Friday, December 07, 2001
Reds not as bad off as some
Analysis: New ballpark will help Reds
By John Fay
The Cincinnati Enquirer
Spending more money on players might turn the Cincinnati Reds into a winner, but it won't necessarily help the team turn a profit.
The numbers Major League Baseball commissioner Bud Selig presented to Congress on Thursday hammered home that point.
The World Series champion Arizona Diamondbacks finished on top of the baseball world, but reported an operating loss of $44 million.
The Reds lost 96 games and finished seventh in the financial sweepstakes. Only five teams turned operating profits. The Reds' operating loss — $285,000 — was the second-smallest in baseball.
The Reds won't talk about the numbers. But Carl Lindner's mission when he brought the Reds was to break even. He has essentially done that — if you believe the numbers.
The players don't.
“Not really,” said Reds player representative Aaron Boone. “We'd like to have an open and frank discussion and really go into it, but we have a confidentiality agreement with Mr. Selig. They could sue if we did.
“But I'll go back to a quote from Paul Beeston from when he was with Toronto: "In baseball, I'd turn a $6 million profit into a $4 million loss and get every accountant in the room to agree with me.'”
Mr. Beeston is now MLB's chief operating officer. MLB and the Players Association agree on few things, so it is not surprising players take issue with the numbers.
There is room for disagreement because the figures released by MLB are “operating” statistics.
Operating figures reflect the revenues and expenses directly related to baseball, but may not include income derived from other activities and are before deductions that could include income taxes, prior-year adjustments or adjustments from changes in accounting methods.
The Reds actually had an $11 million operating loss, but they received $13.4 million in revenue sharing; the $285,000 operating loss came after factoring in interest payments.
The small-market Reds did much better financially than big-market teams such as Atlanta ($23.9 million operating loss) and Los Angeles (an MLB-high $68.9 million operating loss).
The Reds were able to do that because chief operating officer John Allen has kept a close eye on expenses. Before Mr. Allen arrived, the Reds — under managing general partner Marge Schott — bled money. Frank Coonelly of MLB said the Reds lost $9.9 million in 1996 and $6.4 million in 1997. Mr. Coonelly said the team made $3.5 million in 1998, but lost $1.6 million in 1999.
The Reds were profitable in 2000, Mr. Coonelly said, but he didn't have the exact numbers.
The Reds have been reluctant to add expensive players.
Players such as Jeff Shaw, Dave Burba, Steve Parris, Dante Bichette, Chris Stynes and Denny Neagle were traded in recent years because Cincinnati couldn't fit their salaries into the budget.
That's the same reason Pokey Reese and Dmitri Young are on the trading block now.
For the Reds to continue to avoid losses, they must control payroll because they can't hope for a big increase in revenues until they move into Great American Ball Park in 2003 — or until MLB teams agree to share more revenue.
According to MLB, the Reds brought in $32 million in game receipts at Cinergy Field, drawing 1,879,872 fans. A 66-96 record in 2001 won't help increase interest and attendance in 2002.
The other big source of revenue for teams can be local television and radio contracts. The Reds took in $7.8 million in 2001. That won't change. Cincinnati is the 32nd-biggest market in the United States, so advertising rates and rights fees can't compete with big markets.
The New York Yankees earn $56 million from their broadcasting deal. The disparity is one area that MLB teams could try to narrow through increased revenue sharing. That will be an issue as players and owners try to work out a new labor deal.
The Cleveland Indians collected $21 million in broadcast revenue and more than doubled what the Reds got in game receipts.
Yet Cleveland, considered one of the model franchises, reported an operating loss of $11 million, largely because it had to pay $13 million in revenue sharing.
With no means of greatly increasing revenue, the Reds have to control expenses. Under the collective bargaining agreement, players salaries greatly increase as they gain experience.
Rare is the player who pays for himself. Superstar outfielder Ken Griffey Jr. meant an immediate boost in ticket sales when the Reds traded for him in February 2000, so he was worth the $117 million — much of it deferred — the Reds paid him.
So is there any hope the Reds can remain financially viable and win? Yes.
The Reds are about to move into a new stadium that will increase revenues substantially. If the Reds can match revenue increases the Milwaukee Brewers found in their new ballpark, that would mean $16 million more in game-receipt revenue — enough to get a premier decent starting pitcher these days.
But the real boon is in more dollars from signage and suite rental. Milwaukee took in $37 million in “other local operating revenue,” compared to $8.5 million for the Reds. That's $28.5 million more for the player payroll.
And under Mr. Allen's leadership, the minor-league system has been rebuilt and that means young players that cost less are coming up. Outfielder Adam Dunn, for example, is likely to be an everyday starter who will make close to the $200,000 Major League minimum.
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Reds not as bad off as some