So this story's a lot of fun. Via Forbes, we learn that Major League Baseball's worst team is heading for Major League Baseball's most profitable season.
Not the most profitable season this year. The most profitable season ever.
Granted, the Houston Astros would probably quibble with Forbes' math; teams always do. But the basics seem indisputable: Very little money's going out this year, while a relatively large amount is coming in. So is owner Jim Crane pulling a fast one?
The Astros did not respond to repeated requests to discuss the team’s finances and rebuilding strategy.
But Crane told ESPN The Magazine, “Once our minor league system is filled in, we’ll move up into the top five or 10 in payroll.”
Other teams have said the same thing, only to keep payroll low year after year. But the Astros might actually mean it. Crane doesn’t appear to be gouging fans for profit. Since becoming the owner, he has introduced fan-friendly policies like allowing food and drinks into the ballpark.
But he will likely use some of the cash flow to pay down the reported $275 million debt he took on when buying the team. He financed the purchase with a $220 million loan from Bank of America BAC +0.41% and assumed $55 million of debt from a previous loan with Major League Baseball, according to the Sports Business Journal.
Look, the big news here isn't that the Astros are going to make a lot of money. Cut your payroll to the barest of bare bones, play in a publicly financed ballpark in a huge market in an era of huge local-television money ... that's a license to print money, friends. Yes, it's certainly interesting that the worst team is going to make the most money. But in context, it's not all that surprising.
What's more interesting to me, though, is that Crane took on $275 million in debt when he purchased the franchise. Really? There are so many billionaires who want to buy baseball teams, and Major League Baseball couldn't find one who didn't need a loan to buy the Astros? That seems absurd, on its face.
But only on its face. I suspect there are tax advantages to buying a club on the installment plan, and there's a public-relations advantage, too: When somebody asks why your payroll's so low and your income so high, you can always fall back on the "But we have to pay off this debt" excuse. Which in this case is true, technically speaking. I say "technically speaking" because Jim Crane is worth approximately $2 billion, and could easily have purchased the Astros with his own money if he'd wanted. Men like Crane take on debt because their accountants and tax attorneys tell them to.
If I'm Jim Crane, I do not use the debt excuse when someone asks me why my payroll's so low. I'm sure some of that operating income will be used to pay off the loans, but it's not really a good excuse. If somebody asks me, I smile, suggest that the money's being kept in the franchise (presumably true), and promise that when the talent base can support a postseason push, the payroll will rise commensurately (true, we can hope).
Now, if Crane is paying his kids millions to do nothing, or financing his other businesses with the profits of his debt-ridden baseball team, then all bets are off. But to this point, we don't have any evidence of those things. So while the Astros are losing even more games and making even more money than I would have guessed, I'm willing to cut their owner some slack for another year or two, in the absence of new information.
UPDATE: The Astros have issued an official response to the Forbes article ...
We are very disappointed that, earlier today, Forbes released an article that includes significant inaccuracies relating to the Astros’ finances. The Astros do not disclose financial information. However, as MLB will confirm, the information reported in the Forbes article relating to the Astros’ revenues, the Astros media rights fee from CSN Houston, and CSN Houston’s per subscriber rate are all significantly inaccurate. As a result, the conclusion about the Astros operational profit is significantly inaccurate.
The Astros will continue to operate the team in a fiscally responsible manner that will make the City of Houston proud. We are very excited about our accomplishments and we remain steadfast in our commitment to this rebuilding process. We have established a basis of young talent on our MLB roster that will continue to improve. And our minor league system is now one of the best in MLB. As our young prospects develop, we will move them up to the Major League roster and increase our payroll to a level that will allow the Astros to compete for World Championships. The success of CSN Houston is a vital piece of that process and we continue to work toward establishing full distribution.
I don't trust Major League Baseball generally, or the Astros specifically, farther than I can throw Major League Baseball and the Astros, as baseball franchises have been less than truthful about their finances for as long as baseball franchises have existed. That said, some healthy skepticism toward the Forbes report is probably good, as media-rights fees are tricky and the Astros do not have good coverage in the Houston area.
Of course, all the Astros have to do is open their books and then we'll all be on the page.