Sunday, February 10, 2008

A rant...

...and it is a doozy.

Every so often, I come across a phrase as it pertains to professional athletes and it is like nails on a chalkboard. This time it showed up in an International Herald Tribune column about Roger Clemens:

“Clemens has already been convicted in the court of public opinion by a public sick of overpaid sports heroes who cheat, and it doesn't help that every time he opens his mouth he looks like he is lying.” (bolding mine)


I want you to stop and think about something. When a free agent player leaves a team to go to another the media will, often at the former team’s instigation, decry the lack of loyalty demonstrated by the player.

It is sick.

The people and corporations that own professional sports franchises are often among the country’s wealthiest. These people, since 1990 have increased your tax burden/reduced your public services 22 times through stadium construction/renovation and infrastructure--even the ones that had a fair bit of private financing enjoyed substantial hidden subsidies ... this of itself in MLB alone has cost over $10 billion in tax dollars since 1990 (includes maintenance, amortization etc.).

They have tax breaks that boggle the mind and reduce the money available for things like education, healthcare, social services and the like. Then they lie to you about how they’re losing their shirt. I’m gonna show you how they calculate their “losses.” I will show you how easy it is to make a $50 million profit disappear:

Did you know you can buy a major league team for half price? When purchasing a team, the buyer can claim 50% of the purchase price as residing in player contracts and can amortize this over the first five years of team ownership. For example, when the Red Sox were purchased for $700 million, $350 million of that will be depreciated over five years. This means that they can make a book entry of $70 million a year in the loss column in years 1-5.

Obviously, no real money has been lost but the amortization is counted as a loss. Adding to the fun is the team’s ability to write off the out-of-pocket costs of replacing the players -- two bites out the same apple. To use a quick example: Suppose you bought your computer for your business. Would you like to be able both to write off the purchase price of the machinery and amortize it too?

That’s what teams routinely do.

Let’s now give the Red Sox the hypothetical $50 million profit and loose the accountants on it:

$50 million profit
-$70 million depreciation
-------------------------
-$20 million


We can make this loss even bigger--the owner(s) draw a salary of course. Let’s pay the owner $2 million a year (don’t forget commissioner Bud Selig makes over $14 million a year so my estimate is probably far too low. Peter O Malley paid himself a $1 million salary as president of the Dodgers back in the mid-1980's)--his salary is considered an expense the same as the players’ salaries:

-$20 million
-$ 2 million (salary)
---------------------
-$22 million


We can lower this total still further several ways--one of Henry and Co.’s other holdings can “loan” money to the Red Sox at a high interest rate and the interest the Red Sox “pay” to Henry’s other companies counts as a loss. The Red Sox and NESN are owned by the same group. Therefore, how much do you suppose NESN pays the Red Sox for TV rights--especially when you consider that the money that flows from NESN to the Red Sox will be counted under revenues that are part of the determination of how much revenue sharing they’ll pay.

It’s in the Red Sox interest to be paid as little as possible by NESN since (1) it lowers their total revenues which lowers the amount of revenue sharing they’ll have to pay and (2) it lowers their profits (or increases the red ink) on the books which looks good when you need the region to build you a new ballpark or complain how greedy players are bankrupting them. Any team that is owned by a corporation that also broadcasts its games take advantage of this.

We’re not done yet.

We’ll use that $22 million total for our next trick. Suppose John Henry and Co. are in a 33% tax bracket. They can use that $22 million pre tax loss to reduce their total taxable income from other sources by $6.6 million (33% X $22 million). Here’s the bottom line--a team owner can be (using just a small number of the various tricks at their disposal) $58.6 million better off ($50 million profit plus $2 million salary plus $6.6 million tax break) and claim the team “lost” $22 million!

By the way--I’ve only scratched the surface of how they can hide profits.

When you consider that luxury/premium seating are often used by corporations teams know they can charge a lot more for them simply because these businesses can write it off as an expense. You are literally subsidizing not only the park itself but also the billionaires using it for entertaining.

Let’s use a recent example to narrow down the reason for this rant. Carl Pohlad is among the richest men in America. For over a decade he has received over $100 million (easily) in revenue sharing from the other clubs. He is getting a new stadium courtesy of the taxpayers in which he’ll reap a major revenue windfall since he won’t have to pay market rent (if anything) for using it.

On top of this, he’ll get yet another major influx of cash for this one reason--even though it was the taxpayers, the public, folks like you and I that paid for this ballpark; Carl Pohlad will be charging fans more to watch his team play in the park the fans paid for! Tickets will cost more, parking will cost more, concessions will cost more, souvenirs will cost more etc.

Due to the above, the value of the Twins will increase substantially--another major bonus and increase of capital gains.

However, a member of the Pohlad family said recently about Johan Santana: “There's loyalty and wanting to stay in Minnesota, and it varies from player to player.

Now how, in this family’s opinion, should Johan Santana display loyalty?

Santana should express his loyalty by subsidizing a multi-billionaire by taking less than what his talent is worth. It’s NOT the folks that are billionaires who received massive revenue sharing payments, a mostly free stadium worth around a half-billion dollars who will be charging the fans higher prices that should show loyalty to the fanbase by paying Santana what another team is willing to pay. It’s the guy that waited for 12-13 years to get to this point, endured long bus rides in the minor leagues to get to this point, the guy who was paid less than $2 million for a Cy Young campaign and helped pitch his team to four post seasons that earned the owner a lot more than that through fans who flocked to watch him pitch.

He paid the price, he went from an unknown who grew up in modest surroundings, did the hard work clawed his way to the top with his blood sweat and tears and now his time has come to collect his reward and he was told that if he really loved the fans in Minnesota he should've subsidized the greedy multi-billionaire who has (or will soon) received close to a billion dollars of money (through revenue sharing, tax breaks and stadium subsidies) he never did anything to earn!!

That is so sick and so wrong. Think about it--why should a guy who grew up in Venezuela feel that loyalty means subsidizing one of the richest men in a foreign country? Does that make any kind of logical sense in any other context?

Johan Santana and other high salaried players aren’t the reason we’re paying more to follow the game we love. They get that salary because of the revenues the game generates. Team owners will charge the maximum they think they can for everything from peanuts to luxury suites. The Twins don’t have to pay Johan Santana his $20+ million a year--do you think the Pohlad family will take those savings and reduce ticket prices this year? Better still, do you think it means that it will cost the same to attend a game at the new park since they don’t have to pay Johan Santana’s contract?

No. Chance. In. HELL.

The cost will go up because teams think we’ll pay up--it’s that simple.

If you think that player salaries affect the price of attending a game then round up 20 friends and treat them to the NCAA Final Four this spring. You can afford it--it’ll be cheap, the players are freakin' amateurs! Heck, promise your posse that you’ll be attending it every year from now on--it’s dirt cheap the players don’t get paid!

What? Do you mean to tell me it will be too expensive?

Duh.

It’s too expensive because the NCAA, the sponsors, the colleges involved (or whoever sets prices) charges based on the maximum they think they can and still sell the maximum number of tickets. That goes for MLB prices including beer, hats, popcorn and pizza--they will charge the most they can without affecting sales negatively.

This is why I get all riled up when I read somebody complaining about “overpaid athletes.” When I see that all I can think is that some idiot feels that the Carl Pohlads, the Jeffrey Lorias, the Jerry Reinsdorfs of the sport should get more money that somebody else earned. Or that persons who have picked your pocket of tax dollars, gouged you at the box office, made you pay more to watch on T.V., gouged you at the concession stands shouldn’t show you loyalty by keeping your favourite player. Further, these people used every trick and turn available to increase the time it takes for a player to be able to sell his services on the open market.

When the time finally comes, the guy who spent the time developing their skills, endured a minor league apprenticeship, put his body on the line day in and day out year in and year out and it is finally the moment to collect the reward. To hear or read that at this moment the player should make a demonstration of loyalty by subsidizing the person who is among the country’s wealthiest, that did everything in their power to postpone this day, that gouged the fan and taxpayer alike makes me see red.

Never forget this--when a player does show this type of loyalty and accepts less the cost of games doesn’t go down, your cable bill or taxes aren't lessened. What happens is the fat cat sitting in the owner’s box has himself a nice little windfall at the player’s expense. He would cheerfully thumb his nose at your loyalties by simply letting your favourite player go elsewhere and gleefully reflect on how a little media manipulation and a gullible public means more free money. Best of all, when an opportunity to make a little more money comes along--the player’s loyalty will not be reciprocated. When the player’s skill erodes and a better option is available we’ll forget the loyalty he showed and clamour for the better option.

Overpaid players?

Hey, they may be all about the money but when all is said and done that’s all they can really come away from the game with--folks are only loyal to them when they get something in return. We often show a shocking lack of loyalty ourselves when a player no longer produces.

We. Want. Somebody. Else.

We’re loyal to laundry--not the men in the laundry. Let’s stop expecting them to show loyalty to us because in the end all it produces is more free money for some of the greediest people in the game.

Rant finished.

Best Regards

John

3 comments:

Bill B. said...

Great rant. I wasn't aware of how much trickery these guys have.

The "overpaid" claim, applied to athletes, is one of my least favorite out there.

Anonymous said...

Amen.

Jonathan said...

Right on...not to expose my socialist roots too much, but it's typical that some employees finally get an equal cut of a big industry's profits for, you know, doing all the work and having all the skills, and all that gets hyped up is how much more they make than your average fan at his day job.

Why don't we hear about the "overpaid owners" who are making profits that make A-Rod look like a street Beggar? Because we're just used to the extremely rich getting staggeringly richer.

It's not like if players took half the money ticket prices would go down, or are driving salary inflation as the league is booming. They don't run the business side, and like every corporation, every last bit of money is going to be squeezed out of the consumers for what they are willing to pay (and we accept that in EVERY field). The only difference here is the players have managed to create a very strong union and get a great deal. If anything, it should be a lesson to the rest of us- whoops, I think they're showing now...