Cheap talk - the Cardinals, Braves, and the numbers

Posted Tuesday, May 22, 2007, at 10:18 AM

Time Warner generates about $45 billion a year in revenue, good enough for 48th place on the Fortune 500.

This corporate behemoth makes a lot of money in a lot of areas; movies, cable tv, magazines, online services, etc.

But here's a business where Time Warner couldn't make money -- Major League Baseball.

Time Warner sold the Atlanta Braves to Liberty Media in a deal that closed just last week.

In today's Atlanta Journal-Constitution, Time Warner Chairman and CEO Richard Parsons has some interesting comments for those who think MLB franchises have printing presses in the backroom.

"I'm a big baseball fan, and ... the Braves are a heck of a baseball team," Richard Parsons said at Time Warner's annual stockholders meeting Friday, "but we made the judgment that owning sports teams is really for entities that are what I'll call asset-play entities as opposed to earnings-driven entities."

Parsons also said the Braves "don't make money."

Time Warner is not the first corporate entity to back off from MLB. Disney sold the Angels back in 2003. Anheuser-Busch sold the Cardinals after the 1995 season.

It's interesting to compare the Braves to the Cardinals. According to Forbes, their business metrics are eerily similar.

The Cardinals are worth $460 million. Forbes pegged the Braves at $458 million while the sale to Liberty placed the value at $461 million (it was part of a larger asset swap).

The Cardinals generated $184 million in revenue last season -- $183 million for the Braves.

Like revenues, the operating incomes are almost identical - $14 million for St. Louis and $14.8 million for Atlanta.

Opening day payrolls for 2007 have the Cardinals spending about $3 million more than the Braves -- roughly $90 million compared to $87 million.

When you put all those figures together, it comes down to this. The Cardinals spend (slightly) more money on the field and make (slightly) less off their product.

Something to consider for those who always want to bash ownership when the team struggles.

Postscript: VEB on the "owners are cheap" crowd.

as much as i'd like to sign on to that, i can't. i'll sum up my reason in two words: scott rolen. here's a big-name free agent the cardinals did open their wallets for --- signed him to an 8-year, $90 million deal that began in 2003. he was that free-agent class's equivalent of carlos lee or alfonso soriano --- indeed, was a much better buy than either one of those players, insofar as rolen was younger (he was 28 years old when the contract began; lee and soriano are both 31), a better hitter, and an infinitely better fielder. every cardinal fan was thrilled to have rolen then . . . . but look now. halfway through the deal, rolen appears to be washed up and a lot of fans hate his guts. the deal still has three and a half loonnnnng years to run, and the cards still owe mr rolen more than $40m in compensation.

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I think everyone's got it right. Sports teams are still mighty fine investments, just not for publicly owned companies. The stock market typically undervalues asset plays (including sports teams) while generally paying more-or-less reasonable prices for cash flow and earnings growth. Over time, the shareholders of publicly traded companies grow weary of owning assets that are not generating a fair market return and pressure management to sell the assets and deploy the capital elsewhere.

But sports teams are still a good investment for entities who do not have to answer to public shareholders every quarter since the value can be unlocked by selling the team. If the owners can break even on a cash flow basis, they have a very good chance of making a return that far exceeds the return that will be realized by the shareholders who demanded the sale of the "underperforming" asset in the first place.

-- Posted by unclegrubworm on Wed, May 23, 2007, at 2:31 PM

The Cards would have to eat a large portion of his contract for any team to take him on at this point. I doubt that would happen.

-- Posted by semoredhawk on Tue, May 22, 2007, at 9:04 PM

I don't think the fans hate Rolen's guts. I think they are frustrated with his lack of production. Calling him washed up is not an intelligent call. He still has some good years in him.

It seems that Mike's blogs are centering around the notion that people are looking to trade Rolen. Again, I repeat, who would take Rolen's spot if he was traded? We can trade for a 3b but our problem is not at 3b. So would we have Spiezio (more washed up than Rolen) or Miles? Or someone else that I did think of?

-- Posted by mattstl77 on Tue, May 22, 2007, at 8:50 PM

"asset-play entities as opposed to earnings-driven entities."

Thats a pretty good assessment of the economics of owning a baseball team. No enormous yearly profits, but over time their value rises higher and higher. While owners may pretend to cry poor their hasn't yet been one who hasn't sold the team for vastly more money than they bought it for. Given the profits to be made due to transfer pricing (like signing a long term TV contract & concession deal with subsidiaries before selling) and the tax incentives (like amortizing player contracts after purchase) the real money to be made is in flipping sports teams after 5-8 years or so and not in long-term ownership.

-- Posted by Nil on Tue, May 22, 2007, at 11:52 AM

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