Yankees Top Forbes List Despite Losing Millions

This winter, three teams showed real interest in trading for Minnesota Twins ace Johan Santana and signing him to a contract extension that would make him the best-paid pitcher in baseball history. Two of them, the Yankees and the Boston Red Sox, backed out in the end while touting the young talent they didn't surrender; the third, the Mets, got their man for the equivalent of a handful of lug nuts and a bowling pin. Many explanations were offered for this unexpected turn, but in the end it may just have been about the money.

Evidence for this theory is to be found in Forbes magazine's annual report on franchise values and profits, released yesterday. Compiled by Michael Ozanian and Kurt Badenhausen, these figures are the only credible independent appraisal of baseball finances, and constitute one of the true marvels of sports journalism. They show the Yankees as having lost $47.3 million last year, Boston as having lost $19.1 million, and the Mets as having made $32.9 million. No small wonder that the ace ended up in Flushing.

The top-line numbers from this year's report show an unbelievably healthy sport. According to the Forbes numbers, the average team is worth $472 million, up 9% from a year ago, and made a $16 million profit. The Yankees rank first in value, at $1.3 billion, up 9% from last year; the Mets are second at $824 million, up 12%, and the Red Sox are third at $816, up 13%.

Perhaps most encouragingly, a broad, diverse set of teams saw the greatest appreciations in value: The Colorado Rockies rank first, at 17%, followed by the Los Angeles Angels and Chicago White Sox at 16%, the Milwaukee Brewers at 15%, and the Cleveland Indians, Detroit Tigers, and Minnesota Twins at 14%. Clubs in the upper Midwest and the Rust Belt, rather than bitterly complaining about the unfairness of a league dominated by the wealthy coasts, have been investing in their teams and providing their fans with entertaining, competitive baseball. This novel strategy is clearly paying off on their balance sheets.

At least part of the reason they've been able to do this is that baseball has, during the last few years, struck a good balance between outright socialism and predatory capitalism. The league's revenue sharing agreements, which split merchandising, Internet, satellite radio, and national broadcast monies and levy a modest tax on teams with big payrolls, give teams in smaller markets some extra money to spend without depriving the sport's flagship franchises of their natural, healthy advantages. The system, though, is still far from perfect.

One way to see this in action is to look a bit more closely at the Yankees' and Red Sox's purported losses. In both cases, they're much smaller than last year's appreciation in franchise value, showing the wisdom of investing in a strong team. About a third of Boston's losses can be chalked up to the $6 million they paid in luxury taxes last year; the Yankees' losses are about equal to their luxury tax bill of $26 million plus Jason Giambi's salary.

More important, though, both teams' losses are partly a function of accounting, as both are part of larger ventures. The Yankees are one division of Yankees Global Enterprises LLC, which sounds like it ought to be run by Dr. Doom and owns both the baseball team and the YES Network. The Red Sox ownership group (but not the team itself, it's important to note), in turn, owns 80% of the New England Sports Network. In both cases, the network is almost certainly worth more than the team; a paper loss for the ballclub that translates into higher ratings and a higher value for the network, then, is not much of a loss at all. (Along this line of reasoning, the two teams could well have afforded to pay up for Santana, no matter the paper losses it might have caused.)

While the sport's plutocrats are gaming the system a bit, a far more egregious example occurs at the other end of the scale. According to Forbes's numbers, Florida brought in the second-highest profit last year, at $35.6 million. This is a team that not only spent just $30 million on payroll last year, the lowest figure in the National League, but then shipped off 24-year-old superstar Miguel Cabrera and 25-year-old star pitcher Dontrelle Willis, neither of whom was due to make anything like his market value, to lower this year's payroll to $21 million. That's about a third of what they'll get this year in revenue sharing payments and national broadcast money. There's a reason they're worth $40 million less than any other team, and it isn't that Miami is a small market.

tmarchman@nysun.com