November 7th, 2013 by Hallie Frair
The Houston Astros finished the 2013 baseball season with the worst record in the major leagues since the 2004 season. The Astros won 51 of their 162 games played, giving them a win percentage of 31.5%. Many fans, sports anchors and analysts wonder if the Astros can do anything right. Believe it or not, out of the 30 teams in the major leagues, the Houston Astros have the 7th highest operating income for this past 2013 season; a whopping $24.7 million.
The real question is how have the Astros managed to make this much money given how poorly they played! The Astros were purchased by Jim Crane in November 2011 for $610 million. Since Jim purchased the team, he has been able to increase the Astros television deal by approximately $50 million a year compared to the television deal the previous owner had. Even with this new deal, the Astros have the 9th lowest amount of revenue amongst other major league baseball teams. It’s apparent that the Astros operating income is not primarily driven by their revenue; therefore, let’s look at the expenses that the Astros have.
The most remarkable and interesting thing about the Houston Astros is their payroll expenses. The Astros have a salary expense of approximately $21 million. To put this into perspective, the Los Angeles Dodgers have the highest payroll at $220 million. A-Rod had a salary for the 2013 season of $29 million, which is higher than all of the Astros players combined! A-Rod also missed over half of this past season, yielding him approximately $659,000 for each game he played, or $186,000 for each at bat. The Astros as an organization had a total of 5,457 at bats in the 2013 season leading to $3,800 per at bat. It is obvious that the Astros lack of expenses has led the Astros to the league’s 7th highest operating income.
So what can be learned from the Houston Astros’ performance this past year? First and foremost, cost control can be an equal if not better method of boosting profits. While sales are the ultimate driving factor in a business’ revenues, they don’t always lead to increased profits. For example, the New York Yankees had the 4th highest attendance with fans coming to see the future hall of fame players, such as Derek Jeter or Alex Rodriguez. Even though the Yankees were able bring large crowds with high ticket prices, their operating income was ranked 23rd in the league because their costs are so high. However, we are by no means recommending you cut your entire accounting staff to improve profits! The main takeaway here is that optimal performance is a delicate balance between cost control and sales growth. Too much of one or the other can reduce profits. So where does your business have opportunities for an increase in profits? Contact GBQ to discuss how your business can reach optimal performance levels.
Forbes and ESPN were used to gather data and information for this article.
*Thank you to Chris Levy, Staff, for his contributions to this post.