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Forbes values franchise 15th in major leagues
Published on Sunday, Apr 27, 2008
Forbes Magazine has calculated that the Indians are worth $417 million, making the franchise the 15th most valuable in the major leagues.
So what? Why should a fan in Stow or Wooster or Medina care? Tribe enthusiasts are supposed to care about one thing: winning. Isn't that right?
But financially healthy clubs have a much better chance of success than those that are constantly struggling to stay afloat in a sea of red ink. It doesn't take a payroll the size of the New York Yankees, New York Mets or Boston Red Sox to win division titles (though it helps), but a reasonable level of wealth is necessary to build a farm system, compete in the draft and adequately fund the 25-man roster.
Larry Dolan and his son Paul have accomplished that mission with the Indians. Some fans still describe the Dolans as cheapskates, unwilling to keep up with the Joneses. In truth, they have been responsible owners, who not only realize the limits the size of the market imposes, but also have managed to increase revenue in ways not done by their predecessors.
Forbes' calculations are not based on an ability to examine the books of major-league teams. Their conclusions are the product of informed guesswork, past published reports of payroll numbers, or profit and loss figures provided by the commissioner's office and the players union, plus common sense.
The cash value of any team, in the end, can be determined only one way: what it brings on the open market, and Cleveland's baseball franchise is not for sale. However, the figures that Forbes presents on an annual basis are worth a serious look, even though they are sometimes disputed by the clubs.
With all of that in mind, Forbes places the Indians' 2007 revenue at $181 million and their operating income (what amounts to pretax profit) at $29 million.
How does that compare with other franchises? According to the magazine, the Yankees are No. 1 in value at $1.3 billion, and when their new stadium opens next year, Forbes believes the club will be worth almost $1.5 billion.
However, despite revenue of $327 million last year, the Yankees operated at a loss of $47.3 million, making them one of only three teams that did not make a profit. The others: the Red Sox (minus $19.1 million) and Toronto Blue Jays (minus $1.8 million).
According to Forbes, the average value of a big-league team last year was $472 million — skewed upward by the Yankees, Mets ($824 million) and Red Sox ($816 million) — with the Tribe's value rising 14 percent from 2006. The Indians' operating income ranked third in the American League.
It is interesting to note that the eight teams with the least estimated value in 2007 were in the black by an average of $21 million. For the record, Forbes ranks the bottom three franchises as the Pittsburgh Pirates ($292 million), Tampa Bay Rays ($290 million) and Florida Marlins ($256 million).
If you're thinking that the Yankees' operating loss means there's likely to be a change in the balance of power in the AL, forget it. Forbes' numbers do not take into account revenue from the YES cable television network, owned by the Steinbrenner family.
It's not clear that cash input from the Dolan family's SportsTime Ohio has been included in the Indians' revenue. For one thing, both the team and the cable network are privately held (and separate) companies, so it would be difficult to uncover accurate financial data.
But in creating SportsTime Ohio, the Dolans have discovered a means to increase revenue significantly. Here's where the guessing on my part begins. Before the creation of STO, the Tribe sold rights to televise its games to Fox sports for about $20 million a year, but at least in recent seasons, the club might have paid part of the production costs, diminishing the value of the deal.
That traditional revenue stream changed when the Dolans created STO. Instead of selling broadcast rights to a local over-the-air or cable station, the Dolans have contracted with various cable and satellite outlets, with Time Warner the lead supplier.
Industry sources in Cleveland believe that STO receives at least a dollar a head every month per each subscriber to Time Warner and other cable and satellite providers, plus a cut of the advertising revenue. Best guess is that STO revenues are $35 million or more a year, giving the Dolans more flexibility with the Tribe's payroll.
That is one reason the club was able to sign Travis Hafner, Grady Sizemore, Jake Westbrook, Victor Martinez, Jhonny Peralta, David Dellucci, Cliff Lee and now Fausto Carmona to multiyear deals.
From 2009 through 2014 (in the case of Carmona), the Dolans are on the hook for at least $193.5 million if $61.5 million in club options are exercised. Even if the team opts to decline every option, it is committed for at least $132 million in payroll between 2009 and 2012.
The good news for fans is that the well is not dry. General Manager Mark Shapiro is not blowing smoke when he says he has the leverage to sign other young players to long-term deals (Ryan Garko might be next), and that he is not pessimistic about re-signing C.C. Sabathia, despite his high standing among the next class of free agents.
Does that mean the Dolans will sign a player at any cost? Obviously not. Only the Yankees can afford to spend wildly, with little regard for the consequences. But the fact that Shapiro has not discouraged the media from speculating on the possibility of re-signing Sabathia is an indication that the financial position of the club has improved.
That said, a franchise gains a competitive advantage against its adversaries only when its revenue outpaces the rest of baseball. In that respect, the Indians are in a better position to spend — in relation to most of their rivals — than they were just a few short years ago.
Sheldon Ocker can be reached at socker@thebeaconjournal.com.
Get the full article here.
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