Squeeze Play

It's been called the biggest deal in baseball since the Boston Red Sox sold Babe Ruth to the New York Yankees in 1920. And, as fate would have it, it was the Red Sox who once again let one of the game's best players slip away when the Yankees acquired shortstop Alex Rodriguez from the Texas Rangers in February. Only weeks earlier, the Sox had abandoned efforts to bring A-Rod to Boston by restructuring his $252 million, 10-year contract.

Red Sox owner John Henry fueled the ensuing Boston-New York tabloid frenzy by grousing that "baseball doesn't have an answer for the Yankees," and calling for a salary cap. Sour grapes, shot back Yankees owner George Steinbrenner, taunting Henry for not going "the extra distance for his fans."

Here we go again. As the duel between the two richest teams over the highest-paid player demonstrates, baseball does not reward financial control. "Baseball is a funny game," muses Bob Furbush, longtime CFO of the Red Sox. "From the financial standpoint," he says, pointing to his chest, "we're here to make money. From the owners' standpoint, they're here to win the World Series. It's a dichotomy."

That's far from the only contradiction in the peculiar world of baseball finance. Thanks to the soaring cost of buying and running a baseball franchise, almost all teams have CFOs, who are generally prized more for their CPAs or MBAs than for their knowledge of ERAs or RBIs. But between bosses who hold the purse-strings and a player's union that controls the rules, those CFOs are constantly pitching out of a jam. One consolation: they can get away with reporting yearly losses—and most do—that would get them fired in any other industry.

In baseball, in fact, there is no bottom line. Even winning does not guarantee financial success. Florida Marlins senior vice president and CFO Michel Bussiere says the World Series champions "suffered an operating loss" last year—"as we did the year before." Those losses are key to Bussiere's argument that the team needs public funds to help build a new stadium (see "Build It and They Will Spend," at the end of this article). But like most of his peers, he clams up when pressed about team debt and other financial details. "This is a private partnership," he says. "I don't normally disclose numbers unless the owners desire to."

Indeed, the Yankees turned down CFO's request to interview CFO Martin Greenspun, citing a reluctance to expose that front-office function to public scrutiny. Greenspun, like his fellow CFOs, has every legal right to guard his finances from public scrutiny (only three teams are owned by publicly held corporations). But baseball's lack of transparency also fuels skepticism about the sport's perennial claims of poverty.

Major League Baseball CFO Jonathan Mariner counters that teams do share their financials with MLB, which distributes the numbers to the other teams and the players' union. Still, he admits, "one of the biggest challenges we face financially is the perception, in this fishbowl-like environment, that things aren't right."

A Game of Monopoly
Even baseball's harshest critics agree that at least a third of the teams—not just the Montreal Expos and the Minnesota Twins—are losing real money. More to the point, all of them agree that the sport's economic model is a mess. And no matter how well run their own teams are, baseball CFOs cannot escape that model.

In finance terms, baseball's 30 teams are best viewed not as competitors, but as franchises of a self-regulating monopoly conglomerate. (Baseball has long enjoyed a unique—if debatable—exemption from antitrust law.) Team CFOs report not only to their presidents and owners, but also to Mariner, who has something of a hybrid job—the former CFO of the Marlins manages both the finances of the league and the financial health of all teams. That means he can force individual franchises to comply with certain financial controls while at the same time administering the league's luxury-tax and revenue-sharing systems.

In both cases, his goal is to correct—or at least mitigate—the vast economic gulf between teams, which is increasingly reflected in the caliber of the players put on the field. With the addition of A-Rod, the Yankees payroll is estimated at about $184 million. By contrast, the Tampa Bay Devil Rays' payroll comes in at a meager $20 million. Little wonder that when a blue-ribbon commission on baseball competition issued its report in 2000, it noted that spending must be "tempered by regulations designed to ensure fairness...among clubs with unequal economic resources."

How well the current regulations work is a subject of fierce debate. Many see the battle for A-Rod as unequal economic resources run amok. "There's a cadre of five to eight teams, led by the Yankees and the Red Sox, that can purchase better players than everybody else," says Colorado Rockies CFO and general counsel Harold Roth (at close to $60 million, the Rockies' 2003 payroll is around the median for all teams). "If the Yankees don't win every year, shame on them," he says.

Mariner doesn't dispute that view, but sees a silver lining in the Rangers' willingness to pick up part of A-Rod's $25 million­a-year contract. "The richest club in baseball was willing to pay only $16 million a year for the best player in baseball," he says. "So one could argue that it has established a new, and lower, cap on the price of a ballplayer."

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