[editor – this document was part of the initial release of documents known as “Cliffi-Leaks.” It represents the views of Alfie Montague,  Lupin’s Chief Financial Officer as of mid-December of last year]

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Dec 12, 2021
Background Notes for Presentation
Alfie Montague, Chief Money Watcher

Financial Position Paper

In order to position the club for its best results, it is important to understand our position relevant to each of our primary rivals. As such Ron personally asked me to prepare this primer for the leadership team in expectation that you will all arrive prepared and invigorated for our next budgeting meeting. This is vitally important because budgeting is the heart and soul of the club. Our financial resources are our blood, and our budgeting process is our circulatory system. Without this remarkable process, every element of our organization would shrivel and die.

Overview of Ownership:

Because the entire division has its roots in the honorable, but cash-poor, environs of Japanese baseball, my analysts project that most of the Rising Sun find themselves in similar situations—cash rich due to the historically large revenue streams coming in from the PEBAverse, but budget poor due to their capitalisticly bloviating owners being gutless skinflints at heart (excepting, of course, our own Paul Walker, who is merely being prudent with his money).

Despite this shared failing, it should be noted that ownership of all five clubs are generally of good repute, though my own personal intelligence gathering suggests that Neo-Tokyo’s front office is thought to be subjected to similar fire drills and meddling from the top as we are growing more and more familiar with under Mr. Walker. [ed: it is known that Mr. Montague attends a weekly bridge night with a club that also includes accountants from the NT organization, one episode of which apparently resulted in the calling of law enforcement. No arrests were made, so public record of this event is minimal.] Note, however, that I have been unable to confirm the theory that the Akira’s Mr. Otomo is taking the same medication as our beloved leader, Paul.

Regardless, ownership has been quite stable within the division, and since (as you will soon see) the division is heavily profitable at present, we do not anticipate any movement in this area.

One element of interest, however, is a rumor that has arisen around Okinawa’s enigmatic and reclusive Mr. Seigyoki that suggests that he might have had something to do with the identification and prosecution of Mr. Slimeball in the unfortunate situation that resulted in the collapse of the one and only True LRS. We have not been able to confirm it, but some have suggested that Seigyoki himself had sussed out the fact that Mr. Slimeball was taking on multiple identities, and had placed certain traps for him to fall into, and that it was these traps that eventually led to his downfall. One person I know has actually said “I think Iyou Seigyoki is Batman.”

At the end of the day, however, the owner we care about the most must be Mr. Walker, and Mr. Walker has made it known in public interviews that he thinks the team should be in the playoffs. This is an opinion I know we all share. Let’s make it so!

Attendance Projections:

We were asked to calculate projections for revenue among the division members, but we felt that it was important to touch first on attendance—which (carrying on with our biological metaphor) is the spleen of the revenue stream. As Mr. Walker so wisely says, you can’t squeeze a turnip that doesn’t fall off the truck in the right place, and we need all our turnips to fall off in the stadium.

Our assumptions on future attendance were predicated on last season’s numbers, then assuming each team (other than SS) should win more games than last season. Finally, we added an expectation for the influence of ticket prices for each club. Admittedly, this is a dangerous game. Much could go wrong. This is why, despite the opinions of some of our leadership team members, I suggest that only people with the qualifications that my accountants possess should play in this sandbox. Therefore, during our presentation, please hold your questions during the session until the end when it is less likely we will have time to answer them.

Our biggest source of uncertainty, however, is the knowledge of exactly how big the fan base will be now that the LRS/PEBA honeymoon phase could be waning. There exists some chance that the initial attendance glut is over.

These are the tables:

PROJECTED ATTENDANCE

Team   2020(act)        2021(act)        2022(proj)

SS        3.81M             4.57M             4.6M

NT       3.79M             3.86M             3.8M

NII       3.34M             2.88M             3.0M

OKI     3.10M             2.85M             2.9M

LUP     3.49M             2.56M             2.8M

 

Commentary on Projected Attendance:

Shin Seiki began playing in their new ballpark in 2021, and immediately saw the benefit of an additional 750,000 tickets sold (which can been estimated to have created additional revenue of $15-$20M). Their attendance was the best in all of the PEBAverse, which suggests their fans are as rabid as they are obnoxious. That said, we can’t see them doing much better than last season. (Note, if SS were to sell out every game, and go to a max post season schedule and sell out all of those games, their maximum attendance would be 5.06M idiots … er … people).

We suggest Neo-Tokyo will see a drop in attendance, but (as you will see) an increase in gate revenue. This is because we think NT’s attendance last season came as a result of some of the deepest discounting in the league, and our expert analysis suggests that increased ticket prices in 2022 will place a damper on numerical growth.

Our own organization built a 5K seat addition onto the Castle last year, but saw our attendance drop by nearly a million fans as a result of the disastrous results we saw on the field. This probably cost the organization as much as $30M in revenue—a fact that Mr. Walker made reference to in his decision to freeze payroll this season despite the organization returning something in the range of $15M to his platinum-lined pockets. As Ron has wisely said to us, this fact alone shows exactly how important it is for the club to win games now. It is imperative that the quality of play on the field improve this season if we are going to be able to develop competitive revenue streams in 2023 and beyond. Please keep this in mind as you go about assessing possible trades and Free Agent acquisitions. We.Must.Win.Now.

Okinawa and Niihama-shi saw similar reductions in attendance, primarily due to their own poor performance on the field. But their fall-offs were not as deep as we suffered. This is what happens when you have intelligent fans. Our followers are clearly more discerning, and know a quality product when they see it.

Of note in assessing attendance differences (as well as when converting them to revenue), is the impact of a team’s stadium.

Realize that Shin Seiki’s new Genesis Park holds 55,000 people, while the Neo-Tokyo Grounds and our own Castle hold only 50,000. Okinawa’s Shisa Stadium can hold 45,000 and Niihama-shi’s park (Oikake’s Maze) holds 40,000. At Shin Seiki’s level of attendance, each 5,000 seat increment probably represents an additional advantage of something on the order of $10M dollars in top-end cash flow. The rich, they do get richer. If, however, the last phase of our expansion process goes as planned, there is every chance that our Lupin lads in chartreuse and lavender will finally be competing on even financial keel with the rich kids in 2023. This is why funds for phase three of Ron’s long-term plans for expanding the stadium must be held in a lock-box.

Revenue Projections:

Using these projections for attendance expectations, projecting ticket prices, and using publicly available data for media contracts, revenue sharing, and other forms of intelligences, we’ve projected each team’s revenue streams for 2022 (sorted by projected total).

REVENUE PROJECTIONS

Team   Media  Merch             ST Rev*          Gate Rev         Sharing           Total (2021)

SS        $61M  $12.5M           $77.2M           $70.3M           -$18.0M          $206M ($202M)

NII       $61M  $10.9M           $44.4M           $34.3M             $5.5M           $156M ($124M)

LUP     $54M  $10.4M           $35.9M           $47.6M             $2.9M           $151M ($132M)

NT       $46M  $11.1M           $34.7M           $40.9M             $7.5M           $140M ($118M)

OKI     $43M  $10.1M           $41.1M           $31.7M           $12.1M           $137M ($103M)

 * This is the first year where season ticket data is publicly available, so more time may be needed before we’re can rely on the precision of gate projections.

Commentary on Projected Revenue:

It is of note that, although 2021’s revenue streams were massive records for each team in the Rising Sun division, only Shin Seiki’s income could be considered elite. SS was third in the SL, behind Aurora and Bakersfield. Our $132M placed us smack in the middle-class, and NII, NT, and OKI were #12, #13, and #14 in the league (only Canton and Tempe did worse than the Japanese teams, and both of them still play in 35,000 seat relics).

In other words, we have a long way to go to be financially competitive, so it’s very important that each department in our organization touch base with us prior to making any expenditure as required by our newly released “Save the Blood” process. I know this level of scrutiny feels awkward to some of our leadership team, and I know many of you have grumbled about the burdens you are perceiving,  but this “Save the Blood” program of financial oversight I have installed with Mr. Walker’s approval is truly vital to the ball club.

Anyway, it is no surprise that we expect the glutinous Shin Seiki organization to take in as much as $70M more than any division rival in 2022. This will, however, be achieved with only a slight increase in overall revenue, which is the silver lining in the dark cloud. One should note that SS’s 2021 revenue stream was essentially double that of Okinawa’s, and that they “earned” $100M more. This means the $70M pad SS will receive is actually 30% less than in previous seasons.

We expect this process to continue for the next few seasons, with the Eva Empire’s financial advantage slowly eroding to a new level of stability over several years. The next question that one might ask is “how far will the revenue gap fall before everything stabilizes?” Or, in other words, “will Shin Seiki always be rich?”

To answer this, it should be noted that Lupin has historically out-performed these projections, and it would not be surprising if much of the division also exceeded them this season. We have been cautious in our assessment of both ticket price changes and the level of increases we might see in on-field performances—with all four teams under SS playing sub-.500 baseball in 2021, it’s highly unlikely there is anywhere to go but up, and it is possible that strong steps forward on the field could further improve on these projections. However, there are fundamental discrepancies in market sizes (media contracts), and stadium sizes (that affect gate receipts) to suggest that team performances being equal, the minimum possible revenue gap between Shin Seiki and each division rival would run along these lines:

 

 MINIMUM EVA REVENUE PRIVILEGE

Shin Seiki: Baseline
Lupin: -$7M *
Neo-Tokyo: -$10M
Niihama-shi: -$15M
Okinawa: -$35M

 * Assumes Lupin’s stadium expansion planned for 2023 occurs

 

Learning 1: Yes, Shin Seiki will always be rich. Their market size, and their stadium improvements will always give them an advantage.

Learning 2: While its unlikely we will see Lupin as the organization with dominating resources in the near future, it is possible that within the next 2-3 seasons we could find ourselves on much better footing as long as we don’t suffer another horrific season on the field.

Learning 3: It is recommended that our organization focus on and spend resources building a solid team in 2022 (rather than execute a fire sale and go directly to cost saving). This is the clearest and least painful way to building business success. However, we stand ready to help leadership by paying special attention to how the club gets out of the gates. If the calendar turns past May and the Cliff Hangers are struggling, it will almost certainly become necessary to find ways to reduce salary and other expenditures. As a proactive and prudent member of our team, I have directed my staff to prepare contingency plans. I plan to present them to Ron and Paul at our next Org Review.

And, speaking of expenditures …

Expenditure Projections:

Income is only half of the battle. Prudent expenditure of our limited resources is also vital to our existence (Save the Blood!). In order to properly place the division in our minds as we approach the budgeting season, my collected core of financial experts has projected each team’s expenses.

While various elements of these data are available to the public (payroll data for players and personnel, and overall team budgets), hard information for things such as Player Development, Scouting budgets, and dollars available for acquiring players through the draft are not. As such, despite our disagreement with including these data in the report, these have been estimated.

 

RISING SUN EXPENDITURE PROJECTIONS

Team   Player         Personnel     D&S    Draft   Misc    Budget

SS        $109.2M         $10.7M           $35M  $8M    $4M    $160M

LUP     $76.3M           $09.8M           $27M  $7M    $2M    $121M

NII       $89.8M           $07.7M           $26M  $4M    $3M    $116M

OKI     $64.7M           $13.4M           $22M  $4M    $0M    $103M

NT       $46.5M           $12.6M           $28M  $5M    $2M    $101M

 

Commentary on Expenditures:

At 12% of their budget, the Akira spends a greater percentage of their resources on their coaching staff and personnel than any other Japanese team. Shin Seiki spends 6%, Lupin 7%. Another way of looking at this figure is as a percentage of Gate. For example, last season, Niihama-shi spent 19% of their gate revenue on their organization’s coaches and other personnel, while Neo-Tokyo spent 18% of gate (Okinawa and Lupin were at 11%, while Shin Seiki was understandably quite a bit lower at 7%).

Unless some teams decide to spend past their budgets, it seems clear that the entire division will turn considerable profits of between $25M-$40M. We know Ron does this when he deems necessary, and will likely do it this year even though, or perhaps even because, he knows it will send PW [ed: Lupin owner, Paul Walker] into hissy-fits. Assuming we do so, our financial analysts suggest using any over-spend on scouting and player development because our past strategy of locking existing players into contracts for the long haul have left us in hot water. We are now committed to several players we’re not happy with [ed – several Lupin AAA players were provided bloated contracts during arbitration. How this has to do with long-term deals is difficult to see]. Given this, we suggest pouring excess funds into the system for two season while we ride those contracts out.

[ed: Lupin took a very public stance in support of their Japanese players in the pre-merger phase. The failure of that approach has kept radio call-in shows buzzing all around the world]

 

Profit and Loss Projections:

Assuming each team meets its budget (which is possible, but not completely expected), the financial performance of each Rising Sun team is expected to fall as follows:

 

PROFIT AND LOSS PROJECTIONS

Team   Budget   Rev      Profit

SS        $160M   $204M   $44M

NII       $116M   $156M   $40M

NT       $101M   $140M   $39M

OKI     $103M   $137M   $34M

LUP     $121M   $151M   $30M

 

We assume this is one of the reasons Mr. Walker has such problems with providing the leadership team with greater budgets. I’m sure that when he gets together with his owner buddies for their rounds of badminton and martinis that they eventually get around to sharing their paychecks, and at only $30M, Mr. Walker winds up looking a little … uh … short, if you know what I mean? [ed: yes, we think we know what you mean this time]

Regardless, it seems clear that the division should remain healthy this season, and if the division’s performance continues to edge upward  maybe into next. As I have said on other numerous occasions, my financial officers and I stand prepared to support every element of our baseball operations as we move forward. Remember that we always have the best interests of the team at heart, even in the cases where we have to disallow an expenditure. The fact that we have Mr. Walker’s ear should be seen as a great positive, and an opportunity for you to gain outstanding visibility as you each pursue career advancement.

And also try to remember: Save the Blood!