I'm not sure how much of this has already been discussed, but I wanted to dig into the Sox financials to tease out where this strategy fits in the team's overall business operation.
First and foremost, let's take a look at the P&L:
Year___ | Net Revenue | Operating Income | Profit Margin | YoY Growth |
2002 | 171 | -2.1 | -1.23% |
2003 | 190 | 11.4 | 6.00% | 11.11% |
2004 | 201 | -11.3 | -5.62% | 5.79% |
2005 | 206 | -18.5 | -8.98% | 2.49% |
2006 | 234 | 19.5 | 8.33% | 13.59% |
2007 | 263 | -19.1 | -7.26% | 12.39% |
2008 | 269 | 25.7 | 9.55% | 2.28% |
2009 | 266 | 40 | 15.04% | -1.12% |
2010 | 272 | -1.1 | -0.40% | 2.26% |
2011 | 310 | 25.4 | 8.19% | 13.97% |
2012 | 336 | 23.9 | 7.11% | 8.39% |
2013 | 357 | 25.3 | 7.09% | 6.25% |
2014 | 370 | 49.2 | 13.30% | 3.64% |
2015 | 398 | 43.2 | 10.85% | 7.57% |
2016 | 434 | 78.6 | 18.11% | 9.05% |
2017 | 453 | 86 | 18.98% | 4.38% |
2018 | 516 | 84 | 16.28% | 13.91% |
What's remarkable to me is how poorly the team was doing when Henry & Co bought the Sox in 2002, with the organization losing money in several years, and how much they have built the Red Sox into a revenue-generating machine that netted over a half-billion dollars in 2018, more than 3x the reveneu the team generated in 2002 with YoY growth that would make a lot of tech companies jealous.
While I can't find a detailed breakdown of all operating expenses, we can infer the total from the operating income and compare that against player expenses:
Year___ | OpEx___ | Player Expenses | Player % (Opex) | Player % (Rev) |
2002 | 173.1 | 124 | 71.6% | 72.5% |
2003 | 178.6 | 116 | 64.9% | 61.1% |
2004 | 212.3 | 139 | 65.5% | 69.2% |
2005 | 224.5 | 154 | 68.6% | 74.8% |
2006 | 214.5 | 146 | 68.1% | 62.4% |
2007 | 282.1 | 199 | 70.5% | 75.7% |
2008 | 243.3 | 165 | 67.8% | 61.3% |
2009 | 226 | 145 | 64.2% | 54.5% |
2010 | 273.1 | 187 | 68.5% | 68.8% |
2011 | 284.6 | 191 | 67.1% | 61.6% |
2012 | 312.1 | 190 | 60.9% | 56.5% |
2013 | 331.7 | 186 | 56.1% | 52.1% |
2014 | 320.8 | 182 | 56.7% | 49.2% |
2015 | 354.8 | 208 | 58.6% | 52.3% |
2016 | 355.4 | 205 | 57.7% | 47.2% |
2017 | 367 | 209 | 56.9% | 46.1% |
2018 | 432 | 247 | 57.2% | 47.9% |
What's striking to me is how the % of operating income attributed to players salaries has become a much smaller share of overall operating expenses, from 71.6% in 2002 to only 57.2% in 2018. Likewise, the percentage of player expenses relative to revenue has shrunk from 72.5% to 47.9%.
Next, I wanted to look at the revenue breakdown, which, again, was hard to tease out, but I was able to determine how much comes from ticket sales:
Year___ | Average Ticket Price | Ticket Sales | Tix Revenue % | Tix Price YoY |
2002 |
2003 |
2004 |
2005 |
2006 | 46.46 |
2007 | 47.71 | 2.69% |
2008 | 48.8 | 2.28% |
2009 | 50.24 | 171 | 64.3% | 2.95% |
2010 | 52.32 | 176 | 64.7% | 4.14% |
2011 | 53.38 | 180 | 58.1% | 2.03% |
2012 | 53.38 | 179 | 53.3% | 0.00% |
2013 | 53.38 | 179 | 50.1% | 0.00% |
2014 | 52.32 | 172 | 46.5% | -1.99% |
2015 | 52.34 | 176 | 44.2% | 0.04% |
2016 | 54.79 | 187 | 43.1% | 4.68% |
2017 | 56.97 | 192 | 42.4% | 3.98% |
2018 | 59.32 | 221 | 42.8% | 4.12% |
Despite having fixed capacity at Fenway, the Sox have been able to squeeze out more and more ticket revenue, largely due to increased ticket prices, though I'm curious how much of this is also attributable to postseason play (probably not a ton). What's perhaps more interesting, though, is that the share of revenue attributed to ticket sales has also dropped, from 64.3% to 42.8%, which implies that a big chunk of the new revenue is coming from TV contracts and other sources.
So what's the takeaway from all this? Well, the Sox have really healthy revenues and a solid profit margin, but one that isn't completely immune to the costs of the luxury tax - a $20M surcharge takes a big bite out of the Sox' yearly profit. Furthermore, if the Sox want to reduce the costs of goods sold and improve their profit margin, shaving player payroll is obviously the easiest way to do it. If the team manages to slash payroll to $208M in 2020, the Sox would save nearly $60M ($40M in salary, ~$20M in tax penalty - someone correct me if I"m wrong here), which would greatly increase their profit margin. I think a lot of people would consider this good business.
The ultimate question, however, is will this enable the Sox to put a quality product on the field the next 2-4 years and, if not, how will that impact their revenue? You have to think their TV contracts are safe, which largely mitigates against the risk of a poorly performing team, at least year-over-year. However, ticket sales are still a big % of the team's revenue and a return to the 2010-2015 ticket sales might offset a lot of the savings you get by trimming down the roster. The biggest threat, IMO, is that Red Sox nation interprets major and abrupt cost-saving moves as a firesale, especially if they trade Mookie, and they will make their displeasure clear by not buying tickets or watching games, at least for a season or two.
BTW, Forbes has some
good stuff related to the Sox and I've included some graphs from Statista below that I used for my source data:
P.S. If anyone knows how to insert prettier-looking tables, please let me know.