Opinion: Small Markets Can Spend Money Too

Pictured is William DeWitt Jr, managing partner and chairman of the St. Louis Cardinals.

*The views expressed in this article do not represent The Drummey Angle in its entirety, but rather of the individual author. We aim to provide differing opinions in the baseball world through each author's unique style, opening our readers minds to new ways to think about the sport.*


There is an old adage in business: to make money, you have to spend money. For some reason, a few owners of Major League Baseball clubs have chosen to ignore this principle. Many times, these are the owners of so-called “small-market” teams who are constantly claiming poverty. Far too often, these statements are not analyzed and are taken at face value, all while fans must suffer through never-ending rebuilds and salary dumps.


This problem is enabled by the fact that Major League Baseball’s owners have not been very willing to open their books and make their financial statements public knowledge. Commissioner Rob Manfred has routinely echoed the claim that “the return on those investments is below what you get in the stock market.” Unfortunately, that claim is hard to trust for more than a few reasons. Perhaps the biggest is the Atlanta Braves.


The Braves are owned by Liberty Media, a publicly-traded company. Their financials are required to be public information. In the third quarter of 2021, the Braves operating profit was $58 million. Liberty Media’s report stated, “Revenue growth more than offset increased operating costs as player salaries and facility and game-day expenses returned to more normalized levels in the current year.”


I believe the Braves are closer to the rule than the exception, although it is worth mentioning that their recent World Series success did add some unexpected revenue. Major League teams are owned by multi-millionaires and billionaires who have found considerable success as titans of business. Would these seemingly astute businesspeople retain expensive investments if they were losing money? Additionally, Major League Baseball teams exponentially increase in value. The Kansas City Royals were sold for $96 million in 2000. The franchise was sold again in 2019 for $1 billion. At the time, Mike Ozanian of Forbes wrote, “Even a bottom-of-the-barrel baseball team can appreciate in value three times faster than the stock market.” I believe it is a reasonable assumption that Major League teams are not losing money if they are increasing in value to this degree. Until the books are opened, the owners have not earned the benefit of the doubt that they are unable to spend. If they want it, prove it.


The Chicago Cubs have spent the last two seasons blowing up their World Championship roster. The Cubs have been somewhat active in free agency; however, they only pay out baseball’s 15th highest payroll while dominating baseball’s 3rd largest market. Cubs chairman Tom Ricketts has talked of losing “biblical” amounts of money during the pandemic. The ownership group must have quickly recouped its losses, considering its recent interest in purchasing Chelsea F.C., which is for sale for a reported $3.3 billion. This move to spend money from baseball’s big market teams in other leagues is not novel. Fenway Sports Group Holdings, which owns the Boston Red Sox, also owns Liverpool F.C. These purchases of other teams in other leagues represent big business for owners, as they can protect their revenues from MLB’s revenue-sharing practices by diversifying their sports and entertainment portfolio.


One of the most obvious examples of a team utilizng this claim to back up their salary dump is the Cincinnati Reds. Reds general manager Nick Krall began the offseason telling fans, “Going into 2022, we must align our payroll to our resources and continue focusing on scouting and developing young talent from within our system.” Since that statement was made, baseball’s oldest franchise has traded or released Sonny Gray, Jesse Winker, Eugenio Suarez, Tucker Barnhart, and Wade Miley. The team also allowed superstar Nick Castellanos to relocate to Philadelphia on a 5-year, $100 million deal. All in all, the Reds reduced their 2021 payroll from $122 million to $106 million.


Reds COO Phil Castellini has primarily used “small-market” defense for his team’s lack of spending. Castellini said, “I think we’re doing the best we can with the current economic resources we have.” Since Bob Castellini purchased the Reds, the team has averaged a yearly payroll of $91.9 million, compared to $116 million from the division rival St. Louis Cardinals. In those 16 years, the Cardinals have posted 15 winning reasons. The Reds have only five. The Cardinals have appeared in the playoffs ten times. The Reds — four. The Cardinals have captured the National League Central Division six times. The Reds — twice. The Cardinals have played for five pennants in the NLCS and climbed the mountain as World Champions twice. The Reds have not won a single postseason series.


If the claims of owners are to be trusted, then St. Louis must be a much larger market than Cincinnati — right? Nope. The Cardinals play in baseball’s 21st largest market. The Reds play in the league’s 29th largest market. The difference between the two markets is roughly 300,000 homes, $3,256 of household median income (2019 data), and a 1.13 household TV rating. These are not very large differences - yet the teams seem to be in two completely different places.

So why are the Cardinals more competitive than the Reds? Because they choose to be - the investment in the team is obvious. The Cardinals do not engage in lengthy rebuilds and periods of racing to baseball’s bottom. Instead, the Cardinals reload annually. The Cardinals are the epitome of what Michael Lorenzen advocates for, “Having teams trying to win every year at all costs impacts things in a positive way all over. You might not win it all, but you belong in this league competing against the rest of these teams. These [tanking] teams don’t.”

The Cardinals have also proven that small-market teams can still make money if they are simultaneously spending money. The Cardinals have finished in the top five Major League teams in attendance for the last eight seasons with fans in the stands. Fans want to watch winners and have, in turn, rewarded the Cardinals for fielding a perennially competitive roster. In Cincinnati, fans appear to be losing faith in their franchise. In the second game of the Reds opening homestand, they played in front of 10,976 people. A similar ordeal is happening in Oakland. The Athletics and their $27 million payroll played their second game in front of 3,748 fans, baseball’s smallest non-pandemic crowd in over 40 years.


In the modern world of constant information and entertainment, consumers do not want to pay to watch losing teams. Fans no longer need to go to a ballgame for entertainment when they have cheaper options at their fingertips. In any business, if consumers reject your product, then you need to improve it. If teams want to sell tickets, food, drinks, beer, and merchandise, they need to give fans a team worth watching. Cutting expenses and expecting the same financial support from fans is simply a fallacy in this day and age. Major League Baseball teams have to spend money to make money, regardless of market size. And while the information publicly available is limited, in my personal opinion, these small market teams are capable of making that commitment to spend.


Sources:


700 WLW

Bleacher Nation

ESPN

Fansided

Forbes

John Fay on the Reds

MLB Trade Rumors

NBC 5 Chicago

NBC Sports

New York Post

SB Nation

San Francisco Chronicle

Sports Media Watch

Spotrac

The Atlanta Journal Constitution

The Boston Globe

The Cold Wire

US Census Bureau




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