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 contracts. It 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.