Brewers franchise value and ability to spend money

[LouisEly]

Can the Brewers spend more money on payroll because the franchise value has gone up? Should the Brewers spend more money on payroll because the value has gone up?

 

1) Never confuse value with cash flow. One is not necessarily a function of the other. Speculation can drive value as much, or more, than cash flow. (See: housing prices in the 2000's, stock prices in the 2000's, etc.)

 

B) You never make money or lose money on anything until you sell it. (See: housing prices in the 2000's, stock prices in the 2000's, etc.)

 

Discuss.

[3and2Fastball]

An extra $50 million for 3-4 years in payroll on a franchise that has gone from $250 million to over a $Billion is not a risk, it is a choice. There are all sorts of ways that the team could raise capital, from loans, selling small shares of stock etc...

 

Just imagine what Stearns could do with a $175 million payroll per year. And you know who would have a statue outside the stadium? Mark... for decades/centuries/as long as Baseball remains a pro sport. That’s a legacy that is more important to the city of Milwaukee than that money in Mark’s pocket...

 

It is a choice.

 

Considering how rabidly Wisconsin supports winners, I’m not at all convinced that he couldn’t quickly make back that money through new TV deals, sponsorship revenue, merch sales, increased ticket prices etc

[MrTPlush]

No and anyone thinking otherwise is disconnected from pro sports reality.

 

No they would not make that money back through increased TV deals, sponsorships, or anything else. TV deals are based mostly on market size as are sponsorships. Merch and ticket sales increases are short lived after a WS. Look at the Royals.

 

Of course this is forgetting the most important part, a $175mil payroll assures zilch. Teams fail horribly with those payrolls every year. The Dodgers can’t win one with a giant payroll for YEARS let alone a year or two some want around here.

 

People need to stop clamoring for things that simply don’t happen and in some instances a fantasy land.

[Thurston Fluff]

The more fans a team has is directly related to the franchise value. It not only adds to the value but also increases revenue streams with better tv contracts and attendance which helps build more franchise value. The better the team performs the more fans it attracts. Money is fairly important to winning more. Granted there is a point of diminishing returns but I hardly think our franchise is there yet.

 

No they would not make that money back through increased TV deals, sponsorships, or anything else. TV deals are based mostly on market size as are sponsorships.

 

I didn't see this until after I posted. While market size is very important I think there is more to market size than just overall population. Los Angles can't fill a football stadium while the Packers have a bazillion year waiting list for season tickets. It isn't just the number of people it is the number of people interested.

[Brewcrewin07]

It was mentioned above...the payroll is a choice. Mark A could spend more on payroll, probably rather comfortably, he just chooses not to. I mean, think about the $$ he has or will shortly have coming in from American Family for naming rights. The merchandise sales from the rebrand etc. Even if he lost a bit of $$ for a year having payroll at say $175 million, he'd eventually make that up again. Anyone in business knows and accepts that sometimes you lose $$, but if you're smart, you get it back and then some. To me, payroll should never be below $140-$150 million and I'm guessing even with that, he'd still make a decent profit.

[LouisEly]

For those who think payroll should go up, two questions:

 

Where does the cash come from? (While an ownership stake would be creative, most people expect to be paid in cash.)

 

How would the current owners (Attanasio isn't the only one, he's just the principal owner) who have already invested millions of dollars react to priority claims on assets (loans) or diluted ownership stake (shares issued) to raise the cash?

[sveumrules]

Paltry TV Contract

 

https://blogs.fangraphs.com/estimated-tv-revenues-for-all-30-mlb-teams/

 

+ Tiny Market

 

https://www.sportsmediawatch.com/nba-market-size-nfl-mlb-nhl-nielsen-ratings/

 

= league average payroll in 2019

 

https://www.spotrac.com/mlb/payroll/2019/

 

Where will 2020 payroll end up? Stay tuned, I guess.

[Fear The Chorizo]

It was mentioned above...the payroll is a choice. Mark A could spend more on payroll, probably rather comfortably, he just chooses not to. I mean, think about the $$ he has or will shortly have coming in from American Family for naming rights. The merchandise sales from the rebrand etc. Even if he lost a bit of $$ for a year having payroll at say $175 million, he'd eventually make that up again. Anyone in business knows and accepts that sometimes you lose $$, but if you're smart, you get it back and then some. To me, payroll should never be below $140-$150 million and I'm guessing even with that, he'd still make a decent profit.

 

The brewers likely operated at a loss last season with a payroll less than $140m...that's despite consecutive seasons drawing over 3million fans and making the playoffs in both 2018 and 2019.

 

So I guess you want the franchise to move out of milwaukee??

[MrTPlush]

The more fans a team has is directly related to the franchise value. It not only adds to the value but also increases revenue streams with better tv contracts and attendance which helps build more franchise value. The better the team performs the more fans it attracts. Money is fairly important to winning more. Granted there is a point of diminishing returns but I hardly think our franchise is there yet.

 

No they would not make that money back through increased TV deals, sponsorships, or anything else. TV deals are based mostly on market size as are sponsorships.

 

I didn't see this until after I posted. While market size is very important I think there is more to market size than just overall population. Los Angles can't fill a football stadium while the Packers have a bazillion year waiting list for season tickets. It isn't just the number of people it is the number of people interested.

 

But you explain it in a nutshell. No one in LA cares about football teams yet they are about to have two. No interest to fill a stadium yet it has TWO teams.

 

Brewers are a borderline Top 10 team for attendance yet they will never get close to sniffing Top 10 TV deal money etc. The Dodgers have a $320mil TV deal per year! We can have all the ticket sales and merch sales, but that is nothing on the big boys.

[MadThinker88]

It was mentioned above...the payroll is a choice. Mark A could spend more on payroll, probably rather comfortably, he just chooses not to. I mean, think about the $$ he has or will shortly have coming in from American Family for naming rights. The merchandise sales from the rebrand etc. Even if he lost a bit of $$ for a year having payroll at say $175 million, he'd eventually make that up again. Anyone in business knows and accepts that sometimes you lose $$, but if you're smart, you get it back and then some. To me, payroll should never be below $140-$150 million and I'm guessing even with that, he'd still make a decent profit.

 

However it was noted on the latest Baseball Tonight podcast (from Weds 12/4/19) that the Brewers have been losing money the past three seasons... It was mentioned at the 10:01 timemark during an interview with Bob Nightengale..

 

We might not like the source, but if the info is accurate it is an interesting perspective to view the Brewer personnel moves...

[Warning Track Power]

There is something inherently wrong with a sport that only has a few teams that can bid on the biggest FAs in any given year. Cole and Strasburg are rumored to be going to the same teams that were in the mix for Machado and Harper last year. I don't care about Attanasio spending more money on payroll when the entire system is set up specifically to benefit New York, Los Angeles, Chicago, Boston and Philadelphia. MLB keeps tinkering with pitch clocks, robot umpires, three man minimums, limiting mound visits, etc... in an effort to generate buzz about the sport when they are only ignoring the real problem.

 

The reality is when you pander to only the largest markets and small market teams only act as feeder clubs to them, you are turning a blind eye to the main issue in the sport. MLB thinks they need the Yankees, Dodgers, Red Sox, Cubs, etc...to keep interest in the sport. They continue to lose support to the NFL and can't figure out why. Perhaps it's because of the equal playing field where the Green Bays, Kansas Citys, and Pittsburghs of the world who have been historically well run are on a level playing field financially with those that are in New York, Los Angeles and Chicago.

 

Good luck to the players and the owners when the strike or lockout comes. Instead of folding MiLB franchises, why don't you fold all small markets? This way fans like us don't have to hold tight to 2-3 year windows of competing before having to spend 4-5 years rebuilding. All the while watching the annual Dodgers, Yankees, Red Sox playoff series.

[MrTPlush]

It was mentioned above...the payroll is a choice. Mark A could spend more on payroll, probably rather comfortably, he just chooses not to. I mean, think about the $$ he has or will shortly have coming in from American Family for naming rights. The merchandise sales from the rebrand etc. Even if he lost a bit of $$ for a year having payroll at say $175 million, he'd eventually make that up again. Anyone in business knows and accepts that sometimes you lose $$, but if you're smart, you get it back and then some. To me, payroll should never be below $140-$150 million and I'm guessing even with that, he'd still make a decent profit.

 

You realize Mark Attanasio was a billionaire before he owned a team off of businesses, right? I bet he would appreciate the business advice, but I think he and all the people he has around him know more.

 

He is a business man, I think he knows how to make money running one. If he could make the same amount of money or more by making a big payroll he would do it. Except he hasn’t, cause it don’t work that way.

[jjgott]

The discussion about what teams can/can not afford is even more egregious with the big market teams. The Nats have already announced they "can't afford" both Rendon and Strasburg even though they just won the WS with all the associated extra revenue, they just got a ruling in their favor to get more media rights from their joint deal with the O's, and the owners are multi-billionaires. They can afford whatever they want. They would just prefer to use whatever extra revenue on things other than labor.

 

Mark A. does not have the bank account that the Lerners have, but he most certainly could afford more than we all think he can. For example, there is absolutely no reason why we cannot afford the arbitration amount for Hader. While we may trade him to patch up other holes on the team, the decision to trade him should not be based on money.

[homer]

I'm curious where payroll should be? Question is for those that think we should be signing the Strasburgs of the world.

[JimH5]

I'm guessing the Brewers could spend the money if they chose to spend the money.

 

The money is tied up in the value of the franchise, but the track record of MLB teams is that they have always gone up in value. There is very little risk in losing money invested in MLB. Interest rates remain low, so borrowing would be cheap.

 

Would it be a wise investment? I don't know. None of us can say yes or no with any certainty, nor are we privy to the books or the motivation of the team's owners. The Brewers consistently place near the top of reports that measure the engagement of the local fan base. Local ratings, attendance for the market size, etc.

 

Ownership might think they are getting all they can from a market of this size, and to spend more on payroll would be bottom line losses. Or they could be in this game the way that Jane Pettit and Herb Kohl were invested in the community, with an eye toward benevolence and outreach.

 

But the money is there for them to do with what they please. And actually, we don't even know that the ownership group hasn't already borrowed on the franchise value for Brewers-related stuff or anything else. MLB most likely has rules on debt-to-franchise value ratios. So I'm going to change my answer to that emoji shrug guy.

[Thurston Fluff]

The more fans a team has is directly related to the franchise value. It not only adds to the value but also increases revenue streams with better tv contracts and attendance which helps build more franchise value. The better the team performs the more fans it attracts. Money is fairly important to winning more. Granted there is a point of diminishing returns but I hardly think our franchise is there yet.

 

No they would not make that money back through increased TV deals, sponsorships, or anything else. TV deals are based mostly on market size as are sponsorships.

 

I didn't see this until after I posted. While market size is very important I think there is more to market size than just overall population. Los Angles can't fill a football stadium while the Packers have a bazillion year waiting list for season tickets. It isn't just the number of people it is the number of people interested.

 

But you explain in in a nutshell. No one in LA cares about football teams yet they are about to have two. No interest to fill a stadium yet it has TWO teams.

 

Brewers are a borderline Top 10 team for attendance yet they will never get close to sniffing Top 10 TV deal money etc. The Dodgers have a $320mil TV deal per year! We can have all the ticket sales and merch sales, but that is nothing on the big boys.

 

That is because they want to make that market work despite how little LA cares about them. The fact is they lost two franchises in the past and the two now can't draw for crap. My guess is they leave as soon as they can because nobody in LA cares. I agree with you that the Brewers will never get top ten tv contracts but we aren't talking about spending Cubs or Yankee money. Just that spending more than usual for this team can lead to more revenue later. There are very few teams that can establish a strong fan base without producing a decent product. Money helps do that.

To be clear I am not saying we need to spend X amount every year. I'm also not saying throw good money after bad or spend just to spend. I am just saying deficit spending at certain points can lead to bigger and better things.

[DuWayne Steurer]

Spending money on Stras or Rendon or some other big name assures nothing. Mark A has a smart GM who has put the Brewers in the playoffs the last 2 years while finding value deals and making some savvy trades.

 

Spending money on big name free agents and increasing the payroll to an unsustainable level only assures that the money isn't available to be used for other purposes. It does not guarantee a playoff berth, increased ticket sales, increased jersey sales, or anything else. That is unrealistic speculation. The Phillies spent 300 million on Bryce Harper and he's a 4 WAR guy and they missed the playoffs. The Padres spent 300 million on Manny Machado and he was a 3 WAR guy, and they missed the playoffs. That doesn't mean spending huge can't and won't ever work out, but it usually won't work out well for a market like Milwaukee or KC or Pitt.

[Ulice Payne]

There's a basic exchange when a fan supports a team. You buy a ticket; you're owed a game. You tune them in on TV, and you agree to have the ads broadcast in your house in exchange for being able to view the program. The fans are owed the individual games they pay for, nothing more.

 

Of course, it's in a team's best interest to make the game entertaining, to encourage the customer to engage in some repeat business. That could be in the form of wins, or in the display of amazing talent in a losing effort, or individual players exhibiting colorful behavior, or even dizzy bat races.

 

They don't owe us a championship. They don't owe it to me to win when I buy a ticket. They just owe me a few hours of entertainment. People that enjoy the entertainment will become repeat customers, people that don't can spend their money on movies or a concert.

 

Baseball franchises are not public trusts, like the Parks System or the Library. They are private, for-profit private businesses. They can't be expected to lose money for the public good.

 

I like watching the Brewers. I'm a fan. I'll buy tickets and allow David Gruber commercials in my house. I would really like a the Brewers to win a championship, and if they did, I'd probably purchase more of their product.

 

But I chose the Brewers as my team because they are located close to me. The games are easiest to get to, and the TV broadcasts are not difficult to get. There's even a civic pride aspect to it.

 

I've found the uneven payroll to be interesting. I like rooting for a team that is facing foes with more resources. It's compelling to see a team assembled with creativity and smarts.

 

I can't expect my local pro baseball franchise to operate at a loss any more than I could expect a concert or a movie to lose money.

 

They are selling us entertainment. At a profit. I'm entertained, so I'll be a customer.

[JimH5]

For those who think payroll should go up, two questions:

 

Where does the cash come from? (While an ownership stake would be creative, most people expect to be paid in cash.)

 

How would the current owners (Attanasio isn't the only one, he's just the principal owner) who have already invested millions of dollars react to priority claims on assets (loans) or diluted ownership stake (shares issued) to raise the cash?

 

I'm guessing it would be borrowed money from a lender. The Brewers carried (and maybe still carry) debt for many years. There were times when payroll was low that they announced some of the savings was going toward debt service.

 

Businesses (even huge, rich businesses) carry debt all the time if the terms are to their liking.

[Ron Robinsons Beard]

It was mentioned above...the payroll is a choice. Mark A could spend more on payroll, probably rather comfortably, he just chooses not to. I mean, think about the $$ he has or will shortly have coming in from American Family for naming rights. The merchandise sales from the rebrand etc. Even if he lost a bit of $$ for a year having payroll at say $175 million, he'd eventually make that up again. Anyone in business knows and accepts that sometimes you lose $$, but if you're smart, you get it back and then some. To me, payroll should never be below $140-$150 million and I'm guessing even with that, he'd still make a decent profit.

 

Haudricourt in his story in the JS earlier this week said the team finished in the red last season. Which means they did not make a profit. As much as we want them to spend, spend, spend, it doesn't work that way. Owning a baseball team is not a huge for-profit enterprise, but they shouldn't be expected to lose money, either. The naming rights and merchandise sales money are not much ... and those numbers are readily available. And when you drop payroll to gain money back, you end up losing attendance, merchandise sales and the like. With a small market team, it's about trying to find that happy medium. I think Attanasio probably went with the max payroll he was comfortable with last year, and took a hit in his pocketbook because of it. Can he handle that? Of course ... the guy is a billionaire. But he didn't get to be that billionaire by investing in enterprises that continuously lose him money.

 

And no ... he doesn't "owe" any of us fans an increased payroll or superstar players. We as fans aren't owed anything. It is entertainment, and if you are dissatisfied with that entertainment, you have other options to spend your money on. The Brewers are doing a fine job managing within the tight constraints of a constrictive and unfair MLB economic environment. The difference between MLB and the NFL is that the NFL is all about the league and the shield, and MLB is all about the individual teams. Therein lies the difference. The big money teams will never all there to be true parity, so teams like the Brewers have to scrape up every resource they can, think outside the box, and if enough things go right, they might just get a bite at the apple every few years.

[Thurston Fluff]

There's a basic exchange when a fan supports a team. You buy a ticket; you're owed a game. You tune them in on TV, and you agree to have the ads broadcast in your house in exchange for being able to view the program. The fans are owed the individual games they pay for, nothing more.

 

Of course, it's in a team's best interest to make the game entertaining, to encourage the customer to engage in some repeat business. That could be in the form of wins, or in the display of amazing talent in a losing effort, or individual players exhibiting colorful behavior, or even dizzy bat races.

 

They don't owe us a championship. They don't owe it to me to win when I buy a ticket. They just owe me a few hours of entertainment. People that enjoy the entertainment will become repeat customers, people that don't can spend their money on movies or a concert.

Baseball franchises are not public trusts, like the Parks System or the Library. They are private, for-profit private businesses. They can't be expected to lose money for the public good.

 

I like watching the Brewers. I'm a fan. I'll buy tickets and allow David Gruber commercials in my house. I would really like a the Brewers to win a championship, and if they did, I'd probably purchase more of their product.

 

But I chose the Brewers as my team because they are located close to me. The games are easiest to get to, and the TV broadcasts are not difficult to get. There's even a civic pride aspect to it.

 

I've found the uneven payroll to be interesting. I like rooting for a team that is facing foes with more resources. It's compelling to see a team assembled with creativity and smarts.

 

I can't expect my local pro baseball franchise to operate at a loss any more than I could expect a concert or a movie to lose money.

 

They are selling us entertainment. At a profit. I'm entertained, so I'll be a customer.

 

Baseball is exempt from antitrust laws specifically because they are not a business but a sport. IF you gave the owners the choice of losing that antitrust exemption or mandate every team actually do everything in their power to win a championship they would do the latter. When you are given such a prized exemption you also have a responsibly to do what a sport is supposed to do. Compete for a title.

[xisxisxis]

Haudricourt in his story in the JS earlier this week said the team finished in the red last season. Which means they did not make a profit.

Did Haudricourt detail how he came to that conclusion? 1) The Brewers are a private entity and they don't have to report any financial details to anyone except the IRS; 2) There are thousands of ways for a entity to claim a paper loss while making a "profit" so if the info is being passed on by the Brewers, it isn't worth the storage space on a hard drive, which by my calculation is $0.00000002

[Ennder]

Most of the teams in the league can afford Cole, Rendon etc. What actually happens is the richest teams overpay in value to get them. This creates a system of diminishing returns where big time free agents end up losing money for the team. Very few 4+ year deals end up being good deals. Smaller teams can do this for one guy but if they do it for a bunch of them it ends up being devastating a few years down the road. Also the soft cap means even the big teams can't just control everything. There was a reason that the Yankees haven't been getting many of the big FA's recently, they needed to drop under the cap. There is a reason the Red Sox sort of rebuilt last year even though they were coming off of a world series. There is a reason the Nats are cutting payroll this season. It is a much more fluid system than a hard cap like in some other sports.

 

The hard cap in the other sports doesn't work either. Players just sign for less to go to bigger name teams for the endorsements. Hard salary caps just don't work very well. That is why the NFL uses the unbalanced schedule to try to force parity. Even with that the same teams tend to go to the playoffs most years.

[Thurston Fluff]

It was mentioned above...the payroll is a choice. Mark A could spend more on payroll, probably rather comfortably, he just chooses not to. I mean, think about the $$ he has or will shortly have coming in from American Family for naming rights. The merchandise sales from the rebrand etc. Even if he lost a bit of $$ for a year having payroll at say $175 million, he'd eventually make that up again. Anyone in business knows and accepts that sometimes you lose $$, but if you're smart, you get it back and then some. To me, payroll should never be below $140-$150 million and I'm guessing even with that, he'd still make a decent profit.

 

Haudricourt in his story in the JS earlier this week said the team finished in the red last season. Which means they did not make a profit. As much as we want them to spend, spend, spend, it doesn't work that way. Owning a baseball team is not a huge for-profit enterprise, but they shouldn't be expected to lose money, either. The naming rights and merchandise sales money are not much ... and those numbers are readily available. And when you drop payroll to gain money back, you end up losing attendance, merchandise sales and the like. With a small market team, it's about trying to find that happy medium. I think Attanasio probably went with the max payroll he was comfortable with last year, and took a hit in his pocketbook because of it. Can he handle that? Of course ... the guy is a billionaire. But he didn't get to be that billionaire by investing in enterprises that continuously lose him money.

 

And no ... he doesn't "owe" any of us fans an increased payroll or superstar players. We as fans aren't owed anything. It is entertainment, and if you are dissatisfied with that entertainment, you have other options to spend your money on. The Brewers are doing a fine job managing within the tight constraints of a constrictive and unfair MLB economic environment. The difference between MLB and the NFL is that the NFL is all about the league and the shield, and MLB is all about the individual teams. Therein lies the difference. The big money teams will never all there to be true parity, so teams like the Brewers have to scrape up every resource they can, think outside the box, and if enough things go right, they might just get a bite at the apple every few years.

 

The team made a profit when the team sucked a few years ago as well. Why? Because the fans supported a bad product based on the promise they would spend money when the time came. You can't look at businesses at that level on annual profit margins. You look at how sustainable the entire organization is. There are literally thousands of successful businesses that end up in the red over several years. Netflix, for example, didn't make a profit for years. I'm not sure if it makes much today. Yet they continue to attract investors. Why? Because it has the potential to make money in the long run.

[Ron Robinsons Beard]

Haudricourt in his story in the JS earlier this week said the team finished in the red last season. Which means they did not make a profit.

Did Haudricourt detail how he came to that conclusion? 1) The Brewers are a private entity and they don't have to report any financial details to anyone except the IRS; 2) There are thousands of ways for a entity to claim a paper loss while making a "profit" so if the info is being passed on by the Brewers, it isn't worth the storage space on a hard drive, which by my calculation is $0.00000002

 

This is the paragraph where it is mentioned:

 

Some folks won’t believe it, but I have it on good authority that the Brewers actually finished in the red in 2019, a byproduct of stretching their opening day payroll to a franchise-record $125 million and taking it even higher with late-season acquisitions. Accordingly, Stearns is being careful with how he allocates salaries for next season and beyond.

 

The article goes into detail on the team's finances. It is a pretty interesting read, albeit not super pleasant. But it is nice seeing a little evidence on where the team sits financially.