Does the “Rumoured” Payroll Reduction Even Make Sense?

posted in: Featured, Rumour Mill | 3

Earlier this week I was made aware of a blog post on a site known as the “Toronto Sports Media Blog”, which was reporting some information about Rogers possibly cutting the Blue Jays payroll. This blogger wrote the following:

“The same good folks who tipped me off to the trimmings at Rogers media a few weeks back are telling me that the new CEO of Rogers could be asking for a cut in the Toronto Blue Jays budget as well.”

The rest of the post is extremely brief, doesn’t get into any specifics, and because of this, I have some serious issues with the believability of the report.  This blogger states that he has previously been tipped off about the cuts at Rogers, but after looking through the archives, I can find no articles about those cuts (either before or after).  Therefore, I have questions about the validity of this “scoop”, but I will still use this as an opportunity to dive into the factors that should be considered when determining the Blue Jays payroll going into 2014.

The first issue that I’d like to address is the connection between the layoffs in the rest of the Rogers corporation, and the Blue Jays.  If we look at the Globe and Mail article which reported on those layoffs earlier in the week, we see some info that could be useful.

 “The media division’s operating profit was slightly higher in the most recent quarter compared to a year ago, the company said late last month. While the magazine division – which publishes titles such as Maclean’s and Chatelaine – continued to struggle overall, Rogers Media saw “revenue growth at Sportsnet, higher attendance at Toronto Blue Jays games and higher sales at The Shopping Channel.”

So, the media division as a whole has been disappointing, but they are being carried by the Jays and Sportsnet.  These cuts were focused in shrinking businesses such as their magazine division, rather than an expanding one such as baseball.  The situations are in no way similar, and thus, a logical connection cannot be made whatsoever.

While I don’t believe this “rumour” in any way, I’m going to address the reasons why it is in no way acceptable for anything but further expansion of the payroll.  There are 4 clear reasons for this, and I’ll go into each in detail.

2013 Attendance

Last season, bolstered by the increased enthusiasm of the fanbase, the Jays saw an incredible spike in their gate revenue.  While I’m sure Rogers was expecting the increased payroll to result in an increase in attendance, there’s no way they were expecting to have an increase of over 20% from 2012.

In 2013 the Jays added an additional 400,000+ fans while, the only other team that saw an increase of more than 250,000 were the resurgent Dodgers.  Given that the Dodgers were coming off a season where their fans were actively boycotting their criminal owner Frank McCourt, seeing the Jays draw even more fans than them is truly stunning.

This should send an important message to the Rogers corporation being that if you spend money on the team, and convince the fan base you are committed to putting a competitive team on the field, they will show up.  This is one of the reasons talk of a decrease in payroll is so ludicrous.  In a season where the team spent an addition 30 million, I’d estimate that over half of that was made up for in gate receipts (I’m struggling to find actual ticket revenue data, but I’m estimating this increase was worth between 12 & 20 million.)  This doesn’t factor in corresponding increases in concessions and parking revenue that obviously comes with more people coming into the ballpark.

Bottom Line – Increase of Approximately $12-20 Mil over 2012

National TV Contracts

The second major factor that should be considered when looking at the Jays payroll is the increase that every team in baseball will be getting from MLB’s 3 national TV partners.  All 3 of the contracts with ESPN, FOX & TBS are new for the 2014 season, with $23.3 Mil coming from ESPN, and a combined $26.6 Mil from TBS & FOX.  This means that every single team will get an extra $25 Mil from their TV partners before they even step on the field, or essentially doubling that revenue stream.

While I assume the Jays smartly spent some of that expected revenue in their previous spending spree last season, they must do so again this season in order to keep pace with the increasing payrolls league wide.

Bottom Line – Increase of $25 Mil over 2013

Local TV (Sportsnet) Situation

Now we get to the murkiest area of the Jays finances, and that’s their relationship with their local broadcast partner.  This is an area where we’ve seen a bubble created as many different channels are scrambling to acquire live sports content.  However, since the Jays are a perfectly vertically integrated organization (meaning Rogers owns the team, building, & broadcast partners), it’s very difficult to put a finger on the value that they provide to Sportsnet (and therefore Rogers as a whole).

In 2012, it was reported that the Jays contract was worth $36 Mil on a year to year renewable basis.  I cannot find any reports as to what the updated number was for 2013 (or will be for 2014), but given the recent data, I can safely assume that the Jays are worth easily double that figure, and here’s why.

Over the past 2 years, there have been 5 new TV contracts signed, by the Dodgers, Angels, Padres, Astros & Rangers.  These contracts have been worth between $280 Mil (Dodgers), and $60 Mil (Padres).  While I don’t think it’s fair to compare the TV market that the Jays are in to either Los Angeles or the Dallas metroplex, I do think that the Astros & Padres are very comparable situations, so let’s look at those deals individually.

In Houston, the new deal that the Astros signed with Comcast Sportsnet Houston was for $80 Million per season until the year 2022, however that deal also importantly included a 40% equity stake in the channel itself.  In San Diego we see a similar situation, where the Padres contract is worth $60 Mil  per season until 2031, and similarly included a 20% stake in Fox Sports San Diego.

While it would be easy to peg the Jays local broadcast value to that of the Padres, there are two other factors which makes the team much more valuable to Rogers than that simple $60 Mil.  In order to secure that contract, Fox Sports San Diego, needed to lock themselves into a 20 year contract.  That amount of commitment means the broadcaster is taking on a great deal of risk.  In Sportsnet’s case they are getting the same type of programming, but aren’t tied in to any type of long term commitment.

In addition to that, all the recent deals have seen equity stakes in the broadcaster given away to the team.  We’ve already seen some shenanigans take place with these deals as CSN Houston has mysteriously filed for bankruptcy. It seems that CSN is trying to do an end around on giving the Astros both their 40% stake, and has led to issues with their rights fees as well.  Rogers doesn’t haven’t any of these issues, and that has to provide a considerable, yet difficult to put a number on, value.

While I’m not sure what the stated revenue the Jays receive from Sportsnet is (presuming its been raised from the $36 Mil in 2012), there is a reason for the Jays to keep that number artificially low, since it helps them qualify for revenue sharing.  That being said, even if the team is claiming to be “paid” in the neighbourhood of $40 Mil, the actual real life value they are providing will be considerably more than that.

Bottom Line – Approximate increase of $30-40 Mil over 2012

Increasing MLBAM revenue

– Estimated at approximately $22 mil per team.

– Revenue has more than doubled from $10 mil per team in 2006.

The final reasons for the escalating payroll is the behemoth that MLB Advanced Media (or MLBAM) has become in the new media landscape.  MLBAM was created in 2000, and its current revenue is over $650 Mil annually (or approximately $22 Mil per team).  Its revenue has been increasing at a rate of approximately $50+ Mil per season (or $2 Mil per team), and is showing no signs of slowing down.  Not only has this created a reliable revenue source, but this has also increased the value of the member clubs, since they now own 1/30th of a company which Forbes valued at over $6 Billion (with a B).

Bottom Line – Approximate increase of $2 Mil over 2013

Now admittedly I’m using very rough math here, because the actual data isn’t easily available (and if someone can point me in the direction of more accurate data, I’d be very appreciative), but through my quick and dirty addition I see an increase nearing $90 Mil from 2012 to the upcoming 2014 season.

Its important that this article isn’t being misconstrued.  In no way am I demanding that Rogers skyrockets the Jays into the stratosphere amoung MLB payrolls. Each of the off-season gameplans that we’ve presented on this site, have pegged the 2013 payroll in the $150-160 Mil range.  That would be an increase of between $30 & 40 Mil, which seems incredibly reasonable, and any talk of payroll going backwards (or even staying constant), doesn’t make any sense, nor should we as Jays fans put up with it, if it should come to pass.

Picture courtesy of Geff Rossi via Flickr.

  • JefQ27BlueJayz

    From what I hear it is always related to attendance, that’s what they all talk about. Our attendance numbers are up. I think that 2013 proved the “if you build it…” and they came. Personally I cannot see a reverse in ideology when the Rogers Corp. has spent the last 3 years building the Blue Jay brand. They want to fill the stadium plain and simple.

  • Jensan

    Bloomberg values BJ franchise as 12th at 950 million dollars a 35% increase over last year, with total MLB revenue of 110 million dollars. Read the article.

  • Pingback: Baseball Blogs Weigh In: Marlins, Pirates, D'Backs()