November 20, 2015

GRAIN OF SALT

The Atlanta Braves is one of the best run MLB franchises. It is a subsidiary of Liberty Media, a massive communication conglomerate. It has the financial resources to be competitive year in and year out, even though the team got a suburban county to fund a brand new stadium for the team.

Braves Chairman and CEO Terry McGuirk who, gave an interview to the Atlanta Business Chronicle He had a lot to say, and for context one should read it all, but this answer, in response to a question about whether Braves’ profits are reinvested in the club or, rather, sent back up to corporate parent Liberty Media, was quite a head-turner:
Basically, all of the money at the Braves. We’ve never really lost money with the Braves. Baseball is not a widely profitable business. If you took all of the free-cash flow of all of the 30 teams, it’s pretty much zero. That’s sort of a fairly well known fact. If you actually, do have free cash flow, you’re among a minority. We have always managed the team to at least break even on free cash flow or make a little. Sometimes we’ve made more than a little. But, that puts in a minority in this business.
There are a lot of ways to measure the financial health of a baseball team and cash profit is only one of them. Indeed, it may be the least significant part of the financial picture for a team. The real game is the appreciation of franchise value, and the Braves have certainly appreciated for Liberty media. When they purchased the team in 2007 the franchise was worth $450 million. This year Forbes valued the club at $1.15 billion. And that’s despite the fact that the Braves have one of the worst local TV deals of any club. Of course, based on what McGuirk is saying, the Braves are pursuing both tracks: watching the franchise value appreciate and doing its best to break even on cash flow “or make a little.” The best of both worlds if you’re an executive in charge of a division of a large corporation.

Since baseball is a private enterprise, their "books" are not open to public inspection or audit. But realize that baseball teams have several legal accounting tricks to minimize profits (and therefore reduce taxes) as do any other major corporation. But baseball has the Veeck rule, which allows a team to both deduct the salaries of players and depreciate their contracts as a declining asset. This is a double deduction accounting method which reduces "profits" on paper.

In addition, baseball is just starting to reap the benefits of new revenue sources like the MLB Network and streaming game services.

Owners would not pay billions of dollars to lose money operating a franchise. So take any mention that baseball owners are break even propositions with a grain of salt.