Despite Solid Effort, Sox Barely Lost Money in 2013 (According to Forbes)

The annual Forbes MLB team valuations came out this week, and for the first time since Jose Canseco’s bulging trapezii were mercilessly fatiguing the seams of a White Sox uniform back in 2001, the business publication has estimated an operating loss for owner Jerry Reinsdorf and Co.; the club was $2.7 million in the red in 2013 they say.

The Forbes valuations are a yearly team-by-team estimated market value and financial snapshot report. After last year (or ‘fiscal’ as they like to say in the accounting biz), Forbes ranks the White Sox as the 14th most valuable franchise in baseball, falling from 11th last year and after being as high as 10th in previous seasons. 

In the past I’ve used Forbes valuations to argue (although guardedly) for the sound and ever-improving financial health of Chicago sports franchises. I’ll continue to do that. Here’s why:

Credit: Ami Prindiville

MLB owners don't offer up financial statements for public scrutiny, and with good reason as far as they're concerned. Therefore, the Forbes valuations are not exact measurements but the best a group of business writers can do based on sources and methodologies they don’t disclose (ironically, I guess). That's a problem. But since the Forbes team uses the same method year to year, at least baseball analysts can get a sense of how team financials and the business of baseball are trending.

That trend has been upward, and fast. And denying the surge in baseball profitability because the White Sox had a bad year is kind of like calling global climate change bogus because of seasonal weather in Chicago on Opening Day (here’s hoping!).

Here's a look at Forbes’  White Sox report over the last 13 years (keep in mind that numbers are for the year prior to their release):

Forbes White Sox Data 2002-2014 ($ Millions)
Year	Value	Revenue	Player Expenses	Operating Income
2014	695	210	132	-2.7
2013	692	216	115	22.9
2012	600	214	138	10.7
2011	526	210	119	27.6
2010	466	194	113	26.4
2009	450	196	126	13.8
2008	443	193	108	30.6
2007	381	173	102	19.5
2006	315	157	86	21.7
2005	262	131	78	8.1
2004	248	124	73	12.8
2003	233	106	68	1.2
2002	223	101	NA	-3.8

According to Forbes, White Sox revenues have more than doubled (while maintaining a player expenses/revenues ratio between 53%-64%) and the value of the franchise has more than tripled since 2002. The White Sox have an operating income total of $189 million over the last 13 years.

Again, this is all according to Forbes. And from what we know of the writers’ analysis, it doesn’t account for business ventures related to franchise ownership (like equity in regional sports networks like CSN Chicago, of which Jerry Reinsdorf owns 40%) or crafty bookkeeping that can at best be described as finding a cool spot out of the hot sun that is baseball team owners’ tax obligations, or at worst, shady. Otherwise, baseball economist (and Forbes writer) Maury Brown has written about some of the imperfections of the Forbes approach.

But let’s imagine for a fleeting minute that the Forbes estimates are right on. Or even for longer that they’re in the ballpark, so to speak. And yes, in fact the White Sox lost a little bit of money last year. Is this a great injustice? Should listless fans blame themselves?

Nonsense! The White Sox should have lost money last year!

The executives grossly over-invested in a team that was terrible.

The Sox had the third-worst record in the league. They had more in player expenses than the two teams below them in the league standings (Houston and Miami) combined, plus another $18 million!

This should have been a total business failure. But it wasn’t.

In no normal venture could a company offer such an inferior product resulting in such a precipitous dip in its customer base—for the Sox a drop of nearly 200,000 in attendance and an average TV rating decrease of 45%—and lose only 3% of the previous year’s revenue resulting in income losses equal to just 0.4% of the value of the franchise.

In effect, 2013 was the exception that proves the rule.

The rule being that the White Sox are all but guaranteed profits because they are shielded from any conceivable financial ruin by public subsidies, league revenue sharing, and a large media market.

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Ammendum: Speculatin’ about a hypothesis…

Forbes does not provide enough information to micro-analyze their White Sox financial assessment in any straightforward way. But it's worth noting that the Sox signing Jose Abreu in October, which Forbes highlights in the teams' valuation profile, might explain the team's poor financial performance in 2013 on paper. Abreu’s contract included a $10 million signing bonus, which Forbes probably included on last year’s balance sheet. This could be more reasonably considered a 2014 (and beyond) expense for the White Sox, since team executives anticipated a much lower payroll this coming season and knew they were getting nothing in return for their investment in Abreu in 2013. If Abreu's bonus was off the expenses side of the ledger, would the Sox have been profitable by Forbes' standards?

Who knows? I don’t dare enter the murky waters of Forbesonomics with any confidence. And if I did, it’d have precluded me from writing this post. And it’s a nice post, with a handsome table to boot.

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