OT: Forbes Financial Data Doesn't Tell The Whole Story On Why Teams Lose Money

[sawchuk1971]

Paul Dolan might be right when he says Indians are losing money, but fans don't want to hear it

just read an article on the cleveland indians losing money..

the article talked about cleveland fans are skeptical when the dolans (cleveland indian owner) say they are losing money....the fan base is not buying it...

the article also show that forbes financial data show the indians aren't losing money...however according to the indians ownership, the data doesn't tell the whole story...

this is what i got from the article...

Forbes' annual franchise evaluations include estimates for team revenues and operating income. The website's most recent projections have the Indians with $284 million in revenues and an operating income of $31 million.

Clubs, though, dispute Forbes' numbers.

During the 2015 season, former Tribe president Mark Shapiro told us that the Dolans had lost money "quite a few years, including this year."

We discussed the Forbes projections quite a bit in that piece. A snippet:

One of the reasons teams often dispute Forbes' calculations, according to sources, is the EBITDA numbers aren't a true indication of a club's cash position, because the magazine doesn't take into account such major expenses as capital repairs and debt payments.

"There are expenses that are not factored into our profit number," said Kurt Badenhausen, Forbes' senior editor. "There's no denying the Indians have certainly struggled."

Click to read more...

 

[Masked]

What capital repairs does a baseball franchise have? They don't own the stadium they play in.

As for debt, is that their debt from financing their purchase of the team? Nice gig if you can get the business to pay for itself.

 

[TheWhiskeyThief]

Contract amortization is what accounts for the paper losses. Their cash flow is plenty fine.

I’d love to see a chart tracking franchise valuations from before and after this rule was introduced 25 years ago(or so)

Own a team, report paper losses for X number of years against your other income, flip the team for more money than when you bought it.

The only time you have problems is if you strip mine the asset too hard, borrow too much against the asset, then have cash flow issues.

 

[LadyStanley]

While they may not own the entity they play in, teams do have capital equipment for athletic development, athlete recovery, as well as company vehicles. (Anything more than $5k may be considered a "capital equipment" purchase. YMMV)

 

[sh724]

What capital repairs does a baseball franchise have? They don't own the stadium they play in.

As for debt, is that their debt from financing their purchase of the team? Nice gig if you can get the business to pay for itself.

There can still be many capital expenditures. They have offices which require furniture, computers, company vehicles, etc. Then there are potential leasehold improvements like outfitting the locker room with training and fitness equipment.

I underwrite commercial loans for a pretty large financial institution. Typically we estimate capital expenditures as 50% of regular non real estate depreciation + 10% of 179 depreciation. There are exceptions to that, especially with sports teams as players can be depreciated for tax purposes. The largest i work on is $25MM above that policy is a little different but its a good rule of thumb as we are not doing a deep dive into their financials

The sports industry is unique, but typically speaking the building owner does not pay for you to outfit the building

As far as debt service, the majority of it will be the team but it could also included vehicles, equipment, airplane (whether owned or leased). Also its definitely not uncommon for someone to take out a loan when they purchase a new business. Idk of anyone who has bought a team from one of the big 4 that did it with cash. There could be some but it would be rare.

 

[Ted Hoffman]

There's lies, damned lies, statistics, and then there's financial accounting.

 

[Ernie]

Oh this whole "losses due to debt repayment" is just more whining by rich people.

Guess what? If your team is running an operating surplus but can't keep up with debt payments, that just means you have too much debt. If you used that debt to finance your purchase of the team, that means you paid too much for the team.

The problem isn't players making too much money or cities not ponying up to build you a new stadium. The problem is you have an asset that has a value that is based on emotion, and you aren't going to be able to make the "business" side of it work at those numbers. If you don't like it, then sell to some other sucker who wants the prestige of owning a major league franchise.

 

[David Dennison]

His daddy bought the team? He takes a salary as team president/CEO? He will profit hundreds of millions when he decides to sell?

B-b-b-but Forbes slightly overestimated our net-net profit. And an economically distressed city didn't want to hear it!?!

 

[Jumptheshark]

One problem is knowing just what the amount is paid of the ice. I don't mean GMS and management. I mean secretaries and other people we never see.

I know from past experience many fans underestimate just how many people actual work for their clubs.

You don't see all of them on game day