Wednesday, August 1, 2012

Congrats to Kietzman... Be surprised. The Royals are in second place behind only the Cleveland Indians

The Royals are in second place.

Believe it or not…

I wouldn’t be surprised if you didn’t. The Kansas City Star’s enormously hopeful headline today – “Royals Halt Skid…” -- ignores the reality of July in Kansas City. The home nine was as cold as the damn weather was hot. They won just seven games in July. That’s right… seven.

Kevin Kietzman’s surpringly good reporting today revealed some disturbing numbers about how the Royals utilize the tax money they receive from us residents of Jackson County. My Johnson County softball buddies are enjoying a little chuckle over this. One way to look at Kietzman’s numbers is that the Royals use our tax money to pay their taxes.

It’s no surprise, however, 810-am radio did this story instead of the talkers at 610-sports and the gawkers at the Star. You don’t bite the hand that feeds you. If you’re interested in how this works, read my post below on the problems inherent in journalism’s beat system.

Kietzman got me thinking after one of my softball teammates on the Kansas City Relics sent 810’s story around in e-mail.  I recall that at one point the professional athletes at the Truman Sports Complex did not pay the dreaded Kansas City 1% E-Tax. Apparently that changed in the early 1990s and today they do provide significant income to the city. It’s complicated, but like those who live in Missouri but work in Kansas get essentially a wash from their Kansas state taxes when they deduct them from their Missouri tax burden, the athletes who also pay taxes in the other states where they play deduct those taxes from their Missouri burden for a wash. The biggest issue for them appears to be the massive paperwork required to accomplish this wash.

So, the reality is, they do pay the 1% E-Tax.  It’s the ball club that, according to Kietzman, pays its taxes with our taxes.

And, that got me thinking about the Royals’ finances. Forbes publishes some numbers, though Major League ballclubs say Forbes is wrong. They don’t, however, release their finances, so their challenge to Forbes is obviously suspect.

If you look at Forbes’ numbers for the Royals you see something stunning. If I’m reading the list right, the Royals are in second place. Yes, second place in operating income, what most of us non-accountants refer to as profit. Only the Cleveland Indians scored more operating income in 2011. The Indians: $30.1 million profit squeezed out the surging Royals’ $28.5 profit.

Twenty-seven teams made less money, according to Forbes.

Here’s an even more surprising number. My non-accountant cell phone calculator shows a profit margin for the Royals of 17.7%. On revenue of $161 million, the Royals made $28.5 million. The average profit margin for Major League Baseball teams was 13%. That is, of course, the only place the Royals’ winning percentage is anywhere near .500. Apple’s profit margin was 22%. According to a New York Daily News apology for the oil industry, the average profit margin for the five largest oil companies from 2006 to 2010 was just 6.5%.

The Royals were, apparently, champions at squeezing profit out of one of the worst, if not the worst, professional baseball clubs in the world.

And this is where the brain trust of the home nine show the greatest improvement. In 2008, the Royals netted only $9 million on total revenue of $143 million, according to the Forbes list. That's just a 6% return on investment, if my cell phone is right. And, in 2008, only six teams had less income and only six teams paid less than the Royals' $83 million for players. That's squeezing blood out of a pretty profitable little turnip.

Return on investment? David Glass bought the franchise for $96 million in 2000. Forbes says it is worth $354 million today. My cell phone says that's a 368% return on investment. Now, $354 million is a long way from the Yankees' $1.85 billion estimated value, but a return on investment in the three-fold-plus neighborhood is nothing to sneeze at especially when you can do it without ever fielding anything close to a competitive team. Since the 2000 season, the Royals have won 810 games, not counting this season, an average of just 67.5 wins per year. They have only one winning season, 2003, when they won 83 games. They have won less than 70 games eight of the 12 seasons and less than 60 games twice.

--Lofflin, posting this with a sincere question: Can this be possible? Did I miss a decimal point? Somebody show me what I’m missing here…


  1. I'm not much on math; ethics I think I have a decent handle on however. The Royals, often don't.

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