Fewer Fans, Bigger Money: The New Economics of Chicago Baseball

\n\n\n \n\nFewer and fewer people are attending Major League Baseball games in Chicago, unhealthy sickness yet our major league teams are increasing rapidly in value.\n\nThat’s what graphing Cubs and White Sox attendance and Forbes team values from 2003-2011 tells us.\n\n\nFirst, buy cialis ampoule a little bit about the annual Forbes valuations.\n\nIn estimating a major league team’s value, Forbes considers revenue sharing, city and market size, stadiums, and brand.  They also calculate each team’s revenue, operating income, debt/value ratio, player expenses, and gate receipts.\n\nAnnual attendance figures are relatively straightforward, non-contentious, and available all over the internet.  Forbes’ annual baseball valuations, on the other hand, are complex, not scrutinized by outsiders, and have been the subject of some debate in sports economics circles.\n\nThere are quibbles about methodology, but the big problem is that Forbes deals with imperfect information.  Forbes baseball valuator Mike Ozanian pieces together what he can from attainable documents and insider info, but much of baseball’s financials remain a closely guarded secret.\n\nStill, Forbes’ valuations are valued in the sports economics community.  Baseball business writer Maury Brown, who penned a piece on Baseball Prospectus last year titled “Bizball: Why the Forbes MLB Valuations Are Far From Perfect,” concedes that the Forbes calculations are “great as a ‘trending’ measurement.”  “Are The Forbes Valuations Worth Using?” Brown asks in the post.  “The answer is easy: yes.” Brown responds (presumably then thanking himself for the softball question).\n\nSo in general, more than the hard numbers (although they’re usually in the ballpark, so to speak), we are to trust the trajectory of Forbes team values.  Well, baseball team values are trending upward significantly.  And the Sox and Cubs are no exceptions, despite their lower attendance numbers.\n\nThe White Sox experienced an attendance bump following the team’s World Series title in 2005, but in recent years, the average draw at U.S. Cellular has returned to 2003-2004 levels.  Yet from 2003-2011, the estimated value of the White Sox franchise has more than doubled, increasing every year over that span.  Attendance dropped every season from 2007 to 2011, but the team’s estimated value jumped from $443 million to $600 million.  In a word, Sox attendance is going down, down, down, while the team’s value is going up, up, up.\n\nA period of decline in attendance at Wrigley Field from 2008 to 2011 (40,743/gm to 37,258/gm) occurred along with a $179 million increase in estimated club value over that time.  From 2003 to 2011 the Cubs home attendance remained fairly steady compared to the White Sox; meanwhile the estimated value of the Cubs grew by an astronomical $521 million as the club inches toward becoming the fourth MLB team worth a billion dollars or more.  That’s billion with a b, as in bonanza!\n\nThe correlation is weakening between a successful gate and pecuniary success for MLB teams.  There are many reasons for this.  For one, stadium subsidies have shifted a lot of debt and overhead from privately owned teams to the state, making baseball franchises more attractive business investments.  But baseball’s revenue model has changed as well.  The title of this Biz of Baseball post says it all: “MLB Teams are Media Companies.”\n\nFirst, there is the growing MLB media market.  Teams get a 1/30 share of MLB-generated central revenue, including national television contracts and MLB.tv (and licensing and merchandize, All-Star Game revenues, etc.).  MLB reportedly will re-up with Fox and Turner in 2014 for $850 million annually through 2021.  That’s about $28 million gross per team per year coming from two contracts—to give you an idea of what kind of money we’re talking about.\n\nThe cable industry, in competition with Over-The-Top content providers, has ponied up for exclusive broadcast rights to professional sports.  “Rights fees paid by cable television channels are behind the growth in team values,” writes Ozanian at Forbes, pointing to the $328 million to $923 million rise in total cable television revenue for baseball teams over the past 10 years.\n\nOzanian figured these numbers before the Los Angeles Dodgers and Time Warner Cable announced their $7-$8 billion (again that’s a b, as in: you must be blotto!) agreement, which is set to kick in for the 2014 season.\n\nThe White Sox and Cubs have not yet approached those ludicrous numbers.  And neither owns a lucrative regional sports network like the Yankees or Red Sox.  What the Chicago teams do own is a 60% stake (Reinsdorf owns 40% and the Ricketts own 20%) in Comcast SportsNet Chicago.  And they operate in a large television market.  The $450,000 the Sox and Cubs receive for every one of their respective games broadcast on the network is not exactly chump change.\n\nThese days, value rises rapidly in anticipation of a team cashing in on a new cable TV deal, and the Cubs deal with WGN ends following the 2014 season and with CSN after 2019.  Whatever agreement the Cubs come to in the next five years is sure to be massive, and probably makes the mayor’s subsidy snub an easier pill to swallow for the Ricketts.\n\nThe social and political ramifications of the new baseball model are many.  One effect is that baseball teams give a lower percentage of their revenues back to the communities that support them.\n\nThe state and city funded the construction of U.S. Cellular Field through the Illinois Sports Facility Authority.  The fees that the White Sox pay in return are based entirely on ticket sales.  Any language having to do with “Media Fees” going from the Sox to the ISFA was eliminated by a 1998 amendment to the original agreement.\n\nIn other words, Jerry Reinsdorf can be bathing twice a day in TV money, but the city will continue to drown in a sea of subsidy payments and stadium debt.\n\nThe Cubs situation is less egregious, but still worse for regular taxpayers.  Ticket revenues are used to calculate the property tax the Cubs pay for Wrigley Field.  Commercial property tax rates in Chicago have reportedly stayed flat or increased over the past ten years.\n\nHowever, all of this new media revenue has nothing to do with property taxes.  Money from Comcast, WGN, MLB, etc. is accounted for in corporate income tax payments.  In contrast to property taxes, the corporate tax rate has been plummeting.\n\nAnd it doesn’t hurt the Ricketts or Reinsdorf that they own a share of Comcast SportsNet because, as Ozanian explains: “The ultimate cable model for a team is to own an equity stake in a regional sports network because it means you get two revenue streams (cable fees and advertising revenue) and have greater financial flexibility (for example, debt can be parked at the RSN rather than the team).”\n\nSo I guess baseball ownership in Chicago enjoys a double dip in television revenues, and I fear that \”greater financial flexibility\” is a euphemism for further finagling of the tax system, which sports owners historically have shown little regard.\n\nIt’s no surprise really.  When it comes to subsidies and tax policies, our elected officials have been rolling over for Chicago’s sports entertainment industry for years.  Really, the only people who have been able to get anything from baseball owners are baseball players.\n\nIf only we had Marvin Miller and Scott Boras on the city council!\n\nNope, that won’t work; one guy is dead and the other would be taking a huge pay cut.\n\nSo I guess we’re stuck waiting for our politicians to start representing people’s interests over corporate interests.\n\nLet’s not hold our breath.

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