The central theme of the 2009 Hot Stove is the recession and lack of money to indulge in free agency and Yankee-like contracts. The truth is that attendance was once again up in 2009 (73,418,478) and that Major League Baseball has never let anyone look at their books. You’d need a forensic accountant to truly get to the bottom line, but our accounting department was given the assignment to “guesstimate” the financial vitality of a major league baseball team in a “down” year.

We chose the Detroit Tigers because no city or team has been the target of more conjecture relating to the connection between the local economy and baseball prosperity. With a payroll estimated somewhere between $115 and $119 million, the Tigers are not a small market team like so many others would like to use as their excuse, but by definition, and demographic comparison, they function in a small market.

Mike Ilitch is their owner and he’s the guy behind Little Caesar’s Pizza. He’s a benevolent man to Detroit, doing what he can to reverse the urban decay. He’s financed the Fox Theatre, the Red Wings, Comerica Park, and The Little Caesar’s Pizza Bowl. He paid Gary Sheffield $14 million in 2009 to go away.

The Tigers drew 2,567,186 in 2009. They picked up another 2,429,043 on the road for a total of 4,996,229. That ranked them 13th in MLB. There have been years in their long history where they have drawn more and, of course, they’ve played more dates than the 163 they did in ’09, but five million is a nice round number for our accountants to start with.

“We placed a ‘per ticket’ value at $50, ” said the accountants. This of course, lends credence to the guesswork nature of their endeavor.
“First, a ticket can be $40 or $240 (or more) and the away games have a method that covers hotel and travel expenses and the visiting team only receives a small percentage of the ticket revenue. $50 per ticket unit is a nice round number and most likely, grossly underestimated.” Secondly, we factored only the home gate as our ticket revenue. By leaving the road gate out of the formula, we assumed a wash with travel expenses and the percentage of the gate owed to teams visiting Detroit.

Line Items (rounded):

1. Tickets: $128,000,000 (2,567,186 x $50 = 128,357,300)
2. Parking: $8,000,000 (81 dates. 10,000 cars @ $10)
3. Souvenirs: $12,000,000 (year round)
4. Concessions: $12,500,000 (31,000 fans x 81 dates @ $10 – 50%)
5. Advertising: $10,000,000 (billboards, programs, broadcast)
6. Licensing: $10,000,000 (Comerica, MLB and local)
7. Luxury Services: $5,000,000 (25 suites x $100,000 + services)
8. Broadcast (Local) $10,000,000
9. Broadcast (MLB) $20,000,000

Total: $220,000,000

Accountant’s Note: Aside from player salaries, there are expenses for operations, minor leagues, league fees, staff, spring training and taxes. There are also ancillary revenue streams including insurance, player transaction fees, appearances, exhibitions, Spring Training and Minor league profits, luxury tax revenue, post season revenue, and special promotions. The Yankees have a partnership with a memorabilia firm and Japanese advertisers. This estimate admittedly does not factor in many profit and expense centers that could skew results. Our approach is that our estimate can fluctuate 20% in either direction which still makes a case for baseball profitability in the recession.

Most importantly, the overall value of baseball franchises grow at a positive rate. Some baseball operations can function at a loss, benefit from tax law and write offs, while the value of the franchise continues to increase.

Keeping in mind that the day of operating a baseball team as a profitable free-standing business is long gone. Today, the value of the franchise is what really matters. The enjoyment that an ex-Tiger minor leaguer like Mike Ilitch gets out of it by being in an exclusive club, enjoying a game he loves, while at the same time giving back to his home town is added value.

You can certainly argue with the accountant’s formulas as being inflated. But you have to concede that there is money also left uncounted, road revenue was left virtually untallied. Just about every number can be argued as being as conservative as some might argue being inflated. Taxes are often hard to factor, but tax breaks can also be invisible and extremely profitable to clubs over their lifetime. Postseason revenues include additional dates and inflated prices for participants and league sharing for those out of the races.

So by our estimates, the Tigers had nearly $100,000,000 to operate the team and attempt to turn a profit, after payroll. Even if we grossly overshot our estimates, it couldn’t have been so bad to have caused the media alarm of the crashing Tigers. It’s no wonder they could let Gary Sheffield go. Expenses can eat up a considerable portion of revenue. Estimates put them between 60 and 80%, and ideally corporations shoot for 20% profit margins. But like all businesses, profitability is cyclical. There are many years when the numbers outpaced those presented here. And there are many years when they fell short, but most likely with a lesser expense ledger and payroll. It proves vitality on the field begins with vitality on the books.

The Tigers do have some work to do with that $115-119 million salary number. Sheffield has already reduced it to near $100 million. Justin Verlander is due for a raise and Edwin Jackson and Gerald Laird were only signed for a year (thus the rumors about their movement). Washed up Magglio Ordonez ($18 million), bad shoulder Jeremy Bonderman ($12.5 million), bad head Dontrelle Willis ($12 million) and bad pitcher Nate Robertson ($10 million) represent over $42 million that can come off the salary scale after 2010.

So what are Ilitch and Dave Dombrowski to do when they are a reliever, a starter and a hitter away from glory? Blow up his team and move Curtis Granderson, Edwin Jackson and Gerald Laird, as the writers covering the GM meetings would have it? Play through and hope Ordonez and Bonderman provide their value for a year? Or bite the bullet and minimize the $42 million for 2010 and begin redistributing that money to take the next step?

Ilitch didn’t get where he is because of his inability to count. The economy will likely keep trending downward and cutting back, going young and pulling things in close may be the way to go. But its certainly not desperation in Detroit.