Major League Baseball Team Budgeting

Major League Baseball Team Budgeting Major League Baseball Team Budgeting and the Effects of Big Spending Organizations versus Small Spending Organizations Introduction/Background Major league baseball is Americas pastime and one of the greatest sports in the world. Major league teams are multi-million dollar organizations that must budget their revenues and expenses just like a hospital, law firm, or financial company. Different teams have different ways of budgeting with one common goal, winning. In todays society, everybody wants to win in some facet of life. For major league baseball owners, there are many different ways to win. With the annual revenues heavily outweighing the annual expenses, owners do not have to worry about winning financially, but they do have to worry about winning on the field. Success on the field puts more people in the stands, sells more merchandise, and attracts big time television deals. These factors demonstrate that as long as you are winning on the field, your annual profit will only increase. This is why owners must plan, implement, and control their teams budget to the best of their ability just like a mayor has to do for h is or her city. After each season, the owner must then measure results and make a report of the teams financial information. If the team has a successful year on the field, it is more likely that team is going to generate a larger profit. Another aspect of budgeting that relates to baseball is expenses or expenditures. There are teams in major league baseball that will spend outspend any other team in the league in hopes that their team will win the world series. Even playing in the World Series means bigger profits for the organization. This can be related to a hospital spending money on a high-tech MRI machine that will cost more, but the MRI machine might be the only one in the area and bring in more business for the hospital. I am going to analyze the team budgets for the two top spending teams in baseball versus two teams that spend substantially less. Next, I will compare the results on the field. I am going to demonstrate how important financial management is to the game of b aseball through the master budgets of four different major league teams, the New York Yankees, Los Angeles Dodgers, Tampa Bay Rays, and Oakland Athletics. B. In Support of Big Spending Organizations In 2013, the two largest spending teams in Major League Baseball were the New York Yankees and Los Angeles Dodgers. Each of these teams spent over two hundred million dollars on their players alone. Owners of any major league baseball team have a lot more to budget than just the players. Every organization must budget not only the players salaries, but every member in the entire organization, the cost of running the stadium, and the farm systems or minor leagues. The Yankees and Dodgers set up their budget for the 2013 season for one goal, to win the World Series. The operating budgets for these two teams is much more than the two hundred million dollars they pay their players. The owners do not have to worry about this because according to Ozanian (2013) the Yankees bring in over a billion dollars from marketing deals. They are worth over two million dollars all together. According to Brown (2013) From 1999 to 2012, clubs have spent a total of $33,942,203,596 on final payrolls. The Yankees account for 7% of that. In 2009, the Yankees had to take another aspect of budgeting into consideration, the capital budget. They built a new stadium that cost 1.5 billion dollars to complete. They will use annuities to pay off the stadium over time. With the amount of money, they are spending in 2013, you would imagine that they are the best team in baseball by far. This, however, was not true. The one thing that the Yankee owner could not control was injuries. Their big-time spending may have looked good on paper, but the Yankees failed to make the playoffs. As for the Dodgers, they are worth 1.6 billion dollars. Their big money spending has paid off however, by making a trip to the post season. According to the Associated Press (2012) During the 2012 season, the Dodgers signed a player from Cuba named Yasiel Puig for 42 million dollars. This mid-season acquisition could be considered as part of the capital budget. They signed Puig to a seven-year contract. Just like a fire station investing in a new fire truck, the Dodgers invested in a new player. This new player was a vital part of their 2013 success. The Dodgers set up their budget to win immediately, and that is what they are doing. According to Nightengale (2013a) the Dodgers led the league in average attendance. Like I said earlier, success puts people in the stands, and that is exactly what the Dodgers have done. The Dodgers also have advanced to the National League Championship Series for the first time in nineteen years. (Nightengale, 2013a) What are the advantages of big money spending? For teams like the Yankees and Dodgers, they chose to spend more money to acquire better players. Both teams line ups and pitching staffs in 2013 were stacked with perennial all stars. The only difference between the two teams is that the Dodger players were able to stay healthy. This spending advantage on players such as Adrian Gonzales, Hanley Ramirez, and Carl Crawford gave them an advantage in their division over teams who could not afford these players. We could compare this to a city such as Mobile spending more money than say Montgomery to bring a corporation such as Airbus. Airbus would create more jobs and more revenue for the city of Mobile. The big money players created more wins for the Dodgers. More wins for the Dodgers means more profit for their organization. Airbus for Mobile means for profit for the city. Another effect of big spending is player motivation. Motivation is a vital component of an organizations success. Pla yers who are making more money and play each night in front of larger crowds often perform at a higher level than players playing in front of half empty stadiums. Overall, the effects of big spending teams in 2013 is that only one of two made the playoffs. The financial management of the Dodgers has played a key role in their recent success. Argument for Small Spending Organizations The two teams that I am going to analyze that spent far roughly half has much as the Yankees and Dodgers are the Oakland Athletics and the Tampa Bay Rays. Instead of spending the big bucks on perennial talent like the Yankees and the Dodgers, the As and Rays have different ways of producing wins on the field. The Tampa Bay Rays have a pay roll of 68 million dollars. (OBarr, 2013) They finished ahead of the Yankees in the American League East division and grabbed a wild card spot to make the playoffs. So how did they do it? According to OBarr (2013) Building talent throughout the minor league and watching it blossom on the big-league diamond is the system that has allowedJoe Maddons club to have this much success. Without homegrown players like Longoria and Price, the Rays are lucky to even win 90 games this year, let alone make the postseason. The Rays develop their own players in the minor leagues until they are ready to perform in the major leagues. Instead of spending a lot of mon ey on great players, they save money by producing them from within their organization. They save a ton of money by doing this, and they are able to bring in more revenue by doing so. This can be compared to the public administration field by looking at a police force in a city. If the city focuses more on training police officers and developing them into great cops, then they are going to be more effective. The Rays just like every baseball organization uses responsibility centers to budget their minor league systems. Each organization has five minor league franchises. Each organization has a president and CFO that set their individual budgets each year. This is another aspect of budgeting that plays a key role in their organizational success. The Oakland As also spend less than the Yankees and Dodgers, but they too made the playoffs. How did they do it? Their general manager, Billy Bean has become famous for his style of producing winning teams called moneyball. A book was published in 2003 about his success with no name, low paid players, and Brad Pitt made a movie about it. Barra (2013) states about the 2013 As, Billy Beanes As this year really are a moneyball team. They just clinched the American League West with a .596 win-loss percentage-second in the league only to the Red Sox. During September they are 16-5. And they are doing it with a payroll of $60,664,500-the fourth lowest in the major leagues. He also states, No team has gotten more return on less investment (Barra, 2013) The As are a small market team meaning they do not have much money for expenses. This is why they have to use the moneyball technique to win and produce revenue. The As can be compared to a hospital that does not have the money for the best e quipment or doctors, but they find the best affordable equipment and doctors and save as many lives as a hospital with a much larger budget and better known doctors. Going back to the quote about more return for less investment, that is an organizational dream. The As know they cannot spend as much as the Yankees and Dodgers, but they find players who will produce on the field for a cheaper cost. The effects of As and Rays style is winning on the field. They both produced better records than the Yankees who spent more than both of them combined. An advantage of the low spending teams is that they are almost always the underdogs who have something to prove. Both the Yankees and Dodgers have players that have already proven themselves in the major leagues. The As and Rays are built with players who are hungry and willing to do anything to win. The As proved this in the second half of the season by having the best record in baseball. The Rays also proved this by winning six straight games to finish the season and propel themselves into the playoffs. An Assessment of the Different Spending Organizations In my opinion, both of these styles of budgeting can be effective. Although the Yankees, did not make the playoffs in 2013, they won the World Series in 2011. I have to admit, I am a fan of the underdog, the team with something to prove, but making more money and playing in front of more people are a plus too. The New York Yankees are one of the most valuable sports organizations in the entire world. They feature some of the most well know players throughout the world such as Derek Jeter, Alex Rodriguez, and Mariano Rivera. On the contrary, the Oakland As feature players such as Josh Donaldson, Coco Crisp, and Kurt Suzuki. Who knows who any of these guys are? Well, as a side note, Josh Donaldson played for Auburn. But back to the argument, which of these master budgets is the better way to go? Although, the As and Rays made the playoffs this year, their budgeting styles do not produce winning teams every year. The Rays have made the playoffs just three times in the last eight years, and the As have been just twice in the last eight years. The big money spenders such as the Yankees, have been competitive for the last decade and the Yankees failed to make the post season just twice in the last ten years. If I am going to run an organization, I would want to produce the most profit. Each of these four teams has their own specific way of doing so, but the Yankees are the team who produce most efficiently on the field year in and year out. If I had a choice of an organization to run, I would choose the organization who produces the most efficient product and that is exactly what the Yankees do. Krissoff (2013) stated in his journal article, We calculated the average salaries for 2007-11 and found that all of the World Series winning teams exceeded the league average salaries and the salaries of their World Series opponents. This statement alone proves that the team who has spent more has accomplished the organizations ultimate goal for five straight years. Winning t he World Series not only brings great attention to your organization, but a substantial amount of extra profit. Conclusion In conclusion, I have analyzed four different Major League baseball teams and broken down the different ways they budget their organizations to produce results on the field. I wanted to demonstrate that financial management plays a vital role not only in the public sector, but in Major League baseball as well. I have compared the four teams to public sector organizations and given examples of how similar they are. I used examples of how the teams had to incorporate capital budget into their operating budget. I discussed their annual revenues and expenses. I explained how the teams had to use the responsibility center to manage their farm systems. But the main argument in this essay was which organizations produced the best results. I broke down the facts about the big money spending organizations and the small money organizations. Overall, like most aspects of life, the person, company, or organization that spends the most money will often come out on top. Although the underdog might sneak under the radar in some cases, the big spender usually wins in the long run. Billy Beans Oakland As were under the radar most of the season until they fell to an organization that spent more money than they did in the playoffs. This statement is also true for the Tampa Bay Rays. The Dodgers made the playoffs but were eventually knocked out by the St. Louis Cardinals. The Boston Red Sox were crowned World Series champions in 2013 and to no surprise spent more than their opponent, the St. Louis Cardinals. All in all, the more money you spend, the better chance you have to win as a major league baseball organization. References Associated Press. (2012, June 29). Dodgers announce yasiel puigs deal. Retrieved from http://espn.go.com/los-angeles/mlb/story/_/id/8112841/los-angeles-dodgers-announce- signing-yasiel-puig Barra, A. (2013, September 24). forget 2002-this years oakland as are the real moneyball team. The Atlantic. Retrieved from http://www.theatlantic.com/entertainment/archive/2013/09/forget-2002-this-years-oakland-as-are-the-real-em-moneyball-em-team/279927/ Brown, M. (2013). Biz of baseball releases comprehensive mlb final player payroll figures for last 14 years. The Biz of Baseball, Retrieved from http://bi.galegroup.com/essentials/article/GALE|A313786892/df67a57e287280461f74267 696242118?u=naal_aub Krissoff, B. (2013). Society and baseball face rising income inequality . The Baseball Research Periodical, 42(1), Retrieved from http://go.galegroup.com/ps/i.do?id=GALE|A328281604v=2.1u=naal_aubit=rp=I TOFsw=wasid=6f1b6e9872b87b5f7a152c7cf233d52a Nightengale, B. (2013a, August 15). Nightengale: Dodgers take page from yankees. USA Today. Retrieved from http://www.usatoday.com/story/sports/mlb/dodgers/2013/08/14/los- angeles-dodgers-new-york-yankees-stan-kasten-payroll-nl-west/2658245/ Nightengale, B. (2013b, March 13). Mlb salaries: Yankees, a-rod reign as cash changes hands. USA Today. Retrieved from http://www.usatoday.com/story/sports/mlb/salaries/2013/03/31/2013-mlb-payrolls- salaries-yankees-dodgers/2041115/ OBarr, D. (2013, September 30). David price-led tampa bay rays reach mlb postseason with homegrown talent Retrieved from http://www.rantsports.com/mlb/2013/09/30/david-price-led-tampa-bay-rays-reach-mlb- postseason-with-homegrown-talent/?utm_source=twitterfeedutm_medium=twitter Ozanian, M. (2013, March 27). Baseball team valuations 2013: Yankees on top at $2.3 billion. Retrieved from http://www.forbes.com/sites/mikeozanian/2013/03/27/baseball-team- valuations-2013-yankees-on-top-at-2-3-billion/