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dougdirt
08-20-2009, 04:08 PM
According to a source from Hal, thats what it looks like

http://www.daytondailynews.com/blogs/content/shared-gen/blogs/dayton/cincinnatireds/entries/2009/08/20/so_what_is_the_grand_plan.html
So what is “The Grand Plan?”

By Hal McCoy | Thursday, August 20, 2009, 02:30 PM

Nearly every day WLW, the Cincinnati Reds flagship station, plays a sound bite from CEO Bob Castellini in which he says, “We’re just not going to lose any more.”

That sound bite comes from two years ago and was an answer to a question I posed on the day general manager Wayne Krivskhy was fired early in the 2008 season.

The question was, “When are the Reds going to consider some stability in the general manager’s office and in the manager’s chair.”

Castellini wasn’t happy with my question and snapped out the answer, “We just aren’t going to lose any more.”

How is that working so far? As today’s game unfolded, the Reds were 19 games under .500 and the only team below them in the NL Central is the Pittsburgh Pirates.

And that’s all the Reds have left to play for this season - staying out of last place. The Reds and the Pirates play 13 times the rest of the season, beginning tomorrow night in Pittsburgh.

The theme: The Battle for the Bottom.

Since the Reds last had a winning season in 2000 and the manager was Jack McKeon and the general manager was Jim Bowden, the team has been managed by Bob Boone, Dave Miley, Jerry Narron, Pete Mackanin (interim) and Dusty Baker.

The GMs have been Jim Bowden, Dan O’Brien, Wayne Krivsky and Walt Jocketty.

Since McKeon and Bowden left, the theme has been rebuilding through the minor-league system. That’s the stated theme, The Grand Plan.

Well, it has been nine years of losing now and how is that working? The old Brooklyn Dodgers had a chant every year when they were eliminated, “Wait ‘til next year.” With the Reds, it is more like, “Wait until the next decade,” and even that doesn’t work.

The Reds and Jocketty keep saying they have a plan and that plan is the same plan they’ve told fans over and over, “We’re building from within.” They never saw how long that plan will take. Probably won’t happen in my lifetime.

What bothers me is the trade for Scott Rolen - a great guy, a great player. But he is 35 and injury-prone and has played only four games since the July 31 trade. To get him, the Reds gave up two young pitching prospects, Josh Roenicke and Zach Stewart.

Is that building from within? Jocketty says he hopes Rolen sticks around for three or four years.

Why would that be? One of the Reds’ top prospects is third baseman Juan Francisco, who was recently promoted to Class AAA Louisville. He isn’t far away and one wonders, “If Rolen is around, where will Francisco play?”

Hopefully, somebody with the Reds is watching and studying what the Florida Marlins do. The Marlins spent about $90 million before the 1997 season on free agents and bought themselves a World Series trophy.

After that season, the Marlins got rid of most of their high-priced players and began building from within. And with one of baseball’s lowest payrolls, they won another World Series.

And they keep doing it. Low payroll, high return. They compete every year with one of baseball’s lowest payrolls, doing it mostly with homegrown talent. They are in the hunt against this year, in second place in the NL East, chasing the Phillies.

Why can’t the Reds do it? They could. Easily. If they’d only stick with the plan instead of constantly veering off course to sign players like Corey Patterson, Willy Taveras and trading for a player like Rolen, who will hinder the advancement of Francisco, unless they move him to left field. Then what are they going to do with shortstop-third baseman-left fielder- second baseman Todd Frazier?

Krivsky did a lot of good things in his short time with the Reds, especially in the development department. Krivsky, a long-time development guy with the Minnesota Twins - another team that does it right - was perfect for the Reds “Grand Plan.”

But Castellini became impatient and wanted Jocketty in the GM’s chair. Castellini was a minority owner with the St. Louis Cardinals when Jocketty was GM there.

Yes, the Cardinals were, and are, successful. But they aren’t a developmental team. They spend money. They sign free agents and they make trades for established players.

Perhaps Krivsky’s only curious move was to sign closer Francisco Cordero to a $47 million contract. A team building for the future doesn’t need an expensive closer.

Now he is an albatross on a team that doesn’t win enough to need an established closer. That’s a job that should be handled on the Reds by a young, inexpensive talent - Josh Roenicke was one. Jared Burton could be one. Nick Masset could be one.

If they can, the Reds should trade Cordero - the Phillies and Cubs could use a closer and have the cash to do it. That would save the Reds $25 milion over the next two years and make room for more young pitchers to develop.

I’m still scratching my head over why the Reds spent $10 million last off-season to buy a new HD scoreboard. It’s a nice trinket, but what was wrong with the old scoreboard?

You have to have fans in the park to see that scoreboard. The Reds were counting on 2 to 2.5 million fans this year but are headed closer to 1.5 to 1.7 million and there are indications the team will lose close to $15 million this year, according to a person close to the inner workings.

I don’t profess to be as knowledgeable as a club owner or a GM or a scout, but I do think that coming up with a plan and sticking with it would be beneficial.

And then prove to the fans that there is a plan that won’t take another decade to produce a consistent contender - like the Marlins or the Twins or the Tampa Bay Rays.

dfs
08-20-2009, 04:14 PM
I love the new hal.

WMR
08-20-2009, 04:15 PM
Hopefully they'll lose 30 million next year if the product on the field isn't any better.

(Not that I believe they've lost money. The increasing valuation of the franchise alone puts them WAY into the black. More excuse-mongering and loser-speak from the Reds, nothing to see here.)

traderumor
08-20-2009, 04:15 PM
What bothers me is the trade for Scott Rolen - a great guy, a great player. But he is 35 and injury-prone and has played only four games since the July 31 trade.Regardless of one's opinion on the trade, this is as ludicrous a comment when Hal says it as it is when someone posts it on here. His playing only 4 games is from getting plunked in the head, which this beaning seems to have amazingly affected other people's ability to use logic.

paulrichjr
08-20-2009, 04:17 PM
Hal is going out with a BANG! I agree with almost everything he said. The Krivs firing never made sense unless you were going to spend big. Walt has proven to me that he can't think like a small market GM. Go get a Minnesota Twins/Florida Marlins guy to teach him how to do it.

johngalt
08-20-2009, 04:20 PM
I’m still scratching my head over why the Reds spent $10 million last off-season to buy a new HD scoreboard. It’s a nice trinket, but what was wrong with the old scoreboard?


How about because MULTIPLE officials from the club have talked about how the old scoreboard was constantly having issues and in danger of simply shutting down for good? That is, of course, unless you want to believe they're all lying about that and they were just dying to spend $10 million on a new scoreboard and spend the entire winter installing it and learning new equipment.

Falls City Beer
08-20-2009, 04:22 PM
Hal is going out with a BANG! I agree with almost everything he said. The Krivs firing never made sense unless you were going to spend big. Walt has proven to me that he can't think like a small market GM. Go get a Minnesota Twins/Florida Marlins guy to teach him how to do it.

Get the real thing from the Twins (Ryan), not a knock-off.

Of course, there's no way Ryan comes out of retirement.

Benihana
08-20-2009, 04:26 PM
I love the new hal.

x 2.

He just summarized what RedsZone has been saying for years. I hope somebody's listening.

traderumor
08-20-2009, 04:26 PM
I'm not sure the scoreboard point is fair. This was a major capital expenditure and was probably planned months/years in advance. It wasn't likely an impulse purchase.

I think there are plenty of big problems to hone in on with the current regime without resorting to potshots.

Falls City Beer
08-20-2009, 04:32 PM
Except Hal's dead wrong about Rolen "blocking" all that talent in the minors. Talk about ignoring facts to make a gossamer-thin jab.

The real trouble with this team is not that they have Gomes or Rolen; it's that they have no one internally to replace them.

bucksfan2
08-20-2009, 04:37 PM
Not that I believe they've lost money. The increasing valuation of the franchise alone puts them WAY into the black. More excuse-mongering and loser-speak from the Reds, nothing to see here.

That is not cash flow. The life blood of a company is its cash flow.

Benihana
08-20-2009, 04:39 PM
Except Hal's dead wrong about Rolen "blocking" all that talent in the minors. Talk about ignoring facts to make a gossamer-thin jab.

The real trouble with this team is not that they have Gomes or Rolen; it's that they have no one internally to replace them.

That's true also, although I think it's not hard to make the argument that both Stewart and Roenicke could've helped.

That said, I've been crooning about the lack of premium talent in the minors for a while now. Chris Buckley should be demoted to Day 2 of the draft. He's great at plucking role players in the mid to later rounds, but they should bring in someone else who understands how to consistently bring in premium talent on Day 1.

Benihana
08-20-2009, 04:41 PM
That is not cash flow. The life blood of a company is its cash flow.

Not a professional sports franchise, no sir.

Talk to anyone familiar with the financial side of the industry. Talk to Steve Greenberg, or any of the sports bankers over at Allen and Co. Valuations are all that really matter.

knuckler
08-20-2009, 04:46 PM
I'm not sure the scoreboard point is fair. This was a major capital expenditure and was probably planned months/years in advance. It wasn't likely an impulse purchase.

I think there are plenty of big problems to hone in on with the current regime without resorting to potshots.

My understanding (from the Enquirer, so it's not like I have some special insider knowledge) was that the scoreboard manufacturer had gone out of business and they couldn't get spare parts to keep it running. They could have gone cheaper probably, but you've got to give fans SOMETHING nice to look at when they show up.

Cyclone792
08-20-2009, 04:49 PM
How about because MULTIPLE officials from the club have talked about how the old scoreboard was constantly having issues and in danger of simply shutting down for good? That is, of course, unless you want to believe they're all lying about that and they were just dying to spend $10 million on a new scoreboard and spend the entire winter installing it and learning new equipment.

If true, that just begs the question why a six-year-old scoreboard was heading for the trash bin. When pieces of a stadium that just opened in 2003 start falling apart, it makes me scratch my head.

Was it Lindner just being who he is (a cheap [insert favorite adjective here]) and opting to go with something low quality?

Was it somebody in the Reds' organization being awful at their job during construction (hey, this equipment stinks but let's buy it and install it anyway!)?

Either way, both of those would totally be a Reds' thing to do.

membengal
08-20-2009, 04:58 PM
I love the new hal.

I wish hal had been more like this prior to the axing, this is great.

15fan
08-20-2009, 05:06 PM
Not a professional sports franchise, no sir.

Talk to anyone familiar with the financial side of the industry. Talk to Steve Greenberg, or any of the sports bankers over at Allen and Co. Valuations are all that really matter.

Yep.

It's all about transfer pricing, portfolio performance, and taxes.

Edit: A lot of Hal's material sounds eerily familiar to Redszone. Kind of ironic coming from a guy who dogged the internet message board crowd for many years.

LoganBuck
08-20-2009, 05:10 PM
The Cardinals find that winning leads to higher revenues.

That is all.

bucksfan2
08-20-2009, 05:14 PM
Not a professional sports franchise, no sir.

Talk to anyone familiar with the financial side of the industry. Talk to Steve Greenberg, or any of the sports bankers over at Allen and Co. Valuations are all that really matter.

How? It doesn't make sense.

Lets say the Reds are valued at $500M. If they put the franchise on the market today it would probably fetch around what it is valued. But that isn't liquid cash. They can't turn much of that $500M into cash without selling some of its assets.

Now lets assume that the Reds expenses are $80M while its revenue is $75M. In essence they are losing $5M during that time period. They can borrow against the value of the franchise, but then that cost more money.

In any industry if you have more money going out than you have coming in it is a bad thing.

Chip R
08-20-2009, 05:15 PM
Edit: A lot of Hal's material sounds eerily familiar to Redszone. Kind of ironic coming from a guy who dogged the internet message board crowd for many years.


Heh. Feeling a little schadenfreude there?

AtomicDumpling
08-20-2009, 05:18 PM
The Reds might lose $15 million? Not hardly.

Forbes says the Reds will make about $17 million this year, just a little less than they usually do.

Most teams claim they are losing money, but none of them are actually losing money over any length of time. It is merely a ploy to keep the fans from protesting against ownership for fielding a pathetic team every year.

CarolinaRedleg
08-20-2009, 05:19 PM
I guess this means the losing didn't stop?

ochre
08-20-2009, 05:19 PM
Next thing you know, Hal is running to his mule for more ammo. As soon as he enters the courtyard, the Bolivian calvary opens fire.

ochre
08-20-2009, 05:20 PM
I guess this means the losing didn't stop?
It stops nightly, usually around 11pm EDT.

Benihana
08-20-2009, 05:24 PM
How? It doesn't make sense.

Lets say the Reds are valued at $500M. If they put the franchise on the market today it would probably fetch around what it is valued. But that isn't liquid cash. They can't turn much of that $500M into cash without selling some of its assets.

Now lets assume that the Reds expenses are $80M while its revenue is $75M. In essence they are losing $5M during that time period. They can borrow against the value of the franchise, but then that cost more money.

In any industry if you have more money going out than you have coming in it is a bad thing.

Because sports franchises aren't run like normal businesses- anyone that works in the industry will tell you that. Owners of sports teams don't want to lose money, but they also don't look to optimize profits year-to-year the way an owner of any other business would. They are what's called "prestige purchases", where an owner buys a team as an ego play or a personal toy- not usually because they think that will be the best way to make money (at least on a year-to-year basis.) However, where owners do make significant ROI is in the valuation of the franchise, which historically has appreciated more than almost any other asset class.

Take the Yankees for instance. They lose money year after year. Yet that franchise has a better CAGR than the Chinese economy. Of course, they also make money through other outlets (including the appreciation of the YES Network, which was the brainchild of the aforementioned Steve Greenberg.)

Anyway, it is a long and drawn out concept, but the reality is sports franchises aren't designed to make boatloads of money in cash flow year in and year out- unless of course, you're talking about the Bengals.

Benihana
08-20-2009, 05:25 PM
The Reds might lose $15 million? Not hardly.

Forbes says the Reds will make about $17 million this year, just a little less than they usually do.

Most teams claim they are losing money, but none of them are actually losing money over any length of time. It is merely a ploy to keep the fans from protesting against ownership for fielding a pathetic team every year.

That's also correct.

PwC runs the real numbers, and I can tell you they are much better than what is reported publicly.

WMR
08-20-2009, 05:32 PM
Nice posts, Beni and AD. :thumbup:

IslandRed
08-20-2009, 05:32 PM
The Reds might lose $15 million? Not hardly.

Forbes says the Reds will make about $17 million this year, just a little less than they usually do.

The fine print of the Forbes page says $17 million is their estimate of what the team made last year. But for the sake of argument, let's assume the team has similar financial goals from year to year (and since the Forbes report was in April, it could only be a projection). I have no idea what the real numbers are, but if they budgeted based on drawing 2 million fans and only get 1.7 million, and everything else stays equal, obviously they're going to make less money this year. Now, I don't see losing $15 million cash money by any means. That might be the final paper number handed to the IRS after the accountants do their thing.

AtomicDumpling
08-20-2009, 05:33 PM
That's also correct.

PwC runs the real numbers, and I can tell you they are much better than what is reported publicly.

Yeah, the Forbes numbers are very conservative. The PwC numbers almost always show significantly higher profits than the publicly available Forbes estimates.

Owning an MLB franchise is a cash cow of historic proportions. It is quite comical to listen to their cries of poverty. It is amazing how many fans believe it.

AtomicDumpling
08-20-2009, 05:36 PM
The fine print of the Forbes page says $17 million is their estimate of what the team made last year. But for the sake of argument, let's assume the team has similar financial goals from year to year (and since the Forbes report was in April, it could only be a projection). I have no idea what the real numbers are, but if they budgeted based on drawing 2 million fans and only get 1.7 million, and everything else stays equal, obviously they're going to make less money this year. Now, I don't see losing $15 million cash money by any means. That might be the final paper number handed to the IRS after the accountants do their thing.

The Forbes numbers said the Reds made $17 million last year, but they also predicted last month the Reds would make that amount again this year. The PwC numbers will most likely be a lot higher.

bucksfan2
08-20-2009, 05:38 PM
Because sports franchises aren't run like normal businesses- anyone that works in the industry will tell you that. Owners of sports teams don't want to lose money, but they also don't look to optimize profits year-to-year the way an owner of any other business would. They are what's called "prestige purchases", where an owner buys a team as an ego play or a personal toy- not usually because they think that will be the best way to make money (at least on a year-to-year basis.) However, where owners do make significant ROI is in the valuation of the franchise, which historically has appreciated more than almost any other asset class.

Take the Yankees for instance. They lose money year after year. Yet that franchise has a better CAGR than the Chinese economy. Of course, they also make money through other outlets (including the appreciation of the YES Network, which was the brainchild of the aforementioned Steve Greenberg.)

Anyway, it is a long and drawn out concept, but the reality is sports franchises aren't designed to make boatloads of money in cash flow year in and year out- unless of course, you're talking about the Bengals.

I get everything you are saying. But my issue becomes until the franchise is sold, the increased of a said franchise just increases your taxes, increases your net worth, but gives you no added income.

I look at it this way. Lets say I buy a piece of beach front property that is increasing in value by $50K every year. I have a higher net worth, have to pay higher property taxes, but I don't see any increase in income until I sell that piece of property. But at the same time I could think my beach front property is worth $3M but it true value is only worth what someone is willing to pay for it.

Castellini overall isn't going to lose money with the Reds. If he ends up selling the club he will see a nice ROI. He may have to hold onto it a little bit longer because he bought at the top of a bull market. But in the end he isn't going to lose money when he sells. The problem becomes if expenses outweigh income, he will either have to use his own money, or borrow against the value of his franchise which will make operating expenses even more expensive.

Unassisted
08-20-2009, 05:40 PM
Edit: A lot of Hal's material sounds eerily familiar to Redszone. Kind of ironic coming from a guy who dogged the internet message board crowd for many years.
Hal can now afford to speak ill of players and management, since he won't have to depend on their cooperation in providing him with quotes for the foreseeable future. I imagine that need to pack their product with quotes handcuffs the media from speaking "the real truth" more than we realize.

On one hand, it's burning bridges, but I like to think of it as a honeymoon in reverse. :D

traderumor
08-20-2009, 05:43 PM
Hal can now afford to speak ill of players and management, since he won't have to depend on their cooperation in providing him with quotes for the foreseeable future. I imagine that need to pack their product with quotes handcuffs the media from speaking "the real truth" more than we realize.

On one hand, it's burning bridges, but I like to think of it as a honeymoon in reverse. :D

Hal is like an estranged spouse in the period after the couple decides its over but they're still living together. Very dangerous and unpredictable.

Chip R
08-20-2009, 05:46 PM
Isn't it funny how teams are so anxious to announce when they lose money but never say when they are turning a profit?

Reds4Life
08-20-2009, 05:52 PM
Isn't it funny how teams are so anxious to announce when they lose money but never say when they are turning a profit?

And the fact that many teams are owned by guys worth millions, and in some cases billions, of dollars. They didn't get into that position by making stupid business decisions, like buying teams that lose money on an annual basis.

jojo
08-20-2009, 05:59 PM
I get everything you are saying. But my issue becomes until the franchise is sold, the increased of a said franchise just increases your taxes, increases your net worth, but gives you no added income.

I look at it this way. Lets say I buy a piece of beach front property that is increasing in value by $50K every year. I have a higher net worth, have to pay higher property taxes, but I don't see any increase in income until I sell that piece of property. But at the same time I could think my beach front property is worth $3M but it true value is only worth what someone is willing to pay for it.

Castellini overall isn't going to lose money with the Reds. If he ends up selling the club he will see a nice ROI. He may have to hold onto it a little bit longer because he bought at the top of a bull market. But in the end he isn't going to lose money when he sells. The problem becomes if expenses outweigh income, he will either have to use his own money, or borrow against the value of his franchise which will make operating expenses even more expensive.

Spot on.

The only thing we can really infer from Forbes with complete certainty is that there is good reason to believe the industry is healthy. The only people who really know how much money the Reds could spend on payroll and still make a reasonable profit are a select group of people within the Reds FO and Bud Selig's office. We're left to speculate based upon little information though estimates by Forbes suggest the Reds don't have room for wild forays into the free agent market. That said, it doesn't seem believable that the Reds are on track to lose $15M this season unless something inexplicable happens like during the remainder of August/September, GABP looks as cricket-filled as it did this afternoon.

BTW, nobody saw it but Stubbs went yard.

Benihana
08-20-2009, 06:17 PM
I get everything you are saying. But my issue becomes until the franchise is sold, the increased of a said franchise just increases your taxes, increases your net worth, but gives you no added income.

I look at it this way. Lets say I buy a piece of beach front property that is increasing in value by $50K every year. I have a higher net worth, have to pay higher property taxes, but I don't see any increase in income until I sell that piece of property. But at the same time I could think my beach front property is worth $3M but it true value is only worth what someone is willing to pay for it.

Castellini overall isn't going to lose money with the Reds. If he ends up selling the club he will see a nice ROI. He may have to hold onto it a little bit longer because he bought at the top of a bull market. But in the end he isn't going to lose money when he sells. The problem becomes if expenses outweigh income, he will either have to use his own money, or borrow against the value of his franchise which will make operating expenses even more expensive.

That's the difference. Guys like you and me don't have the resources to buy such a team. We don't have the bankroll to stomach some of those year-to-year losses, knowing that whenever we decide to sell we will have a windfall. Therefore, you're beach house analogy doesn't hold.

There's a reason why individual billionaires (and not cash-strapped individuals, publicly traded corporations or hedge funds/private equity shops) buy sports franchises.

cincrazy
08-20-2009, 06:33 PM
Spot on.

The only thing we can really infer from Forbes with complete certainty is that there is good reason to believe the industry is healthy. The only people who really know how much money the Reds could spend on payroll and still make a reasonable profit are a select group of people within the Reds FO and Bud Selig's office. We're left to speculate based upon little information though estimates by Forbes suggest the Reds don't have room for wild forays into the free agent market. That said, it doesn't seem believable that the Reds are on track to lose $15M this season unless something inexplicable happens like during the remainder of August/September, GABP looks as cricket-filled as it did this afternoon.

BTW, nobody saw it but Stubbs went yard.

I'm sure a couple of popcorn vendors did.

:thumbup:

BCubb2003
08-20-2009, 06:45 PM
That's the difference. Guys like you and me don't have the resources to buy such a team. We don't have the bankroll to stomach some of those year-to-year losses, knowing that whenever we decide to sell we will have a windfall. Therefore, you're beach house analogy doesn't hold.


It does if it's Bernie Madoff's beach house. The idea that you can lose money until you sell to someone else is better known as a Ponzi scheme.

Caveat Emperor
08-20-2009, 07:04 PM
That's the difference. Guys like you and me don't have the resources to buy such a team. We don't have the bankroll to stomach some of those year-to-year losses, knowing that whenever we decide to sell we will have a windfall. Therefore, you're beach house analogy doesn't hold.

There's a reason why individual billionaires (and not cash-strapped individuals, publicly traded corporations or hedge funds/private equity shops) buy sports franchises.

So Bob should just cut a check from his own personal account to cover the losses?

I think that's hardly a reasonable expectation for the fanbase to have.

vaticanplum
08-20-2009, 07:22 PM
I feel like I'm stating something so obvious that I might be totally insane, but just because the team is losing $15 million this year, it doesn't stand to reason that it's inherently WORTH less, does it? i.e., if Castellini turned around and sold the team tomorrow, he won't necessarily lose money.

So I think it's hard to quantify a yearly loss against the actual value of a team. I remember reading a lengthy article a few years back (Sports Illustrated? NY Times?) about how sports franchises are the one investment where a bad product doesn't necessarily portend a bad investment. A team can be horrible and still increase in value, because it's a very limited commodity with a high upside to a small, extremely wealthy group of investors. I would extend that to, if a team loses money, it doesn't necessarily decrease in worth. I don't know, am I totally off base here?

edit: ok, I just read through the thread more carefully. This has pretty much been covered. Carry on.

AtomicDumpling
08-20-2009, 07:23 PM
So Bob should just cut a check from his own personal account to cover the losses?

I think that's hardly a reasonable expectation for the fanbase to have.

What losses? The Reds have made hundreds of millions of dollars in profit this decade. There are no losses!

The Reds have made huge profits while fielding a pathetic team every year.

AtomicDumpling
08-20-2009, 07:28 PM
I feel like I'm stating something so obvious that I might be totally insane, but just because the team is losing $15 million this year, it doesn't stand to reason that it's inherently WORTH less, does it? i.e., if Castellini turned around and sold the team tomorrow, he won't necessarily lose money.

So I think it's hard to quantify a yearly loss against the actual value of a team. I remember reading a lengthy article a few years back (Sports Illustrated? NY Times?) about how sports franchises are the one investment where a bad product doesn't necessarily portend a bad investment. A team can be horrible and still increase in value, because it's a very limited commodity with a high upside to a small, extremely wealthy group of investors. I would extend that to, if a team loses money, it doesn't necessarily decrease in worth. I don't know, am I totally off base here?

You are not insane. Even if the team were to lose money this year (which they are not!) it would still be a great investment for Castellini. He has already made an astronomical profit on his investment in buying the Reds.

Some of the lowest payroll teams in MLB are making the biggest profits. All of the small market teams are very profitable, especially when you look at a span of a few years rather than just one single year.

Chip R
08-20-2009, 07:32 PM
I feel like I'm stating something so obvious that I might be totally insane, but just because the team is losing $15 million this year, it doesn't stand to reason that it's inherently WORTH less, does it? i.e., if Castellini turned around and sold the team tomorrow, he won't necessarily lose money.

So I think it's hard to quantify a yearly loss against the actual value of a team. I remember reading a lengthy article a few years back (Sports Illustrated? NY Times?) about how sports franchises are the one investment where a bad product doesn't necessarily portend a bad investment. A team can be horrible and still increase in value, because it's a very limited commodity with a high upside to a small, extremely wealthy group of investors. I would extend that to, if a team loses money, it doesn't necessarily decrease in worth. I don't know, am I totally off base here?


It's a good question. Operating the team at a loss doesn't necessarily have an effect on the franchise's value. Your Yankees, for example, say they lose money but I think it's safe to say they are worth more than any franchise in baseball and maybe in all American sports. There are many other factors that come into play in appraising the value of a sports franchise.

savafan
08-20-2009, 07:40 PM
All of the small market teams are very profitable, especially when you look at a span of a few years rather than just one single year.

I don't believe in the term small market. You make your own market. Field a successful team, more fans show up to the ballpark, more fans equals more revenue, more revenue equals more money to spend in the future. It's not rocket science. No one should blame the fans. The blame for the size of a sports teams market begins and ends with the ownership and front office group.

redsfandan
08-20-2009, 07:42 PM
That's the difference. Guys like you and me don't have the resources to buy such a team. We don't have the bankroll to stomach some of those year-to-year losses, knowing that whenever we decide to sell we will have a windfall. Therefore, you're beach house analogy doesn't hold.

There's a reason why individual billionaires (and not cash-strapped individuals, publicly traded corporations or hedge funds/private equity shops) buy sports franchises.
The Atlanta Braves are owned by Liberty Media Corp. and while I don't know if they're publicly traded I'm pretty sure that's not one person that's just named "Mr. Liberty Media Corp".

dougdirt
08-20-2009, 07:42 PM
I don't believe in the term small market. You make your own market. Field a successful team, more fans show up to the ballpark, more fans equals more revenue, more revenue equals more money to spend in the future. It's not rocket science. No one should blame the fans. The blame for the size of a sports teams market begins and ends with the ownership and front office group.

If the Reds won 95 games for 5 straight seasons they wouldn't have an income like the Red Sox, Cubs, Yankees, Angels or Dodgers because of their market. You can choose to not believe it, but that doesn't make it true.

cincrazy
08-20-2009, 07:42 PM
What losses? The Reds have made hundreds of millions of dollars in profit this decade. There are no losses!
The Reds have made huge profits while fielding a pathetic team every year.


Check the standings! ;)

AtomicDumpling
08-20-2009, 07:44 PM
I get everything you are saying. But my issue becomes until the franchise is sold, the increased of a said franchise just increases your taxes, increases your net worth, but gives you no added income.

I look at it this way. Lets say I buy a piece of beach front property that is increasing in value by $50K every year. I have a higher net worth, have to pay higher property taxes, but I don't see any increase in income until I sell that piece of property. But at the same time I could think my beach front property is worth $3M but it true value is only worth what someone is willing to pay for it.

Castellini overall isn't going to lose money with the Reds. If he ends up selling the club he will see a nice ROI. He may have to hold onto it a little bit longer because he bought at the top of a bull market. But in the end he isn't going to lose money when he sells. The problem becomes if expenses outweigh income, he will either have to use his own money, or borrow against the value of his franchise which will make operating expenses even more expensive.

We explained this to you ad nauseum in another thread last month so I am not sure why this is an issue again.

You can't think of the situation like your home finances, this is a business.

The Reds have made an average profit of $20 million per year, plus an average increase in franchise value of $17 million per year over the last five years.

That is a huge pool of money available for the team to invest back in the business or put in their pockets. So far the team has chosen to pocket the profit while the team has been awful.

The value of the franchise has an equity value. They could leverage that equity to invest in the franchise and improve its value even higher. You don't have to sell the team to do that. It is an essential strategy that almost every company in the world utilizes. It is foolish not to do it. You will make less money in the long run if you don't do it. But this isn't a concern with the Reds yet because they have tens of millions of dollars in cash to utilize before they even touch the franchise equity.

The Reds are making profits hand over fist while the team sucks, yet some fans want to let them off the hook because they don't understand the finances.

Ltlabner
08-20-2009, 07:49 PM
So attendance is tanking?

As long as that doesn't spook Bob into more panic moves, it's sadly a good thing. Watching the attendance dwindle *might* eventually result in real and substantial organizational overhauls.

savafan
08-20-2009, 07:51 PM
If the Reds won 95 games for 5 straight seasons they wouldn't have an income like the Red Sox, Cubs, Yankees, Angels or Dodgers because of their market. You can choose to not believe it, but that doesn't make it true.

You mean to tell me that if the Reds were in the playoffs for 5 straight seasons, then people wouldn't be coming to see this team from Columbus, West Virginia, Indianapolis, Nashville, etc.? No, I don't believe it. The Dayton Dragons have sold out every game of their existence? Does that have anything to do with the fact that the major league team right down the road has been awesomely bad during that time have anything to do with it? I'd say at least a little bit.

Ray, people will come Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. Of course, we won't mind if you look around, you'll say. It's only $20 per person. They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds of us of all that once was good and it could be again. Oh... people will come Ray. People will most definitely come.

Will M
08-20-2009, 07:57 PM
The Reds might lose $15 million? Not hardly.

Forbes says the Reds will make about $17 million this year, just a little less than they usually do.

Most teams claim they are losing money, but none of them are actually losing money over any length of time. It is merely a ploy to keep the fans from protesting against ownership for fielding a pathetic team every year.

thats what i think too. teams claim to be losing lots of money but never open their accounting books to the press/fans

GAC
08-20-2009, 07:59 PM
Does this mean the price of beer is going up at the stadium next year? :eek:

Brutus
08-20-2009, 08:01 PM
You mean to tell me that if the Reds were in the playoffs for 5 straight seasons, then people wouldn't be coming to see this team from Columbus, West Virginia, Indianapolis, Nashville, etc.? No, I don't believe it. The Dayton Dragons have sold out every game of their existence? Does that have anything to do with the fact that the major league team right down the road has been awesomely bad during that time have anything to do with it? I'd say at least a little bit.

Ray, people will come Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. Of course, we won't mind if you look around, you'll say. It's only $20 per person. They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds of us of all that once was good and it could be again. Oh... people will come Ray. People will most definitely come.

"That's all well ad good, Ray. But when the bank opens in the morning, they'll foreclose."

You made my day, Sava.

savafan
08-20-2009, 08:02 PM
Does this mean the price of beer is going up at the stadium next year? :eek:

How much would you pay for a beer to watch a team perform as badly as this? $10, $15, $25? Not even close. The 2010 Reds will introduce the keg seating section where each fan gets their own keg. These premium priced seats will be in the first five rows down each base line and behind home plate. Tickets start at a low $500. :thumbup:

edabbs44
08-20-2009, 08:05 PM
Attendance is only one piece of the puzzle. Look at the ticket prices they can charge in places like NY and LA. I watch Yankee games and they have major advertising clients, not Arroyo and his banjo. Who's gonna pay more for airtime, Ford or JTM?

cincrazy
08-20-2009, 08:13 PM
You mean to tell me that if the Reds were in the playoffs for 5 straight seasons, then people wouldn't be coming to see this team from Columbus, West Virginia, Indianapolis, Nashville, etc.? No, I don't believe it. The Dayton Dragons have sold out every game of their existence? Does that have anything to do with the fact that the major league team right down the road has been awesomely bad during that time have anything to do with it? I'd say at least a little bit.

Ray, people will come Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. Of course, we won't mind if you look around, you'll say. It's only $20 per person. They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds of us of all that once was good and it could be again. Oh... people will come Ray. People will most definitely come.

The Reds could sell out every game for the next 20 years, but that isn't going to make up for the fact that their are HUGE discrepancies between their market, and the Red Sox/Yankees market. Nothing can change that. The Indians won for many years. Sold out every game. But they couldn't sustain it. The people came, and it didn't matter. They couldn't afford the up-keep.

MattyHo4Life
08-20-2009, 08:14 PM
If the Reds won 95 games for 5 straight seasons they wouldn't have an income like the Red Sox, Cubs, Yankees, Angels or Dodgers because of their market. You can choose to not believe it, but that doesn't make it true.

I agree with Sava 100% on this subject. Cities like NY and LA are exceptions. Those are super markets, and they are rare. Are you saying that any team that isn't in a mega market like NY is a small market?

Cincinnati has a huge market in the surrounding areas to draw from, but they have to give the fans a reason to go to the games. When I was a kid, we would drive 2 hours to go to a Reds game. A lot of people drive that far and even farther. Although, it becomes less appealing when they are driving that distance to see a losing team. If you put a winner on the field, then fans won't care how far they have to drive...they will just come.

savafan
08-20-2009, 08:15 PM
Am I the only one who remembers the New York Yankees of the late 80's to early 90's? The Ken Phelps, Jesse Barfield, Walt Terrell, Andy Hawkins era when that team was woefully pathetic and almost a nightly joke on the late night talk shows? Winning changes things and so does losing. Big George is nearly completely out with the Yankees. They are now a team that is old and having to ask teams like the Reds for money in order to take on a Bronson Arroyo contract. I think we're seeing the end of the crazy spending Yankees era (although last offseason would say I'm wrong) and things will be going in a different direction. We're entering a new era of baseball now. The steroid era is over. The mad spending era is over. We're not quite at a parity level yet, but we're approaching it. Consider that the Yankees had a hard time selling tickets in a brand new stadium this season. It may sound crazy, but I don't think I'm far off.

GAC
08-20-2009, 08:16 PM
They just need to add some more bobblehead doll nights on Wednesdays! Or those 4 tickets for $40, where they'll give you a hotdog and Coke.

Brutus
08-20-2009, 08:18 PM
We explained this to you ad nauseum in another thread last month so I am not sure why this is an issue again.

You can't think of the situation like your home finances, this is a business.

The Reds have made an average profit of $20 million per year, plus an average increase in franchise value of $17 million per year over the last five years.

That is a huge pool of money available for the team to invest back in the business or put in their pockets. So far the team has chosen to pocket the profit while the team has been awful.

The value of the franchise has an equity value. They could leverage that equity to invest in the franchise and improve its value even higher. You don't have to sell the team to do that. It is an essential strategy that almost every company in the world utilizes. It is foolish not to do it. You will make less money in the long run if you don't do it. But this isn't a concern with the Reds yet because they have tens of millions of dollars in cash to utilize before they even touch the franchise equity.

The Reds are making profits hand over fist while the team sucks, yet some fans want to let them off the hook because they don't understand the finances.

Even Castellini has to answer to his shareholders. No matter how it's spun, there is an amount of money that the other 8-12 people with their hands in the cookie jar have to earn to recoup their investments year-by-year. This profit you speak of is a chunk of change when considering how many people get their dividends checks, the size of the original investments and that the Reds are responsible for capital improvements to the ballpark - which is not directly calculated in the Forbes' estimates.

No here here doesn't understand the finances. Actually, bucksfan2 was right on the money. I'd say he understands finances just fine. There's clearly a divide in opinion on this issue, but no reason to put people down for their 'understanding.'

The Reds are not the Cubs or Red Sox. They don't own their stadiums outright, paying no lease expenses, only money for capital improvements.

They aren't the Yankees, Red Sox, Orioles and growing number of teams that own regional sports networks, paying only a nominal rights fees to the clubs to report as "local revenue" and then have their parent LLC entities make $30, $40 and in extreme cases (Yankees), make over a hundred million in additional revenue that is sheltered from revenue sharing.

They aren't the Cubs or (formerly) the Braves who owned sweetheart Superstation deals.

They aren't the Dodgers, Angels, Yankees, Mets, Cubs, White Sox, Phillies, etc. who are in such a big market, the CPM rates are nearly double for advertisers, which means a 3-5 times exponential growth in broadcasting revenue for not only the rate per 1,000, but also sheer market penetration due to size and overall number of viewers/listeners.

It's already been shown that the Reds take in a revenue ranked in the lower quadrant in baseball. Yet, they've still managed to spend as a middle-of-the-road ball club. Relative to the industry, they actually tap into their resources remotely well. Maybe they're not raping and pillaging their shareholders' ROI, but it's, as you admit, a business. They shouldn't be doing that. No business should be operating in that capacity.

The realities facing the Reds are not just a stubborn ownership problem. It's a baseball problem.

cincrazy
08-20-2009, 08:19 PM
Am I the only one who remembers the New York Yankees of the late 80's to early 90's? The Ken Phelps, Jesse Barfield, Walt Terrell, Andy Hawkins era when that team was woefully pathetic and almost a nightly joke on the late night talk shows? Winning changes things and so does losing. Big George is nearly completely out with the Yankees. They are now a team that is old and having to ask teams like the Reds for money in order to take on a Bronson Arroyo contract. I think we're seeing the end of the crazy spending Yankees era (although last offseason would say I'm wrong) and things will be going in a different direction. We're entering a new era of baseball now. The steroid era is over. The mad spending era is over. We're not quite at a parity level yet, but we're approaching it. Consider that the Yankees had a hard time selling tickets in a brand new stadium this season. It may sound crazy, but I don't think I'm far off.

Seven of the top 8 teams in payroll are slated to earn a payroll berth this season, the Mets being the lone exception. That doesn't scream parity to me, my friend.

RedsManRick
08-20-2009, 08:20 PM
Attendance is only one piece of the puzzle. Look at the ticket prices they can charge in places like NY and LA. I watch Yankee games and they have major advertising clients, not Arroyo and his banjo. Who's gonna pay more for airtime, Ford or JTM?

Ticket prices aren't just a function of market size, but of demand. Sure, it's easier to get 50,000 fans to pay for a ballgame in NYC or LA than in Cincinnati or Miami (who wants to sit in a stadium when they could lie on the beach?), but the reality is the fans want see a winner. They sell out games regularly in St. Louis. They sold out Jacob stadium for nearly a decade. But in the 1980's when the Yankees were a bad team, you could get a good seat cheap.

Put a winner on the field in Cinninati on a regular basis and the fans will come -- and they'll pay whatever price your charging. You can only fill GABP these days when you're paying the fans to show (bobbleheads...).

Brutus
08-20-2009, 08:21 PM
How much would you pay for a beer to watch a team perform as badly as this? $10, $15, $25? Not even close. The 2010 Reds will introduce the keg seating section where each fan gets their own keg. These premium priced seats will be in the first five rows down each base line and behind home plate. Tickets start at a low $500. :thumbup:

Through all the claims of ownership putting the screws on the product, the Reds still remain one of the cheapest tickets in all of baseball.

savafan
08-20-2009, 08:25 PM
Seven of the top 8 teams in payroll are slated to earn a payroll berth this season, the Mets being the lone exception. That doesn't scream parity to me, my friend.

It's not screaming it now, but I assure you, it will be the future of the game. It will have to be, and the owners have to know this, or the game will die.

dougdirt
08-20-2009, 08:27 PM
You mean to tell me that if the Reds were in the playoffs for 5 straight seasons, then people wouldn't be coming to see this team from Columbus, West Virginia, Indianapolis, Nashville, etc.? No, I don't believe it. The Dayton Dragons have sold out every game of their existence? Does that have anything to do with the fact that the major league team right down the road has been awesomely bad during that time have anything to do with it? I'd say at least a little bit.

Ray, people will come Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. Of course, we won't mind if you look around, you'll say. It's only $20 per person. They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds of us of all that once was good and it could be again. Oh... people will come Ray. People will most definitely come.

Sure people would come. They aren't going to come like Cubs fans though. They aren't going to come like New York fans. They aren't going to buy stuff at the same levels as those fans because we just can't market to as many people. The amount of money being brought in from a large market just can't be matched by smaller market clubs no matter how well they do and market because they are drawing from a much smaller market. If the Reds were perfect in a 5 million person market it still can't match the Yankees or Cubs only being good at their marketing in a 20 million fan market.

cincrazy
08-20-2009, 08:28 PM
It's not screaming it now, but I assure you, it will be the future of the game. It will have to be, and the owners have to know this, or the game will die.

I agree, to a certain extent. But I still wouldn't call it a level playing field.

Certainly in five years, when A-Rod and Teixiera and CC are older and less productive, the Yanks could be in a world of trouble.

MattyHo4Life
08-20-2009, 08:35 PM
the reality is the fans want see a winner. They sell out games regularly in St. Louis. They sold out Jacob stadium for nearly a decade. But in the 1980's when the Yankees were a bad team, you could get a good seat cheap.

Put a winner on the field in Cinninati on a regular basis and the fans will come -- and they'll pay whatever price your charging. You can only fill GABP these days when you're paying the fans to show (bobbleheads...).

I just found this column, and thought it would fit the topic. Last season Cardinals ownership told the fans that they couldn't incease payroll because they didn't expect attndance to be asgood as it has in the past. So for those that said that attendance doesn't matter, well it does. Somehow the Cardinals were a better team than most fans expected them to be with the lean winter. The Cardinals won, and the fans came. Ownership decided that since attendance was higher than they expected that they could increase payroll. The result... almost every game after the Holliday trade has been sold out. The team won...fans came... ownership spent more money.

link (http://www.stltoday.com/blogzone/bird-land/bird-land/2009/08/dgs-1010-the-peoples-team/)


As you’ve probably read before, the Cardinals’ executives have (sic) meetings this past winter to discuss “worst-case scenarios” for ticket sales. At one point, in December, they decided to dial back the payroll budget in order to brace for an economic chill. The Cardinals wanted to be ready for the posibility that would not only miss the 3-million mark for the first time in the new ballpark, but plunge to 2.8 million in total fans. That would have been a drop of 17.6 percent.

Team president Bill DeWitt III said at the time that the payroll rollback wasn’t permanent — and that if attendance surged past expectations (they budgeted for around 3 million), then there would be midseason flexibility for a move. And that’s what happened.

Before the Cardinals made the deal for Matt Holliday, there was rumblings that the front office had been given the go-ahead to add to the payroll if an agreeable deal was available. Mozeliak has often mentioned the attendance’s role in establishing the payroll, describing it as a symbiotic relationship. One Cardinals executive said that the attendance, when it cleared the 3.2-million mark, “triggered the investments” in new players, really in taking a run during this 2009 season. Manager Tony La Russa talks about a team that has played well enough to earn a move, and this season we have seen a fanbase that merited a move.

But there’s more. So many of the deals the Cardinals have made this season have been on the message-board, blog and sports-radio radar long before they happened. Mark DeRosa had the grassroots rubber stamp a month before he became a Cardinal. Like La Russa, the populace began its longing for Holliday last winter. Even recently, the fanbase’s lobbying for John Smoltz was a mirror of what was going on in the clubhouse as well. In many ways, the 2009 Cardinals are a popular-poll team, a populist team. Think of the change in perception of the front office and the ownership that the above moves and the response to the fans have caused. It’s been a makeover, a complete turn from the perceived penny-pinching ways of just a year ago when the Cardinal wondered if any of their investments would bring a return.

traderumor
08-20-2009, 08:37 PM
But there’s more. So many of the deals the Cardinals have made this season have been on the message-board, blog and sports-radio radar long before they happened. Mark DeRosa had the grassroots rubber stamp a month before he became a Cardinal. Like La Russa, the populace began its longing for Holliday last winter. Even recently, the fanbase’s lobbying for John Smoltz was a mirror of what was going on in the clubhouse as well. In many ways, the 2009 Cardinals are a popular-poll team, a populist team. Think of the change in perception of the front office and the ownership that the above moves and the response to the fans have caused. It’s been a makeover, a complete turn from the perceived penny-pinching ways of just a year ago when the Cardinal wondered if any of their investments would bring a return. :rolleyes: Yup, Cards brass are consulting the message boards and making moves accordingly.

AtomicDumpling
08-20-2009, 08:43 PM
Even Castellini has to answer to his shareholders. No matter how it's spun, there is an amount of money that the other 8-12 people with their hands in the cookie jar have to earn to recoup their investments year-by-year. This profit you speak of is a chunk of change when considering how many people get their dividends checks, the size of the original investments and that the Reds are responsible for capital improvements to the ballpark - which is not directly calculated in the Forbes' estimates.

No here here doesn't understand the finances. Actually, bucksfan2 was right on the money. I'd say he understands finances just fine. There's clearly a divide in opinion on this issue, but no reason to put people down for their 'understanding.'

The Reds are not the Cubs or Red Sox. They don't own their stadiums outright, paying no lease expenses, only money for capital improvements.

They aren't the Yankees, Red Sox, Orioles and growing number of teams that own regional sports networks, paying only a nominal rights fees to the clubs to report as "local revenue" and then have their parent LLC entities make $30, $40 and in extreme cases (Yankees), make over a hundred million in additional revenue that is sheltered from revenue sharing.

They aren't the Cubs or (formerly) the Braves who owned sweetheart Superstation deals.

They aren't the Dodgers, Angels, Yankees, Mets, Cubs, White Sox, Phillies, etc. who are in such a big market, the CPM rates are nearly double for advertisers, which means a 3-5 times exponential growth in broadcasting revenue for not only the rate per 1,000, but also sheer market penetration due to size and overall number of viewers/listeners.

It's already been shown that the Reds take in a revenue ranked in the lower quadrant in baseball. Yet, they've still managed to spend as a middle-of-the-road ball club. Relative to the industry, they actually tap into their resources remotely well. Maybe they're not raping and pillaging their shareholders' ROI, but it's, as you admit, a business. They shouldn't be doing that. No business should be operating in that capacity.

The realities facing the Reds are not just a stubborn ownership problem. It's a baseball problem.

I am not sure what your point is.

Despite the market size, despite the ticket prices, despite the advertising revenue, despite everything -- the Reds have made $187 million in profit in five years while the team was awful.

If the owners had any competitive spirit they could have spent some of that money to improve the team. We are talking huge amounts of profit, definitely enough to have improved the team significantly.

Just this past offseason alone there were good players available that would have plugged huge gaping holes in the 2009 lineup. The Reds chose not to sign them. Why? Money of course. Profit was more important than winning.

Forbes and PwC have proven the money was available, but the Reds chose to take the extra profit at the expense of the team and the fans.

The Reds do not lose money. The owners are not taking any risks. The Reds are a profit machine of epic proportions. Yet the team is awful. Why is this OK with you?

Castellini took over the team and promptly declared the losing was over. He was going to do whatever it takes to win. The proven factual numbers say he is a liar. The end of the losing is nowhere in sight. He has not done what it takes to win even though he had the resources available. He talks about winning, but all he really cares about is profit. The proof is in the pudding.

Brutus
08-20-2009, 09:00 PM
I am not sure what your point is.

Despite the market size, despite the ticket prices, despite the advertising revenue, despite everything -- the Reds have made $187 million in profit in five years while the team was awful.

If the owners had any competitive spirit they could have spent some of that money to improve the team. We are talking huge amounts of profit, definitely enough to have improved the team significantly.

Just this past offseason alone there were good players available that would have plugged huge gaping holes in the 2009 lineup. The Reds chose not to sign them. Why? Money of course. Profit was more important than winning.

Forbes and PwC have proven the money was available, but the Reds chose to take the extra profit at the expense of the team and the fans.

The Reds do not lose money. The owners are not taking any risks. The Reds are a profit machine of epic proportions. Yet the team is awful. Why is this OK with you?

Castellini took over the team and promptly declared the losing was over. He was going to do whatever it takes to win. The proven factual numbers say he is a liar. The end of the losing is nowhere in sight. He has not done what it takes to win even though he had the resources available. He talks about winning, but all he really cares about is profit. The proof is in the pudding.

I get your point. You've thrown the profit numbers around in every discussion finances come up. It's in your signature. It's been your mantra for several months. You're using those Forbes numbers as the baseball Bible in which you preach from. Trust me, that point has not gone unnoticed.

But it's all about perception. $17 mil is not very much profit for a business of that magnitude (if we're accepting those numbers at face value). It's really not a lot. For 12 owners, and still taxes to be paid on those profits, that is not a lot of money. If we accept that number, that really only leaves $6-10 million in the real world that a club could budget before getting to the point of real financial inflexibility. $10 million more to this team is an Adam Dunn and that's about it. We already saw what this team was with Adam Dunn. It was not much better.

So I guess my 'point' is, this evil profit that Reds' ownership is making is not even the difference between mediocrity and fielding a championship club. It's the difference in (maybe) 70-80 wins and 75-85 wins.

Additionally,

Forbes and PwC have not 'proven' anything. PwC is not at liberty to disclose financial statements, and if they did, it would be a lawsuit of epic proportions. So to suggest there's 'proof' is at best tort on their part.

Second, Forbes has not 'proven' anything either. Forbes' numbers comes from estimates by speaking with people in and around the industry. In their own disclaimers, they do not position their numbers as proof of anything. The amount of debt each team carries is available enough that those numbers are going to be fairly accurate. However, the revenue estimates are still loosely a ballpark estimate. There's probably an error range of a few million.

I respect the heck out of Forbes. They're very good at what they do. But be careful to label something as proof when they will be the first to tell you it's educated estimates. No one has access to the books accept the CPA's and baseball auditors. Those records are very closely (and legally) monitored. If anyone has proven anything, they've done so very carelessly.

vaticanplum
08-20-2009, 09:09 PM
You mean to tell me that if the Reds were in the playoffs for 5 straight seasons, then people wouldn't be coming to see this team from Columbus, West Virginia, Indianapolis, Nashville, etc.? No, I don't believe it. The Dayton Dragons have sold out every game of their existence? Does that have anything to do with the fact that the major league team right down the road has been awesomely bad during that time have anything to do with it? I'd say at least a little bit.

Ray, people will come Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. Of course, we won't mind if you look around, you'll say. It's only $20 per person. They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds of us of all that once was good and it could be again. Oh... people will come Ray. People will most definitely come.

I think you have some good points here, but when people talk about the cash difference market size can make, they're not talking about game attendance. Well, maybe a little, but a VERY little. A major league stadium is going to be more or less the same size whether it's in New York or New Paltz. Better teams can charge more per seat...but I'd argue that even crappy teams can charge more per seat if they're in bigger markets, simply because odds are more people will be willing to go to a game if it's not a hassle, and bigger markets have geographical access to a lot more people for whom it's not a hassle. Your point that a good team will draw from anywhere is well taken. What you're missing is the converse: a bad team has to do a whole lot more to compensate to get the same amount of people. Even smaller aspects of the stadium experience make a difference to how much fans contribute to a team's revenue. People in the areas surrounding Cincinnati will balk at a $12 beer because they're not used to paying that much, whereas the (many more) people in New York fork over twice as much as Midwesterners do for the same crappy keg product without blinking. It adds up. And unlike merchandise (more on that in a minute), I'm guessing those profits go entirely to the stadium and the team.

But that's not even the point. Good or bad aside, teams don't make the most on attendance. The biggest chunk of the Yankees' revenue comes from their media deals, especially the YES network. Like, an absurd amount. No matter how much the Yankees are charging for seats, it can't touch their media deals. Can you imagine an all-Reds network surviving and bringing in the advertising revenue from viewership that YES does? Hell no. It would have to stretch to about six or seven states to even have a chance at reaching those kinds of numbers, I'm guessing. Even if the Reds were good. What about merchandise? There are kids running around all over New England clad entirely in expensive Red Sox gear, and an enormous chunk of them have probably never been to Fenway in their lives. There are thousands of people visiting New York, LA and Boston and bringing home MLB souvenirs to their friends; most of those people have never paid for a seat in those stadiums either. An authentic jersey pays for how many nosebleed seats in a stadium? 12? More? How many authentic Jay Bruce jerseys have you seen outside the greater Cincinnati area recently? What do you think Cincinnati's tourism numbers are in comparison to any of those cities'?

Yeah, Cincinnati could fill a stadium if it fielded a good team. That completely misses the point of the very tangible impact that market size -- by which I mean close, easy access to large amounts of people -- has on a team's earnings, which come from a number of sources more lucrative than tickets. And I'm not arguing the "unfairness" of it by any means -- those big-market areas are usually a little more choked with teams, for one thing, and in any case the massive population numbers around New York City did not engineer the blockbuster deal with YES; smart Yankees businesspeople did.

edabbs44
08-20-2009, 09:14 PM
Ticket prices aren't just a function of market size, but of demand. Sure, it's easier to get 50,000 fans to pay for a ballgame in NYC or LA than in Cincinnati or Miami (who wants to sit in a stadium when they could lie on the beach?), but the reality is the fans want see a winner. They sell out games regularly in St. Louis. They sold out Jacob stadium for nearly a decade. But in the 1980's when the Yankees were a bad team, you could get a good seat cheap.

Put a winner on the field in Cinninati on a regular basis and the fans will come -- and they'll pay whatever price your charging. You can only fill GABP these days when you're paying the fans to show (bobbleheads...).

NYY luxury boxes go for about $900k per season. Do you think that more businesses in NY or Cincy that would pay those numbers? How about the seats behind home that go for $2500 a pop?

savafan
08-20-2009, 09:28 PM
Yeah, Cincinnati could fill a stadium if it fielded a good team. That completely misses the point of the very tangible impact that market size -- by which I mean close, easy access to large amounts of people -- has on a team's earnings, which come from a number of sources more lucrative than tickets. And I'm not arguing the "unfairness" of it by any means -- those big-market areas are usually a little more choked with teams, for one thing, and in any case the massive population numbers around New York City did not engineer the blockbuster deal with YES; smart Yankees businesspeople did.

This is all true, yet greater demand leads to better marketing possibilities. One leads to the other.

15fan
08-20-2009, 09:31 PM
There's a reason why individual billionaires (and not cash-strapped individuals, publicly traded corporations or hedge funds/private equity shops) buy sports franchises.

Media-owned teams are the best. It's transfer pricing and taxes 101 all rolled into one. Ted Turner played the game into a mega fortune.

Back in the day, Ted Turner cranked up WTBS. Ted Turner owned the Braves. The Braves were cheap programming for TBS. TBS likely paid the Braves next to nothing for broadcast rights. TBS then charged advertisers to show ads during Braves games. TBS also used air time during Braves games to plug their other programming to build viewership (and thus also become more attractive to potential advertisers).

At the end of the day, TBS shows a negligible expense for broadcast rights to Braves game. TBS showed big revenues from advertising dollars. Big revenues - negligible expenses = big profits for TBS.

On the Braves side of the ledger, they showed negligible income from media rights. They were giving away a stream of income to the parent company. They could thus show an operating loss, which translated into tax benefits across years and the portfolio of the Turner family of business ventures. Further, Ted Turner could use the "operating loss" at the Braves to leverage public support and concessions (better rent deals, a new stadium, etc) to "help the Braves bottom line". Without the public concessions, of course, the Braves would have to consider moving. That's the way the game works.

And while Ted owned the Braves, he also had a big way to entertain corporate colleagues and potential investors in other business ventures. He got his ego stroked because he (and Jane) were always always always gettting their mugs on TV around the country. Everyone knew who he was. Buddy up with Ted, and you could find yourself sitting with him and getting on tv. Regularly. That's tough to top if you've got business relationships that you are trying to cultivate.

edabbs44
08-20-2009, 09:33 PM
This is all true, yet greater demand leads to better marketing possibilities. One leads to the other.

I think you are missing the point. Who would you rather have at the game, a person making $250k per year or someone making a fraction of that? Who are the bigger advertisers going to want to pay more money in order to see their ads?

RedsManRick
08-20-2009, 09:44 PM
NYY luxury boxes go for about $900k per season. Do you think that more businesses in NY or Cincy that would pay those numbers? How about the seats behind home that go for $2500 a pop?

That's not the point. I'll happily concede that there is absoultely no way the Reds can afford a $150M+ payroll. But if the Reds lose money it's not because they can't get the sweet media deals or luxury box fees that the Yankees do. It's because they can't even capitalize on the opportunities they do have.

There is no reason the Reds can't be like Cardinals and break even on a $90M payroll. I guarantee you the Rays aren't losing $15M this year. The Twins ownership refuses to lose money. Yet the current management groups put competitive teams on the field. Instead of building a winning team through smart management given our resource limitations and then leveraging that success, the Reds have cried poor while trying to build winning teams through a combination of horrific player development and a poorly executed mid-market market approach that includes luxuries like $12M closers, $3M 5th OF, $3M middle relievers, and $8M 5th starters -- all signed in FA. To say nothing of giving pricey extensions to mediocre players who were signed reasonably (Graves, Casey, Arroyo)... Of course, fans were rather complain about Adam Dunn or Aaron Harang getting paid what they're worth just because it's a big number.

FWIW, a new analysis on BP (http://www.baseballprospectus.com/article.php?articleid=9418) (http://www.baseballprospectus.com/article.php?articleid=9418) looks at team management by comparing how much marginal revenue they should have produced given their market and payroll to how much they will have generated based on the team they've built with that payroll. It's essentially the argument we're having now: how well should be expected to do based on our available resources in consideration of the resources we could generate through better performance?

Here's the methodology:


1. First, we need to know how much marginal revenue each team is likely to bring in, based on its win total and market size. To do this, we'll use Nate's MR/MW curve, updated for 2009 revenues. We'll then assign each team a market-size factor based on its 2007-2008 gate receipts. (We already know that this is the only short-term revenue source that significantly impacts a team's payroll spending). The Red Sox won 95 games last year, which should generally lead to $108 million in marginal revenue. Multiply that figure by Boston's market-size factor (2.48), and we get expected revenue of $267 million.

2. Next, we'll use a regression equation (MW = 0.1106*MP + 22.538) to determine how many games a team should win—and, therefore, how much revenue it should bring in—based solely on its payroll. For example, Boston's $133 million payroll in 2008 should have led to 86 wins. According the win curve, multiplied by the team's market-size factor, that would create $165 million in marginal revenue.

3. Then we just divide these numbers: 267 / 165 = 1.61. In other words, given their payroll and revenue potential, the Red Sox performed about 61 percent better than average in 2008.

If we want to make it even more meritocratic, we can use third-order wins instead of actual wins, in order to strip out some of the luck involved:

You can see the full data here (http://spreadsheets.google.com/pub?key=tDx6mS2HkNG8MQ9NRDrIGYA&gid=2): http://spreadsheets.google.com/pub?key=tDx6mS2HkNG8MQ9NRDrIGYA&gid=2[/quote]

So, how do the Reds fare?



Here's the same chart for 2009, assuming each team's current third-order winning percentage holds:


Here's the same chart for 2009, assuming each team's current third-order winning percentage holds:

Team 3rd-Order MR ExpMR MR3/ExpMR
Rays $50,733,695 $24,508,966 2.07
Dodgers $181,196,617 $91,143,942 1.99
Rockies $58,385,603 $38,702,035 1.51
Rangers $41,117,147 $28,721,444 1.43
Red Sox $217,262,599 $152,072,010 1.43
-----------------------------------------------------
Royals $15,701,747 $19,530,582 0.80
Mets $94,833,032 $124,697,984 0.76
Pirates $15,300,110 $20,216,344 0.76
Astros $49,817,523 $66,058,454 0.75
Reds $24,847,828 $33,316,875 0.75

In translation, based on their market size and available payroll, the Reds should be able to produce $33.3M in marginal revenue. Based on the quality of the team they've put on the field with that payroll, they're only likely get about $24.8M in marginal revenue, 75% of expectations -- the worst figure in baseball in 2009.

If we're going to lose $15M this year, the poor use of our payroll in crafting the on the field product can account for $8.5 of it. Unless and until there is NFL style revenue sharing, the Reds are not and will never be the Yankees, Mets, Red Sox, Cubs, Dodgers, or Angels. But that's no excuse for running a deficit or putting a craptastic product on the field. They may be crying poor, but they primarily have themselves to blame.

savafan
08-20-2009, 09:51 PM
I think you are missing the point. Who would you rather have at the game, a person making $250k per year or someone making a fraction of that? Who are the bigger advertisers going to want to pay more money in order to see their ads?

You mean there aren't big businesses centered in Cincinnati? Mitsubishi, Fifth Third Bank, Macy's, Procter and Gamble, Sunny Delight, Chiquita Brands, Jim Beam, Humana, Totes, Luxottica, US Playing Card Company, GE, Western and Southern, E.W. Scripps, Kroger, Comair, Frisch's, Larosa's...I could go on. Get these major local businesses to advertise. How hard is it for the marketing department to reach out to local businesses?

edabbs44
08-20-2009, 10:09 PM
You mean there aren't big businesses centered in Cincinnati? Mitsubishi, Fifth Third Bank, Macy's, Procter and Gamble, Sunny Delight, Chiquita Brands, Jim Beam, Humana, Totes, Luxottica, US Playing Card Company, GE, Western and Southern, E.W. Scripps, Kroger, Comair, Frisch's, Larosa's...I could go on. Get these major local businesses to advertise. How hard is it for the marketing department to reach out to local businesses?

1) they are dwarfed by places like NY and LA. Larosa's? Come on.

2) it's not only that, but which areas would have the more attractive population to pitch their services to?

savafan
08-20-2009, 10:45 PM
2) it's not only that, but which areas would have the more attractive population to pitch their services to?

I'm not arguing that point, but they're not even trying here.

Caveat Emperor
08-20-2009, 11:20 PM
You mean there aren't big businesses centered in Cincinnati? Mitsubishi, Fifth Third Bank, Macy's, Procter and Gamble, Sunny Delight, Chiquita Brands, Jim Beam, Humana, Totes, Luxottica, US Playing Card Company, GE, Western and Southern, E.W. Scripps, Kroger, Comair, Frisch's, Larosa's...I could go on. Get these major local businesses to advertise. How hard is it for the marketing department to reach out to local businesses?

In Cincinnati?

I know people that work/worked for Northlich, and you should HEAR the horror stories about dealing with LaRosas (one of your cited companies). Stuff had to be done on the cheap, cost overruns for advertising and marketing were unacceptable, hard-sell ads on everything. That's the same story you hear about most "local" business -- hardcore 'inside the box' and bottom-line oriented. If you're suggesting "get creative" than you're in the wrong part of the nation, IMO.

Additionally -- all this stuff is a two way street -- companies have to WANT to advertise with the Reds and WANT to be part of the Reds. For a lot of businesses, it doesn't make sense to advertise (why would US Playing Card want to advertise on the Reds? Ditto Luxottica, and EW Scripps). For more businesses, they're international in nature and not interested in local anything (see: P&G, GE [which isn't even based here], and Mitsubishi [ditto]).

I love Cincinnati, but reality is reality -- it's a stagnating city being kept propped by a few major corporations and with a population base that is very resistant to "new" and "different." The population base isn't growing, new jobs aren't being created, and it's a struggle to get people downtown for ANY reason (to say nothing of a baseball game). There's no new industries springing up to mine new value from, the media market is continuing to shrink, and the already tightwad "money in the mattress" crowd that runs most local business is only getting tighter as the economy swirls in the toilet.

Really, if the Reds had been bold, the best thing they could've done was build the stadium off I-75 between Dayton and Cincinnati to draw into BOTH major metro areas. As it is, they're in a going-nowhere city in a going-nowhere part of the nation. Surprise surprise, the team is going nowhere right along with it.

Highlifeman21
08-20-2009, 11:25 PM
It's a good question. Operating the team at a loss doesn't necessarily have an effect on the franchise's value. Your Yankees, for example, say they lose money but I think it's safe to say they are worth more than any franchise in baseball and maybe in all American sports. There are many other factors that come into play in appraising the value of a sports franchise.

I'd venture to say the Cowboys are worth the most of all American sports, given their new stadium.

Although, if you factor in the new Yankees Stadium, the YES Network, and what not, then maybe yes, the Yankees are #1.

Highlifeman21
08-20-2009, 11:35 PM
So attendance is tanking?

As long as that doesn't spook Bob into more panic moves, it's sadly a good thing. Watching the attendance dwindle *might* eventually result in real and substantial organizational overhauls.

Like you said, it'll probably spook Bob into more panic moves.

If that doesn't happen, then we'll either see more of the same, or we'll see Bob sell as the principle owner. Make this team some other schmuck's problem.

Highlifeman21
08-20-2009, 11:47 PM
NYY luxury boxes go for about $900k per season. Do you think that more businesses in NY or Cincy that would pay those numbers? How about the seats behind home that go for $2500 a pop?

GABP also didn't cost a billion dollars, so the Reds don't need to charge those kinda rates.

Also, NYC is a town that can afford those prices.

Cincy? Not so much.

westofyou
08-21-2009, 12:17 AM
1) they are dwarfed by places like NY and LA. Larosa's? Come on.

2) it's not only that, but which areas would have the more attractive population to pitch their services to?

LaRosa's got a big ole chuckle out of me, as did Frisches (a regional franchise spun off of Bobs Big Boy)

You want to know the folks willing to pay? Look at the Reds TV ad's now. Classic Rock stations, A&E windows, Processed meat sold regionally, and a company that moves businesses.

Cincinnati has big businesses, that is correct, none of them have a tradition of advertising during reds games, they are most likely conservative businesses that target their customers, and chances are both Frisches and LaRosas have print ads in the Reds program, that's their budget, and their usual fare.

redsfandan
08-21-2009, 04:37 AM
The value of the franchise has an equity value. They could leverage that equity to invest in the franchise and improve its value even higher. You don't have to sell the team to do that. It is an essential strategy that almost every company in the world utilizes. It is foolish not to do it. You will make less money in the long run if you don't do it. But this isn't a concern with the Reds yet because they have tens of millions of dollars in cash to utilize before they even touch the franchise equity..
Unless you don't do it right. (remember we're talking about the Reds here) :rolleyes:

Castellini took over the team and promptly declared the losing was over. He was going to do whatever it takes to win. The proven factual numbers say he is a liar. The end of the losing is nowhere in sight. He has not done what it takes to win even though he had the resources available. He talks about winning, but all he really cares about is profit. The proof is in the pudding.
A liar? That's a little strong. I'd agree that it might be a good idea for him to stay out of the PR dept. But if you say that what it took him to provide a winner was another $10m, $20m, or more a year I'd have to disagree. I think Bob C means well. I really do. And I think Bob C is a smart guy. But business smart. NOT baseball business smart. He hasn't shown that he's smart enough to make really important decisions regarding the payroll/roster of a major league baseball team. Normal business rules don't apply the same to a professional sports team. A pro baseball team is different from any other type of business. The best thing an owner can do is find the best baseball people he can find. And then stay out of the way and let them do their job.

Most of the focus in this thread has been on whether the Reds could spend more on the team. But the Reds haven't had losing seasons because of what their budget is/was. They've had losing seasons because of HOW they've spent their budgets. It's been shown that, while it's easier to compete with a big budget, that doesn't mean that you CAN'T compete with a smaller budget. So I really don't care as much about whether the Reds can spend more because whether the payroll is $75 million or $90 million won't matter if you don't spend that money wisely!! THAT is what is most important to me from a business aspect.

edabbs44
08-21-2009, 07:56 AM
GABP also didn't cost a billion dollars, so the Reds don't need to charge those kinda rates.

Also, NYC is a town that can afford those prices.

Cincy? Not so much.

The relative wealth of each city was the point of my post.

Highlifeman21
08-21-2009, 11:45 AM
The relative wealth of each city was the point of my post.

Point of my post also.

Cincy can't support Yankee Stadium prices b/c Cincy is a poor city relatively compared to The Big Apple.

edabbs44
08-21-2009, 11:47 AM
Point of my post also.

Cincy can't support Yankee Stadium prices b/c Cincy is a poor city relatively compared to The Big Apple.

Exactly. My post was in response to RMR's post regarding attendance. 35k fans in Cincy spend a hell of a lot less than 35k fans in NY. Attendance, while relevant, isn't equal in all markets. And is only one piece of the revenue puzzle.

Highlifeman21
08-21-2009, 07:49 PM
Exactly. My post was in response to RMR's post regarding attendance. 35k fans in Cincy spend a hell of a lot less than 35k fans in NY. Attendance, while relevant, isn't equal in all markets. And is only one piece of the revenue puzzle.

Heck, at this point, I'd be happy for 15K fans or 25K fans.

35K seems like a pipe dream at this point.

BCubb2003
08-21-2009, 07:56 PM
The attendance and concession money is more or less comparable. The media contracts are where the gap is. It's exponential.

Highlifeman21
08-21-2009, 07:58 PM
The attendance and concession money is more or less comparable. The media contracts are where the gap is. It's exponential.

Who wants to watch these Reds on TV?

What company in their right mind would pay the Reds big money for broadcast rights?