Baseball fans love to look at numbers as they speculate about the upcoming season. What if the Reds were to sign D.J. LeMahieu, who batted .364, or Marcell Ozuna, who batted .338?
The numbers that matter the most this off-season, unfortunately, are the revenue and expense projections for 2021 coming from the team’s business office. The team does not reveal those numbers, since they are not publicly traded, so we don’t know precisely what Owner Bob Castellini and his executive team have decided upon. But we can put some perspective on what is going on behind closed doors on Joe Nuxhall Way, and this may help to shape our expectations for player movement this off-season.
Under Castellini’s ownership, the team has always budgeted to break even, according to John Fay of the Enquirer. What does this mean, exactly? It means that expenditures will be just about the same as expenses. According to Fay’s article, attendance, local radio and television revenue are the chief revenue streams that fund player payroll.
An Associated Press study of baseball contracts showed the Reds’ 2020 payroll was around $147 million. Spotrac.com estimated approximately $145 million, so let’s split the difference. For the purposes of this exercise, Cincinnati’s 2020 MLB payroll was $146 million. So the 2020 expense-to-revenue budget may have looked something like this:
* Estimated Reds annual TV revenue from Fox Sports Ohio: $75 million
** Estimated by article author; actual figures could not be located
But then a pandemic happened. We don’t know exactly how much the Reds dropped from 2019 in attendance revenue, but we do know that the actual revenue number for 2020 was $0 (or very close to it). One estimate indicates that meant a loss of more than $100 million in game-day revenue (tickets, parking, food, drink, souvenirs, etc.) for the Reds in 2020.
Some assumptions for a post-COVID 2020 expense-to-revenue budget:
- Players earned 37 percent of their full salaries
- Fox Sports Ohio and Reds Radio paid 37 percent of annual rights fees
- Attendance revenues were zero, or close to it
So in the revenue streams that Reds ownership reportedly uses to generate a “break-even” mark for player payroll expenses, the Reds lost somewhere around $18 million in 2020. That in no way takes into account how all other departments and aspects of a major league baseball operation were affected by the pandemic. We’re not going to try to delve into all of that.
For 2021, the team already has $116,564,880 worth of guaranteed contracts in place for the coming season, according to Spotrac (which had not accounted for Kyle Farmer’s new deal at the time this article was written). That number includes estimates for arbitration eligibles Michael Lorenzen, Jesse Winker, Tyler Mahle and Amir Garrett. It does not include salaries for other players on the roster with three years or less of service time. Nor does it account for the 11 or 12 MLB roster spots that currently don’t have guaranteed or estimated salaries (because we don’t know who those players are yet). Assume that about half of those roster spots will be players with three years or less (non-arbitration-eligible), and that about half will be veterans who have been cut loose and looking for work.
Let’s add about $10 million to account for those salaries, so the “on-the-books” salary number for 2021 is about $127 million. Let’s be optimistic and put our 2021 estimates back to what we estimated the 2020 full-season budget would look like:
Assuming the above chart is correct, leaving the 2021 player salary budget exactly where it currently is (without any additions) would, in theory, bring the team back to break-even in player payroll expense over the past two seasons. (Estimated $18.5-million loss in 2020, estimated $19 million profit in 2021.) And assuming that attendance will just magically return to pre-COVID levels is foolish. It’s probably going to take some time.
The point of all of this: The Castellini family runs the Cincinnati Reds like a business. There is absolutely nothing wrong with that. In fact, it’s the responsible thing to do. Presuming the above premise of budgeting for break-even, revenue to cover any additional payroll expense for the 2021 season will likely come from some other funding source than listed above (maybe Castellini himself) — atypical of how the Reds operate, according to Fay.
So, with all of this in mind, know that
- Trevor Bauer is not going to sign here.
- There may be other trades forthcoming that will send veteran players elsewhere with salary reduction as a primary goal.
- Enquirer writer Bobby Nightengale tweeted recently that the Reds are still in win-now mode, and that’s good. Castellini knows the team needs an everyday shortstop, and those don’t come cheap. Don’t expect the Reds to just commit $10 million to $15 million on a new shortstop without making some other type of move to offset that increased expense.
Perhaps that explains the seemingly non-sensical rumors that Cincinnati is “working hard” to trade Sonny Gray. Perhaps, because of a scenario similar to what we have posed above, Castellini has told General Manager Nick Krall that in order to sign a shortstop to a $10-plus-million deal, a similar amount must still be cleared from the current payroll. If your number one objective is trying to win the World Series, trading Sonny Gray does not compute. But there are other factors in play, unfortunately.
In conclusion, I’m absolutely not trying to assert that every budgetary estimate above is 100 percent accurate. But it is built from information from people who are in a position to know how things are done. The point of this piece was to construct a scenario that is likely to illustrate what financial considerations the front office and ownership are facing. And, also to point out that if the Reds are to make significant upgrades to the roster, the owner himself may have to bear some of the cost directly. That’s not something that any business owner ever does lightly.
Based on the estimates provided in this article, I’m going to put myself in the Reds’/Krall’s shoes. Unpopular as it is, I understand looking for a trade partner for Sonny Gray if it returns me a starting SS or returns me some top prospects and I can use the freed up money to sign a free agent SS of equivalent cost.
Coupled with the loss of Bauer, this does weaken the pitching staff a lot, but it is also a place of potential strength. If I can’t find an inexpensive SP off the FA market who has had past success and is trying to re-establish their worth (ex. James Paxton, Alex Wood Take 2), at worst, I can elevate Lorenzen, Sims, and Antone to starters alongside Mahle and Miley and sign a number of relievers as there were a lot of them non-tendered this year (ex. Chasen Shreve). Jeff Hoffman is in the mix competing for a starter role or long reliever.
It’s a lot of ?s on the starting pitching front, but I do believe Lorenzen, Antone, Sims, and Hoffman are highly motivated to show their worth as starters. Lorenzen, Antone, and Sims were very positively impacted by the tutelage of Bauer in his short stay as well as Cotham and DJ. I also prefer to try as starters a group of young motivated pitchers than take the Reds past approach of finding veteran guys off the scrap heap who at best might be a 4-5 starter. These moves make me “competitive” in 2021 while in 2022 I get back revenue from fan attendance, probably get some money from Castellanos opting out as well as the end of Wade Miley contract, and have 2 more pitchers in Lodolo and Greene who can compete for SP roles to backfill Miley and possibly Lorenzen if he leaves as a FA.
On a kind of funny note, I renewed my kids’ RedsHeads memberships and who is the “RedsHeads captain” for 2021? Why Sonny Gray of course!
What’s the projected additional revenue for teams that make the playoffs? Is it enough to cover, say, the marginal cost of keeping (resigning) Trevor Bauer? Or perhaps enough to cover adding a free agent shortstop?
Thanks for taking a first stab at the underlying economics of the Reds. I’ve sort of been waiting for this as a lot of comments I would otherwise have made didn’t seem to fit the theme of prior threads.
Disclaimer to all: Sports accounting is even more extreme than real estate accounting in its differences from everyday normal accounting It’s not as bad as Hollywood accounting but it’s certainly getting closer all the time.
What’s missing from the day-to-day -operating- accounts:
(1) How much of the attendance figure is simply gate receipts? How does one factor in any of the following streams: parking, concession and gift shop royalties,
(2) How much expenditure is necessary for the Reds share of maintaining the facility?
(3) How much -operational- expenditure is required to maintain/sustain the minor league system – even if it’s only keeping coaches, scouts and recruiting warmed up for an (eventual) restart.
(4) For now, I’m not looking at any interest charges and assume that there are no distributions to partners.
Once you take all of this into account, the business is likely to be taking a bath on its operating budget – and we haven’t gotten to the big ringing gong yet.
The big ringing gong: Assumptions about media revenue. I disclaim upfront any knowledge about how the Reds contracts (specifically) or MLB accounts (generically) are structured. What I -do- know is that, for example the NFL – esp. the StuporBowl — contracts typically have performance clauses. i.e. a certain minimum number of eyeballs will see the ads and provide a base for pricing ad time. Even if the Reds -direct- contracts with Fox/FSO/WLW don’t hit them directly – there is likely to be pushback from the media channels because of the bizarre 2020 season. Some of this -may-be insurable, some of this may be force majuered – but I would not be shocked that a substantial clawback has been going on behind the scenes across all of the sports world.
To be clear, I’m looking at the -operational- books, -not-the tax books – which will invariably show a large loss – everyone hopes to break even or take small transferrable losses on their partnership interests in order to -eventually- cash in with a big deferred capital gain in the value of the franchise. At the end of the day, though, the goal is to be, as you correctly note, cash-neutral day-to-day.
Bottom line: Right now is likely to be a -very- rocky patch for Team Castellini and it is entirely possible that, as a small-market and essentially family run business, they may be looking at a lot of unplanned options to cover the budget hole – down to looking for couch change.
This is -purely- speculative. I’ve been thinking about this ever since the Phillies claimed to have lost $145MM this year despite all the benefits of market size and ownership. There are longer term issues here as we look at the future of sports media revenue, but this isn’t the time or place. You’ve already indulged this post longer than I would have thought possible..
Working in the grocery industry as I do I know for a fact that all aspects of food production and food distribution are making a killing this year over people buying extra good due to hoarding tendancies. Kroger for example is making over 100 percent profits compares to a year before. Chicata is also reporting huge profits so I can only imagine that Castellani Company is also getting huge profits this year. Here is my baseball point.
Bob is the owner of the team he can take some of his glut of profit from the other business he runs. If your an owner you pay for the team in the long run. Cincinnati needs to bite the bullet and take a negative expense for this year and then possibly recover it with a playoff team in either 2021 or 2022. Also Iggy just got taken off the books which leaves us technically with NO closer. Garret or Lorenzen I would be fine with maybe even Sims on the cheaper side. Maybe there is a potential past closer who is looking for a rebound from last season.
I simply don’t think the team should be cutting payroll a lot and I am very nervous about what the rest of this offseason is going to bring. The Reds are NOT a low market team they are a MID market team and they need to stop pretending like they are near the bottom of baseball when it comes to revenue.
If Castellini were actually running the Reds as a business, he might realize that the way to improve his financial picture is to produce a product that consumers want to buy. Running a business to break even is a poor strategy. There’s more to running a successful business than cutting expenses. Try building a winning team that draws fans to the stands and eventually you may even be able to raise ticket prices. All this strategy is going to do is drive down that $50m number.
In today’s world, the definition of a building a winning team seems to mean World Series champion. There is only one of those each year and a team trying to do it on a budget that is $50-75 million annually less than a handful of competitors is behind not only the 8 ball, but behind the other 14 balls. They only win when the rich guys scratch.
Furthermore, building a team the fans will come to see is an admirable goal, but absolutely unattainable when fans are prohibited from attending by factors beyond team control. There is no guarantee fans can return in 2021, either due to regulation or to discretionary income.
Beyond that, Castellini’s wealth has often been cited here as a source for money to expend on players. However, baseball was not the only business to suffer in 2021. Estimates are that some 30% of small businesses in this country will not survive, in part as a result of the way covid has been managed, rightly, wrongly, or in between. So what has that done to Castellini’s other businesses? Were they somehow immune to losses due to covid? You cannot absorb major losses in core businesses, yet fully fund a luxury business like baseball without regard to the immediate 2020 past and the uncertainty of 2021 and beyond.
Although the plan as the New Year rang in 2020 was a window of competitive opportunity in 2020-2021, circumstances have, it appears to me, changed things entirely and may now have made this the ideal opportunity to completely re-tool in order to be in a position, both financially and player-wise, to have that winning window in place by 2022-23. I don’t expect the financial situation across the country to magically turn around in 2021, and may well not achieve normalcy by 2022. Those people who were part of the 30% of closed businesses are not going to magically have piles of excess cash to spend on luxury items like baseball tickets by 2022. I expect this to be a really tight several years. The smaller market teams that have success in the next few years will likely be the ones who take advantage of 2020-2022 to position themselves for 2023 and beyond.
Thanks for that.
Like someone else (forgot who) posted elsewhere, it’s quite realistic that Williams may have seen that the bug had destroyed this round of strategy and that the only recourse might be swallowing hard and starting over (again, again). Plus, as you point out, the Reds partners aren’t the successful hedge fund manager types – they all have their own businesses to tend to – so any massive cash call is not going to be in the cards.
This puts Reds management in a very tight, possibly no-win box for the next two-three years while things work their way through. The plan -may- have been sound – but luck can defeat even the beast of plans and, in this case, the Reds especially have not been lucky because of the timing of the bug.
I disagree with you Doc. The best managed and coached teams win championships. The big pocket Yankees have been to the world series exactly 1 time in the last 18 years. Prior to the Dodgers stealing the Friedman in 2015 they had not sniffed the World Series. Their FA signings on last year’s championship team included Justin Turner and Max Muncy who signed minor league contracts and Pollack who was expensive.
9 teams are playing in cities with population greater than 2 million. These 9 teams have made it to the world series 11 times in the last 18 years. 9 teams are playing in cities with population less than 500,000. These 9 teams have made it to the World Series 10 times over this span.
The Rays, Cardinals, Indians and Royals have proven that teams with good planning can be competitive. Granted there is less room for error. The Cardinals let Pujols go to LA. The Reds tried to sign Pujols and instead signed Votto. TB has effectively turned Delmon Young into Austin Meadows and Tyler Glasnow with a string of trades
2007: Young for Garza
2011: Garza for Archer
2018: Archer for Glasnow and Meadows
Good scouting and good management.
How do you define ‘city’ for purposes of your response?
For example, St Louis is a land-locked city with a six figure population, but is one continuous metroplex with St Louis County and a host of surrounding contiguous cities that give a draw well into 7 figures. Tampa Bay is part of a metroplex that includes St Petersburg. Arlington is part of a 4+ million population metroplex, though Arlington itself is not particularly big. Having lived in the DFW area for many years, it is anything but a small market. Only one Kansas City has a major league team but there are two Kansas Cities from which that team draws.
I suggest the the contiguous metroplex draw area is a better measure of whether a ‘city’ is big or small in a comparison such as you have made.
I did it by population base and in part intuition. NYC, LA, Chicago, Houston and Toronto are all huge. the next group in my mind going in would be Philadelphia, Boston, Dallas/Ft. Worth/Arlington and Atlanta. When I use your insight on metroplex I would delete AZ and add one of these 4.
The best determination of the bottom 9 is through competitive balance picks. All 9 teams on the list receive competitive balance picks regularly. St. Louis received an extra pick in the first round in both 2018 and 2020 for example.
St. Louis is landlocked, as are most cities in the USA but east of St. Louis is East St. Louis (population 25,000) and a lot of farmland. if you go by county population you should probably get rid of Cleveland, Pittsburgh and Minnesota on my bottom 9 and add Milwaukee, Baltimore and Colorado.
There is only one Kansas City. Kansas City is located in 2 states and the Kansas portion is sometimes referred to as West Kansas City.
I lived in KC for 5 years as soon as I graduated. Great place. Kansas City, KS, like East St. Louis, IL is an eye sore. We referred to it as KCK, if at all. I never heard anyone call it Kansas City West. : )
But the suburbs of Kansas City in Kansas (Olathe, Overland Park, Shawnee, etc) offer a higher percentage of the fanbase than even NKY does to the Reds.
Regardless, KC leveraged everything for a WS run. They were awful before and haven’t been great since. It’s not the model I’d hope for.
Food industry meaning grocery companies specifically have been raking in huge increases in sales This includes distribution companies too which is the main company that Bob runs, Some companies are reporting increase in sales and income by 120 – 150 percent this current year do to hoarding and people buying extra food in general to be prepared. There is no reason the income coming in from there can’t be moved to help pay for the Reds losses.
A quick look at the record shows that there -has- been reinvestment in the team over time. It may not be where some of us -want- that investment allocated and, at he talent level, it has been less than fully effective.
(1) Castellini has continuously invested in the amenities and peripherals at the facility., seeing it as a total entertainment business built on tp of the actual onfield team. We may – or may not – agree, but each of these dollars spent represent an attempt to increase the rev/ticket and the cash flow available to the club for all other purposes.
(2) On a more serious plane, note the investment that has been made in the system since Jocketty was replaced with a younger point-of-view. (a) over the what, last three years?, the coaching and instruction staff has been rebuilt with an emphasis on modern methods not old school (b) Driveline/Boddy. Enough said about -that-.
Or, as Elon Musk would say, Williams and Co, were spending on (re)Building the Machine That Built The Machine”. Just drafting smart or trading for talent would be meaningless unless the Reds got competitive in their ability to develop said talent – which takes $ as well as a philosophical change of attitude. Note that this is medium-term (i.e. 3-5 years) before anything comes out of the pipeline. We won’t immediately know because the wild card of Covid-19 has essentially shut down the development process for 12-18 months plus the time required to make up lost ground.
(3) There was no hesitation under the current regime about spending on free agents to try and fill seats in the meantime. The actual signings are a mix – but, again, because of Covid, we don’t know what a full -normal- season would have looked like – either in player performance or gate.
(4) The goal is to get to neutral cash flow -not- because of penny pinching but because improvements in cash flow elsewhere give you move cash to spend down on talent until you get to the neutral level. It’s baseball accounting, not manufacturing or retail accounting.
I’m not trying to mount a full blown defense of Bob and Co. There are mistakes and hindsight enough to go around. But I am trying to explain things through the lens of actually running the business. It’s more than baseball cards and draft choices.
Thankfully they have been doing this investment as you noted. If they decide to take advantage of covid to restock and rebuild, they should have the development pieces in place to be more successful than in the past. In some ways, a re-tooling now could be exciting if they could stock with good quality prospects. Johnson, Boddy, et al would be working with people who are still eager to learn and advance to the big stage, and, therefore, receptive to their instruction. They also should be better positioned to operate on a Tampa Bay model, should that be their goal/plan.
Those who see the opportunity in adversity, and can take advantage of it, are the winners coming out the other end. Those who lament are stuck in cement.
One other thought: when current ownership took over, and with no baseball experience, I suspect they did it the way its always been done. They had managers, pre-Price, who had been around forever and they had Jocketty, also a dinosaur, calling the shots. Now circumstances beyond their control may well offer an opportunity to run this business the way they run their other, blue collar kinds of businesses. Time will tell, but it’s fun to speculate.
Thanks for doing this, Tom. It’s never going to be 100% accurate, but it gives us some reference points to discuss. We don’t know how 2021 is going to unfold. In fact, the only sure thing is that there will be a new collective bargaining agreement coming. That alone, shifts some focus from just 2021 to what 2022 and beyond might look like.
+5,000 for the work and article.
Did the Reds tap PPP? If so, that number of a somewhat forgivable loan would get us closer to reality.
The BAMTech $50M (or so) was paid to the owners … the owners made the investment, keeping it out of any CBA considerations.
(Used to have specific link bookmarked … if you go back to time of sale, it was referenced by multiple MLB writers).
2 things are very possible –
– Many owners pocketed the gains, or most of them
– If MLB teams are run like businesses, that $50M is booked in a single year, unless it is put into capital reserves (which teams apparently don’t have much of).
I didn’t read everyone’s comments so maybe I missed it, but in your revenue calculations, where is the money for the national tv and radio contracts paid to all teams
In the original post, explicitly as FOX SPORTS OHIO, REDS RADIO RIGHTS yes, but the point is well taken – there should be a share of the national contract around somewhere. The offset to that is that it’s possible to derive the theoretical 2020 proration from the headline figures – I still suspect that there might be undisclosed performance clawbacks because ratings (and therefore eyeballs) were well below norms.
Note to Sliotar: A simpler answer – where did the BAMTech money go: Castellanos, Moustakas, Galvis, Bauer. Sudden money in, a sudden expenditure on free agents out above the usual payroll budgeting. Baseball money seems not to be sticky money.
I threw out two potential trades yesterday that I think the Reds would benefit from both short term and long term
Gray to Boston (or the Angels)
Prospects from Boston (Angels) to KC
Mondesi to Cincinnati.
Why the Reds win: cut payroll 6 – 8 million in 2021 and get a quality SS for the next 3 years.
Why it probably won’t happen. Teams may not be willing to give up prospects this winter in trades. Even for someone as cheap as Gray. KC would definetely deal Mondesi for the right set of prospects.
Gray and Moustakas to the Phillies
Bohm and Quinn to the Reds
Why the Reds win: Alec Bohm is a stud. The Reds could take the salary savings and acquire Didi on the FA market.
Why the Phillies won’t do it. Alex Bohm is a stud. Like most every other team the Phillies are looking to cut payroll this winter not add to payroll.
I will never be a millionaire let alone a billionaire, but to me if you are rich enough to own a major sports franchise, you don’t own it to make it a profitable business. You own it for ego. To win championships and have your name spoken to the country. Not one person outside Reds fandom can tell you who the owner of this team is.
So Bob what are you doing? What is your end goal. Break even? It certainly isn’t winning championships.
I think most owners buy franchises these days for their resale value. Pretty sure Jeter’s group is in it to turn a big profit. Their strategy seems to be to buy at a price, not lose money each year, & then sell for a ton of money in 10 or so years. Each time a franchise is sold it’s proof that they continue to gain value no matter how successful they are on the field.
That’s the traditional formula for almost all real estate and limited partnership business models. Break even operationally, report a loss due to interest and depreciation for tax purposes and then, when you -do- cash out, the gain is a long-term capital gain, reinvested and inflated over many years, and taxable at a preferential rate. If at all possible, leverage it. Inflation chews away at the -relative- value of the debt and inflates the valuation in nominal dollars.
One of the kinks is that MLB apparently frowns upon -operating- debt finance – the initial purchase is levered, facilities -may- be levered (but then we too often have the taxpayer to do that), but leveraging -operating- cash seems to be viewed as putting the long-term health and competitiveness of the franchise at risk. So, in most case, that appreciation of paper value is not a piggybank that can be raided or collateralized. Cash injections from outside are, of course, another matter – but Big Bob is -not- a hedge fund operator in the class of, say, Steve Cohen or any of the Arabs who think Premier League franchises are even -more- fun than horse racing.
Love the article Doug. Although there are a lot more expenses involved with running an MLB team besides player payroll. I’m in the camp of trading an established veteran to either reallocate their salary to a shortstop or get some high powered prospects.
This is the year where there are some talented free agent shortstops available without a kings ransom. No way do I trade the farm for 1 year of Lindor or Story.
I like Sonny Gray – a lot. So it should take a lot to get him. I’m much more inclined to trade Suarez. We have players that can play his position and he makes about the same amount as Sonny. Pitching is so hard to find and develop….unless they don’t like Sonny’s medicals?
love the Article Tom!, not Doug on this one. Sorry about that.
No comment,I’ve forgotten more about baseball than most peoples posts,yet my posts are not put up.
Great summary Tom
This shows how awful the contracts for Moustakas and Castellanos are. The Reds are going to be paying an average of 30 million a year for those two.
Those brilliant signings produced negative WAR in 2020. The current analysis shows WAR is around 5 million. Those two produced less than that. Those contracts are a sunk cost and cannot be moved.
Was not a big fan of Jose Iglesias, but, the Reds could have kept him to play 2B for around 3-4 million and out produced both of them combined.
These two contracts should be an example to those that think the Reds need to spend money to show they want to win. Make smart baseball decisions and you can win. Paying a lot of money for average at best players is not a winning strategy.
a lot of negative comments today. i look at things differently. i think this pandemic has been a great equalizer. there is no such thing as small market/vs large market now. it is going to be a long time before the Brewers, Cubs, and Pirates, dodgers, Giants have fans in their stands. the reds on the other hand will have fans this year. not to capacity but they will have fans. that is income. it doesn’t matter how bad the team is people are itching to get back into the stands. geez, look at the lowly bengals, they are still filling pbs up to their capacity. plus i think players will want to play in front of fans and i think that could make a difference in where free agents want to sign. i actually see bright days ahead for the reds and darker days for the “big market” teams
Tough task for Mr. Krall & Co. ahead. Those contracts with Votto, Castellanos, Moustakas, Suarez & Akiyama will certainly prevent the team from making any significant moves in years to come, at least within the next three years. Pair it with this year’s (and probably next too) financial results and it’ll be almost impossible to address any roster shortcomings.
Great article Tom. Thank you!
Good breakdown of income versus expenses, Tom. I’m sure there are other sources of income, just as there are other expenses. One expense I would be interested in knowing would be organizational-wide medical expenses (including insurance).
I think it is pretty much an industry-wide goal among owners to at least break even from year-to-year. Loosing money not only comes out-of-pocket, but can also depreciate the potential sale value. Of course the big payday comes when they cash out and sell the team. But just because a team is “valued” at $1 billion, that does not mean that the owner can go spend $1 billion on expensive players, or even that he will be able to sell the team for $1 billion. It may be “worth” $1 billion, but the highest offer he gets might only be $800 million.
Yes … baseball owners are in it to make money, but so are the owners of car dealerships, plumbing companies, car washes, restaurants, and every other business that I can think of.
Serious question. Castalini is the principle owner but not the majority owner. Assuming they wanted to run in the red for a season or two would he have to get approval from the rest of the ownership group, especially the Williams brothers who I think own a larger percentage of the team?
I guess where I am heading with this is how much more complicated is it when you have a larger ownership group vs a smaller one with a clear majority owner?
Probable but not certain answer: Almost certainly, yes. Depends upon how the partnership has been structured. Who is the Managing Partner (who may – or may not – also be the majority partner. I suspect, in this case, not.)? How much operational authority have the partners delegated to the Managing Partner? What actions require review and assent by the partners and what is the threshold – majority, supermajority, unanimity – for any such action? Every partnership is unique, each one has its particular quirks.
Update: After Monday’s Raisel Iglesias-for-Noe Ramirez trade, Spotrac says the Reds’ payroll commitments for 2021 are now $108,539,880 (down from $116,564,880 cited above).
This analysis is missing a big set of costs. There are the fixed costs of running the team and the stadium and there are the variable costs associated with the games. About 5+ years ago it was estimated it costs the Reds about $50M to run the club. Who knows how that sorted out last year. The fixed costs didn’t go away but the variable costs might have been mitigated a bit. But, the costs to run the team in a normal year are provably 15% higher than that past number. So, rough guess is that the Reds took more like an $18M plus $30M-$60M loss.
Then, consider that Covid may prevent fans in 2021. I’d say it makes a lot of sense why the Reds are dumping salary.
Not to add further to the complexity but…….
Everything said to date is tactical (i.e. current year) focused. There -is- yet another ply to the problem – i.e. strategic – the fear and loathing that takes place further downstream.
(1) The CBA is coming up for renegotiation. What is the expectation and how does that affect the anticipated future payroll? Much less the prospect of -any- kind of labor interruption piling on. Whatever answers you have for the above, you can assume that -every- club is going to run up a -big- cash buffer. Just like the rest of businesses during the pandemic. Those who can, will. Those who can’t, must or will restructure. We also don’t now what the obligations to the reformed minor league structure are going to be – we can anticipate that there will be pressure to increase minor league salaries.
(2) Volatility of the future media stream – Everyone has gotten used to the idea that broadcast revenue and rights are a tree that can only grow higher. A form of entitlement. I toss this one in the can for discussion: What if we are at or near peak revenue? Note that the last Premier League rights auction in the UK -fell- in value. Even with all of the new bidders (streaming, internet) will – over time – represent a larger pool or just fratricide within the existing pool? There will be winners but there will also be losers. And, finally, have we reached peak eyeball? There are only so many days in the hour to watch sports, especially if we all somehow go back to work, and the amount of sports to view continues to grow exponentially as everyone wants to fill their pipeline.
(3) The uncertainty of how sports betting revenue will develop. The current bright shiny object. Not that it won’t grow, it definitely will – but by how much. Casino revenue, marijuana legalization as examples – the cash grows, but it’s at beast a modest winfall and not always the Comstock Lode that was advertised.
All of this implies that the owners are going to feel internal too tighten up across the board. It may or may not be correct, but they have a tendency to be (overly?) reactive.
All the more reason – as espoused above – to “Be Like Tampa”. This is particularly suited to the Reds dilemma. Just don’t expect it to be easy to master because the Tampa doctrine is out of the bag. A lot of competing franchises are also going to want to “Be Like Tampa”.
It would be very interesting to do a strategic analysis on all the external and internal headwinds and tailwinds MLB will face, practically the Reds. I think you’ve definitely named some of the factors.
When I started to make my simple cost model for the team to guesstimate its 2020 loss, it hit me that there’s a lot in motion and it’s less predictable going forward.
If I were the Reds, I’d do a deep dive into my margins over variable costs and focus and begin cutting activities that have the potential to go negative. I’d also look at cutting any unnecessary fixed costs. Unfortunately for the Reds, they spend the last decade greatly improving the fan experience that, in a non-Covid market, was a smart move because that would produce revenues that can be converted to player investment. The stadium fan experience didn’t exist in 2020 and it’s possible it’s extremely limited in 2021.
Of course, a team like St Louis that draws a million more fans a year in attendance are hurt even more by Covid because a greater chunk of revenue is lost. So, at least the Reds are operating in a world that’s disrupted every team in some way.
Of course, there’s also the risk of oversteering in response to Covid. It’s hard to tell if these recent moves by the Reds are an oversteer, a necessary salary dump, or smart, strategic moves – or battle space preparation for the CBA negotiation. Maybe it’s a combo of all the above.
Good article on Fangraphs reported the Braves are on track to lose about $65M this year–they are publicly owned so have a reasonably good idea since they have to report their earning/losses.
Some data scientist at UC-Berkley calculated the average spend by fans for each franchise based on 2017 attendance data. For the Reds, the average was $42.64.
Attendance in 2019 was reported by ESPN as 1,808,685 which would imply a 2019 attendance revenue of $77.1M. The Reds likely expected a bump in attendance in 2020. A bump to just 2M fans would imply a planning factor of $85M.
If fans are allowed next summer and capped at 20 percent similar to what some college football programs are allowing the Reds would have a max attendance of 713,400 which would imply a best case attendance revenue $30.4M.
Did the Reds get revenue sharing money from the large market clubs in 2020? Supposedly the high attendance franchises had the larger losses. In my cursory look, I couldn’t find the answer to that question.
My best guess is the Reds took a loss in the neighborhood of the Braves. Unlike the Braves, they operate at break-even yearly and likely don’t have much cushion to fall back on. They are likely facing a loss this year, too. It will be very interesting to see how they deal with it. Jettisoning two closers and a fifth OF, all who are legit contributors on a good team, is concerning. However, relief pitching and the bench are probably the best places to find less expensive replacement players.
Funny, I did my back of the envelope math and it came out in the ballpark (pun) of the Brave’s loss.
Based on the following site, the Reds may also receive approximately $13M each year from merchandising. That indicates a better situation over the 2-year span of 2020/2021. http://camdendepot.blogspot.com/2016/01/where-mlb-receives-its-revenue.html