M looks like the preseason salary. But you save money on Greinke, use money on injury and Sept callups - maybe our true player costs were in the high $90M area. So if we lost "several" million, maybe our breakeven payroll around the low $90M. Sound right?

[brwrsfan]

I would love to see in the books how they possibly lost money last season. I just don't buy it honestly.

[JimH5]

I would love to see in the books how they possibly lost money last season. I just don't buy it honestly.

 

Was that the first year of the new videoboard? Didn't they do some other improvements to the stadium? Might they have paid down some debt?

 

Attendance was down from 2011, and there was no postseason, so I can see how revenue would have been down.

 

Not sure about revenue sharing or what they did on the expense side.

 

I would more trusting in the info if the source had been named, or if they had an explanation, but even without that, it seems plausible.

[torts]

payroll was higher, attendance was down, 2nd year of the scoreboard, they had to enshire Uecker, i mean, it all adds up

[JohnBriggs12]

I would love to see in the books how they possibly lost money last season. I just don't buy it honestly.

 

Seriously? Attendance was down. Salaries were up. Other costs were likely up too. How are you having trouble with that?

[brwrsfan]

This is from after the 2010 season. Our attendance that year was less than it was in 2012, and ticket prices were slightly higher in 2012 than they were in 2010. In this article, Forbes estimates that our operating revenue was $179 million. Player expenses that year were $100 million. MLB Payroll was approximately 14 million higher in 2012 than 2010.

 

So at the very least, our revenue last year was equal to that, and in theory, slightly more as prices across the board for tickets, parking, concessions, etc have gone up. Even if you assume all players costs in the system reached $120 million, that still leaves at least $59 million left over. I realize there are other expenses, but that still seems like an extraordinary amount of money. Even with debt, cost of scoreboard, etc....still seems like a stretch to me to think that they lost several million dollars.

 

It's certainly possible they did lose money, but I would just love to see the financial reports proving it. And if it really is true, it means the Brewers are in big, big trouble going forward as salaries are just rising and rising and rising and we apparently can't go above $90 million without losing any money.

 

http://www.forbes.com/lists/2011/33/baseball-valuations-11_Milwaukee-Brewers_337147.html

[logan82]

I'm disappointed that they lost money last year. I don't know how much more they can get from fans. Ticket prices, parking, merchandise, concessions. . .there isn't a lot of missed opportunity there. I would think the key is in the local tv & radio money, and I just don't know where that can go, unless they plan to do their own network.

 

So if the max they will be able to spend in the future is up around $90MM, that doesn't bode well as the Cubs & Cardinals have more room, and neither of them seem to be spending foolishly.

 

Make the playoffs

Doesn't' matter when they are locked into a contract right now. That only provides leverage if you can negotiate.

[owbc]

A 100 million payroll is huge for the smallest market in baseball. It's amazing to even come close to breaking even with that kind of payroll. There is a long list of other expenses: taxes, interest, staff wages, minor leagues, and so on.

 

That being said, the value of the franchise has doubled since 2005. So ownership is more than happy to operate a little in the red if it means that the Brewers continue to have success. It's good that they max out their spending and don't pocket the profits like a number of other owners.

 

It's just puzzling that people continue to advocate for more spending this offseason when there isn't anything useful to spend it on. The money doesn't disappear if they don't spend it, they can pocket it for next year. And more spending does not equal more wins: the $105 million payroll Brewers didn't make the playoffs.

[brewcrewdue80]

Like the post above.^^^^

I fully agree. Lousy FA this year to prices. The folks that get upset the team doesn't reach or exceed 90Mil payroll I'd say likely have a budget problem/spending problem in their own personal lives. Just because you have money doesn't mean you have to spend it today, now, no saving up?!!

Put it this way. 75-80mil for this year/next and potentially a payroll of 110mil for the next two seasons to me is the same as 90mil a year over 4years. As a small market, I think pushing for a playoff run every 5years vs. trying to compete for playoffs year round will result in a better run that 5th year and more success of achieving said playoff run than the fall-off of failing to reach it every year having players overspent on for 2-4more years who are aging and underachieving.

 

As Milwaukee fans, we need to remain level-headed and accept that Playoff teams aren't the norm. For all the TB Rays love on how they are run they only have 1more Playoff appearance than the Brewers in the last 5years. Can we attribute most of TB's success on 10 straight years of basically .400 ball and the subsequent high draft picks? Draft Compensation picks? They abused the acquiring players on their last year of contract just to get the compensation picks when they left via FA. They had 10 of top 60picks 2011!

For me as a fan, I hope for 2-3Playoff appearances every 10years which they've achieved since Selig sold to Mark A. With the added WC I may consider 3-4Playoff appearance in 10years. I really just want 1 strong Playoff team in 10years. 1 team that realistically can go to the WS and win it. I'll trade that vs. 4-5 appearances in 10years on teams that are basically 3/4th best in the NL and never make it to the League Championship Series. Yep, I'm a quality over quantity guy

[brwrsfan]

Like the post above.^^^^

I fully agree. Lousy FA this year to prices. The folks that get upset the team doesn't reach or exceed 90Mil payroll I'd say likely have a budget problem/spending problem in their own personal lives. Just because you have money doesn't mean you have to spend it today, now, no saving up?!! quote]

 

I take offense to this....just because I feel that a professional sports team (with fans and fan expectations) should do everything in their power to win and if possible, spend some money to put a quality team on the field doesn't mean that I personally have financial problems. There's a pretty big difference between my life and finances and those of a professional sports franchise.

 

That being said, I'm not saying just throw money at guys simply to reach a specific number payroll wise, but I do feel there were some guys out there that could have helped us (there still are IMO) but we didn't want to spend the money.

 

As far as saving goes, sure, if we would save the 15 million or so we weren't spending this year and use it next year, that's perfectly fine...but there is no guarantee that will happen. Mark might just keep the money himself if he wants, he has no obligation to take the "savings" and splurge on a future date. Sure, his track record indicates that he will, but you just don't know.

[brewcrewdue80]

Not meant to offend, the comment wasnt directed at any one individual. More that is exactly the type of thinking I see going in to the rationalization that if the team can operate with a 90-100mil payroll, then it must operate at it.

 

It's something that in seeing those who want to extend Hart to play 1b and 15mil/yr seems like a good deal. I don't see Hart, aging, as a player to invest any more than 13mil a year but since there's the tv deal in place more revenue 15mil seems okay just because it can be afforded? That's what I seen in this year's FA signings, at least a bunch of them. Guys I wouldn't pay 10 mil or more for getting over 10mil. Some of it, I think is with the excess of money coming to teams from the tv deal seems to justify spending more of it on one individual player just because. Folks want to compare how great Rays are run yet how many bulky contracts do they have? Answer: none currently. Longo is a Franchise player. Price is in Arby pay. Your next is Yunel Escobar at 5mil, whom they traded for. There's not one FA signing of any significance on that team. And I know TB has a lower expected Payroll as a club than Milw but Milw isn't that far ahead when compared to all the 30MLB teams if Ranked 1-30.

Not signing anyone special as a FA and overspending just seems boring but I look at it as addition from subtraction long term. No Suppan/Wolf contract tying the team down financially.

[MJLiverock]

My estimate of the reality for the Brewers going forward is that things will get a whole lot tougher on the financial front in the coming years. We have just been through a period where the teams on the low end of revenue spectrum had caught up a bit through revenue sharing, big time revenue clubs deals getting long in the tooth, and money from national deals kicking in but now the cycle has changed to re pricing the big markets' deals and Milwaukee is going to get left in the dust on absolute dollars.

 

I just read a report this morning written by Goldman Sachs discussing the costs to the cable co.'s and channels/Regional sports networks for the new deals. In addition to the the trend for teams to get an ownership stake in the channel carrying their games the straight up prices are doubling or tripling in some cases.

 

Recent Deal examples

Astros went from $40 million to $80 million in 2013 with 46% equity stake in Comcast Houston

Rangers went from $32 million to $80 million starting in 2015 with 10% equity in Fox Sports Southwest

Angels went from $50 million to $147 million in 2013 with 25% of Fox Sports West

Padres went from $16 million to $60 million in 2012 with 20% of Fox sports San Diego

 

 

 

contract

Team expires Current Channel channel owner U.S. TV Rank

[list=]Baltimore Orioles 2012 MASN (Orioles 82%, Nationals 18%) n/a 27

Washington Nationals 2012 MASN (Orioles 82%, Nationals 18%) n/a 8

Los Angeles Dodgers 2013 Prime Ticket NWSA 2

Chicago Cubs (1) 2014 WGN, 70 games n/a 3

Colorado Rockies 2014 ROOT Sports DTV 17

Philadelphia Phillies 2015 Comcast Sportsnet CMCSA 4

Arizona Diamondbacks 2015 FOX Sports Arizona NWSA 13

Seattle Mariners 2015 ROOT Sports (2015 opt-out option) DTV 12

Cincinnati Reds 2016 Fox Sports Ohio NWSA 35

Tampa Bay Rays 2016 Sunsports, Fox Sports Florida NWSA 14

St. Louis Cardinals 2017 Fox Sports Midwest NWSA 21

Detroit Tigers 2018 Fox Sports Detroit NWSA 11

Chicago White Sox 2019 Comcast Sportsnet (Reinsdorf 40%) and WGN CMCSA 3

Chicago Cubs (2) 2019 Comcast Sportsnet, 80 games (Ricketts 25%) CMCSA 3

Kansas City Royals 2019 Fox Sports Kansas City NWSA 31

Pittsburgh Pirates 2019 ROOT Sports DTV 23

Milwaukee Brewers 2019 Fox Sports Wisconsin NWSA 34

Minnesota Twins 2020 Fox Sports North NWSA 15

Miami Marlins 2020 Fox Sports Florida NWSA 16

Houston Astros 2022 Comcast Sportsnet CMCSA 10

Cleveland Indians 2022 SportsTime Ohio (Fox) NWSA 18

Oakland A's 2023 Comcast Sportsnet Bay Area (2023 opt-out option) CMCSA 6

New York Mets 2026 SNY (Mets 65%, TWC 27%) TWC 1

Los Angeles Angels 2028 Fox Sports West NWSA 2

San Diego Padres 2031 Fox Sports San Diego NWSA 28

Atlanta Braves 2031 Fox Sports South, Sports South, PeachtreeTV NWSA 9

San Francisco Giants 2032 Comcast Sportsnet (Giants 33%) CMCSA 6

Texas Rangers 2034 Fox Sports Southwest NWSA 5

New York Yankess 2042 YES (Fox Sports 49%, Steinbrenner 51%) NWSA 1

Toronto Blue Jays n/a Rogers owns 100% of team and RSN n/a n/a

Boston Red Sox n/a NESN (Red Sox 80%) n/a 7

 

We already know the Dodgers are getting a huge deal. MLB is negotiating a split of the Baltimore and D.C. TV deal and you can expect a big raise going to Washington. The Cubs have two deals coming due in the next few years as do the Cardinals and Reds prior to the Brewers getting a new deal again. The problem the Brewers have is even with doubling their take to estimates of $30 million that figure pales in comparison the increases other teams are getting with increases of $30 Million to over $100 million compared to the $15 million or so extra the Brewers are getting. The expectations are that the Phillies, Diamondbacks, Rockies, and Seattle are all set to double their deals if not more. The Phillies could be looking at $70 million more.

 

Places like Cincinnati may not be all that different from Milwaukee in TV terms (but the Cin. TV market doesn't include Columbus at #32 and Dayton at #63 which may also be interested in the Reds) but with multiple channels expected to bid for the carriage rights the price will be driven up. The RSN is currently controlled by News Corp. but Time Warner is the largest distributor in the area and covets that channel. Time Warner also knows that 17% of their total sub base is in Ohio, in other words they want the Reds and will outbid News Corp. for the carriage. Cable Co.'s have been bidding up the prices because sports programming is a major portion of their ratings draw, people want it live or semi live, it isn't on Hulu or Netflix, and other channels cant' offer substitutes.

 

So the TV revenue landscape is going to reset with the Brewers at around $30 Million/year while a lot of their competiton is going to be in the $60 million to $100 million per year putting the Brewers $30MM to $70 million behind every year in terms of ability to spend on payroll. The inflation rate estimated for the TV deals going forward is at 8.5% annually so when the Brewers deal resets in 2019 they could expect around $53 million. But the competition that is at $60 Million today can expect to rest at $110 to $135 in 7-10 years. That puts the Brewers $50 million to $80 Million a year behind in just the TV deals from middle of the road teams, let alone the Yankees, Red Sox, Dodgers, Cubs, Angels of the world.

 

Everytime a post about how a team like the Nationals overpaid for a reliever because of $9 million or something I think back to how $9 million is going to mean so much less to them or the Yankees or the Dodgers than the Brewers. With TV deals 3x and up the size of the Brewers that $9MM contract is like a $3MM deal to the Brewers.

 

Over the next 5 years I bet there is an explosion in average salary as the new TV money floods in for some of these teams. Some may have already started spending it knowing what is on the horizon like the Angels, Dodgers, Nationals, Reds. But with teams like the Cubs, Astros, Padres, Rangers, Phillies, Rockies, Diaamondbacks getting big raises the Brewers competition just got a whole lot tougher for free agents or retaining players.

[owbc]

MJLiverock, that is a good analysis, I have a few comments.

 

First, remember that 1/3 of TV revenue is shared, so if I understand the system correctly, if a team signs a $100 million dollar deal and the Brewers' deal is $30 million, the Brewers are really only being outspent by $46 million instead of $70 million. So the situation is still ugly, but not as bad as it could be.

 

My second comment is about the inflating cost of sports programming in general. The possibility of a building bubble is described in this article. Sports are an extremely valuable commodity in the era of DVRs because they are watched live (with commercials) more than any other type of program. Because of this, ESPN can get around $5/month/subscriber for their family of networks. Some estimates suggest that up to 50% of your cable bill goes to sports. However, only about 25% of cable subscribers actually watch ESPN channels on a regular basis. The Dodgers' new deal will cost subscribers in Southern California an additional $4-5/month--and that is for an even smaller segment than the ESPN viewers! The Dodgers' deal will be used to leverage more expensive baseball contracts in other markets.

 

These contracts are not sustainable. Cable/satellite TV subscriptions are already falling and that trend will surely accelerate if sports contracts drive another significant rate increase. Something is likely going to give before the Brewers contract comes up in 2019.

 

I find it highly unlikely that baseball will still be on "regular" cable in 7-8 years. Most likely, cable companies will resolve the issue themselves by offering a "non sports" option which may be preferred by 50% of the population or more (by the way, sports are way more popular in Wisconsin than other places). The pricing of the sports package would be a major contention point, since they may be asked to make up the difference to sustain these long-term contracts. If nothing gives, it is possible that public outcry could lead to federally-mandated a la carte programming. Such legislation could be a destructive blow to MLB television revenues--although it would be interesting to see if long term deals like the Dodgers' contract would still hold up.

 

Brewers fans should definitely hope for the TV revenue bubble to burst as soon as possible.

[Roderick]

As far as saving goes, sure, if we would save the 15 million or so we weren't spending this year and use it next year, that's perfectly fine...but there is no guarantee that will happen. Mark might just keep the money himself if he wants, he has no obligation to take the "savings" and splurge on a future date. Sure, his track record indicates that he will, but you just don't know.

 

The Brewers just ran a net loss last year. I don't know how much more track record you need to know that Mark A. isn't going to pocket any profits and not use it in future years. And really he has no incentive to. He may lose $5M/year on net operating, but if the value of the franchise goes up $10M he is still in a better position. Mark A. knows finances and sees the big picture.

[monty57]

As far as saving goes, sure, if we would save the 15 million or so we weren't spending this year and use it next year, that's perfectly fine...but there is no guarantee that will happen. Mark might just keep the money himself if he wants, he has no obligation to take the "savings" and splurge on a future date. Sure, his track record indicates that he will, but you just don't know.

 

The Brewers just ran a net loss last year. I don't know how much more track record you need to know that Mark A. isn't going to pocket any profits and not use it in future years. And really he has no incentive to. He may lose $5M/year on net operating, but if the value of the franchise goes up $10M he is still in a better position. Mark A. knows finances and sees the big picture.

 

I agree that he "knows finances," but he's not rich enough that he can afford to lose millions per year simply because the value of the franchise is rising. I believe his net worth is in the nine figures, not the ten figures like many owners, and his personal liquid net worth (not including things like equity interest in TCW) is almost certainly not in the "hundreds of millions" category it would need to be in for someone to be able to withstand losing $5MM/year from a single investment.

 

That said, the Brewers are a partnership, and Attanasio is the managing partner, so all profits and losses are shared according to ownership interest. Even with that, the owner group will likely not be willing to lose money on a regular basis. It seems that they are willing to risk losing money now and then when it really looks like they can win it all (which is nice from a Brewer fan perspective), but this offseason makes it seem like the loss year will be followed up by a period where the owners want near certainty that they are going to pocket some cash.

[MJLiverock]

owbc, I agree the sharing portion mutes some of it but the absolute effect is still pretty strong. The sports cost points you added are very true. I have seen the same numbers elsewhere that the sports content is around 50% of total cost of the cable bill. There is already some push back on the providers part by trying to segregate out the cost of the sports on the bill so people will be more aware of why the rates are going up. I know DirecTV has some sort of sports surcharge they are showing on some new customer's bills'. There will likely be a fight about tiering some of the sports channel off basic cable but the channel themselves will fight it very hard and customers won't like it either. ESPN has gone from $3.30/sub in 2006 to $5.01 in 2012 as they've paid up for national broadcast rights to MNF, MLB, NBA, etc. Fox is about to up the anty when they create Fox Sports One in the near future. It is expected they will shift their national stuff from FX, Fox, some RSNs and rebrand Speed Channel into this ESPN competitor. Of course they will have to bid against ESPN for sports which may drive prices up again. The top ten priced cable channels now are ESPN $5.01, TNT $1.18, Disney $0.99, NFL Network $0.95, Fox News $0.89, ESPN 2 $0.66, USA $0.62. CNN $0.57 TBS $0.56 Nickelodan $0.54. To get premium pricing there is usually some sports content or news, or kids.

 

Just as a reference on how fragmented the baseball market must be, MLB is only at $0.22 and is actually cheaper than the Golf Channel at $0.28,NHL Network at $0.28, NBC sports $0.31, NBATV at $0.26 and Big 10 at $0.37 (national it is higher in B10 markets).

 

One only has to look at advertiser revenue to see why the channels can charge such premiums. The ad dollars are substantially higher on these channels indicating they get a lot of viewers. It is also worth noting that advertisers like the audiences of these channels as they pay up per impression compared to say HGTV. Which again points to the power of the sports view demographic and why the carriers/channels keep paying up to get content.

 

Finally, a few years back the trend was to predict all this cord cutting was going to happen with Hulu, Netflix, etc. and to date it hasn't really happened. The pie of pay TV subs as a percentage has stayed pretty stable, cable has been losing while satellite has been gaining until flattening in the last year or two but the telco's (Verizon ATT, etc.) have been gaining at cable's expense as well resulting in a pretty stable pay TV market. Here is a nice article on TV use. Interesting that non Pay TV or Over the air only households declined from 16% in 2003 to only 9% now.

 

http://techcrunch.com/2013/01/07/nielsen-tv-still-king-in-media-consumption-only-16-percent-of-tv-homes-have-tablets/