Friday, November 5, 2010


Did you watch the World Series? Well, neither did a lot of other people since the games garnered the smallest TV audience in World Series history. My team didn’t win but it was great fun to watch. The Giants hadn’t won the World Series since the 1950’s and the Rangers had never even been to a World Series where they didn’t have to buy a ticket to get in.

As I watched the games, I thought a professional sports franchise must be an incredible business. One unlike any business most of us have ever been associated with. I know of no other business in the world where the average annual salary of its employees was over $3 million each in 2008. And that is up from an average of $1.1 million in 1995. The New York Yankees total player payroll for 2009 was a little over $210 million for a 40 man roster. And how about the fact that even if a player only bats .190, he will still be very well paid on pay-day.

Major league team owners complain that they lose money every year. I know you’re probably saying to yourself; “But what about all those TV and merchandise revenues?” In 2009 some $660 million (according to ESPN) was sent to the 30 clubs for TV rights. In addition the clubs participate in a revenue sharing program ($433million in 2009) that redistributes revenue from high earning clubs, like the New York Yankees, and gives it to clubs in need of assistance. Revenue from merchandise and licensing only accounts for a small part of a team’s revenues. The majority of a team’s income comes from league-wide revenue sharing, TV fees, ticket sales, and stadium revenues. To me it looks like you can’t lose, so why are they complaining?

For major league sports franchises, cash is definitely King, especially around payday. So, if your team is in need of cash where do you turn? To the guys with all the money; your employees. You may be able to talk some of the more highly paid players into deferring part of their salary to the end of their contract. If that doesn’t work, you can always trade your high-paid players to another team. These players are also usually your best players, so this option assures you a losing season next year.

So let’s summarize some of the unique aspects of the business of a major league baseball franchise:

1. Each of your employees, on average, makes more than $3 million a year.
2. Your employees don’t have to perform, but they will continue to receive their pay.
3. You share revenue from TV fees and merchandise sales with your competition.
4. If you don’t earn the highest revenues, don’t worry, your competitors will give you part of theirs.
5. If you make more money than your competitors, you have to give them part of yours.
6. The best place to borrow money is from your employees.

I think it’s a very unusual business, but still it’s a great game. What do you think?

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