Tuesday, November 27, 2012

Tigers TV revenue and payroll sustainability

In this edition of Eye on the Tigers, I want to take a look at the projected revenue increase the Tigers are reported to be in line for.

The Tigers are projected to get a hefty increase in TV revenue that can sustain this increase in  payroll and also be used to extend some of their superstars for a long time. But how much is it set to increase, and when? To answer that, let’s take an in depth look at what we are dealing with.

From the figures listed in the above article, the Tigers currently bring in about $64 million in TV revenue. $40 million from FOX Sports Detroit, and $24 million from a shared deal from TBS, FOX, and ESPN for all of MLB. With the new shared deal, they will gain about $26 million in 2014, pushing TV revenue up to about $90 million.

In addition to that, it been reported that the Tigers can renegotiate their current deal with FSD at the halfway point of the contract, which would be this year as it was signed in 2008 for 10 years. The Tigers currently make $40 million per year from this deal but it is speculated that they could see that figure double based on the size of other recently negotiated contractsIt should be noted though that FSD has refuted the Forbes article about the Tigers being able to renegotiate as inaccurate.

So, how much payroll could the Tigers sustain?

Well according to Forbes (from Crain):
"The Tigers had $8.2 million in operating income last season on revenue of $217 million, Forbes.com estimated this year. That was after three straight seasons of operating losses."

That means the Tigers cost $208.8 million last year to operate.

In 2011 the Tigers payroll was approximately $110,935,181.

I have a feeling I may be overestimating by a million or so as I filled in the salary amounts for players whose totals weren't listed with the following method. $200k for call-ups, regardless of actual time up in Detroit, and half of the 2011 salary listed on Baseball-Reference for players acquired through trade.

Moving on though...if the cost to operate the Tigers in 2011 was $208.8 million and they had about $111 million in payroll to players, that means it cost $97.8 million in overhead to pay for the stadium operation, travel, workers salaries, coaches, taxes, ect...

Now lets break down the revenue. The Tigers made $217 in revenue. If they were getting $64 million in TV deals, that means they made $153 million on tickets, concessions, merchandise, and selling ads in the stadium. With 2,642,045 fans through the gates in 2011, they made roughly $57.91 per head (Mr Illitch thanks you very much).

Now to begin the 2012 and beyond calculations.

To keep things simple, we'll assume they make the $57.91 per head in 2012 and to 2014 (though they probably will make more as ticket prices and other prices go up over the next year or so). They sold 3,028,033 tickets last year, so that gives them an approximate income of $175,352,444 in tickets and concessions and merchandise. Combine that with the $64 million they get in TV revenue, the Tigers likely made more than $239.35 million in 2012.

2012 payroll was a little over $138 million, so combining that with the $97.8 million in overhead, that means the Tigers cost to operate in 2012 was roughly $235.8 million.

$235.8 million to operate.

$239.35 million in revenue.

They made at least $3.55 million, and likely several million more when you count in the profits from the playoffs.

I will revisit this in March when Forbes comes out with their estimates on the value of the Tigers based on the 2012 calendar year.

Now how about 2013...

Their payroll currently stands at $143 million. That would give them a total cost to operate of $240 million this year. That is probably very close to the amount they made last year in revenue.

Knowing that there is a large margin for error, I'm going to say that what their payroll is right now is probably the maximum sustainable level for their current TV and operating deals (i.e they operate with minimal gain/loss).

So, what about the new TV deals?

In 2014, they will gain $26.5 million from the shared TV deals. Most of that will (hopefully) go towards extending Miguel Cabrera and Justin Verlander as well as extending some other key Tigers like Austin Jackson, Max Scherzer, and Doug Fister. They will have some room to work beyond that after Torii Hunter and Victor Martinez come off the books ($25 million total)

Anything beyond that will have to come from and increase with FSD. If they renegotiate this year and get a modest $25 million, they could have a sustainable 2014 payroll of $194 million (assuming the increases in ticket prices at least match the increases in operating costs, and they stay around 3 million fans per year).

They will be just over the luxury tax threshold in 2014, which would have to be factored in if they exceed it.

So there you go. The Tigers should be operating close to break even next year, and depending on if they negotiate a new deal with FSD, they could easily make Verlander and Cabrera Tigers for life and still push payroll even higher.

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