There have been recent comments about needing to "go look at" the Braves’ financials as an indicator that the M’s are likely not that profitable, and that the Forbes article regarding team valuations is inaccurate. So, I have taken a couple hours of "work" to see if this is the case. This is not meant to be a takedown of anyone’s point of view but an analysis hopefully in line with what I perceive as the analytic rigour that is expected about statements of fact that is endemic to this site.
The Braves are now a public company. This means that they need to file accurate financials with the SEC and their shareholders. I took a look at their most recent 10-Q, a financial report that all public companies are required to file with the SEC. I am not a certified financial analyst or anything like that but I do know how to read and interpret a financial statement so here we go.
The most recent 10-Q does not have full year earnings as it is a quarterly report, the full year numbers will be available after the end of the year. If you look at the headline numbers for the 9 months ending in September, the Braves LOST $90,832,000 compared to a profit of $10,767,000 for the same 9 months in 2022. Baseball must be unprofitable, the Forbes article says that the Braves’ operating income in 2022 was $51.2 million so it must be bullshit.
Wait a second. If you look at the Forbes article carefully, it says that the $51.2 million was Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA). EBITDA is important because it tells you more about the core economics of the business and not the financing (interest), or the pure accounting of assets (D&A), and taxes. Adding that back you get a profit of $93 million for the first 9 months of 2022 and a loss of $7.5 million for the same period in 2023. Still a loss in 2023.
Looking even closer however, the big loss item in 2023 is a loss on "intergroup interests" of $83 million. Reading through the 10-Q it seems this has something to do with the exchange of debt held by JP Morgan for equity that the Braves newly issued in a secondary offering. This is pure capital structure adjustment probably having to do with the carve out of the Braves from Liberty, has nothing to do with baseball, and does not affect cash. So, I think this can be treated as an extraordinary item and added back to Net Income. Once this is done you get a profit of $75.5 million for the first 9 months of 2023.
Still $93 million in 2022 is not $51 million so Forbes is still wrong? Not so fast. The Braves conveniently tell us what they use to figure out their "effective" profitability. They use something called Operating Income before Depreciation & Amortization (OIBDA). Essentially this excludes extraordinary items as above, also excludes D&A, but would probably include interest expense (because it is a real expense) and taxes. Taking this out for the first 9 months of 2022 and you get around $47 million, or much closer to the Forbes number. The number for 2023 is $51 million.
So, are baseball teams unprofitable? Doesn’t seem like it. Can this report convince me that the reported income for the Mariners is wrong? No, the numbers are in the same neighborhood. The Forbes reporter has also shown that he can wade through the headline number and figure out the number that really matters. Can the Mariners number be totally wrong? Sure, I have no inside information but the reporter is not claiming a bazillion dollars, he is saying it was $85.8 million. Completely plausible.
One interesting aspect of the 10-Q is the capital raise that was done by the Braves. If Stanton and Co don’t have the money in their pockets to invest in the team during this most compelling competitive window, they don’t need to sell the team, they can just dilute themselves by selling say a new 10% of the company for cash (say $200 million or so) which they can then invest. Happens all the time in corporate America. This dilution of ownership would be at a much higher valuation than the current owners’ purchase, and the cash would actually be going into the company, raising its value commensurately . Getting the entire ownership group to agree to dilution might be challenging but I don’t think any of them can get away with crying poverty.