Owning a major sports franchise guarantees that you are rich beyond belief. The leagues will only approve you as a team owner after their due diligence audit and their cashflow test. Almost all owners buy their teams on credit. As billionaire Warren Buffett once said about borrowing against your asset, “I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.” Tell team owners about that because they borrow as far as they can in leveraging their assets, and some like their liquor too. There are few stories in recent years of sports franchises failing.
The end of my teenage years and the beginning of my 20’s were spent in college as an accounting major in college. Eventually, that led me in the direction of passing my CPA exam and more schooling, then the working world. One accounting job led to another. Having worked for one of Warren Buffet’s wholly owned subsidiaries (National Corporation for Housing Partnerships) when his Berkshire Hathaway company bought the company that I was with — I met the man and got an education in the real world on leverage, cashflow, tax advantages, and profitability. He eventually sold my division to a British conglomerate, and that is when I was promoted to CFO. I would consider myself an expert in how the dollars and cents work as well as pounds and pence.
Now that you understand a sliver of my background, I was asked to write an article that would serve as an educational piece for those who think rich people (that includes billionaires) can spend money commensurate to their Forbes wealth ranking as the main factor. That is just wishful thinking. If you want to stay in business long-term, you spend in relations to your revenues most years to try to finish in the black, and not the red. Yes, good companies can lose money. But if you lose money year-over-year, you are usually headed towards disaster — just ask the former owner of the Texas Rangers. Revenues minus expenses equal profit/loss. That is simplistic, yet without “creative accounting” the CFO always knows the health of the company. With the Atlanta Braves being publicly traded, you can see their financials. They reported a $27 million loss through June 30 for their 6-months ended this year. Their 9-month financials should be published soon.
Why are we discussing this now? This evidently was a big deal recently when a Yankees’ social media personality, JoezMcfly, went viral on top of a viral tweet from a Cleveland fan (Roberto Shenanigans) that his team could not compete with the Yankees fairly based on payrolls. Maybe in a way they are both right, but neither made their point well, even though JoezMcfly obviously made his point that the Dolans are wealthier than the Steinbrenners per Forbes. And Rob_Shenanigans made his point based on payroll spending with a video from the movie, Moneyball with the “50 feet of crap.”
In that tweet, you will see an authorized community note was added to JoezMcfly’s tweet that reads, “This is misleading. No owner is using their liquid assets to fund their team. Rather, the more accurate information to use is revenue generated each year by team. The Yankees annual revenue in 2024 was $679 million while the Guardians was $315 million.” While that overall point is good, the second sentence might not be accurate because some team owners have funded shortfalls in rare instances. That is what business owners do in the short-term if they cannot borrow funds. You need the cashflow to survive. Just last year, the Padres reportedly ran out of cash and needed a loan. They cut player payroll after the 2023 season. According to Britt Ghiroli of The Athletic, in an interview, she claimed the Nats’ owners, the Lerners, were losing so much money that the Lerner family was “writing personal checks” to keep the team afloat.
Cashflow is known as the “lifeblood” of a business. Some teams are swimming in it. Some are meticulously trying to balance their budgets, and yes, some teams are not spending on player payroll and pocketing huge profits. The revenue sharing model must be overhauled.
First off, an owner’s net worth rarely translates in any sport to their payroll with the possible exception of the Mets’ owner, Steve Cohen, who is listed as the wealthiest owner in MLB and seemingly spends well beyond his revenues per reports. And yes, revenues should…
Read More: Asset rich and cash poor is how many sports team owners live!