Baseball CFO Looks to Win with CPM Software

Rob Gagliardi of the Tampa Bay Rays puts a priority on improved scenario planning.
David McCannApril 20, 2017
Baseball CFO Looks to Win with CPM Software

Growing up in Philadelphia, Rob Gagliardi did what all baseball fans there do: bleed Phillies red.

Rob Gagliaedi

Rob Gagliaedi

So it was “kind of surreal,” Gagliardi says, when, only a year after he landed a job as vice president of finance for the Tampa Bay Rays in 2007, the team had its first winning season and wound up in the World Series — where they lost to the Phillies.

Any mixed feelings he may have had were prioritized. “You quickly realize where your paycheck is coming from,” says Gagliardi, who became the Rays’ CFO at the beginning of 2015.

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He arrived at a good time: after the World Series appearance, the team made the playoffs three more times from 2010 to 2013. When the team is in a playoff run, ticket-sales remain strong all year. It can make the difference between tickets accounting for as much as 25% of the Rays’ annual revenue or, during a poor season, about half that much.

Gagliardi’s chief responsibility is providing the team’s owners and management with the information they need to make good decisions. A key task is working up a range of financial forecasts for a particular year based on, among other factors, various team-performance scenarios. This year he’s creating the scenarios more efficiently through the use of a new technology tool.

Gagliardi had been looking for software to help with scenario planning for a couple years before settling on the Adaptive Insights cloud-based corporate performance management platform. Normally, he says, he dreads April, because it’s when he creates the scenarios for the year.

“It would take me a week, [during which] I’d literally shut my door and put on my blinders and just devote myself to Excel templates,” he says. Now, with the new software, the process takes only a small portion of one day.

He first used the software to create a scenario last year. Major League Baseball’s collective bargaining agreement with the Players Association was set to expire at year-end, and Gagliardi developed a financial scenario based on the possibility that MLB could lock out the players at the beginning of 2017. (A new CBA was finalized in November, averting the scenario.)

Gagliardi is also using the software this year for several other financial processes, including the tracking of cash flow and the corresponding borrowings and debt covenants. Until now he’s been using Excel for those tasks as well. “I have everything in there, including our owners’ income tax [information],” he says. “It’s a 50-tab workbook and it’s not easy to maintain.”

All for One

The Rays are one of five teams that are using Adaptive’s software, along with the Arizona Diamondbacks, Chicago Cubs, Cleveland Indians, and New York Mets. Gagliardi and his Mets counterpart are trying to get all five together for a user-group meeting sometime this year.

It’s likely to happen, because of the collaborative nature of all baseball CFOs. “We all realize that nothing we do in terms of debits and credits can impact what happens on the baseball field,” he says. “So we share trials and tribulations. A lot of us moved to paperless expense reporting. And the Rays were one of the first to use a paperless, cloud-based invoice and purchase-order product, so we’ve tried to spread the word on that.”

In fact, it was Gagliardi’s recommendation of Adaptive that got the Mets, Cubs, and Diamondbacks interested in it, he says. (The Indians had been investigating the platform separately, at the same time the Rays were.)

Gagliardi is also working with the Mets to streamline the work that baseball-team finance departments do to respond to MLB’s “FIQ” — financial information questionnaire — five times per year. “It’s a giant workbook that we have to populate,” he says. “I’ve been going back and forth with the Mets, sharing ideas about how to get a report built within Adaptive to basically just spit out the FIQ. Right now, my controller spends a week just taking the numbers.”

No matter what, he notes, teams will still have to do some Excel work. Baseball finance uses what he calls “quasi-GAAP,” which accounts for some things differently than GAAP. “So we can’t just take our numbers exactly out of our GAAP financials that we’ve created within Adaptive,” Gagliardi says.

Some teams, he claims, make little effort to properly update the information in the FIQ from one reporting period to the next, instead catching up at the end of the year. But the Rays, as a team in one of baseball’s less-lucrative markets, gets a share of a revenue pool to which teams in the more-lucrative markets contribute. “As a receiver under the revenue-sharing plan, I like the other teams to have a good sense of what our true numbers are,” he says.

Not a Glamour Profession

Gagliardi was exposed to sports-team finance in his prior job as a regional CFO at Comcast, which owned the Philadelphia 76ers basketball team and Philadelphia Flyers hockey team (it has since divested the 76ers).

Even Comcast’s core operations as a cable company provided him with experience that’s useful in his current job. “A cable company wants subscribers, and a sports team wants season-ticket holders,” he says. “It’s kind of similar.”

But working for a professional sports team doesn’t mean he lives a glamorous life. For example, he has virtually no contact with the players. Most of it occurs in the years Tampa Bay make the playoffs, in connection the bonus money players on playoff teams collect from MLB from a pool of postseason ticket revenue.

There may be more interaction with players soon, though. Traditionally players have paid clubhouse attendants in both their home stadiums and those that they visit to provide the food and other items they request. But the new collective bargaining agreement provides for a higher level of food and service to be offered and paid for by each team.

“There’s usually a wall between the players and the front office,” Gagliardi says. “They may know my face as the head bean counter, but that’s about it.” Now, though, he’s getting involved with both the home and visiting clubhouse operations, which means he sometimes is going into the clubhouses themselves.

Meanwhile, as is true for every major professional sports team, player salaries comprise a huge portion of the annual budget. In general terms, how much the team is willing to spend can affect its chances of making the playoffs, the incremental revenue from which hopefully will pay for any added salary expense.

“As much as everyone outside of baseball thinks all the owners are making so much money, they’re really not making much from baseball,” Gagliardi says. “Maybe they’re getting a capital appreciation on the value of the team, [as suggested by reporting on the topic by] Forbes. I can’t vouch for those numbers, but some owners are probably making some good paper gains.”

Either way, the large sums that teams spend on player salaries is one reason why owners and management are so much in need of timely and accurate data on other financial aspects of the operation.

“I can’t dictate what they spend on salaries. The baseball operations guys do that,” the CFO says. “But we can give them a sense of some parameters they can play within.”

There are many factors in the financial equation. For example, while a playoff contender will get more revenue from tickets, concessions, and parking, it also will take on added operational costs, such as for cleaning the stadium after games.

Sponsorship and advertising revenue is usually locked in by the beginning of the season. There can be a “lag” effect to that corporate revenue — how the team plays one season will have some bearing on how many sponsors and advertisers will get on board for the following season. On the other hand, the corporate sales team is usually selling for the next year starting in June, with more than three months left in the season.

“At the end of the day, what we do is really just rolling up the numbers to help the senior management and owners understand them,” Gagliardi says. “At a public company, you do the same thing for the stockholders.”