Ownership Economics

Many Orioles fans, myself included, would like to see team ownership push more funds to the team. Like I did before, I’d like to break it down from the other side: how does money reach the Orioles and the team’s owners, and how much more is there for further investment into the team (and organization as a whole)?

Discuss this article on the BSL Forums.

First, a caveat: It’s nearly impossible to separate the Orioles from the Mid-Atlantic Sports Network (MASN) and either from Peter Angelos on the financial side. This is particularly true when relying on media reports to inform an article. While Peter Angelos is the primary owner of both the Orioles and MASN, he would be required to sell MASN if he were to sell the Orioles. Profit from MASN is said to go “to the Orioles,” but whether that means some team financial executive or Peter Angelos is incredibly difficult to determine. And I don’t mean to push that responsibility to other members of the media that have covered this opaque topic; instead, even with full access to the Orioles’ financials, I’m almost positive that the wires cross in an infinite and deliberate number of ways in order to shield those with a financial stake in the organization. When I know where money is going, I’ll try to be as clear as possible to give you the best picture of the Orioles’ financials.

MASNMid-Atlantic Sports Network

Figuring out MASN’s annual take is a pretty complicated task. Reported figures are based on anonymous sources, Fermi estimations, and wild speculation. It’s been reported that the network receives an annual $14 million per month, or $168 million a year, from Comcast/Xfinity alone, but that’s probably incorrect. It’s more likely that MASN properties (MASN and MASN2) make about $168 million a year altogether, mostly from advertising and subscriber fees.

The Orioles currently own 87% of MASN properties, while the Nationals hold 13%. Those figures will slowly change until the Nationals hold one-third while the Orioles control the rest.

It’s possible to approximate MASN’s annual profit by working backwards from the reported equity payout to the Nationals. The most recent figure available here is from 2011, when the Nationals received $29M in broadcast rights fees and approximately $7M from its equity stake payment. I may be mistaken in this assumption, but for the purposes of estimation, I will assume that $7M is 13% of MASN’s 2011 profit such that broadcast rights fees to each franchise, maintenance, salaries, and reinvestment in the network are all paid for before the equity stake payment is calculated. If $7M is 13% of profits, 2011 profit for the network would total $53,846,153. That leaves $46.85M in profit for the Orioles. $29M to each team in broadcast fees plus $53.85M in profit totals $111.85M, leaving $56.15M (if we assume $168M is correct and reasonable, which it seems to be) for maintenance, upkeep, network salaries, etc. of two cable networks. That seems like a pretty likely breakdown of MASN revenues to me, so hold on to those numbers.

Also note that the National’s stake in MASN ownership is set to increase by 1% every year, so in 2013, they would have held 15% of MASN and will hold 16% in 2014. Without more current MASN revenue figures available, it’s difficult to say how this much affects the take-home of the Orioles, so I’m going to stick with the 2011 figures.

Broadcast Rights Fees

Both the Nationals and the Orioles received $31M in broadcast rights fees in 2013, with that number projected to increase as the Nationals push for a split more in line with their market share. It’s also likely that MASN revenues were higher in 2013 as well. The Nationals are pushing for a lot more in broadcast rights fees, and the Orioles have countered with an offer to raise broadcast rights fees to $35M a year.

Many feel that the Orioles are shorted by MASN ownership (which also happens to be Orioles ownership) in being paid just $31M annually in broadcast rights fees. The Nationals have the same complaint, including from their ownership, and honestly, they probably have a bigger complaint: Washington, DC is a 5.5-million-person metropolitan area compared to Baltimore’s 2.75 million residents, plus whatever shared broadcast area there is to give the unaffiliated in North Carolina the opportunity to watch the Nationals. It only makes sense that a bigger metropolitan area would bring in more advertising revenue and therefore worth more in broadcast rights fees.

It’s worth noting here that the ownership shares of MASN do in fact favor the Orioles. That does not, however, affect the marginal revenue product of the players. The Orioles owners actually suffered a decline in the value of their asset in being forced to share their market with the Nationals, and the deal Peter Angelos and company agreed to was intended to offset that loss. Again, and most importantly, Orioles revenue generated by the Nationals is not influenced by the wins that the Baltimore team earns.

The problem with Angelos okaying more money being provided to the Orioles in broadcast rights fees is in his agreement with Major League Baseball. For every additional dollar he agrees to give the Orioles in broadcast rights fees, he must match it exactly for the Nationals (or, in this scenario, the other way around). A $1M increase in the rights fees paid to Baltimore really costs him $2M (assume that this is $1M from Angelos’ pocket and not $1M total; since he holds an 87% ownership stake in MASN, this equates to a $1.149M increase in rights fees paid to each team for an additional $2.298M in total outlay).

However, profit from MASN that isn’t paid to the team in broadcast fees is not subject to revenue sharing. This provision that benefits the small handful of teams that get their own RSN and provides clear incentive for the Orioles and for Peter Angelos: keep broadcast fees as low as possible. Where the Astros and Dodgers pay far more in this pocket of revenue sharing because their broadcast rights fees are higher, those teams wouldn’t have any money if it weren’t for broadcast fees. The Orioles, on the other hand, can take just a few dollars in broadcast dollars and keep the rest for themselves.

For that additional $2M outlay to make any sense in a vacuum, he has to get a 100% return on the broadcast rights fee paid to the Orioles – a highly unlikely proposition in the first place. But that decision doesn’t take place in a vacuum.

$1M for the Orioles doesn’t get them very much, so let’s make the numbers bigger: now, Angelos is paying both teams an additional $14M for a total additional outlay of $28M per season. $14M was enough to sign Choo for the next year (note that money for Choo does not have to come directly from broadcast rights fees).

Then we have to account for revenue sharing: the Orioles (and all other teams) are expected to make a payment to the revenue sharing program equal to 34% of broadcast rights fees paid to the team. On $1M, $340,000 are paid to the league; on $14M, that figure climbs to $4,760,000. Of course, the Orioles will also receive some money back from the league in revenue sharing as well, possibly even enough to cover the full cost of their current liability from broadcast fees plus additional liability incurred from the increase of fees.

Does Choo provide a return of $28M to cover not only his salary, but the additional money paid to the Nationals in broadcast rights fees AND the possible net loss from revenue sharing? He probably does not. By paying more in broadcast fees, Angelos is also agreeing to pay more into revenue sharing, lowering his receipt there and further hurting Choo’s return on Angelos’ investment. Ignoring revenue sharing, Choo is probably going to be worth the $14M he’s being paid for a total return on the cost to Peter Angelos of getting Choo via broadcast rights fees -100%.

That’s beaten easily by investment strategies such as “Put all of the cash under the mattress and let inflation destroy its value slowly.” In fact, Angelos even foregoes that most absurd of investment strategies and elects to give the money away, undoubtedly a worse investment strategy in financial terms but one that potentially earns far more economic returns. But that discussion comes later.

Central Fund Payouts

If the RSN money is the meat of this sandwich, the central fund is all of the awesome fixings that make the sandwich look nice and worth eating. Before the new national TV deals, each team received just over $40M from the Central Fund, which includes national TV, radio, Internet, licensing, merchandising, marketing, and MLB International money. That’s a nice chunk of change, but $10M of it went to pension and operations fees, so each team netted about $30M every year from the Central Fund.

MLBEnter the new national television contracts. ESPN is going to pay $700M per year through 2021 for the exclusive right to broadcast games on Sunday nights and one Wild Card Game (plus some other non-exclusive stuff on Monday and Wednesday and some other junk). FOX and TBS together will pay $800M in exchange for the Saturday game of the week (FOX) and the Sunday game on TBS and all of the postseason games. That cool $1.5 billion is double what MLB had in its Central Fund in 2013, meaning each team will get a lot more cash in 2014. Now, MLB can spend the Central Fund however they want, but it’s been assumed that each team will receive about $25M more than they did in 2013.

It’s unclear if the money going to pension and operations fees is a fixed cost (i.e., $10M every year) or a variable cost (25% of the Central Fund Payout), but I’m going to assume that it’s variable. Even so, the Orioles would be receiving an additional net $18.75M from the variable fund in 2014 for a grand total of $48.75M in Central Fund distributions. Not bad. That money can be spent on player salaries, scouting, data analysis, or marketing. Still, not bad. Hold on to that number too.

OPACYStadium Revenue

The Orioles also generate money at their stadium through concessions, ticket sales, parking, and sponsorship. Bloomberg has a breakdown of these revenue streams, but doesn’t really say how the numbers are calculated or if there are any hidden costs that are incurred, like the pension and operations fees in the Central Fund distribution. For instance, does Delaware North pay the Orioles $14M annually to be the sole provider of foodstuffs at Camden Yards, or is that $14M based off of estimates sales of hot dogs at the stadium? If it’s the latter, is that number before or after Delaware North’s cut? In any event, the numbers reported by Bloomberg are as follows:

  • Gate Receipts: $52M
  • Concessions: $14M
  • Sponsorship: $18M
  • Parking: $2M
  • Total Stadium Revenue: $86M annually

There is no longer a split of gate receipts. Hold that number too.

Revenue Sharing

Revenue sharing is Major League Baseball’s method for generating parity. According to FanGraphs, 31% of every team’s net local revenue is pooled and then divided evenly and equally distributed. Clearly, the teams that make the most from their local market wind up paying more than they receive, and vice versa. The Orioles apparently are in the black on revenue sharing – but just barely. According to the Wall Street Journal, the Orioles received a net of just $2 million in 2005, the year with the most recent figures available. Notably, the Nationals are also recipients of $3.9 million in the same year. The fortunes of each team have changed dramatically since then, and it wouldn’t surprise me to find either team on either side of this revenue-sharing divide. I can see both arguments pretty well: splitting a large CSA means that both teams make little from their local revenue and would therefore be likely to be net recipients, but both teams are markedly improved and drawing more fans and viewers than in those mid-00s doldrums and therefore likely to be net givers. Bloomberg estimates that the Orioles gained a net $20M. Without any way to determine process, it’s up to readers to decide whether that number sounds accurate.

It’s unclear whether the revenue sharing figured reported in either the WSJ or Bloomberg includes that of broadcast fees. I assume that both do.

Let’s just assume that the Orioles do still receive enough in revenue sharing to put them in the black. To arrive at a number, I’ve used that $2 million adjusted for 2011 dollars, since that’s the year we worked in for MASN money to arrive at $2,303,522.79. Or just use Bloomberg’s $20M. Hold on to those numbers too.

Luxury Tax Redistribution

This section is a bit of a tease: I was mistaken in thinking that the Orioles directly benefit from the luxury tax. I thought teams that did not offend the luxury tax reaped the benefits of the penalty imposed on those who do. NOPE. Instead, that money goes towards player benefits, baseball development in countries that don’t have high school baseball, and the Industry Growth Fund. The more you know!

Return on Investment

And now for the fun part! Using 2011 numbers, the Orioles revenue streams totaled a maximum of $165M ($147.3M if revenue sharing figures are much smaller). That’s, uh… not that much. In 2014, they’ll get a maximum of $35M (the amount offered to the Nationals) in broadcast fees, about $48.75M net in Central Fund distributions and maybe $20M in revenue sharing if we maintain the Bloomberg numbers. That’s still just $189.75M,1 with player salaries already taking up approximately $89M of that.

Peter Anglos was the primary player in a purchase of the Orioles in 1993 for $173M. Angelos said he would have to be offered something like $400M to sell the team, but Bloomberg estimates the team value at $514M. That’s an annual appreciation of between 10.81% and 16.24% before inflation, which would serve to devalue the asset. Putting it all in current dollars would change the purchase price to $278.9M 2013, changing the effective rate of appreciation to between 5.77% and 11.2%. With long-term appreciation averaging out to 8% on most assets, that’s not a particularly incredible investment. What it does provide, aside from maybe a few extra percentage points of appreciation on the high end, is insulation from risk. You saw the numbers from revenue distribution. You saw the Astros become the most profitable team in baseball by never winning ever. You may have even noticed the single line in Jonah Keri’s article explaining that MLB tucks the Nationals an undisclosed sum every year to keep them happy. Owning a baseball team is an exercise in risk aversion, and it’s one that pays about the same or maybe better over time as more volatile assets. As Keri noted, Angelos is facing a unique situation with the Nationals. If MLB steps in and rearranges the terms of the deal that they gave the Orioles when the Nationals first intruded on Baltimore’s broadcast territory, it would greatly reduce the value of the Baltimore Orioles as an asset, possibly enough to have provided a return of less than the average long-term portfolio. If Angelos sees that coming down the pipe, he’s right to stockpile profits and invest them in other high-performing assets to offset the poor performance he may realize in the Orioles: a diversified portfolio is the first hallmark of a smart investor.

But that’s just asset value. What about annual take-home, the equivalent of a dividend on a stock? That requires estimating what it costs to operate a baseball franchise outside of player salaries. There are coaches and managers, travel expenses, two stadiums to maintain, and hundreds or thousands of people to pay. On the BSL Forums, it was tossed around that those costs might mount to $80M a year. That’s as good a number as any, since there is almost no way to determine those costs. So the Orioles on-field payroll is currently $89 and it costs $80M to maintain everything else, for a total annual cost of $169M. That leaves a projected operating profit of $20.75M in 2014, plus the $46.85M MASN creates in profit. That comes out to $67.6M in profit every year, going primarily to Angelos (remember, he’s not the only owner). On a $400M asset, Angelos is getting what amounts to a dividend payment of 16.9%. On a $514M asset, the dividend payment is 13.15% That’s enviable. Certainly that seems like a yield that I personally would forgo at least part of in order to reinvest in my team because I like winning and it provides me significant utility.

There is an important caveat here that comes from the uneven shares of MASN. The money allocation favors Angelos and the Orioles because the Nationals impeded on his territory and devalued his asset. If the Orioles share an exclusive territory with someone else, their viewership can be halved or worse. 87% of MASN funds being channeled to the Orioles makes up for that loss. That is, but for the Nationals, the value of the Orioles would likely have grown more, and the annual take-home of Orioles ownership would be less. The smart thing to do would be to invest those funds in another asset to augment the growth of the Orioles and hopefully reach a point in which the two assets together are worth as much as or more than the Orioles would be without the Nationals around.

Arguably, at most, there’s another $67.6M to spend on the Orioles. That pushes the annual on-field payroll to a possible $156.6M if every last penny is spent on player salaries. Ignoring the fact that this is also a poor investment strategy because the amount of money Angelos can get is capped by the relative size of the market and existing contracts, it’s still not a payroll that matches the Yankees.

What is important in all of this is to pair my previous article on Ownership Economics with this estimation of revenue and profit. As I explained before, the on-field product is always costing more than it’s earning; the team incurs a loss as soon as it signs a better-than-replacement-level player. Incurring that loss gives access to the flowing streams of cash nearly guaranteed by Major League Baseball, to the tune of $67.6M in take-home pay next year for Peter Angelos, assuming no additional contracts are awarded. It’s for this reason that I say (probably too often) that owning a baseball team is really an investment. It’s fun and all, but nobody would put out the money for teams that they currently do if League didn’t almost guarantee a positive ROI.

Opportunity Cost

The Orioles are not the only asset held by Peter Angelos or other partial owners. They each have other hobbies and interests and jobs, and like my bank account and assets, the Orioles help to preserve and grow the value of their wealth against inflation. While some minority owners might want to put more money into baseball because baseball is their hobby, the final say is with MASN and Orioles majority owner Peter Angelos. And he has better things to do with his money.

That’s a loaded statement. Really, he has other things he could do with his money that he has decided provide a greater return on his cost than the Orioles. Angelos is actually one of Baltimore’s most prolific philanthropists, providing money to worthy causes both publicly and anonymously. Without his generosity, the University of Baltimore wouldn’t have a shiny new law library near Penn Station, for instance. When including utility in the marginal benefit function, it’s clear that philanthropic donations provide some significant return to Peter Angelos (to speak nothing of the tax benefits that come from donations). Clearly, the return is enough that he continues to give millions annually in public donations rather than spend that same money on expensive free agents.

It’s an argument that Orioles fans have unfortunately heard time and again: money spent on the best available player now can’t be spent on a better available player next year. That opportunity cost argument carries more weight when the team or owners making it actually do spend on better available players later, but it’s still a true statement. It’s not as much of a death sentence as it is in the NFL thanks to the salary cap, but putting too much money into one player at any point in time can hamstring a team. It just takes one look to New York to see the Yankees hoping and praying and wishing (successfully!) for Rodriguez’s salary to come off the books in 2014 and save them $25M. While the Yankees appear to have an unlimited stream of cash, that sort of annual outlay is serious business, and it’s not surprising to see them want Rodriguez’s salary off the books based on the production they’re getting from him. The Orioles making that kind of payment to one player would accentuate the stars and scrubs model detailed by FanGraphs, only with more scrubs and fewer stars.

Simply put, Peter Angelos thinks that there are more productive things he can do with his money, and he does them.


1. Bloomberg estimates the Orioles’ 2013 revenue to be $210M but even the numbers they provide don’t add up to that figure. Without being able to make sense of it and having a reasoned alternative laid out in this article, I could not include it in good conscience.

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About the author


Patrick Dougherty   

Orioles Analyst

Patrick is the co-founder of Observational Studies, a blog focused on the analysis and economics of professional sports. The native of Carroll County graduated with a Bachelor’s degree in Economics from Loyola University Maryland. Patrick works at a regional economic development and marketing firm in Baltimore, and in his free time plays lacrosse.


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