Apparently the article that stated that Crane was making more money than the last half dozen WS winners combined was wrong.

Check this out.

(08-30-2013 09:09 AM)grol Wrote:  Apparently the article that stated that Crane was making more money than the last half dozen WS winners combined was wrong.

Check this out.

Baseball is a funny business. There are many different ways to measure income. GAAP basis, cash basis, tax basis will give three different net income figures, and the size of the differences can be astounding. The one thing I've seen in print is a column by Leonard Koppett who somehow managed to get access to the books of the Red Sox for four years in IIRC either the 70s or 80s. At that point, to give you an idea of the magnitude of the numbers, they were looking at total revenues around $50 million a year and payrolls somewhere in the $20 million range, so probably around 1/3 to 1/5 what they are today for most teams. Anyway, what was truly remarkable (along with the fact that he actually got to look at the numbers, and more amazingly that he got to disclose them) is that for the four years he looked at, the SMALLEST annual difference between GAAP income and tax basis income was $20 million. Most years they were showing about a $10 million profit under GAAP rules and a $10 million loss for tax.

Now, it would not be reasonable to extrapolate that to say there is $60-100 million today between GAAP income and tax income today, because 1) a number of the tax breaks were plugged by subsequent tax laws, most notably the 1986 law, and 2) a lot of the differences depend on interest rates (I can explain how and why, and Hambone probably could, but it's a really complex rabbit trail that we don't need to go down here), and with today's minimal interest rates the numbers simply don't produce as wide a spread as they did in 1980. But there is still going to be some difference, and it's a big number. The range of variation for the Astros might not be as large as it is for some clubs, because a lot of it depends on how you treat player contracts for tax, and they don't have any big player contracts now. On the other hand, depending on how they allocated the purchase price, they could be getting some pretty huge timing differences from that, particularly in the early years under new ownership.

My point in explaining this is that when you say the Astros had $99 million (or whatever number) in operating income, you have to be very careful about what that number means. There are lots of ways to end up comparing apples and oranges, and one needs to be VERY careful about any general conclusions comparing team A's financial results to team B's. I would say that in any listing of any measure of income for 30 MLB teams, you are probably looking at 25 materially different methods of determining what that number means, and some of those differences are inherent in the structures of the particular acquisition deals.

I've looked at this at some length and had some discussions with other SABR members about it. I am a member of the SABR business of baseball committee. I also had a really lengthy conversation with Tom Hicks about a lot of these issues years ago. Based on what I know, I would believe that the correction article is far more accurate than the original one. Most of the points made in the correction are totally consistent with everything I know. In particular, I would say that any analysis that relies on $80 million of income coming from a source which lost $60 million is highly suspect--particularly when you have a substantial equity stake in the source.

It sure would be nice (I think) if sports franchise were publicly traded companies.

None of the teams release a full set of audited financial statements that are publicly available. If they all did, it would be possible to compare them. You would not get to see the tax returns since that is private even for public traded corporations, but you could get some information from the footnote about the tax provision.

Neither of the two articles gave enough information to figure how the numbers were calculated.

(08-30-2013 11:58 AM)Owl 69/70/75 Wrote:  

(08-30-2013 09:09 AM)grol Wrote:  Apparently the article that stated that Crane was making more money than the last half dozen WS winners combined was wrong.

Check this out.

Baseball is a funny business. There are many different ways to measure income. GAAP basis, cash basis, tax basis will give three different net income figures, and the size of the differences can be astounding. The one thing I've seen in print is a column by Leonard Koppett who somehow managed to get access to the books of the Red Sox for four years in IIRC either the 70s or 80s. At that point, to give you an idea of the magnitude of the numbers, they were looking at total revenues around $50 million a year and payrolls somewhere in the $20 million range, so probably around 1/3 to 1/5 what they are today for most teams. Anyway, what was truly remarkable (along with the fact that he actually got to look at the numbers, and more amazingly that he got to disclose them) is that for the four years he looked at, the SMALLEST annual difference between GAAP income and tax basis income was $20 million. Most years they were showing about a $10 million profit under GAAP rules and a $10 million loss for tax.

Now, it would not be reasonable to extrapolate that to say there is $60-100 million today between GAAP income and tax income today, because 1) a number of the tax breaks were plugged by subsequent tax laws, most notably the 1986 law, and 2) a lot of the differences depend on interest rates (I can explain how and why, and Hambone probably could, but it's a really complex rabbit trail that we don't need to go down here), and with today's minimal interest rates the numbers simply don't produce as wide a spread as they did in 1980. But there is still going to be some difference, and it's a big number. The range of variation for the Astros might not be as large as it is for some clubs, because a lot of it depends on how you treat player contracts for tax, and they don't have any big player contracts now. On the other hand, depending on how they allocated the purchase price, they could be getting some pretty huge timing differences from that, particularly in the early years under new ownership.

My point in explaining this is that when you say the Astros had $99 million (or whatever number) in operating income, you have to be very careful about what that number means. There are lots of ways to end up comparing apples and oranges, and one needs to be VERY careful about any general conclusions comparing team A's financial results to team B's. I would say that in any listing of any measure of income for 30 MLB teams, you are probably looking at 25 materially different methods of determining what that number means, and some of those differences are inherent in the structures of the particular acquisition deals.

I've looked at this at some length and had some discussions with other SABR members about it. I am a member of the SABR business of baseball committee. I also had a really lengthy conversation with Tom Hicks about a lot of these issues years ago. Based on what I know, I would believe that the correction article is far more accurate than the original one. Most of the points made in the correction are totally consistent with everything I know. In particular, I would say that any analysis that relies on $80 million of income coming from a source which lost $60 million is highly suspect--particularly when you have a substantial equity stake in the source.

(08-30-2013 12:20 PM)75src Wrote:  None of the teams release a full set of audited financial statements that are publicly available. If they all did, it would be possible to compare them. You would not get to see the tax returns since that is private even for public traded corporations, but you could get some information from the footnote about the tax provision.
Neither of the two articles gave enough information to figure how the numbers were calculated.

All true. Under current ownership structures and laws, you are never going to get truly comparable data.

That was one of the big problems with the players strike in 1994. The owners kept insisting that they were losing money (and on a tax basis, they probably were) and therefore couldn't offer any more money to the players. The players were unwilling to accept such assertions without the opportunity to see the books. The owners were unwilling to allow the players to see the books because they were worried about the kinds of things I discussed in the longer post becoming public knowledge if the players did get access. Some years ago, I had a pretty lengthy conversation with Tom Hicks about the issues involved in the strike.

The 1994 strike was finally resolved without the players getting access to the books, and fortunately for baseball fans, all parties realized that so much damage had been done that they have not gone the strike route again. The issues have not come up since, and unless they do I doubt that we will ever get more financial disclosure. The NFL requires all teams to have audited financials which are submitted to the league, but not publicly disclosed. Other than the Green Bay Packers, which are grandfathered, NFL rules prohibit a public company owning a franchise.

Like the author of the second article, I am no fan of Jim Crane. I find some of his business policies to be questionable, particularly the alleged racism. I frankly wish someone else owned the team. But that someone is not Drayton. And what Crane and Luhnow are doing is exactly what HAD to be done. The author of the more recent article explains that quite well, so no need to elaborate here. They didn't decimate the team. The team they inherited had already lost 100 games the year before, and had exactly zero help coming from the farms. They did not take a contender and turn it into a 100-loss team as has been suggested. The Astros were at least 5 years removed from being a contender, and their dreadful drafts and player development had left them with no hope for the future.

If you want to criticize, then this is the fair question to ask. Would you rather have 1) a team going 56-106 with the worst farm system record in baseball, or 2) a team gong 50-112 with the best farm system record in baseball? Team 1 is what Crane bought. Team 2 is what he has turned it into so far. Team 3, when those farmhands grow up, is one we will probably enjoy watching.

No one has mentioned another milestone the Astros have crossed this year. They have officially been eliminated from the post season even before the end of August. Even if they win all their games and the other teams lose all their games, there is no way they could win the division or get the wild card. They can not be bad as the 1962 Mets who went 42-120. One good sign is that the Mets won the World Series in 1969 which was 7 years later. Also, the Astros are 5 1/2 games behind the Marlins which means they will get the top draft pick again next year.

The rebuilding had started even before Crane bought the team. It became obvious to even Drayton that the team was not getting anyway so it was time to start trading off the old players. Maybe Wade was finally able to convince him that is a waste of money to keep around veterans that were not winning and that they needed to be traded to get prospects.