Thursday: Phillies’ financial caution doesn’t add up

In light of the team’s announcement that they have sold over 3 million tickets, why were they so inflexible with payroll this offseason?

Here are the gaudy numbers: Season ticket sales have reached a franchise high of 28,500 and will be capped at 28,750. Individual tickets are going to be hard to come by for casual fans who haven't planned ahead. The days of swinging by the park for cheap seats to a weeknight game against the Padres have ended. The spontaneous type would be better off driving across the bridge to Campbell's Field to watch the RiverSharks in Camden. The overall number of tickets sold is expected to go over 3.1 million. According to a report in The Wall Street Journal (via John Finger), the average ticket price for a Phillies game was $28 two years ago. The Phils seat 43,000. Tally all the money made in concessions, luxury boxes, sponsorships, souvenirs and parking and the $9 million saved by dealing Cliff Lee to Seattle is just a drop in the bucket.

More and more, Phillies' games have morphed into ‘events,’ reserved for a different classification of fan than the group who would stoop at Citizens Bank Park for Dollar Dog Night two years ago. Yet the Phillies still adopt some small-time tendencies. The Phillies boast about their generosity in extending guys like Shane Victorino, Carlos Ruiz and Joe Blanton, but it’s really a matter of staying consistent by compensating their championship core evenly. They’ll crow about the rising cost of players like Ryan Howard and Cole Hamels, and espouse caution in discussing Jayson Werth’s future. They’ll trade for Roy Halladay, but not without nickel-and-diming Toronto out of $6 million. They’ll prioritize economic options like Juan Castro and Jose Contreras.

If this is ownership’s mandate, so be it. Ruben Amaro and his team must play with the hand they're dealt. But at the very, very least, the Phillies have no excuse not to tender a nice, brassy offer to Werth while grooming Domonic Brown as Raul Ibanez’s eventual replacement in two years. This makes perfectly sound fiscal, and baseball, sense.

Comments

[Andy]

Agree. For not being cheap, they certainly act cheap.

Extend Werth.

[Jonesman]

Yes! I really hope the additional ticket sales will encourage them to get Werth locked in and worry about offloading salary later. He is such a crucial cog in the lineup, and as you said, Brown and Gillies are Ibanez/Vic replacements. They have no one in the high minors who profiles to give them what Werth does.

[BURRELL]

you just hope that Werth will take a hometown discount.

But If I were him, I would get as much as I could--you don't get the chance to cash like he has to chance to do after this season many times.

[Chris]

Bring back Werth!

[curt]

Cue the syncophants who actually buy the line that Lee was dumped on the day Halladay was acquired to "restock the farm," and are not the least bit troubled that Drabek was dumped for $6 million.

[TJ G]

Hes Werth it...

[Jonesman]

Curt- your argument would be stronger if you subbed D'Arnaud in for Drabek. I highly doubt the Jays would have taken Taylor and D'Arnaud alone for Halladay and no cash.

[curt]

Jonesman - perhaps, but the Jays loved D'Arnaud out of H.S. In either event, the point is the FO dumped a rare prospect to cover 2 months of Halladay's salary.

[thephaithful]

Its such an easy argument to make - but such a hard one to actually backup. I'm sure the ownerships rakes in millions on top of millions but who knows the actual business numbers that are being dealt with?

[Mike]

How do you "nickel and dime" to the tune of $6M? That makes no sense.

[Chris in VT]

Hasn't the payroll quintupled in the last 10 years? Aren't they in the top 5 in all of MLB?

They're not cheap, they just have a budget. Even the Yankees have a budget, it's just much higher than everyone else's.

People need to let this go.

[MPN]

Huh? I don't get the cheap shots. 81 home dates x 43,000 x $28 = $97,524,000. Sure, then you add parking, a portion of concessions, MLB.com revenue, playoff revenue, etc., and it is a lot of money, but then you subtract payroll, development, salaries, expenses, stadium debt (which the team seems to be aggressively paying down), etc., and who knows what the true bottom line looks like?

For all the people who say, "But John Middleton sold his cigar company for a billion dollars!" remember this: he's put only one of the partners in the ownership group. Some of the members of that group are quite old. Perhaps they want to pay down stadium debt because their offspring aren't financially liquid enough to pay the estate taxes when they die and the profits from their ownership stake are meant for family and philanthropy.

It's easy to say what other people should spend. But if I pay $28 to go to a picnic event, I don't think it is necessarily rational to get mad because they aren't giving me fillet Mignon and mussels to eat and Duvel to drink.

[Brian E.]

Good arguements both by JW, and by MPN on both sides of the ball.

[MG]

$6M is notable if it swings your net income by 20-25% which is the case.

[fljerry]

First of all $28.00 are the cheap seats - there are seats worth a lot more. So in any calculations I would go for $50 being a average rather than 28. Now do your math.
They also raise tickets every year.

[J. Weitzel]

MPN: I should have checked that WSJ math closer. Good catch. Nevertheless, I forgot to factor in one very important revenue maker: luxury suites. Maybe that was in that $1.3 million total ...

[MPN]

fljerry: That is the average cost per seat.

[Deutsche Phan]

I also found it interesting that for Diamond Club seats this year, they were requiring a two-year deposit. Rube & Co. are locking fans in for multiple years, so let's hope they do the same for Werth!

[curt]

It cracks me up that people imagine that teams "budget" so that there is enough "profit" each month or year so that the owners can afford bread and milk. Sports teams are capital investments, tax shelters and vanity projects, and not necessarily in that order. Anyone needing an income can't afford to play.

[Nat]

I should probably finish my second cup of coffee before diving in to this, but it's a topic that really bugs me. In a sport where players' performances are charted by numbers to the nth degree, nobody really can tell squat about the financial numbers behind the game.

Answering the question of whether the Phillies (or any other team) is making or losing money or how much, or whether they are "cheap," or whether they can or can not afford Cliff Lee is, based on the information anybody has, like trying to evaluate a player based solely on the number of at bats he had and how many walks he got.

People look at ticket sales and payroll (two generally known numbers), then take wild guesses about other sources of revenue and expenses and come up with an opinion, but it is an opinion based on woefully incomplete information.

Personally, I have no opinion because -- guess what! -- I don't have the information to form one. I would like to have one, but basically I just keep hearing the same two-bits worth of information combined with emotive speculation, over and over.

[J. Weitzel]

Dollars aside, Werth really does make a lot of sense for this team going forward.

[Ryan]

I don't usually defend teams when they appear to be acting cheap but I have to make an arguement for the Phillies. If you look at teams like the Yankees, Red Sox, and Mets those teams have seats near or around home plate for $100. The Phillies while modestly raising their prices still have very reasonable prices and arguably for the product is a deal. I hate to preach the company line and appreciate the post but I think the Phillies are about the fans and are trying to keep this team a contender for years.

[zachsan]

also, let's not forget that the phenomenon of the Phillies being the toast of the town and selling out every game is a new one. the Yankees can afford to spend like they do because of their sustained success and their established place in the New York sports world, whereas it's not unreasonable for the Phillies ownership to doubt their continued ability to sell out seats in the long term. of course, fielding the best team possible tends to help that, but i'm just saying that may be part of their thought process.

[MPN]

JW: Yes, that's probably correct, plus you have the two ondeck series games, but those prices are cheaper, etc.

If only an MLB team was owned by a city, like the Packers are in the NFL, then we might be able to look at how the books really are kept, but none aren't, so we can't.

[MadMax33]

Forbes writes an article every year on the valuation of each of the MLB teams. Last year, they estimated the value of the Phils at about $500mm, with operating income (i.e. before taxes) around $16mm. Debt is around $175mm. I don't know where they get their info. link:http://www.forbes.com/lists/2009/33/baseball-values-09_Philadelphia-Phillies_335119.html

I don't follow the MLB revenue rules at all, so at what point do the Phils, or other teams, start paying payroll tax. They could have some internal mandate not to cross this threshold.

[Jbird]

Curt: exactly, I'm not begrudging them a profit, but paying down stadium debt isn't really an "expense" it increases the owners' equity by decreasing the amount of money owed on a capital asset. It's not much different than owner's getting a cash payout, only it stays on the books. The interest is a real expense, but not paying on principle (though it does tie up cash in a less liquid investment).

Also a lot of teams have owner's children and spouses on payroll for large, large sums and include that in the team's expenses. Some also keep other revenue streams like parking or broadcast rights off the team's ledger and instead have other companies they own profit on those.

[MPN]

meant to say "...none are, so we can't."

[Jbird]

Who hits homeruns from the right side if Werth isn't here?

[Colin_K]

MPN, we must share the same brain...first thought in my head was okay, (43,000 * 81) * $28 = whole lotta money!

I will not add my 2P in with the speculation as to why Lee was dealt, it happened it's over now let's get the season started.

Also, did the PG see that Lee was suspended for the first 5 games related to supposedly throwing at that guys head?

[Dan in Philly]

RAJ and the FO are not stupid, and you must start from the assumption that they have a plan and methodology in what they are doing. This does not mean they will tell us the truth about their plans, so we must infer.

Q) Why not keep Lee and Halladay both? A) Not for $$$, but because in baseball circles Lee is still not highly regarded. We know this due to the low price we paid for him and the low price we got for him. Despite his fantastic WS and tenure with us last year, the FO valued the prospects more than Lee.

Q) Why not sign Werth to a big fat contract now? A) Again, the FO is waiting to see if Werth is for real, and waiting to see what happens with Ibanez and Brown. The results this season could mean shutting down Ibanez, promoting Brown, and re-signing Werth. Or, if Werth has a bad year, letting him go after offering arb and getting some draft picks for him. Or maybe another option will present itself.

The philosophy and methodology is fairly clear. The FO may say they are being financically cautous, but in reality they are valuing flexibility. This leads them to not offer any pitcher more than a 3 year deal. It also makes them reluctant to sign a guy who has had one full all star year to an all star contract if they don't have to. It also makes them wait until a certain 1B will show he will age at least tolerably well before commiting $100,000,000 to him.

[royale]

The kind of discussion that makes Beerleaguer a No. 1 seed, right here.

[Jbird]

Dan, your being too reasonable!

[MG]

Ryan - "The Phillies while modestly raising their prices still have very reasonable prices and arguably for the product is a deal."

Numbers don't bare that out. Phils had the 6th most expensive ticket last year in MLB and likely will be 5th this year only after the Yankees, Red Sox, Cubs, and Mets.

http://teammarketing.com.ismmedia.com/ISM3/std-content/repos/Top/Fan%20Cost%20Index/MLB/MLB%20FCI%2009.pdf

Phils really haven't been 'a modest price' since they have played in CBP being among the top 8-9 average ticket price every year.

If you want to catch the Phils at a relatively modest price, you have to head of town to a place like Pittsburgh.

[MG]

Phils have been modest either with raising ticket prices as the average ticket price has jumped by double digits (at least 10%) each of the past 2 seasons.

All WS teams generally increase their prices but there isn't much modesty in basically increasing tickets by about 20-25% on average over the past 2 years. Phils have a really good team and have priced accordingly.

[awh]

JW, I think everyone agree that from purely a baseball standpoint, it would make sense to:

extend Werth

replace Raul with Brown in 2010 (he's younger and by then will probably be more productive/better)

extend Howard - OR - sign one of the other FA's to be: AGon, Prince, Albert

extend Rollins if Galvis proves he can't hit (This is, IMHO, potentially the most important and controversial decision they have to make. Rollins is not only a team leader but the face (or one of them) of the franchise, in addition to being a GG calibre SS)

Whether they feel they will have the money to do all these things is probably the biggest question I have.

I don't think they're cheap (IMO they used to be but have changed their ways - I'm sure out of necessity), but they obviously don't have an unlimited budget.

How they chose to spend the portion of their revenues allocated to payroll going forward will be very interesting.

There has been and is a lot of upward pressure on their payroll from many quarters, all of it because they have been extremely fortunate that the players they've drafted (Rollins, Utley, Howard, Hamels, Madson, Vic[Rule 5], et.al.) traded for (Halladay, Lidge, et.al.), signed as FA's (Raul, Werth, Durbin, Polanco), or claimed from other teams (Dobbs, et.al.) are actually very good players or who, after they arrived, performed to the point where they are getting paid.

This also correlates with the team's success.

Still, Ruben and his staff are going to be engaged in a very delicate balancing act the next several years. Many questions will be answered, such as:

"Is it more important to extend Howard or Werth?"

"If we extend Werth and let Howard walk, will we still be able to sign someone like AGon?"

"Jimmy, Jimmy, Jimmy?"

"Hamels?"

Feel free to add to the list.

[MPN]

MG: If you can. StubHub and secondary seller webcrawler bots have thrown a fly into that ointment. I had to pay $45 a pop for $10 seats at Nats Field on Opening Day.... and from keeping tabs on tickets that seller is probably kicking themselves because prices continue to rise on blocks of 2 or more seats.

[MPN]

MG: On the flipside, our average ticket price is only $.53 more expensive than that of the Nats. As WC Fields said: I'd rather be in Philadelphia.

[MG]

BTY I don't think the evidence that the "Phils are cheap" carries much water after the '08 season when this ownership group for the first time really made a large/notable financial commitment to enable this team to keep their key components along with bringing in other important secondary players (e.g., Ibanez, Polanco, etc).

My bet is though you start to see more fans grouse next year if they have another deep postseason run, raise the average ticket price by double digits again, and then don't make a legit attempt to resign/replace Werth.

[awh]

errr, that should say "replace Raul with Brown in 2012."

Sorry for the error.

[MG]

MPN - Yeah the actual price paid for teams that are tough to bet a ticket to (Phils, Red Sox) are likely much higher than an the listed ticket price.

I went to a Red Sox game last summer and we paid also double face for an O's game just because it was a Sat.

[AL]

I don't like the whole 3 year pitcher policy when RA gives extra years to players like Moyer, Ibanez and Polanco

[Jack]

They sold almost every seat last year. Revenues are pretty much close to their maximum, not sure how much more margin for growth there is.

So it would make sense to me to say that we're at about the top of the payroll capability as well, while retaining some commonsense flexibility--(I would've kept Lee, for instance, but I'm fine with not re-signing Werth for 15 mill a year over 4 years).

[Chris in VA]

The Phillies are now a big market, big spending team. Gone are the days when we can decide at 6:30pm to go to a game. Gone are the days when we could move down three sections and not get noticed.

But gone, too, are the days when we struggled to not be in last place. Gone, too, are the days of no-name #2 pitchers. Gone are the days of lousy baseball.

The game costs money, and the Phillies have spent it. As much as the ownership's fortunes have grown, they ain't the Yankees. I agree with Chris in VT, MPN and others. It is reasonable to expect some sort of ceiling on spending, and we can't just expect the team to spend like the government ...

[B.Gizzle]

"The Phillies boast about their generosity in extending guys like Shane Victorino, Carlos Ruiz and Joe Blanton, but it’s really a matter of staying consistent by compensating their championship core evenly. They’ll crow about the rising cost of players like Ryan Howard and Cole Hamels, and espouse caution in discussing Jayson Werth’s future. They’ll trade for Roy Halladay, but not without nickel-and-diming Toronto out of $6 million. They’ll prioritize economic options like Juan Castro and Jose Contreras."

Has anyone stopped to consider that the people that actually own a baseball team might know more about running one than people who don't?

If you want the floodgates to open, then realize until the Phils can break free from the Comcast monster that controls Philadelphia television, and create their own network ala YES, that revenue streams can be maxed out.

In 2001 if I told you the payroll would be upwards of 140 million in less than 10 years you would have told me to put the crack pipe down. What are we complaining about really?

[J.R. King]

We don't know how much money the team has made over the last two years, but we can assume it's an ABSOLUTE FORTUNE.

The team went as deep into the playoffs as possible when players like Victorino, Werth, Blanton, Happ, and to a lesser extent Hamels, Rollins, and Howard were all at below-market contracts due to their arb eligibility.

They did a good job bringing in young players and locking others in and they were paid handsomely for it.

It they didn't

[NEPP]

So we're still complaining about the $140 million payroll? Good to know.

Be serious guys, they're not just pocketing the money. Also, they've already stated that they budget the season under the assumption of NOT making the playoffs.

[NEPP]

****If you want the floodgates to open, then realize until the Phils can break free from the Comcast monster that controls Philadelphia television, and create their own network ala YES, that revenue streams can be maxed out.****

NESN works because it has the Bruins, Celtics AND Red Sox...and a huge operating base of all of New England.

YES works because its the freaking Yankees, its the biggest market in the country and I believe they also have Rangers/Knicks (not 100% on that)

A Philly based network won't work for a couple reasons.

1. Relatively small region both in size and population. Anything north of Trenton/Allentown starts to become Yankees territory, south of Delaware is the Orioles, west of Harrisburg is the Pirates.

2. Flyers/Sixers are OWNED by Comcast who will never give up those rights.

[Brian G]

Nat nailed it.
"Personally, I have no opinion because -- guess what! -- I don't have the information to form one. I would like to have one, but basically I just keep hearing the same two-bits worth of information combined with emotive speculation, over and over."

[MG]

NEPP - I was not complaining about the $140M payroll in any way. I just said the Phils average ticket prices are really expensive (likely 5th in the league this year) and have increased at a good clip the past 2 years. That's all.

[DPatrone]

The explanation is simple. The're only going to spend x - and that's it. With this ownership group (other than Middleton), this is a business, and winning may not necessarily be the most important thing. But as we all know, winning and increased revenue go hand-in hand.

Now in defense of RAJ he's correct when he says the payroll cannot continue to go north. But maybe they should have built a slightly larger stadium. To put a cap on the amount of season tickets sold is stupid.

What baseball needs, while maybe not a salary cap, is possibly a structured compensation system. One which is based upon performance and years of service etc. Of course, it probably will never happen.

But here is a case in point. Imagine we're St. Louis. Pujols is a FA and we wnt to keep him. Where do we start? 25-30 million a season? Granted he's the best hitter in the game, but between he and Holliday that's 43-48 million for 2 players. What about the rest of the team? Where does it end? Costs have to be controlled.

Which brings us to Werth. There is no way the Phils should let him walk. But does that mean for him to stay somebody's gotta go?

They shouldn't have moved Lee either. It's come out that they offered him a deal slightly less than Doc and he turned tham down. THAT'S why they traded him. But also because they wanted to extend Blanton. They used the 9 million for Lee to do that.

But believe me, they have the money. They just want to keep what they can. Their payroll states they spend but then they make questionable signings like Contreras and Castro simply to keep the payroll in line with what they want to spend. There had to be more attractive players out there than those 2.

We are also seeing this with the Eagles. They are 16th in the league in payroll. And in an UNCAPPED year, it appears they are CUTTING payroll. Why because it's a business to Laurie. Winning to him is secondary.

Because of economics, I can't afford to go to many games being here in VA. Either in Philly, Baltimore or DC. When I was living in SOuth Philly 30 - 40 games a year for me was not uncommon.

In short, the ownwers have to fix the problem. Even the Yankees cut payroll. Sorry for the long post. Just my opinion is all.

[clout]

Brian G: "Having no opinion" = I support the team's explanation because only they have the information.

[clout]

It is beyond amazing that there are posters here who still believe the Lee trade had nothing to do with money.

[DPatrone]

Clout~

The Lee trade had everything to do with money. But when I say/said it, it's gets swept under the rug.

[Doohickey]

I guess you could go ahead and spend like crazy during good times

-or-

You can spend wisely during good times, bank the rest and have something of a rainy-day fund for when things aren't so good.

Most well-run businesses do the latter.

[baxter]

Thanks for holding the owners accountable. This is the type of commentary this town needs.

[RK]

NEPP the YES network has the Yankees and the Nets but the Nets are not currently a draw. And the Yankees are not seen exclusively on YES they get to be on two sometimes three other channels in New York especailly on the weekend.

I am not sure the Phillies couldn't be succesful with a network . Massachusets population is 7 million the region maybe 10 mill. greater Philly is 6 million. I think a Philly network might not be as succesful as the Yankees but it will for sure be very profitable and in time who knows who else they can have on it. People would watch Lehigh and Reading games.
The problem is Philly is often selling Philly short.
I say Amen to JW for pointing out yet again that the Phils are a big market money making outfit.

[Cipper]

the Phils FO obviously traded Lee because he is suspended for the first 5 games of this season.

[NEPP]

****It is beyond amazing that there are posters here who still believe the Lee trade had nothing to do with money.****

Its also amazing that there are posters here that think it was ONLY about the money.

[NEPP]

****Massachusets population is 7 million the region maybe 10 mill.****

I live in Burlington, VT (maybe 180-200 miles from Boston) and I get NESN as a local station. All of New England (other than western CT is Red Sox territory. Its closer to 18 million than 7-10 million.

[thephaithful]

Can fans be bitter towards the Phils if they offer Werth a $8-10M/yr deal and he goes off to NYY for $15M/yr? At what point do they do they cease to be "cheap"? Do they HAVE to get Werth or be known as nickle and dimers?

[MPN]

DPatrone: So unfair to poor Lurie! How will he afford the fuel for his G5 when he and the other owners go to the mattresses and lock out the players in 2011? I hope this finally breaks the spell on the Stepford Eagles fans.

clout: Agreed, money was a big part ($140mil payroll) of it as was restocking cheap inventory to keep or trade as necessary.

[Dan in Philly]

DPatrone - " To put a cap on the amount of season tickets sold is stupid."

DP, it is not stupid to delibrately limit the supply of tickets. It is smart.

There is a large but finite demand for tickets. As long as the supply is larger than the demand, the ticket prices can be raised, as they have been. Once the supply is greater than the demand, the price per ticket will plunge.

This is the reason that the large staduims built in the 50s and 60s are no longer copied. You can make far more money with a stdium which seats 30,000 than you can with on that seats 75,000. You will hardle ever fill up a 75K stadium, even if you give tickets away, and that will drive the average price per ticket down. By controling the supply, you can maximize revenues.

[shipsass]

Last years sellouts must have included a lot of the Buy-one-get-one offers that came in my e-mail inbox every week during the summer and fall. That fact should be included in our incomplete collection of variables.

[baxter]

It was only about money- in that the deal would never have happened if they were willing to pay Lee.

[NEPP]

***So unfair to poor Lurie! How will he afford the fuel for his G5 when he and the other owners go to the mattresses and lock out the players in 2011? I hope this finally breaks the spell on the Stepford Eagles fans.***

A G5...and LOTS of money! Playa?...Playa?

[MPN]

NEPP: Yes, that movie cracks me up.

[Doohickey]

I see that Lidge got shelled in AAA.

[Jbird]

ESPN has a TMI blog that theorizes the optimal Phillies lineup.

[Jbird]

I live in MD and we get MASN, a combined Orioles-Nats tv station. I have no idea how much revenue it brings in though. Would a Pirates-Phillies station work?

[joe]

>the Phils FO obviously traded Lee because
>he is suspended for the first 5 games of
>this season.

There are rumors that Lee didn't fit the locker room mold that the Phillies are trying to build.

[ST]

1 run on 3 hits in his first game of the spring when he needs 9 more tune ups to be ready is not getting shelled. you weren't there. you have no idea where the hits went or what kind they were

[PreserveJon]

This was a great post. I enjoyed it even more when I read it on John Finger's blog.
------
Zing!

[doubleh]

I can speak to the corporate side, since I buy quite a few suites all over the country and the Phillies, by far, are one of the most affordable. A 30pp suite runs you $5400 including food, booze and parking passes. Even the Pirates cost more. Only the Padres are comparable in price.

[EastFallowfield]

Yo, newer thread

[64 survivor]

Obamacare is going to save us money
carbon dioxide is causing global warming
Bill Clinton never cheated on Hillary
The Easter bunny is coming in a few weeks
Bonds didn't use steroids
The Lee trade had nothing to do with money

[gobaystars]

hey survivor 64 add t his one to your well though out list.

Republicans aren't racists.

[non]

The Lee trade was about money in 2011 and beyond. The Phillies did not want to sign Lee to more than three years and more than $20,000,000 per year.

The Lee trade was not about the $9,000,000 Lee was owed in 2010.

[schmenkman]

The Phillies already sold 102%+ of the seats in 2009, so I wouldn't expect any significant increase in tickets sold in 2010.

[schmenkman]

Also, if the average ticket price was $28 two years ago, let's say it's $32 now. 32 x 81 x 43000 is $111.5 million. Their payroll this year is $140 million. Sure there are other revenues, and sure there are other costs. Until somebody can do the math and show that the ownership is being cheap and hoarding profits, this all seems pretty pointless.