Editor’s note: This is a special “Business of Baseball” report by The Cardinal Nation’s financial expert, Michael Roberts, aka “bicyclemike.” An in-depth ranking of the financial strength of all 30 Major League Baseball’s teams includes a special focus on the St. Louis Cardinals, of course.
Forbes released its 23rd annual values of Major League Baseball clubs on April 9th. MLB teams are private enterprises and are not required to file SEC reports. As such, the Forbes data are estimates based on reports from companies in the baseball business and Forbes’ own financial analysis.
Still, one can take this information, apply accounting principles to it, and make relative assessments of each organization’s financial health. This is what follows, including a summary data table at the end.
Forbes’ value calculation is based on each organization’s current stadium deal, without a deduction for debt. They call it the team’s “Enterprise value”. Normally value, or “worth” of an enterprise is thought of in terms of equity, which is the value of owned property or “assets”, netted by liabilities – the amount obligated to a third party. Liabilities include debt, which is often a large part of a company’s financing. Several major league clubs do not have any debt on their books, a remarkable characteristic for any business enterprise.
MLB’s business model continues to be successful, with an average increase in team value of 4% over 2019. However, this is the smallest annual increase since 2010. Average operating income for 2019, defined as earnings before interest, taxes, depreciation, and amortization, increased to $50 million, from $39.7 million in 2018.
Revenue increased by 4.8%, to an average of $330 million per team. Player payroll costs stayed steady, largely due to the restructured competitive balance tax and international signing rules as part of the Collective Bargaining Agreement. Teams spent an average of $157 million on player payroll.
Financial Strength Rankings – Top 5
- San Francisco Giants – No debt, second best Operating Income (OI) in MLB
- Boston Red Sox – No debt, solid OI, great market, legacy franchise
- Los Angeles Angels – No debt, strong OI, high-population market
- New York Yankees – No debt, easily the top revenue team in MLB, best legacy in the game
- Toronto Blue Jays – No debt, reasonable player costs, good market in terms of population
This is my assessment of clubs’ relative financial strength. It gauges each team’s ability to meet its fixed costs (debt obligations in this instance, as we do not know actual fixed costs) and how much income is remaining after covering those costs.
Teams with more financial strength and flexibility will be better able to take risks and absorb economic downturns, such as what is occurring currently. In baseball terms, additional risk comes with splurging more on player costs, or perhaps upgrading a stadium or committing more capital to minor league player development.
In ranking the teams by capital structure, the San Francisco Giants are clearly the most stable franchise in the major leagues. They have no debt on the books and had an operating income estimated at $96 million, tied with the Dodgers as second most in baseball, trailing only Houston’s $99 million. (Ed. note: It may not be a coincidence that the Giants are the first organization to provide minor leaguers in-season housing allowances and among the three systems to increase minor league salaries ahead of the other 27.
The Red Sox are not far behind, with no debt and $89 million in OI. Looking at the Red Sox balance sheet and income, it makes me wonder why they felt the need to move Mookie Betts. They look to be financially healthy and being a storied franchise in a fairly large market are at a low risk for future financial difficulties.
As I mentioned, being debt-free is quite a novelty in normal business operations, but not all that unusual in MLB. Three other debt-free teams round out my top five “Best Financed” organizations – the Los Angeles Angels, New York Yankees, and Toronto Blue Jays.
The St. Louis Cardinals rank right in the middle of my financial strength index at number 15. The team has solid earnings, but also has $220 million in debt to service, which pulls down their net value by about 9%. The Cardinals are also a small market team, which brings a little more risk should the club’s on-field fortunes dip over an extended period of time or other issues put downward pressure on revenue. But they are a storied franchise that has built a lot of goodwill, which would enable them to withstand some poor baseball stretches.
Looking at other NL Central Division teams in terms of financial health, the Milwaukee Brewers top the group based primarily due to having the lowest amount of debt among the five teams at just $72 million. The Cubs are the highest risk venture in the NL Central thanks to the second-most debt in the majors at $416 million. But their intangibles, like the Red Sox, will likely keep them from having another long period of ineptitude; a feature that past Cubs teams exemplified maybe more than any other franchise in the post-war era.
The Pittsburgh Pirates and Cincinnati Reds have kept from getting over-loaded with debt but have not been recent division contenders other than a brief run by the Pirates. The Reds are trying to build a winner through increased player costs and are slowly bringing their young talent to the majors. The Pirates are being conservative, no doubt a bit cautious after the blunder in giving up considerable talent in return for Chris Archer.
At the bottom of the MLB pile are the Texas Rangers and Miami Marlins. The Marlins are at or near the bottom in nearly every financial metric. They are a team that generates little revenue and are highly financed by debt. The Rangers have far and away the most debt of any big league team on their books, due no doubt in large part to their new stadium.
Player Payroll as a percent of Total Expenses – Top 5
- Washington Nationals – 62.7%
- Los Angeles Angels – 62.3%
- Colorado Rockies – 59.1%
- St. Louis Cardinals – 58.5%
- Cincinnati Reds – 58.5%
Next is a view of which teams have the highest percent of their total expenses as player costs. Teams that commit more of their resources on players could be considered as having a high level of commitment to winning. However, it also might represent careless management. Basically, it is a more high-risk approach to allocated earnings, as multi-year contracts are usually guaranteed and spending big on players is not necessarily an indicator that a team will improve on the field.
It might come as no surprise that the World Champion Washington Nationals also finished first in this department. Almost 63% of their total expenses in 2019 was for player costs. The Los Angeles Angels rank second, a fraction of a percent behind Washington. This is also understandable with the large contract extension given to Mike Trout, and their propensity to be in the market for big-name free agents such as Anthony Rendon.
The next three may surprise you. They are the Colorado Rockies, St. Louis Cardinals, and Cincinnati Reds.
The Rockies have spent a little more freely on players developed through their system than in the past, doling out rich contracts to Charlie Blackmon and Nolan Arenado. The Cardinals’ spending has been a hot topic at times at The Cardinal Nation forum, and is much debated as being anywhere from the club being run by cheap capitalists in it for their own gain, to reckless abandon and carelessly throwing money away to players declining in value. The Reds are putting more emphasis on bringing a contender to the Queen City.
At the bottom of the list is none other than the New York Yankees. Despite the second highest player payroll in the majors, the Yankees generate so much revenue, about double the average team, that they do not need to spend a lot of what they get on players to have high player costs. Comparing most any team’s player payroll to the Yankees is almost apples and oranges. Using the Cardinals for example, the Yankees revenue is $300 million more than the Redbirds, while their player expenses are only $38 million more.
National League Central Division
Focusing on the St. Louis Cardinals and their peers in the National League Central Division include one financial behemoth and four pawns. The Cubs play in far and away the largest market in the division, with a population base of 9.5 million per Forbes. They do share the market with the White Sox, but Forbes’ Revenue-per-fan calculation (local revenue divided by metro population, with two-team markets divided in half) shows the Cubs earning $87 and the White Sox $38. Clearly the Cubs are getting more revenue out of the market than the Sox.
The other four NL Central teams have a market size between 1.6 million (Brewers) and 2.8 million (Cardinals). The Brewers and Cardinals were the most successful clubs in the division at marketing to their fan base in 2019. The Brewers pulled in $111 per fan, and the Cards $103. This is likely due to the success these teams had on the field in 2019. The Reds and Pirates are still searching for the competitive acumen that the Brewers and Cardinals operations possess. The Crew struck it rich with the Christian Yelich deal to supplement a good crop of other acquisitions and home-grown players. St. Louis has used astute scouting and player evaluation metrics to stay competitive from within the organization, supplemented by an occasional key acquisition.
Final thoughts on the St. Louis Cardinals financial structure
Forbes has the “Birds on the Bat” ranked at number seven in net value at $2.2 billion. The average club falls around $1.85 billion; thus the Cardinals are valued at about 19% above the average MLB organization. St. Louis has done this despite a metropolitan area that ranks at number 24, tied with Baltimore. The Cardinals rank third in the Forbes’ revenue-per-fan calculation at $103, just ahead of Boston’s $102.
On the negative side, the Cardinals are not in the top 10 for financial strength. They are a bit heavily debt-financed for the industry, running about 14% above the average club in this area. But they do bring in well above average operating Income, and thus are not in an overly risky financial position, nor are they overly aggressive.
Another negative, and one that can be support for those highly critical of management, is a number Forbes put together based on 2018 data called “Wins per Player Cost”. It is described as wins per player payroll relative to the league, with playoff wins counting double. Thus, a score of 100 is average; a score of 120 would be a roster that performs 20% better than the league in terms of player cost “efficiency”. Below 100 can be thought of as a roster that is over-bloated with under-performing players based on their salaries.
The 2018 Cardinals were dead last in this measure, a woeful 15% of the average team. The Cardinals would have fared much better in 2019, but Forbes does not have that data available. While we can say the team greatly underperformed in 2018, to truly make a judgement on management’s performance using this number, we would need at least a five-year trend. Thus, I do not put much emphasis on a one-year record. Many other factors will contribute to a team’s successes or failures during a given season. But it does put an exclamation point on how bad the 2018 season was for St. Louis.
The big picture is brighter. The history of Cardinals baseball is rich, and there are so many great players in the team’s genealogy. Some promising players in the St. Louis minor league system are close to making their mark in Cardinals lore. An equally impressive list of ownership groups have kept the Cardinals thriving, and fan interest strong. The current club is probably not where management wants them to be on the field or in the financial books. But they are not deficient in either respect, and are consistently valued among the top 10 franchises in Major League Baseball. This is a tribute to everyone who has played a part in this storied organization over the last 140 years.
For ease of consumption, three detailed spreadsheets backing up the above have been distilled to the following:
Major League Baseball Financial Data, ranked by financial strength
|Rank||Value Rank||Team||Forbes Value ($B)||Debt / Value||Rev.||Oper. Income (S MM)||Player exp ($ MM)||Metro pop (MM)||Rev / Fan ($)||Wins / Player Cost||Player cost expense ratio|
|1||5||San Francisco Giants||3.100||0%||452||96||192||4.7||170||74||53.9%|
|2||3||Boston Red Sox||3.300||0%||519||89||246||4.6||102||63||57.2%|
|3||9||Los Angeles Angels||1.975||0%||377||61||197||13.1||44||67||62.3%|
|4||New York Yankees||5.000||0%||683||35||220||20.3||63||95||34.0%|
|5||Toronto Blue Jays||1.625||0%||265||16||135||5.9||27||92||54.2%|
|8||Chicago White Sox||1.650||6%||285||66||117||9.5||38||114||53.4%|
|11||San Diego Padres||1.450||8%||299||52||141||3.3||54||92||57.1%|
|15||7||St Louis Cardinals||2.200||10%||383||72||182||2.8||103||15||58.5%|
|16||2||Los Angeles Dodgers||3.400||12%||556||96||217||13.1||78||94||47.2%|
|22||6||New York Mets||2.400||15%||362||7||171||20.3||26||92||48.2%|
|25||Tampa Bay Rays||1.050||19%||264||68||87||3.0||41||215||44.4%|
|28||Kansas City Royals||1.025||24%||251||27||122||2.2||55||89||54.5%|
Rank = Bike Mike’s Financial Strength Ranking
Capital is 2020 values
Income/Expense is 2019 data
Bold = National League Central Division teams
About the author
Michael Roberts is a semi-retired accountant, and lives with his wife Cathy in the Denver, Colorado area. He has a Bachelor’s Degree in Business from the University of Colorado, Boulder, as well as an MBA in Finance from CU. Mike has a 35 year career as an Accounting/Finance professional including over 20 years in management. He contributed three articles to the SABR publication “A Mile High – The First Quarter Century Of The Colorado Rockies”, and has been a passionate St. Louis Cardinals follower for close to 60 years. He is known as “bicyclemike” in his long-time role as a moderator at The Cardinal Nation’s forums.
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