Sunday, April 28, 2013

The Misleading, Meandering Musings of Lew Wolff

A's Managing Partner Lew Wolff's comments late last month were mainly more of the same -- mainly that the team is not viable long term staying in Oakland and needs to move into a new ballpark in San Jose.

Here is a report from Bay City News from March 21. Two passages stick out.

First:

We are assigned 2.5 million people, the other (the Giants) is assigned 4.2 million people," Wolff said. We have two counties assigned to us, there are six counties assigned to the other team.

This is a familiar line from the A's brass and a highly misleading one.

The only thing the A's are limited to, in terms of operation of the franchise, per the MLB Constitution, is building a stadium in any territory owned by the Giants. The A's are free to erect huge billboards across from AT&T Ballpark and open a merchandise shop in downtown San Jose.

If the A's and Giants were "assigned" territories for marketing purposes, how could the Giants parade the World Series trophy in Hayward, as they did this offseason, and open a merchandise shop in Walnut Creek, as they did in 2011.

All eight assigned counties, and beyond, are available to each team to market to. The A's simply cannot, at present, build a stadium in a county other than Alameda or Contra Costa.

Here is the second remarkable piece of the March report:

Wolff said the A's have turned a profit in Oakland each of his nine years as an owner by sticking to a rule of spending no more than 50 percent of revenue on player salaries, which reached $65 million last year

Unlike the first comment by Wolff, which can readily be challenged and debunked, this one requires a bit more research.

Let's examine how close the team actually comes to hitting the red zone that Wolff has designated (spending more than 50 percent of revenue on player salaries) -- the "Wolff Rule."

MLB teams are private enterprises and do not disclose financial information publicly, but each year Forbes uses every shred of information available to publish projected financial information for each club.

Here is known player salary information as compared to the projected revenue from Forbes for this season and the previous three.

Forbes Revenue for 2012: $173 Million
Opening Day Payroll for 2013: $68, 577,000
Percentage: 39.6%
Plus or Minus Wolff Rule: -10.4%

Forbes Revenue Estimate for 2011: $160 Million
(Hat Tip to New Ballpark who reported Forbes number last year.)
2012 Total Payroll: $59,493,290
Percentage: 37.2%
Plus or Minus Wolff Rule: -12.8%

Forbes Revenue Estimate for 2010: $161 Million
2011 Total Payroll: $70,476,206
Percentage: 43.8%
Plus or Minus Wolff Rule: -6.2%

Forbes Revenue Estimate for 2009: $155 Million
2010 Total Payroll: $61,733,644
Percentage: 39.8%
Plus or Minus Wolff Rule: -10.2%

The reality is that the team has not sniffed 50 percent of revenue devoted to player salaries from the 2010 season onward. The true average has been about 40 percent.

Can the Numbers Be Trusted?

One question, of course, is how accurate are Forbes' numbers? Teams routinely deny these estimates. However, thanks to Deadspin's expose in August 2010 of the several teams' financial statements we can get a better idea of how close the numbers are to reality:

Marlins Actual 2009 Revenue: $135.531 Million
Forbes Revenue Estimate for 2009: $144 Million

Marlins Actual 2008 Revenue: $139.647 Million
Forbes Revenue Estimate: $139 Million

Pirates Actual 2008 Revenue: $145.933
Forbes Revenue Estimate for 2009: $144 Million

Rays Actual 2008 Revenue: $160.961 Million
Forbes Revenue Estimate for 2008: $160 Million

It certainly would appear that the Forbes figures are, in fact, highly accurate.

Things Don't Add Up

The A's profitability, again since the team publishes no information, is largely predicated on the broad statements made by Wolff and the estimates provided by Forbes. However, in the 2011 offseason Wolff provided another breadcrumb in this blog post on the San Francisco Chronicle:

While the A's initially reported a loss in 2011, Wolff revealed they made a slight profit because the World Series extended to seven games. "We made $370,000, and that's after revenue sharing, not before," said Wolff, who confirmed last year's revenue-sharing check was $32 million. "I have to admit, without revenue sharing, we'd have a huge loss, and we don't want revenue sharing. We'd like not to be a receiver if we could.

Bearing this in mind, let's assume the revenue and net income numbers from Forbes are correct:

Forbes Revenue Estimate for 2011: $160 Million
Forbes Operating Income Estimate for 2011: $14.6 Million
2011 Total Payroll: $70,476,206

This means -- provided Wolff is being honest -- if you strip out the $32 million in revenue sharing from Forbes' figures the team should have posted a loss of around $17.4 Million. ( An aside here is that this figure is staggering given that post-2016 the A's  may lose at least some of this funding stream.)

Wolff's 2011 comment seems incongruous with what he said in March.

If the team is "consistently profitable," why would a seventh game of the World Series -- in a season where only 37.2 percent of revenue went to payroll -- be the sole reason the team was in the black?

As they say, if you believe that, then I have a bridge I'd like to sell you.

The A's real profit in 2011 was almost certainly close to the $14.6 million Forbes reported and not the paltry $370K that Wolff reported.

The Vacuum of Information

The nature of the news is such that reporters increasingly are being pushed to crank content out, and misleading statements like these two from Wolff -- somewhat understandably -- get published.

The first comment, regarding what counties the team has "assigned" to it perhaps takes a discerning mind and a real baseball devotee to suss out its accuracy. (You could argue, broadly, that this is the raison d'ĂȘtre of blogs.)

The second comment, while not a lie, is just plain misleading. Part-and-parcel to this is that MLB is more secretive than almost any organization you can fathom. This lack of transparency empowers owners to make broad statements without having anyone challenge their validity as the data points simply do not exist in the public domain.

One-on-one, Wolff should be asked by the press what percent of total revenue is dedicated to player salaries. They should dig further, ask what revenues and profitability actually are.

For any public official, of which Wolff is one, its the job of the press (and one that is greatly needed and appreciated) to demand accuracy and transparency.

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