Jun 29, 2012; Toronto, ON, Canada; Toronto Blue Jays right fielder Jose Bautista (19) celebrates with center fielder Colby Rasmus (28) and left fielder Rajai Davis (11) against the Los Angeles Angels at the Rogers Centre. The Blue Jays beat the Angels 7-5. Mandatory Credit: Tom Szczerbowski-US PRESSWIRE

Jays Budget Issues: Will Attendance and Viewer Trends Affect Future Deals?


Before you read this article, I strongly recommend that you take a peak at this article written by Dustin Parkes in February of this year: “How The Blue Jays Didn’t Drop The Ball“. He does a great job of explaining many aspects of the T.V. rights issues the Jays deal with, and spells out how MLB monitors what the Jays get paid from their ownership, an odd situation in baseball.

The Toronto Blue Jays have enjoyed a slight uptrend in attendance in 2012 as compared to the last 3 seasons. While the Jays averaged 23,162 fans per game in 2009, 18,463 fans per game in 2010, and 22,446 fans per game in 2011, their current statistics for the 2012 season indicate a boost to 26,974 fans per game in 2012. That’s a significant increase, no doubt about it, but it’s still nowhere near where the Jays need to be in order to significantly increase payroll. The 2012 average attendance leaves them in 20th position overall, right behind the fire sale Marlins who have averaged 28,457 fans per game (an increase of more than 8 000 fans per game from their 2011 totals).

For the Jays, what this does indicate is that many fans are buying into the team’s performance and are being drawn to the stadium in greater numbers. Still, it’s nowhere near the attendance levels they enjoyed from 1985 through 1997, when the Jays enjoyed crowd averages of over 30,000 fans per game. So how much will an increase of approximately 4,000 fans per game change the budget for spending on the team’s operations and product on the field? Slightly, but not significantly, would be the answer most would expect.

However, if the upwards trend in attendance has also been matched with similar trends in T.V. viewers, that could be a game changer. After all, that’s what the Rogers Sportsnet business is all about, isn’t it? Well, if the home opener was any indication of the season’s trend, the Jays are going to be ready to spend when it makes sense. During the opener, the Jays enjoyed their largest average viewing audience ever, 1.33 million viewers. That was an increase of 36 percent over the 2011 totals.

The buck doesn’t stop there either, as the trend continued throughout the first half of April, as the Jays drew an average audience of 874,000 viewers for their games through 8 April 2012, a 72% increase from their 2011 totals (507,000).

If you believe that the beginning of the season was an outlier, you’re completely wrong. In fact, this is what the Jays enjoyed through June 2012 for viewers between the ages of 18 and 34:

“The cable company owns Sportsnet, which has a heavy baseball focus through the season and carries the majority of Blue Jays games. It has seen a surge in baseball viewership for its Blue Jays broadcasts, with data from BBM Canada showing a 42-per-cent surge among adults aged 18-34 this year over last.”

The reason for the article which provide the quote above is as follows:

“Rogers Communications Inc. wants to bring The MLB Network to Canada, but first it has to convince Canada’s broadcast regulator to play ball.”

Now, I’m no Rocket Surgeon, but any time I hear “a 42% increase” in anything money related, particularly in baseball, it usually links to a major increase. However, the prospects of being able to provide MLB Network through Rogers in Canada has to be even more lucrative than any increase in viewership. I’m talking a major coup for the network. BUT, can the money earned from the MLB Network application and implementation, if approved, be provided to the Blue Jays in their entirety. Sadly, no, as Rogers will likely keep the proceeds and keep the Jays and general MLB factions separate.

Still, that does increase the baseball related revenues that Rogers will enjoy overall, which can’t be a bad thing for the Jays owners. The real focus here is that the Jays have been successful in drawing more fans to their games, they’ve been successful in drawing more television viewers by a significant amount – particularly in the 18-34 age group, and they should be willing to reinvest the related increased revenues into the team. Right?

Wrong. Although Jays fans and writers like to link the Jays to major increases in spending, it’s not so clear cut. Just look at the information provided to us from Forbes. That report was valid including the 2011 season, and spells it all out perfectly. The Toronto Blue Jays haven’t made a significant amount of money, based on their EBITDA numbers, since 2006 when their operating income was $30,000,000, and have been operating at a loss quite a few times over the last 10 years. That’s what drove Forbes to rank the Blue Jays as the 27th ranked MLB Franchise in terms of overall value, with a worth estimated at $337 million.

The worst quote of it all for the Jays, again, based on what Forbes evaluators calculated was the following:

“The Blue Jays are starting to resemble the Montreal Expos, the franchise now called the Washington Nationals because people stopped going to their games after the 1994-95 baseball strike. The team led the American League in attendance six straight years starting in 1989. They drew more than 4 million fans each year from 1991 through 1993. Last year attendance at the Rogers Centre fell 13% to 1.6 million fans. The Blue Jays, owned by Rogers Communications, the largest cable company in Canada had a moderate payroll last season ($79 million) but stand little chance of competing in the American League East, the best division in the majors.”

When you start being compared with the Expos by financial experts, the alarm bells should be going off! Now, the whole competing in the AL East part was a little harsh, but is fair when we look at the recent history of the Toronto Blue Jays.

The point I am driving at is this: while the Jays are enjoying a resurgence of sorts in terms of attendance and television audiences, they’re still going to have to be convinced by Alex Anthopoulos and his team before making any major investments in the team. Whether it’s making a play for a high salaried player on a down and out team, such as Jose Reyes for example, or to make a large extension happen, such as signing Brett Lawrie long term, Anthopoulos will have to plead his case. And that’s despite having saved Rogers millions in Vernon Wells money!

Including the $5.5 million the Jays are paying Mark Teahen this season, the 2012 budget sits at approximately $83.7 million (includes changes that Brandon Lyon and J.A. Happ made to the totals). With many salary increases already forecasted for 2013, such as Brandon Morrow‘s salary doubling to $8 million, and Edwin Encarnacion‘s salary jumping from $3.5 to $8 million, the Jays are sitting at approximately $60 million committed to the salaries of their players. That’s before the 8 arbitration eligible players are taken care of (including Travis Snider), before Darren Oliver and Rajai Davis have their options picked up, and includes no re-signing of FAs to be Kelly Johnson, Brandon Lyon, Carlos Villanueva, Jeff Mathis, or Jason Frasor. (all figures obtained from Cot’s Baseball Contracts)

In short, the current $60 million forecasted doesn’t take into account 15 players and pitchers. That’s a significant amount of coin, and doesn’t even explore the possibilities that exist on the FA market for possible replacements once the season is over. Therefore, although the Jays have seen an increase in attendance and television viewership, much of their salary obligations have already pointed to a greater investment in player salaries and budgets. To expect for the Jays to go out and grab significant salaried players or free agents would be far-fetched based on the premise of slight increases in attendances and viewers.

The saving grace for Jays fans may be the fact that Alex Anthopoulos seems to have the approval of ownership, so far. Whether it’s been an increase in international spending, scouting expenses, or investing in the draft, Anthopoulos has received the support of ownership. When he wanted to get Jose Bautista, Brandon Morrow, Ricky Romero, and Edwin Encarnacion signed to extensions, ownership approved. When he dealt Roy Halladay and still had to cover some of his salary to make the trade happen, ownership approved. I could go on, but you get the point. If Anthopoulos  sees an investment that he truly believes will make the Jays significantly better, I truly believe he’ll get the nod from ownership.

Why do I believe this is so? Well, we don’t have to look any further than the early 90s to figure that one out. As the Jays enjoyed record breaking attendance totals and led MLB in both attendance and money spent, they learned that Toronto is a market that can produce such heights. Unlike other markets that may have ceilings keeping them well below the New York, Boston, and Los Angeles markets, Toronto actually has a chance to be within range of the big clubs. After all, a 50,000 fan average per game for a total of over 4,000,000 fans in a season would still put the Jays 1st overall based on 2010 and 2011 numbers! If it was achievable in 1993, why not in 2013?

In the case of the Jays, they’ll need to increase significantly before major investments match the trend. It may not be as lofty and increase as some fans demand, the $150,000,000 range, but there is a clear indication that salaries are already on the rise in Toronto, and that they could soon surpass the $100,000,000 mark. That’s a good start to making sure the Jays indicate to their fans that they’re investing in the team when the time is right, and is something that should help the club retain its most talented players.

Will attendance and viewer trends affect future deals? Sure, they always will in some way, and they always have. Will it lead to a significant investment in money through acquisition, free agent signing, or extension? That remains to be seen in Toronto. While many of their players have been extended, it seems fans are still waiting for that one major acquisition or salary increase which will show them once and for all that Rogers Communications is committed to winning in Toronto.

Only then will Jays fans be completely impressed. And only then will attendance and viewership become critical. After all, to support such an investment, ownership will have to be certain that the expense will at a minimum match the returns. Until then, we will continue to hope for a more significant increase to occur than we’ve experienced in 2012.

- MG

 

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  • jensan

    Interesting approach to this topic,since TBJ has an all in timeline for their offensive players under the control of the team till 2016. The time is to make an all in attempt to have a quality pitcher at the 20 to 25 million dollar commitment for the same timeline to lead the pitching staff.

    Please note the actual amount of monies spent for players due to the appreciation of the Cdn Dollar is actually substantially less than 2007 , 2008, 2009 and 2010. Rogers is being viewed by MLB, because the MLB notes that Toronto is not a small market team, and Rogers is cooking the books on TV revenue, because it is a vertically integrated company where other major Teams are soon or are now receiving 100 million dollars a year for TV rights. Rogers has access to approx the same size of Texas Rangers, though there is a disparate amount of revenue being received due from the multi media stream.
    The fans accept the philosophy of rebuilding from the bottom up, which AA has done, however, they could increase the value of the big club, by taking the incremental monies from the annual increase. Especially if it is sustained.
    Just from the increase of licensing fees of the food and beverage concessions plus the annual attendance increase of 350,000 alone you could justify an annual expenditure of $15,000,000 or more, without adversely affecting the comparative budgets over the last five years.

    • Kyle Franzoni

      Excellent analysis jensan, and thanks very much for your input. The numbers you provide match my expectations of spending at approximately $100 million for 2013. The impact of the Cdn dollar is something I avoided simply because it’s hard to know exactly how all of the related components hit the bottom line.

      An increase to $100 million in 2013 would cover the salary of Jose Reyes for that season ($10 million), but I’m sure the Jays would be more focused on his annual salary increase to $22 million in 2015-2017. He’s just one example, but it’s why I entirely agree with you. I believe the investment will be made in pitching, not hitting, and will be limited to AA’s preference of 5 years or less contracts.

      • jensan

        As to you statement about Costs, it is not difficult to know the costs can be manipulated by ownership based on Depreciation methods for capital, players and equipment.

        However, based on cash flow costs vis a vis income, the actual net outflow of monies have actually declined in USD terms.

        Please note that Rogers has increased ticket prices during that 5 year period as well, as the major league player costs decline in Cdn $ terms. The cost of operating a baseball team in the minors is not as expensive as you declare.However, you statement of Forbes valuing the team, has actually appreciated in 2012 from the figure you quote. Google it and calculate the value increase into your main piece.

        Rogers can invest in a pitcher of the ilk of Cliff Lee, not Johnson, if they really want to push the envelope, combining the pitching to the level of the offense that already exists. The $11 million dollars will be covered by driving your attendance to 2. 6 million from the projected 2.2 million this year.

        How many more people will be watching Cliff Lee at the park for his 15 appearances. How much easier on the MLB pitching Roster of having Lee, Morrow, Romero, Alverez, Hutchison/Happ.

        Romero and Gose or Marisnick traded for Lee. Only costs you 14 million a year net if Rogers is too tentative. Who would you rather have for the next four years.

        I would keep Romero and give one of the top 50 prospects with a top 100 prospect with a Jenkins or Nolin thrown in the three prospect deal.

        Texas is the main competitor for AL teams.

        The future prospects that flood the Jays organization from High A to Low A are numerically immense, as good and if not better than anyone else. They are percolating, but will commence having impact in Spring of 2015. When the inflection point (tipping point) of our superior offensive talent that exists presently has past.

        Rogers and AA take the next step. You are in the big leagues.

      • pmc

        This article led me thinking in a slightly different direction (slightly off topic). There is another ‘side’ of the financial relationship between Sportsnet and the Blue Jays for Rogers.

        While there may not be any competition for Blue Jays programming in the market it is a much more complex relationship because there isn’t any other comparable sports programming for Sportsnet. Rogers has really created an interdependent relationship between the Blue Jays and Sportsnet. Would Sportsnet even still exist if it wasn’t for the Blue Jays? They can only show so much poker and sailing; which I can only assume doesn’t bring in the biggest advertising dollars in prime time.

        No doubt that MLB eyes the Rogers Media/Blue Jays relationship very closely. I read a couple years ago the Blue Jays figured out at the end of the year that if they spent an extra $1 million (which they spent on advertising through Rogers Media) that they would receive an extra $5 million in MLB revenue sharing. (My numbers may be off but you get the point)

  • DukesRocks

    I’m no financial guru but Forbes valuation of the Jays has to be false based on the Jays play in the largest uncompetitive market in the MLB. When a team has this kind of advantage on other MLB teams and ranks near the bottom of the league in value, you don’t have to be a rocket scientist to know the books are cooked. I’m also intersted in knowing how does Forbes have access to the Jays EBITDA? Also I honestly believe the earning stated would be majorly distorted to the actual earning the Jays generate for their owners. In finance EBITDA should actually mean = Earning before I tricked the dumbass auditor.

    If attendence and merchandising plays a big part in the value of a ball club. Why does Forbes rank teams like Baltimore and CWS to name a few ahead of the Jays. Does this make any sense when the Jays match both these team in attendance but blow them out in TV ratings? If that doesn’t tell you Roger’s under values the Jays finances not sure what will.

    The Yankees and Red Soxs inflated payroll is mostly due to free agent signings. I don’t believe the Jays would ever pursue high end free agents because it’s not part of their strategy. AA has gone on the record to state his model of building a contender is through the draft and trade. This will take a bit longer but will give the team a bigger advantage in being competitive year after year at a fraction of the cost. Therefore the payroll agrument is not really an issue. The payroll will increase to whatever the amount is that fields a contender but will never be inflated to the point where contracts would become a burden to the team. Currently you can see this strategy at work. AA has offered contract extentions to players he feels are the core of the team (EE, Bautista) and is seeking trades that involve player that have reasonable contracts with player control.