March 7th, 2014 by Keith Hock
With the remainders of what was, hopefully, the last snow of the season melting away, Opening Day of the 2014 baseball season is just over three weeks away. For baseball fans, this is a time of anticipation for the season ahead and hope that their favorite team will “win it all” this year.
Baseball has always been a game of numbers – wins, losses, homers and batting average. Recent years have seen a debate between traditionalists who favor the hometown Red’s Jay Bruce’s 2013 team leading 30 home runs and 109 RBI’s and the “stat-heads” who think that Joey Votto’s 4th best National League OPS of .926 is a better measure of a player’s value. As an accountant, there is a third set of baseball statistics that interest me – the financial ones.
The Reds recently made headlines by signing pitcher Homer Bailey to a six-year contract worth a reported $105 million. The Bailey contract comes less than two years after the Reds also signed Votto (a 10 year, $225 million extension) and Brandon Phillips (6 years, $72.5 million) to large deals. As a so called “small market” team, how can the Reds afford these contracts? The answer, at least in part, lies in the rapid increase in baseball team values and revenues.
According to Forbes’ annual valuation of professional sports teams, the Reds were worth $546 million in 2013 – an increase of 29% over 2012. As Red’s owner Bob Castellini recently explained to the Cincinnati Enquirer, this increase in value is being driven by increasing revenues from tickets (up 72% since 2006), corporate sponsorships (up nearly three-fold) and national TV rights (up 91% since 2005). These increases in revenue have allowed the Reds to increase player payroll from $59 million in 2006 to $107 million in 2013. Only the Red’s owners know the financial return on their investment in these contracts; but the Red’s on-field ROI has been mostly positive with winning records and play-off appearances in three of the last four years.
Regardless of your perspective on the debate between “old” and “new” baseball statistics, the financial “statistics” – revenues, salaries, and values (and, alas, ticket prices) – continue to increase and serve as a reminder that while baseball may be “American’s Pastime” it is also “big business” by any definition.
What do you think about the Red’s chances this year — will the big contracts pay off with a World Series title or will Cincinnati’s baseball “heart” be broken again? Share your predictions in the comment box below.