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Rays' numbers show team investing on the field, not raking in cash

ST. PETERSBURG — An irreverent website recently revealed that the Tampa Bay Rays earned a $14 million profit on 2008 operations and had $32 million in cash at the end of that year — hardly signs of deprivation for a team that wants a new stadium.

But numbers can deceive, especially amid the murky thickets of Major League Baseball.

Accountants who reviewed the leaked Rays financial documents say owner Stuart Sternberg appears to be following his publicly stated business model: Make a little one year, lose a little the next and try to keep the team competitive.

"The Rays used their money to strengthen the club, '' says Jordan Kobritz, a college professor and CPA who once owned the Daytona Cubs. "They spend money on the major-league product in the present, and they spend money on the minor-league system, which will improve the major-league product down the road.

"They are going to be competitive for the foreseeable future.'', the website that acquired documents of six teams, covers sports with a frat boy mixture of profanity and pornography — an unlikely landing spot for sensitive financial information.

Nonetheless, sports economists hailed the documents as an unprecedented foray into the inner sanctum of major-league finance.

The Florida Marlins, for example, made more than $50 million in operational profit over the past two years. Irate Miami officials now want the team to increase its $155 million contribution toward a $645 million stadium coming out of the ground in Little Havana.

In Pittsburgh, fans suffering through 18 consecutive losing seasons discovered that Pirates' owners distributed $20 million to themselves in 2007.

Less information was available about the Rays. Deadspin posted only five pages, covering 2007 and 2008. Critical audit notes were missing, and the Rays would neither provide them nor comment for this story.

That means accountants can make only educated suppositions, not rock-solid conclusions.

Still, the documents provide insight into Sternberg's recent contention that he's losing more than $10 million a year.

Stadium or no stadium, here's a chance to take a little look-see.

Make some, lose some

A remarkable World Series run kept the Rays in the black in 2008. They netted $11 million from the playoffs. Their baseball operations more than covered interest on their considerable debt. And they had $32 million in cash when Dec. 31 rolled around.

Though $32 million seems like a bonanza to the untutored eye, accountants were less impressed.

That's because the entire amount stemmed from "deferred revenue,'' said St. Petersburg CPA Peter Hanson. That's a standard accounting term for advance payments for services that must be supplied in future years.

For example, fans fronted cash for 2009 season tickets because that guaranteed them the right to buy 2008 playoff tickets. Sponsors undoubtedly put down deposits for 2009, as well.

On paper, that money would be listed as income for 2009, but no actual money would flow into the bank that year because it was all prepaid.

"It hits you right between the eyes, how much deferred revenue they had'' in 2008, Hanson said. "Somebody really wanted in for 2009 and gave them a whole bunch of money.''

About $28 million was prepaid for the 2010 season or beyond. That conforms with previous reports that the Rays renegotiated their local TV rights with Fox Sports Florida at the end of 2008. The balance sheet indicates they received a large lump sum payment up front, like a player getting a signing bonus.

Revenue from concessions, parking and novelties also tripled in 2008 to $9 million. The Rays dropped the "Devil'' from their name that year, spurring sales of new gear. They eliminated free parking. Then the playoffs spurred an extra round of shirt-buying and beer swilling.

So 2008 was a good year, fueled by the playoffs.

Then came 2009.

Despite the flurry of advance season tickets, final attendance rose only 72,000 in 2009 as the recession deepened and the team missed the playoffs. Based on average prices, total ticket revenue probably rose about $6 million.

The new television deal negotiated in 2008 surely brought the team higher media revenue in 2009. But that deal was negotiated before viewership took off and now the Rays are locked in until 2016.

Missing the playoffs — and that $11 million boost those games provided in 2008 — probably canceled out any ticket and broadcast revenue gains.

Meanwhile, base player salaries rose 43 percent. With taxes and benefits, that represented $20 million or more in extra expense. Though you can't tell for sure without recent financial statements and audit notes, Hanson said, the Rays likely lost money from 2009's baseball operations.

This year, player salaries rose at least an additional $10 million and attendance has slipped. Even if the team makes the playoffs, the Rays almost certainly will lose money again.

The money flow

Sports economists have written widely on how baseball teams can make profitable teams look woebegone on paper.

Owners sometimes depreciate player contracts as an "expense,'' though no money flows out the door. They shift revenues to related business. They borrow money to buy the team, pay interest, then contend the team is losing money if baseball operations fail to pay that interest.

Toronto Blue Jays executive Paul Beeton said as much years ago in a moment of uncommon candor:

"I can turn a $4 million profit into a $2 million loss and I can get every national accounting firm to agree with me.''

Rays' documents, however, show no obvious signs that Sternberg and partners are pulling lots of money out of the team, the accountants said. To the contrary:

• The team carried $115 million in debt in 2008. Though much could have originated from Sternberg's purchase of the Rays in 2005, subsequent borrowing indicates that at least some debt stems from ownership plowing money into the team.

• The Rays listed $8 million to $9 million each year in "player contract acquisition costs.'' Those appear to be real, out-of-pocket expenses rather than paper shuffling. Audit notes from other teams show similar costs stemming from signing bonuses of draftees, new foreign players and veterans re-upping contracts.

• In 2007, the Rays earned a $22 million profit on baseball operations, but also spent $12.5 million on capital expenditures, presumably their well-publicized renovation of Tropicana Field.

• In 2008, the Rays listed liabilities of $21 million from partner advances that had not been repaid, another likely sign of money flowing in, not out.

• The Rays did list "related party management fees,'' a device other teams used to funnel a few million dollars to themselves each year. But the Rays apparently did not pay as much as they would have liked. Their balance sheet lists liabilities of $1.5 million in 2007 and $2.6 million in 2008 for unpaid "related party'' fees.

"I don't think they are really making money here,'' said Kobritz, the CPA who teaches sports business online at several western universities. "Looking at their deductions, they are reasonable and normal.''

The Rays "are the poster child'' for baseball's revenue sharing system, designed to help low-income teams stay competitive, he said.

The team spent $23 million for sales and marketing expense in 2008, double what the other five teams reported.

It spent $22 million on scouting, development and farm club operations, more than most.

Player salaries have tripled since 2007.

"They exemplify what the system was designed to do,'' he said. "You won't see that looking at the financial statements of the Marlins or Pirates.''

What the numbers show

Recently leaked financial documents offer several insights into six major-league baseball teams.

Average ticket prices

Team Marketing Report's Fan Cost Index has always been the accepted source for average ticket prices in baseball. But that estimate is based on how many seats a stadium has at different prices. The leaked documents reveal the actual average price that fans paid in 2008. In some cases, it varied significantly from the estimate.

Team Marketing estimate

Seattle Mariners $25.29

Los Angeles Angels $20.78

Florida Marlins $18.69

Texas Rangers $18.01

Tampa Bay Rays $17.23

Pittsburgh Pirates $17.07

Actual average price

Los Angeles Angels $30.93

Seattle Mariners $28.47

Tampa Bay Rays $21.91

Texas Rangers $20.55

Pittsburgh Pirates $19.97

Florida Marlins $15.72

Haves, have-nots

Besides ticket revenue and luxury suites, some baseball teams earn money from local broadcast rights, concessions, parking, advertising and other income streams generated at the ballpark. About 30 percent gets shared with the other teams. Here's what the leaked documents show about these revenues for 2008. The totals reflect rounding of individual items. The Marlins play in a stadium owned by the NFL Dolphins, which reduced their park-generated revenue.


total revenue
BroadcastSponsorships and/or


novelties, parking

Mariners, $107 million
$60 million$23 million$18 million $6 million
Texas Rangers, $105 million$63 million $14 million$18 million $10 million
Los Angeles Angels,

$91 million
$43 million$19 million$17 million $13 million
Pittsburgh Pirates,

$75 million
$39 million$10 million$8 million$17 million
Tampa Bay Rays,

$38 million
$13 million$11 million$10 million$3 million
Florida Marlins, $21 million$16 million$3 million$3 million$1 million
Tidbits from Texas

Rangers' documents offered arcane details for 2009

Expenses: Baseballs, $234,393; bats, $62,909; uniforms and jackets, $70,337; batting practice pitchers, $5,721.

Revenues: Mascot appearances, $12,730, JumboTron birthday greetings, $25,905.

Rays' numbers show team investing on the field, not raking in cash 09/11/10 [Last modified: Monday, September 13, 2010 8:21am]
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