Forbes says Royals operated at a loss

This guy costs money. - Joe Camporeale-USA TODAY Sports

The first winning season in a decade and Forbes magazine says the Royals lost money. Great.

The latest round of Forbes valuations came out on Wednesday. And there was a bit of a surprise when it came to the Royals.

No, the surprise wasn't that the Royals are worth less than every single franchise outside of Tampa. No, the surprise wasn't that David Glass still is realizing a pretty sweet return on his initial investment. The surprise is...

The Royals lost money in 2013.

What?

As the payroll increased, both Dayton Moore and Glass have cautioned that the team was dangerously close to falling below the break even point. In a November 2012 article in the Star, Glass claimed that his break-even point was $70 million. (Don't bother searching for it online. It used to live here, but the Star doesn't keep an archive. Another reason newspapers will ultimately fall into the tar pit of history.) I didn't believe them. And I wrote about it. And it's still online.

Let's look at a couple graphs I created using the numbers from Forbes. First, let's start with the good news. Revenues have increased each season since 2005.

Revenues_medium

Nice, steady growth. I'm not an economist (other than I enjoy capitalism) but this graph looks very encouraging.

Next, let's take a look at the overall value of the ball club. Remember, David Glass purchased the team for $96 million back in 2000.

Value_medium

The Royals come it at $490 million. As mentioned in the lede, that's the second lowest total among major league franchises. The bottom five:

Houston Astros - $530 million
Miami Marlins - $500 million
Oakland A's - $495 million
Kansas City Royals - $490 million
Tampa Bay Rays - $485 million

The bottom four teams don't have much between them. But still... where else can you turn $96 million into $490 million in 14 years? That's a decent ROI as the kids (at least the one with some financial savvy) say.

Remember how I mentioned Forbes reported the Royals lost money? Now for the bad news.

According to Forbes, the Royals lost $6.5 million last year. Looking at the numbers that stretch back to 2005, this is the first time the Royals operated in the red. In fact, Forbes says it's the first time they pocketed less than $7.5 million in a year. Take a look:

Opincome_medium

Another way to look at the above chart is to include the Royals Opening Day payroll numbers.

Opincome_payroll_medium

At the end of the 2012 season the Royals insisted their break-even point on payroll was around $70 million. We scoffed at that figure, but according to Forbes, that was an accurate assessment. From the graph above we see that the Royals did in fact break the $70 million mark in 2009 and 2010, but their operating income remained unchanged pretty much from 2006 through 2010. We know what happened in 2011 with the Zack Greinke trade and the Gil Meche refund.

With the record-setting payroll in 2013 comes a record-setting deficit. This is bad news. My fear has always been that Glass would green light budgets that cut into his margins, but would pull back if he didn't see results. Last year's 86-win season was positive. It was a clear improvement that would make operating at a loss easier to swallow. With reports that payroll will top $90 million on Opening Day - another record - it's safe to assume the club will operate at a loss again in 2014. Fans are buying this team. Optimism feels like it's at almost a 25 year high. With the team's flex ticket pricing scheme they are in a position to see some quality cash out of the gate. April's attendance should be the strongest in years. A winning month will only build momentum. If the Royals stumble early and the fans lose their enthusiasm for the team, the Royals could cut their losses and start dealing. As the highest earners, James Shields, Alex Gordon and Billy Butler could all be gone.

That would make for a bitter summer in Kansas City.

(Quick aside: These numbers from Forbes - if they are accurate - help explain why the Royals went four years on Jason Vargas and Omar Infante. It's becoming key that the small market teams lock up steady, if mediocre, players to help keep costs under control.)

When they say the Royals are "all-in," that has a ring of truth. Win now and perhaps the team will continue to build. Maybe they can be similar to a Tampa where they can contend despite the market and the P and L statement. I shudder to think about what happens if they don't win.

The pressure is on.

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