You don't necessarily have to spend money to make money

[John]

2013 Houston Astros: Baseball's Worst Team Is The Most Profitable In History

Almost no one in the Houston Astros organization is making big league money. The highest-paid player is pitcher Erik Bedard, who is playing on a one-year, $1.15 million contract. No one else is pulling in over $1 million a year. That is, no one besides Jim Crane, who owns the worst team in the majors and is quietly making more money than any baseball owner in history.

The Astros are on pace to rake in an estimated $99 million in operating income this season. That is nearly as much as the estimated operating income of the previous six World Series championship teams — combined...

The Astros opened this season with a league-low $26 million active payroll and have since cut it to under $13 million, according to the Houston Chronicle. Houston traded or released four of its five players making over $1 million.

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...”

The regional sports network Comcast SportsNet Houston pays the Astros $80 million a year to show their games — about $50 million more than the Astros got under their previous deal.

The massive boost in revenue means that the Astros have plenty of spare money. They could pay for their current payroll six times over with money from their local television deal alone. And they bring in nearly $40 million from other television and radio deals...

But CSN Houston has run into problems. Since launching last fall, the network has had trouble signing deals with local satellite and cable providers who do not want to pay their pricey rate per subscriber — $3.03, 38 cents above the average for regional sports networks, according to SNL Kagan. CSN Houston is shown in just 40% of the TV households in Houston, according to the Houston Chronicle. As a result, the network lost $63 million last year, according to SNL Kagan, which analyzes the business of television.

As the largest stakeholder in CSN Houston, the Astros absorbed the brunt of those losses. FORBES considers regional sports networks separate businesses and does not include their losses or gains in its operating income estimations. But even if the Astros’ roughly $23 million loss were included, they would still have an estimated operating income of $71 million, higher than any team in history.

In interest of fairness, I should point out that...

Astros Issue Statement Denying Massive Profitability

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.

Do you believe the Astros? It's hard to know what to believe since, as the Astros' own press release admits, "The Astros do not disclose financial information." In other words, we're being told, "Trust us, guys; these Forbes dudes are off their rocker." The problem with that strategy is that we know that all the Astros would have to do is to disclose that financial information that they aren't legally required to disclose and this would all go away - assuming that the Astros are telling the truth and Forbes is full of it. Since that's not going to happen, we're left with the distinct impression that Jim Crane is pocketing anywhere from $71 million to $99 million in a season where they are currently 43 games under .500 and in possession of baseball's worst record. Yeah, that's not exactly going to be a positive PR blitz.

Now I don't just want to beat up Mr. Crane. I appreciate the notion that a team without a realistic shot at contention should keep expenditures within the realm of reason while the farm system replenishes the major league club with talent that will allow it to compete. It doesn't make sense to spring for Albert Pujols in free agency and then surround him with AAA-level players. Baseball America ranked the Astros as having the 9th-best farm system at the start of the season, and their big haul from the recent amateur draft has likely increased that status.

At the same time, I believe that a major league team asking for support from its fan base has a responsibility to make every reasonable attempt to field at least a semi-competitive team. That doesn't mean that you break the bank of big-time free agents, but surely you can do better than Erik Bedard as your top earner, no? We're getting kind of ridiculous when we start talking about $13 million as a total payroll sum. That's making the Marlins look like high rollers.

[Evas]

I have no doubt that the article is largely accurate. "Significantly" off is a looong war from saying the article is completely inaccurate. That is spin through and through.

The Astros are a damned embarrassment. Winning 1/3 of your games is just not acceptable.

Teams like that are as big of a problem for the game as the Yankees. I hate to say it, but I am more and more thinking the NFL model is the best one.

[Leones]

I hate to say it, but I am more and more thinking the NFL model is the best one.

That kind of talk will get you in the chair Mister:

but I agree with the sentiment. Time to go read Bob Costa's 'Fair Ball' again and see how it's held up over the years.

[Denny]

Didn't there used to be a salary floor--a minimum amount which a team must spend on its players each year--in MLB? I know the NBA has one.

[Zephyrs]

Mandating a minimum amount to be spent but not mandating a ceiling that can be spent, sounds ludicrous. Teams that can make money by losing are a product of fans that don’t care about winning. Lastly, let’s not forget that spending money does not equate to winning. Just look at Nick Swisher and Michael Bourne. The Indians ownership has been lambasted for not spending money for years and they throw a ton at those two who have not played anywhere near the level of their career averages. The Indians are not winning (so far) this year because they spent money.

I am all in favor of leveling the playing field with regards to the huge revenue discrepancies in MLB and the NFL model is superior in that arena.

[Lions]

Didn't there used to be a salary floor--a minimum amount which a team must spend on its players each year--in MLB? I know the NBA has one.

No, there's no salary floor. I have to say that I think the truth lies somewhere inbetween. The Forbes article is probably missing out on things that the Astros are spending money on or missing out on costs the Astros have that Forbes doesn't know about. That said, I wouldn't be at all surprised to know they're making a ton of money this year. How much? I don't know. I do think it's interesting that the Player's Union hasn't said a thing about this, which suggests to me that the way the Astros are operating isn't quite as profitable as the Forbes article suggests.

People may not like the way the Yankees operate, but at least everyone knows they're trying their damndest to win by leveraging their income advantage. On top of that, they get specifically targetted by rule changes penalizing them for doing so, and in the process start bankrolling other teams' payrolls.

[Coqui]

Dear Astros Fans:

Your chagrin is cute. Let's talk in about another 60 years if you have no World Series trophy.

Sincerely,

Every Chicago Cubs Fan for the last century

In all seriousness, let's give the Astros a bit of a pass here until this becomes chronic. Right now, taking Crane at his word, this is a temporary condition that was necessitated by the previous ownership group drafting horribly for years while having a very competitive team at the major league level. To his credit, Crane hired a GM who as the Director of Player Development for the Cardinals built that organization from one of the the thinnest-talented minor league organizations in baseball to one of the best. Crane has reportedly given him a long leash to build a sustainable winner.

[John]

Mandating a minimum amount to be spent but not mandating a ceiling that can be spent, sounds ludicrous.

And yet the NHL, NFL, and NBA all have salary floors. That doesn't mean that MLB should, of course, but there is certainly precedent for it in North American major league sports.

[John]

Mea culpa, Jim Crane!

Erroneous Story Claiming Houston Astros Most-Profitable Ever A Massive Strikeout

There are few times that an article refuting a Forbes colleague is in need of publishing, but this is one of those instances. Beyond statements from the Astros and club president Reid Ryan saying that the article was factually incorrect—something that could smack of protectionism—the fact is, the Astros are not the most profitable MLB club in history. As well, they are most assuredly not even the most profitable this year.

Yes, that's Maury Brown, best known for his outstanding website The Biz of Baseball, laying the smack-down on fellow Forbes contributor Dan Alexander's assertion that Houston owner Jim Crane is raking in the dough during a season where the Astros are far and away the worst team in baseball. Mr. Brown lists several reasons for categorically denying Mr. Alexander's claim:

• The TV Deal Is Not Lucrative in 2013, and Is Running at a Loss
• Even If CSN Houston Revenues Were There, $80 Million Annually (what Mr. Alexander claims Mr. Crane is pocketing) Is Off
• Startup Costs Not Accounted For
• Local Rights Fees Subjected to Revenue-Sharing

Mr. Brown's buys Mr. Crane's explanation that the team is waiting for the minor leagues to produce major league talent before breaking the bank on payroll, and he chastises Mr. Alexander for painting Mr. Crane as greedy based on a false premise:

The premise by which Crane and General Manager Jeff Luhnow are operating works like this: the minor league system was rated one of the worst when Crane purchased the Astros, and player contracts at the Major League level were inefficient in terms of gaining wins for the salary being spent. In a case of “pulling the Band-Aid off quickly,” MLB player payroll has been stripped to the axles and emphasis has been placed on building up the minor league system. The Astros organization now has playoff teams at all four levels of the full-season minors (Oklahoma City, Corpus Christi, Lancaster, Quad Cities). The last organization to do this was the Texas Rangers in 2011. There are two additional Astros minor league clubs, Greeneville and Tri-City, that are currently in first place in their respective divisions, with an opportunity for playoff berths, as well.

Along the way, Crane has said he will not spend more than 50 percent of revenues on MLB player payroll, something that Commissioner Selig has said he’d like to see of all owners, as well. If Crane holds true to this, when revenues increase, and player development is fully righted, the club will increase player payroll to much higher levels. This method of having internally developed players, signing extensions to core talent from the farm system, and selectively signing free agents is considered best practices for building a sustainable and winning franchise.

What Alexander has done in his story is use incorrect methodology, tied it to the current state of the Astros, and frames it as a money grab. While it is impossible to see whether the Astros will indeed spend as those revenues increase, there is at least one sign in the four-year contract given to second baseman, Jose Altuve. This was a wise move as Altuve is a prospect within the Astros system and would not become arbitration eligible until 2015. The contract covers his final pre-arbitration year and all three arbitration years. The option years in the contract cover two free-agent years. That aligns with at least part of Crane and Luhnow’s plan. The question will be if the practice continues in coming years.

I'm going to go with Mr. Brown on this one. This is a guy who is very connected to the business of baseball (it's the name of his blog, for crying out loud). He's known for telling it how it is, and he has been critical of Mr. Crane in the past. I don't think he would jump to Mr. Crane's defense unless he had good reason. So I'll step back from the insinuation I made earlier that Mr. Crane should be turning more of his massive profit (which may not be so massive as we were led to believe) back onto the field. Mea culpa, Mr. Crane. Now you just hold up your end of the bargain and start spending when the farm system starts producing.