Here are the numbers, straight from Forbes:
These numbers are enough to drive a small-market team to drink. Consider, for example, the Pittsburgh Pirates. The Forbes numbers show that the Pirates earned gross revenues of $144 million in 2009, while the Yankees earned about three times as much. That’s a significant gap. But when you look at the two team’s gate receipts, the gap is wider still. The Pirates had $24 million of gate receipts in 2009. According to Forbes, the Yankees’ gate receipts were more than thirteen times higher.
Strange, but true: at this moment, the Yankees may have already earned gate receipts in excess of what the Pirates will see for all of 2010 It is mid-April, yet in the race for baseball gate receipts, the Pirates have already been eliminated.
(The Pirates would have been eliminated earlier if the Yankees had opened the season at home.)
You say you don’t believe the Forbes’ numbers? Last year, the Pirates had total attendance of 1,577,853, and an average ticket price of $15.39. Do the math and round off: you get $24 million, on the nose. The Yankees? Attendance of 3,674,495 in 2009, with a $67 average ticket price. Multiply these two figures and … you get a number less than that reported by Forbes. Whoops. But the Forbes numbers include sale of club seats, which presumably makes up the difference.
There’s a lesson in these numbers, apart from understanding the chasm between the Yankees and the Pirates. A baseball team’s financial success depends on the team’s ability to attract fans to the ballpark. The most successful teams earn the biggest gate receipts, not just in terms of overall dollars, but also in terms of the percentage of their revenues earned from gate receipts.
To get a better picture of the importance of gate receipts, we need to go beyond the Forbes numbers. Forbes estimates each team’s annual gross receipts after the distribution of revenue sharing money from rich teams to poor teams. So while Forbes reports Yankees’ revenues for 2009 at about $440 million, the Yankees pulled in close to $600 million in 2009 before they paid their revenue sharing. Similarly, while Forbes reports the Pirates’ 2009 gross revenues at about $145 million, this amount is calculated after the Pirates’ receipt of more than $35 million in revenue sharing. The Pirates’ gross revenues before revenue sharing are closer to $110 million.
If we want to get a picture of each team’s true annual gross revenues, we have to factor in the amount paid or received by each team in revenue sharing. Unfortunately, we don’t know these amounts – the lords of baseball do not reveal this information. All we know is that total revenue sharing in 2009 was $433 million, and that revenue sharing payments and receipts are calculated (more or less) relative to each team’s gross revenues. So when it comes to figuring what each team pays (or receives) in revenue sharing, we’re reduced to guessing.
Here’s my best guess of (1) the amount of revenue sharing paid or received by each team, (2) the true gross revenues of each team, before these amounts are paid or received, and (3) the percentage of each team’s estimated true gross revenues that are generated from gate receipts:
OK, I admit it: these numbers are guesses. Yes, we’re showing revenue sharing payments of over $40 million to some of the poorer teams in baseball, which is more than others have estimated. My numbers are not perfect, they are rough estimates. If you don’t like my guess, propose a guess of your own. But for the moment: assume that these guesses are accurate. Can we learn something from these numbers? Look closely, and a pattern emerges:
1. If your team earns more than 50% of its gross revenues from gate receipts, then you’re a member of baseball’s elite. You’re the Yankees, or the Red Sox. Any team aspiring to Yankee – Red Sox territory should be shooting to exceed this 50% threshold.
2. If your team earns more than 40% of its gross receipts from gate receipts, then you’re in the upper class of baseball. You’re the Dodgers, or the Phillies, or the Cubs, or the Cardinals. You can expect to compete for the post season nearly every year (or for the Dodgers, every year that your principal owners don’t divorce).
3. If your team earns more than 35% of its revenues from gate receipts, then you’ve achieved a sort of baseball respectability. You’re in a league with the Rockies, the Astros and the Tigers. Most years, you can hope for a good season. At least occasionally, you’ll have an opportunity to go deep into the post-season.
4. If your team earns less than 30% of its income from gate receipts, you have a problem. You’re either a chronically weak franchise, like Pittsburgh and Florida, or a team heading in the wrong financial direction, like Cleveland and Baltimore. You might get lucky (like the Rays) and assemble a hot team too young to be eligible for free agency. But for the most part, your highest aspiration is mediocrity.
Take a look through the list above – you’ll see that these rules apply more often than not. The top three teams for gross revenues are also the top three teams in percentage of revenues derived from gate receipts. Five of the top six teams for gross revenues are in the top six for gate receipt percentage. What holds true at the top of the list also holds true at the bottom: of the 11 lowest revenue earning teams on our list, only three have gate receipt percentages above 30% (and one of those three, the Royals, barely tops the 30% barrier).
True, there are teams here that don’t fit the pattern. The Angels, Mariners, Rangers and Braves all seem stronger than their percentages would indicate. These four teams defy our rules of thumb, probably for reasons unique to each team.
It’s interesting that some of the percentages that seem “off” at first glance may actually have a hidden meaning. If you asked me to pick two small market teams on their way up, I’d pick the Twins first and the Brewers second. Check out each of these team’s gate revenue percentages. Twins, 37% — better than the White Sox! Brewers, 41% — better than the Dodgers! Do these percentages indicate that these teams have better times ahead (financially, at least)? Maybe so.
But I digress. Our point is that a baseball team’s financial health depends on goodly amounts of ticket sales. There’s no helping a team that cannot attract fans to its ballpark. Again, let’s look at the Pittsburgh Pirates. It is true, Pittsburgh plays in a small media market, compared to the tens of millions who live in the New York tri-State area. But it does not take tens of millions to fill Pittsburgh’s PNC Park. It takes tens of thousands, and the Pittsburgh population is well in excess of tens of thousands. In order to succeed, the Pirates have to get these folks to buy Pirates tickets.
Remember what the numbers tell us: the secret to financial success in baseball is getting the turnstiles to turn.