added 12/1/2004 by Scott Barzilla
The good folks over at Addicts will tell you that I’m not a big Richard Justice fan. I suppose I should own up to that before I get started. However, Justice mentioned something in one of his recent columns that I think should be challenged and ridiculed. I bring this problem up because it is a plague that is infecting the Houston press specifically and the national press generally. The problem of which I speak is the blind faith that the press has that owners are telling the truth about their finances.
Listen, I don’t have to tell anyone that the claims of losses in baseball in general are flimsy at best. When Drayton McLane bought the team in 1992, baseball was pulling in around a billion dollars in revenue. Now, baseball is pulling in close to four billion dollars in revenue. It’s hard to see that many teams losing money when the revenues in baseball have nearly quadrupled. Despite the seemingly huge increases in the Yankee and Red Sox payrolls, they have not quadrupled in the last twelve years. Neither has the Astros’s payroll.
To be perfectly fair, let me quote specifically what Justice said in his column, “No, the payroll won't be increased. Yes, there's going to be plenty of money for a certain free agent. As you can imagine, this is a sensitive topic for Astros owner Drayton McLane. Nevertheless, he says the payroll will remain at around $83 million despite the additional money. McLane says the new revenues will go toward paying down his debt. He says he has lost $133 million since buying the Astros in 1992. Combined with the $117 million purchase price, he's got a $250 million tab going."
Now, where are these figures coming from? They are coming from McLane himself. McLane has told the same tune from the very beginning in terms of arguing his losses, but I’ll get to the implications of his claims a little later. First, I need address these claims directly and explain why they are less than forthcoming. Baseball owners released their “books” a few years ago to show how they were “losing” money. Unfortunately, these reports were far from comprehensive. In fact, they split expenditures between player expenditures and “other” expenditures. What did “other” expenditures entail? We will never know.
Justice even went on to say, “Only a cynic would point out that the Astros have been a nice investment despite the losses. Forbes places the franchise's value at $337 million, and some analysts believe McLane could clear more than $100 million if he sold the franchise." I have to say this is my favorite comment of all. There is so much sarcasm wrapped up in that statement and yet it is based on a bald-faced lie. Those same editions of Forbes that place the franchise value also have the annual figures of profits and losses for each franchise. In some seasons the Astros have been shown to have lost money, but it is nowhere near the $133 million figure above. In fact, if you add the figures together you could argue (Forbes figures are not necessarily 100% accurate) that McLane has actually made money over that time period.
So, how is there such a huge discrepancy between McLane’s numbers and Forbes’ numbers? It all goes back to an accounting trick that one of the Astros attorneys told my father and I about. You see, when someone buys an existing business or starts a new business they get a seven year grace period where they can use an accounting tool called amortization to get their business off the ground. Simply put, business owners are allowed to depreciate any business assets they need to get their business going. For instance, let’s say you own a restaurant. You need stoves, dish washers, cash registers, plates, silverware, etc. to keep that business running. You are allowed to write off the depreciation in value of those items because you will have to pay the cost of replacing them someday. So, in essence, you get to count the cost of those items twice in your taxes for their first seven years.
For owners, this is a tricky game. Strictly speaking, players count as business assets, so some of them can be counted twice for tax purposes in those first seven years. The guidelines on whether you can count a player twice are tricky because they depend on years of service, age, and other factors, but suffice it to say, McLane was able to count much of his roster twice in those first seven seasons. Now, this is of tantamount importance when you consider the fact that most of the 133 million McLane claims he lost came from his time in the Astrodome. This just so happens to correspond with the 1992-1999 seasons where he was able to claim this amortization. It looks like Minute Maid Park came just in time.
McLane certainly hasn’t broken the law and he’s only doing what other owners do, so why am I so hot and bothered about this? The problems I have include the press being complicit (through their own omission or laziness) with an owner that is lying to the public. Then, we get to the lie itself. McLane has used this lie to his advantage every step along the way.
When the Astros were beginning to gain momentum in the late 1990s, McLane told the city of Houston that he needed to draw 2.2 million fans in order to break even. This seems like a low number now, but in the history of the Dome, there were only a few seasons where the club surpassed two million fans. The fans of Houston stepped and met that total. Then, McLane came back and said he needed a new stadium in order to make ends meet. He got the new stadium and became the only owner in recent baseball history to cut his payroll in the first year of a new stadium. Yet, according to him he is still losing money.
This season, McLane kept his payroll near 2003 levels until he allowed Hunsicker to acquire Beltran in June. Overall, the payroll increased less than five million dollars, but the press chose to exalt him as if he were throwing money around like Silver Dollar Jim West. He asked the city of Houston to step up and they did to the tune of three million fans. If you count the playoffs, the Astros drew more fans than they ever had in the history of Houston. Beer prices are higher in Houston than almost every park in big league baseball. Houston is also one of the few ballparks that does not allow fans to bring in any food or drinks. Of course, the Astros announced ticket price increases after the season as well.
So, when the Astros get a windfall of money from Fox Sports Net the owner announces that he is using the extra money “to pay down his debt”. What debt? Let me be very clear about this. Drayton McLane has the right to run his business anyway he wants and I don’t want him to spend money like a drunken sailor. However, there is something unseemly about an owner that continues to make demands on the fans, promises to field a competitive team, but reneges when he continues to “lose” money. There is something very unseemly about a Houston press that continues to give this guy a free pass on all of these issues.
I suppose I can call myself a member of the press, so let me be the first member of the press to make some demands. Of Drayton McLane I will say this, you owe the city of Houston more than what you’re giving. We agreed to pay more than 200 million dollars for your stadium. How can you cut the payroll your first year in that new stadium? How can you take the most exciting season in recent memory and waste it in this general waste of an off-season to this point? Yes, you are going after Beltran, but if you fail to increase the payroll after getting close to a twenty million dollar windfall you are a schmuck.
Let me make one more demand of the rest of my brethren in the press (yes, that means you Richard). Do your job. If Drayton McLane tells you he’s lost 133 million dollars, don’t just take him at his word. Do some research for gosh sakes. So am I a cynic like Richard suggests? I guess if doing my own research and thinking for myself makes me a cynic, then I’m a cynic. As for McLane, I don’t think he’s a bald-faced liar. He’s telling the kind of white lie that is enough to manipulate you. It’s kind of like your friend that makes you feel bad for asking for the money he/she owes you. It’s time to stop feeling bad for Drayton McLane and demand him give us what he promised us.
Scott Barzilla is the author of "Checks and Imbalances" and "The State of Baseball Management: Decision-Making in the Best and Worst Teams, 1993-2003"