The business of Mets baseball Part II: Keeping Wilpon’s lobsters

Okay, we now have down on paper how the Wilpon family became Mets owners, the era of Omar Minaya, the beginning of Sandy & Company, the recession, and ‘The House That Number 42 Built’.

I’m going to dumb it down a little here so everyone can understand just how a business survives and what determines the value of your business for a resale or refinancing.

The profit of a company is based on the difference between revenues generated and operating costs.

In the case of the Mets, revenues include ticket sales, network support, merchandising sales, parking fees, vendor support money and a myriad amount of other secondary items.

Operating costs include depreciation and amortization[i], (in short form, depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years. Amortization or amortization is the process of decreasing or accounting for an amount over a period of time), player salaries, stadium costs, maintenance, utilities, league fees, etc.

Like I said earlier… money in, money out.

What operating costs doesn’t include is corporate costs, salaries of officers and Board members, corporate luxury box maintenance, lavish meals in those three separate corporate boxes used by Fred Wilpon, Jeff Wilpon, and Saul Katz (yes, they each have their own luxury suite), corporate automobiles and aircraft, airline costs, or travel costs, etc.

(I remember one particular job I had working for a bank as a workout artist, liquidating radio properties. My “General Manager salary” was $130,000, but my corporate expense account that didn’t go to the bottom line was $20,000… a month.)

According to Josh Kosman’s report in early this month, which came out in the New York Post, the Mets are expected to “lose” $23million dollars this season.[ii]

Sandy Alderson already is on record that the loss last year was $60mil. (Eno Sarris/SB Nation reported it was $70millon[iii]

The Mets payroll was cut from approximately $143mil in 2011 to $95mil in 2012. That’s a reduction of $48mil.[iv]

So, they lost $60mil, cut salaries by $43mil, which leaves you a loss of $17mil… oops, nope, the loss reported is $23mil.

So, we still have $6mil more to go to turn black without removing a lobster from the menu in Fred’s luxury box.

On the basis of how I used to be reviewed, this isn’t that bad. In fact, it’s definitely online for a return to profit in 2013, even if the team continues to sell fewer tickets. Operating goals look to be easily achievable after the loss of Johan Santana’s $31mil and Jason Bay’s $21mil contracts. The safe approach would be to go into this season with the current salary structure, take it on the chin, and come out of it with an additional $52mil off the bottom line.

Instead, the approach seems to be that the Mets are going to increase the current payroll by $5mil (woop-dee-do), sell fewer tickets, lose more games, and wait for 2014 to roll around.

Based on that plan, 2014’s salaries will be in the $48mil range, the team will operate far above that, and additional players can be added through trades and free agency that will improve the team but still keep it profitable.

Got it?

Look, I’m sure I’ve got something wrong here (I always do), but, in my world, it looks like the Mets will put a decent team on the field in 2014 and return to a profitable business under the Wilpon family.

So, there will be no reason to change the owners.

Isn’t that special?

——————————————————————————–

[i] http://www.wikiwealth.com/dictionary:d-a

[ii] http://www.capitalnewyork.com/article/sports/2012/09/6536279/wilpons-mets-are-still-shrinking

[iii] http://www.amazinavenue.com/2012/9/26/3405872/mets-crg-finance-bankruptcy

[iv] http://www.baseballprospectus.com/compensation/cots/?page_id=158

14 comments for “The business of Mets baseball Part II: Keeping Wilpon’s lobsters

  1. September 30, 2012 at 11:50 am

    Why is it that the Ray’s who draw less fans than the Mets, have a smaller payroll(64 million) and yet year in and year out can put a quality product on the field? What has to change?You cannot project what a prospect will do in two or three years (Fernando Martinez)Injuries cannot be used as an excuse but I think we to change the atmosphere in the clubhouse. Free agents are a crap shot at best. Teams like Oakland depend on their scouting and are always on the lookout for bargains. Sandy Alderson trying to replicate the A’s is not the answer.

    • Name
      September 30, 2012 at 12:17 pm

      The Rays were crap pre-08. It took them 9 years of hell to get what they have now.

    • Mack Ade
      September 30, 2012 at 10:11 pm

      very similar salary structures… Mets have 10 key guys about the start Arbitration… Rays have 11

      Only difference here is twp bad cotracts (Santana, Bay)

  2. September 30, 2012 at 11:57 am

    Mack, I’m not a fan of beginning an article with “I’m going to dumb this down” presupposing our ignorance, yet I thank you for the article just the same. It does show just how much bad contracts can impact a team that cannot unload them. I imagine the heartburn someone must feel in cutting a check, every year, to Bonilla.

    • September 30, 2012 at 12:06 pm

      I have no sympathy for the Wilpons with the Bonilla fiasco. They made that deal under the assumption that the Madoff money would continue to roll in. They thought that the 11% Madoff profits would make the 8% they were paying Bonilla a bargain. If the Ponzi scheme was still active, you could imagine Wilpon giggling as he cut the check.

      Reap what you sow

      • September 30, 2012 at 12:10 pm

        good point, Ryan. Only Bonilla is chuckling. Imagine getting a check for a million, every year, for doing nothing? :)

  3. September 30, 2012 at 12:06 pm

    Pete, Alderson is credited with building the Oakland A’s team prior to the “Moneyball” period, by improving scouting and by scouting other teams’ minor league players well. He built up the system from within, which takes time. (I was reading up on this last night). Good drafting, and smart trades and promotions in the minor levels, do eventually impact a team.

    The wins of a team over .500 (as someone posted an interesting link recently) impacts the number of fans attending, via average per game, as does making the playoffs the year prior.

    I wonder how much of what is going on is being hamstrung by ownership, while attempting to build from within. Were there offers on the table at the trade deadline that were attractive? I don’t know. Alderson keeps it close to the vest, even though the announcers do ask pointed questions. (this makes NY different than a lot of other places).

    The two contracts of Bay and Santana are lethal to a team on the edge. Perhaps David Wright heard what was said about Chipper Jones, be reasonable, and want to see money spread around for the purpose of winning. He makes more in a single game than many fans earn in a year: he will never be impoverished. There have always been players who sought and received the most possible from the market, even if it meant not having money for the team to get quality players around them, just as there are those who’s wealth is so incredible that they care about winning and can accept less than open market in order to remain loyal and have money for others.

    It will be an interesting winter.

    Do the Mets believe that Wilmer Flores is the 3rd Basemen of the future? If so, does David Wright traded bring in a young star centerfielder or catcher from a team desperate for the hot corner?

  4. Metsense
    September 30, 2012 at 12:11 pm

    First and foremost: I’m glad you’re home and I hope everything is fine.

    Mack – I get it. They don’t have the money. If they did then Alderson would have done something in July based on his words from 2/17/12 “The nice thing about the trade deadline is you’re only paying half the salary or less — maybe a third of the salary. So a lot of good players can become available during that time frame. But certainly I believe that if we’re in contention for a wild card or what have you, we definitely could be looking to add to our club.”
    As a fan it is just so difficult to see an opportunity go by to improve the ballclub at such a small monetary sum.(for the baseball world)). It is also difficult to have bad ownership that has screwed up so bad that it can’t turn a profit until 2014.

    • Mack Ade
      September 30, 2012 at 10:15 pm

      2013 is going to be a tough year for the fans to swallow…

  5. Mack Ade
    September 30, 2012 at 1:07 pm

    Folks:

    I’ve had some ‘complications’ last night and spent the night in the hospital.

    I’m running a low-grade fever that hit 102.4 at two this morning. In bed now with IV fluids and Bactrim.

    I will comment on your comments tomorrow.

    Mack

  6. Chris F
    September 30, 2012 at 1:07 pm

    I think the entire thing is utterly nauseating. Peter, your “make more in 1 game than people in a year” got me (sadly) thinking that through personally. I would need to live 5 full lifetimes at 30 years a work life and still fall far short of a single year on DWs salary. At some point it’s hard to imagine money has any motivating value when it no longer has practical meaning, this is where I hope some sense of consciousness about his meaning to NY, the Mets, and to millions of fans. Not that I feel like DW is somehow being out of line no matter the decision he makes. To me, it seems money is hard to put into the equation. It makes Pujols decision all the more puzzling to me.

    I wish they all made less and made tickets more affordable.

    The Wilpon’s make me sick.

    • Metsense
      September 30, 2012 at 5:00 pm

      ARE BASEBALL SALARIES TOTALLY OUT OF WHACK

      Chris, I saw this and thought I’d share it. Parenthisis is added by me.
      Just 8,274 federal tax returns out of more than 140 million filed in 2009 had income that totaled $10 million or more, the most recent data available from the IRS show.(many pro baseball players).The 2010 adjusted gross income of anyone that totaled $20 million, according to their tax return, would mean they ranked high even among the top 8,274 tax returns.(probably all the owners).

      At $8 a ticket, third row behind the plate, I enjoy going to see a Sand Gnats-Crawdads game.

      • Chris F
        September 30, 2012 at 5:53 pm

        Its some perspective. I get the Tennessee Smokies (AA, Cubs) round here, and the K-Mets are 90 minutes away. Surprisingly enough, tickets in Atlanta are not bad to see the Mets, but well, then Im behind enemy lines!

  7. TJ
    October 1, 2012 at 11:25 am

    Mack,
    Get well soon. Good summary, but depressing for 2013. On point, the notion that the Wilpons “don’t have the money” for 2013 payroll is not quite accurate. Despite the Madoff fiasco and loss of hundreds of millions in balances they thought they had, they were still able to come up with tens of millions to buy several of the $20 million “equity shares” earlier this year. That is just moving wealth from one pocket to the other. I agree that operating-wise, the revenues probably can’t cover the expense of say an additional $20 million in 2013 payroll, but even that may not be true. Better team, over .500, more fans at games, more viewers, higher advertising $$$. Lastly, I don’t fully believe the loss figures stated by Alderson and co. This ownership owns 65% of SNY, which makes a ton of money, and can “the Mets” business can easily be represented as losing money while excluding those profits, which the Wilpons get 65% of, which are derived from the baseball team. My bottom line is, these guys own the business and can run it however they like, but why would anyone pay anything in 2013 for a product similar to that in 2012? If they don’t up payroll some and fill in the holes, the attendance next year should either drop to friends and family or paying fans should then just be pipe down if they will pay for an inferior product out of some type of “loyalty”. They are just making charitable contributions to multi-millionairess.

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