Will The Rays Lose Money This Post-Season? (Yet More on Revenue Sharing)

First, some background:

I have been very critical of the revenue sharing system.  I’ve argued here and here that baseball’s system of revenue sharing system does not work.  I’ve focused particular attention on the Tampa Bay Rays, because I believe that the Rays are a perfect example of what’s wrong with revenue sharing.  My argument is that the Rays did not need revenue sharing to build their current squad (the core of which is made up by top draft picks), but that revenue sharing is inadequate to help the Rays right now when they need it most, when the Rays’ local revenues cannot grow fast enough to meet the increased expense of keeping a winning team together.  I’ve estimated that the Rays lost money in 2009 and will lose money again this year.  The Rays have already announced that they’ll have to cut payroll in 2011 in order to make ends meet, and this payroll cut will require the team to trade or release some of their best players.

Why am I so certain that the Rays are losing money?  Well, let’s go back to the financial statements leaked by deadspin.com.  In 2008, the Rays made the playoffs – in fact, the Rays made it all the way to the World Series in 2008, losing to the Phillies in six games.  All told, the Rays played 16 playoff games in 2008, eight at home and eight on the road.  According to the Rays’ financial statements, the Rays received $17,674,301 in post-season revenues in 2008, and had post-season expenses of $11,833,161.  Do the math, and the Rays pocketed $5,841,140 in 2008 post-season profits.  Given that the Rays only had $4,016,163 in overall net income in 2008, post-season income was the difference between the Rays making and losing money in 2008.

Since 2008, all economic trends have run against the Rays.  The Rays’ player payroll has increase by $28 million since 2008.  The Rays’ home attendance has not increased.  While we don’t have leaked financial date for the Rays after 2008, we estimate that their revenue sharing receipts have dropped slightly.  The Rays did not make the playoffs in 2009, so of course the Rays did not make any post-season income in 2009.  Given all of these negative trends, we’ve estimated that the Rays lost money in 2009 and that they’ll also lose money in 2010 regardless of what happens in the playoffs.

The sole good economic news for the Rays: they’re in the 2010 post-season, and they have a shot at 2010 post-season money.  We’ve seen the impact that the post-season had on the Rays’ 2008 financial results, and we’d assumed that the Rays would be helped financially by playing in the 2010 post-season.

But we hadn’t considered the rules governing the split of post-season gate receipts.  These rules are a little strange.  For the first three games of a baseball division series, 60% of gate receipts go the players on both teams, and an undisclosed percentage goes to the Commissioner’s office.  The remaining money is split between the participating teams.  We’ll make the guess that each participating team’s share of gate receipts for games 1-3 is 17.5%.

(A good explanation of the post-season revenue split can be found here.)

That’s all the Rays are guaranteed to receive at this point (with game 3 in progress as I write): 17.5% of three games worth of post-season gate receipts.  How much is this likely to be?  Well, FanSnap tells us that the average Rays 2010 playoff ticket (so far) sold on the secondary market for $77.  (That’s not what the Rays team received, of course, but we’ll use this number for our estimates.)  $77 multiplied by total two game attendance in Tampa of 71,009 is about $5.5 million of revenue.  Game 3 in Texas seems to be a sellout, so that would be 49,170 fans.  FanSnap shows that an average Rangers playoff ticket is going for $168 in the secondary market.  That’s probably a lot higher than the box office price received by the Rangers, but $168 times 49,170 is about $8.25 million.  Again, we’re probably guessing high, but if we use this $8.25 million figure to estimate game 3 gate receipts, we’d have a total of $13.75 million of gate receipts for the first 3 games of this series.  The Rays share of this $13.75 million – 17.5% — is about $2.4 million.  Not bad for three days work.

But wait!  We haven’t considered the expense side of the equation.  Remember in 2008, the Rays had $11,833,161 of post-season expenses over a 16 game post-season.  That’s about $740,000 of expenses per game, or $2.2 million for a three game series.  Unfortunately, the Rays’ expenses this post-season are probably higher than this.  While we have no hard data to back this up, we guess that the expenses for hosting a post-season game are higher than those for travelling to a post-season game.  Moreover, the Rays’ travel expenses will probably be more or less the same regardless of whether the Rays play one game or two games in Texas (that is, unless the Rays checked out of their hotel rooms before starting game three).

What are the Rays’ playoff expenses so far?  We don’t know.  We can guess that they’re higher than the $740,000 per game they paid in 2008.  We can guess that they’re probably higher than the $2.4 million they might see in post-season revenues for the first three games.  My guess (based on an unverifiable assumption that hosting a playoff game is 4 times more expensive than travelling to one) is that the Rays have amassed around $2.65 million in expenses so far.  That’s a wild guess, but remember: if we’re guessing on the high side for post-season expenses, we also probably guessed on the high side for post-season revenues.

The unfortunate conclusion: unless the Rays can make it to a game 4, they’ll probably lose money this post-season.

The Rays’ financial picture improves quite a bit if they can win game 3.  For game 4, the Rays would receive 42.5% of gate receipts – that could be worth $3 million or more in additional post-season revenue to the Rays.  This would not nearly put the Rays in the financial neighborhood of the 2008 post-season.  In 2008, the Rays played 16 post-season games, 5 games more than the minimum (and as we can see, the teams make most of their post-season money in games played in addition to the series minimum).

But $3 million is real money, particularly to a small-market team like the Rays.  $3 million could provide some of the money the Rays might need to resign game 3 pitcher Matt Garza.

So, this is what’s at stake for the Rays today.  Win, and they do more than extend their season.  Win, and they give team owner Stuart Sternberg the means to retain a bigger portion of the 2010 team in 2011.  Lose, and the projected 2011 Rays’ payroll probably shrinks just a little bit further.

(Need I remind you that this $3 million is less than 10% of what Major League Baseball paid in 2010 revenue sharing to the Pittsburgh Pirates?  The Pirates proceeded to play some of the worst baseball the game has ever seen in 2010.  Do you think that maybe, just maybe, a rational system of revenue sharing might take this $3 million from the Pirates and pay it instead to a terrific team like the Rays?  Which team — the Rays or the Pirates — might best use $3 million to improve the quality of baseball in 2011?)

Addendum: final game 3 score, Rays 6, Rangers 3.  A great “money” win for the Rays, in more ways than one.

8 thoughts on “Will The Rays Lose Money This Post-Season? (Yet More on Revenue Sharing)

  1. Telnar

    This data makes me feel enough sympathy for the Rays that I'd like to see them lose to the Yankees in 7 to maximize their postseason revenue for that result.

    Oddly, from a financial perspective they might be better off without home field advantage since they make more money at road games.

  2. LarryAtIIATMS

    Telnar, it would be great if we could get Stuart Sternberg to comment here, or Brian Cashman. Maybe the home team's share of concessions might provide a big financial benefit.

    I've read that football teams often lose money on home playoff games. No one seems to mind in football — possibly because the TV money is so good.

    The long-term view is that home playoff games drive up local interest in the team, with (hopefully) a carry-over effect on future ballpark attendance.

    Thanks for your comment.

    • If that's true about football teams, it could also be the case that no one really cares because there's a bigger home-field effect in football than in baseball.

  3. Professor Longnose

    Have you taken into account TV revenue from postseason games?

    • That's part of central revenues, so they don't get any extra money for it.

  4. Professor Longnose

    Thanks for the info.

    As it turns out, they're going to get at least that fifth game in the wild card playoffs.

    • jon

      And with any luck, that will be the end of their playoff money. Shoot – ya know, if money is THAT big a deal, and teams are scrambling for such small amounts, then perhaps the Yankees aren't spending their money judiciously. That 5 mil we gave Nick Johnson, or even the 11 we threw at Javy (don't even mention AJ, please) – parcel it out to the teams we meet in the playoffs, in return for them starting Pavano, Duensing, and scrubs. They get money – we get wins. Good idea?

      • LarryAtIIATMS

        Jon, that's brilliant stuff. I just need to check the rule book to see if that's legal.

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