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Baseball as a Business

So the other day, I was reading the Athletic. I highly recommend it, if you haven't taken the plunge. Whether you agree or disagree, the quality is second to none. But the other day, I read Marc Carig's "Baseball is big business, but the sport shouldn’t feel like the sole domain of businessmen." article. Through it, he crafts a point that while baseball is obviously a business, there's essentially too much made out of words like Luxury Tax, Budget, Payroll, Contracts, and so on. That's a point I can get behind


But then as I kept reading, I got to a section I completely disagreed with: " No one buys a movie ticket only to fret about what the producers paid to hire the performers on screen. In baseball, that hand-wringing has become its own little pastime." Now I agree, talking about baseball finances has become a pastime. And I do agree, nobody goes into a movie really talking much about what a producer paid an actor. But I feel that the comparison between movies and baseball is very much like comparing apples to oranges. There are certain similarities and differences. Where I disagree, lies in that movies and baseball are similar in ways most people wouldn't agree with, and different in ways that most people would claim similarity. It got me thinking, and I went down a rabbit hole.


When it comes to both movies and baseball, they are measured in basically one thing: how much money they make. For movies, yes, there are IMDB ratings to garner, Oscars to win, and auteurs looking to tell a story. But at the end of the day, Producers make movies to get butts in seats, regardless of quality. Usually quality can help get those butts in seats, but it's not a requirement. My prime example: there were SIX!!! Transformers movies, because they made money. And a lot of it. Each one of those movies cost (in chronological order): $150M, $200M, $195M, $210, $217, and $135M. Each of those movies grossed worldwide (in chronological order): $709M, $836M, $1.123B, $1.104B, $605M, and $467M. That was despite Rotten Tomatoes scores (critical reviews) of 58%, 20%, 35%, 18%, 15%, and 92% (chronological again).


In case those numbers were a bit much, basically only 1 of those movies was considered good by critics, and it was the lowest grossing one. The three out of the four worst ones made the most money. As they got worse, they made more money until people got sick of them. But my one full point is simple. They were made to make money, not for quality. People continued to show up, even after a couple of bad movies. Movies are made to make money. Period.


Baseball is similar. It's made to attract fans and make money. Whether we like it or not, billionaires buy teams to make money, sometimes not caring about the on field results. There will always be people willing to show up at the ballpark despite a bad season. Getting the family out to the old ball game is an American past time. Grabbing your buddies for a beer in the bleachers is a tradition. This doesn't mean that every MLB team will sell out their stadiums and be profitable, just that there's an inherent crowd that will show up no matter the quality of the on field product. So how do teams make money beyond just throwing a product on the field?


A lot of people think that if teams put a quality product on the field, the more fans will come. That's just a rule of thumb. Enough bad seasons in a row, and you might struggle to sell tickets. Like the Pirates, who have been perennial losers since the early 1990s, outside of a couple of playoff years in the mid 2010s. They were 26th in attendance in 2019. Sometimes the team is good, but struggles to sell tickets. Like the Tampa Bay Rays, who were a playoff team, but also ranked 29th in attendance. Sometimes team is bad, but still sells seats. Like the Rockies, who were 6th in attendance, but 22nd in wins. The point I'm getting at is, there may not be a direct causation between winning and fan attendance.


The Cubs have had an adverse relationship to how most think winning relates to attendance. Did you know that the last time the Cubs were below the NL average in attendance was 1997? The time before that was 1987. The list is interesting. But the relationship is pretty clear. The Cubs, traditionally, have always drawn well, despite plenty of losing years. Maybe it's the big city of Chicago, the fun neighborhood, historic Wrigley Field, or some combination. This opens up a couple of possible theories that are commonplace throughout the Chicago sports community:

• If the fans come while the team is bad, then the front office shouldn't spend on players, as means to a way to stay profitable (cheap owners)

• If the team is winning, attendance should rise (even for the lovable losers)

• The higher attendance, the more the team makes. More fans more tickets etc.


The question I'd like to try and answer today is "Is it in the owner's best interest for the team to be a winner?" Or rather, "Does spending money on players to have a good on field product, mean more fans will show up, which in turn means more profit?" I made a chart, thanks in part to Baseball reference, Spottrac, USA Today, Statista, and Cubdom.


Let's look at how profitable the Cubs have been when it comes to winning.

Here's how to read my chart:

• Year: I chose 1997 as a starting point to show the last time the Cubs were below average in attendance. Basically to give you a feel for how a bad team (in both wins and attendance) performed financially. Also, data gets exponentially harder to find every 4 years or so you go back, so there came a point where the effort level may not be worth it.

• Attendance is measured in millions, rounded to nearest 100K

• Ticket price is the average ticket price for that year, averaging out the nosebleeds with the box seats.

• income is just attendance times tickets to calculate how much the team made off attendance. No food and beer sales, memorabilia, etc. Just a way to try and determine how the team trends income-wise.

• Payroll is MLB player payroll, as of opening day that year, rounded to nearest million.

• Profit is income minus payroll. So it doesn't count manager/executive salaries, rehabbing Wrigley, etc. Just like it doesn't count how much the team made if all 30,000 fans attending a day game bought a hot dog. I'd love to go that complex and find out the actual numbers, but Tom Ricketts hasn't read my resume (yet).

• Payroll Rank is where the Cubs player payroll ranked among all 30 MLB teams for the year, so you can get a feel for the perspective of how much they were spending compared to peers.

• Wins: use it to determine how well the team was performing.


Go ahead and take a minute to scan it over, or even 10 minutes to analyze. There are a lot of facts that can be drawn from it.


Attendance

Attendance seems to be remarkably consistent for the Cubs. The range is officially 2.2M-3.2M, but looking at the Ricketts' era to present, attendance has always been 2.6-3.2 million fans. (basically a difference of 7,400 fans per game). Sometimes you see attendances spikes in competitive years, but the Cubs also drew a ton in down years like '99, '00, '06, '10, '11. Year over year, there weren't a lot of drastic crashing or boosting, but at times there would be dips and spikes as a trend over multiple years.


Now, relating attendance to winning isn't always as simple as making a ratio of wins to attendance, but I'm going to try.

• The Cubs three best attendance years were '08, '07, and '16. 3 winning seasons, with 3.3, 3.252, and 3.232M fans respectively.

• The Cubs 3 worst attendance years were '97, '98, and '13, with 2.19, 2.623, and 2.642M respectively. One winning season and two rough years. Granted two of those years were early, pre-home run era, so it may not quite be accurate to just count wins and attendance.

• In their 4 worst years record wise ('12, '13, '06, '00), they drew 11.4 million fans.

• In their best 4 years record wise ('16, '08, '15, '18), they drew 12.6 million fans.

This is a difference of 1.2 million, or 14,814 fans per home game. So in that regard, there is a correlation between winning and attendance. As Wrigley can seat nearly 41,649, that difference is basically 35.5% of Wrigley's capacity.


Just to put some of these attendance figures in perspective, the Yankee's range for the same timeframe is 2.5-4.2 million with an average over 3.2, Red Sox have ranged 2.2-3.1 with an average of 2.8, and the small market Cardinals range from 2.6-3.5, averaging 3.2.


Income

Cubs income has varied depending on the year. The four biggest years have been the last 4, which makes sense in a post- World Series era, in terms of both higher attendance and higher ticket prices (as well as inflation).

Income also grew every single year, minus downturns from '11-'14 (as the Cubs rebuilt, attendance and ticket prices dropped), and just again in 2019, when attendance dropped. Please notice the huge bump in income from '07-'08, and how it was consistently up leading up to the Ricketts's acquisition.


Payroll

So pre-2004, Cubs payroll was not that high, never in the top 10. There were a few winning seasons mixed in there, but the Cubs never really put it together for multiple years. Makes sense, because sometimes teams would just put it together. The Tribune was never cheap the like Athletics or Marlins, but clearly never spent big on the team like the top market team it was. Attendance for this era reflected the spending.


Then 2003 came, and the Cubs had a solid nucleus. The Tribune began to spend, going up a few slots in terms of payroll ranking. There were some back and forth years in terms of winning. Then in 2007, as the Tribune geared up to sell, they increased spending with a lot of backended deals (Soriano, Zambrano, Lee, Ramirez, Lilly, among others). This led to payroll spiking into the top three for '09 and'10, even as the team began a sharp decline. Then Ricketts comes in, slashes payroll, rebuilds, and the Cubs have been a solid spender since.


Profit

Now we come full circle, to how much the team was making throughout this history. Notice how prior to 2004, the team wasn't making money by my figure. Ticket sales were not keeping up with payroll. It seems like the team was stuck in this Catch-22, where despite being in a top sports market, their attendance was good, but not great. I suspect the Trib was content to maintain a certain status quo. not investing a lot into the team, and not really making much either.


That changed in 2004. With the young 2003 nucleus coming oh so close to the World Series, the expectations were there for a repeat. Attendance spiked by half a million over two years, going from a consistent upper 2 millions to over 3. Ticket cost also shot up. The Cubs went from losing money consistently to making it. They average in the teens for years, with a few spikes ('12, in the beginning of the official rebuild most ironically). Now, a few highlights I'd like to list:

• The most the Cubs have made is in the '12 '14 and '08. Two losing seasons and one winning. Two rebuild years too. Odd. I'm not sure I have a good reason for that.

• In 12 winning seasons, The Cubs have been in the black for 7 of them, in the red for 5. Hardly a "if the Cubs win we make money" ratio.

• Out of 8 playoff seasons, The Cubs have been in the black for 5 of them, red for 3. Once again a slightly better than half ratio.

• Somehow, the Cubs lost money in 2016. Financially, it was their 5th worst year during my cherry picked timeline. Attendance was way up, as was ticket cost. But so was player payroll. Thanks Jason Heyward.

• The most money the Cubs have lost in a year was...2019. Uh oh. Between the spiking payroll and declining attendance, the Cubs lost more than any two years combined. This spike in cost didn't pay off with a fantastic season on the field either.


That's the deep dive. It's been an interesting process to crunch all of these numbers, and I feel like I learned a lot.

I'm not sure I found the direct link between the owner spending, the team winning, and the fans showing up. It seems like fans can take a year or two to show up or stop coming based off team performance. Likewise, there isn't a complete correlation between spending and winning. Yes, spending helps you win, but clearly there isn't a threshold of spend X amount of dollars, get Y amount of wins.


Most surprising to me in all of this is how difficult it is to turn a profit with a professional sports team. Yes, my table is incomplete, as it just outlines player cost and ticket sales. Missing is costs like stadium maintenance, executive costs, taxes, among many others. But also missing are things like jersey sales, concessions, income from summer concerts, and so on. Considering how the Cubs lost money in 2 out of the 4 World Series window years, despite solid attendance, a winning team, and high ticket prices, I think it's safe to say that the Cubs can't just spend money to make money. It's not like the Cubs just print money, year in and year out.


Furthermore, it's surprising to see how much the Cubs struggled in terms of attendance and profit for many years. Despite being in of the largest markets in the country, the Cubs weren't exactly rolling in piles of cash. There were years of under performance and mediocrity, both on the field and off. It really seems like 2003 was the turning point for the franchise. Fan's expectations changed, which led to the Trib re-investing in the team and being rewarded. But with the decline of print media, they couldn't keep up. They sold the team to someone who's clearly invested in the team. Ricketts put together a winner, but hasn't exactly been rewarded for it, at least by simple metrics.


I will re-iterate. Every meatball fan calling Ricketts cheap, uncaring about the on the field product, and only caring about how much money he will make, are just plain wrong. By my calculations, The Cubs made over ten times more money in the rebuild years ('11-'14, $107 million) than the World Series window years ('15-'19, $9.6 million). If anything, this shows that he cares more about winning than making money.


It's interesting stuff. Please take a look and let me know your thoughts. Tom, Theo, Jed, if you guys are reading this and are impressed, please feel free to hit me up on Twitter, and I'd be happy to give you my resume.



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