What does the $14 million mean? (a deeper look at today's column)

For those who are still having trouble understanding the point of today's soccer column in the Herald News, and are unclear about the numbers in it, let me make it simple. The Red Bulls operating costs ran at a $14 million deficit. It means the team spent $14 million more than it made through the 2006 season. This figure has nothing to do with stadium costs at all, it is strictly the money the team spent on running the team.

So what does that number mean? Let's put it in perspective. According to sources, the MetroStars lost about $3 million in 2005, a number that doesn't look too flattering but is actually an improvement over previous years. It also pales in comparison to the MetroStars' absolute worst year financially. The club lost $10 million in 1999, $2 million of which was spent on the Gotham Cup (yes, the Gotham Cup). In short, the Red Bulls spent $4 million more than has ever been spent on a MetroStars team, and $11 million more than the previous season, yet drew terrible attendance and did nothing to improve their financial standing in the sponsorship sector.

Now, regarding corporate sponsorships. The sponsorships they have lost are not what is driving the $14 million figure. In fact, most sponsorships for 2006 were finalized at the end of the 2005 season. The impact of the loss of all of the team's previous sponsors, a figure that falls anywhere between $1.5 and $2 million, will be felt in the upcoming season. The impact of those losses goes beyond the actual revenue lost. And what sponsors have jumped ship exactly? Try every major one. McDonalds, Verizon, St. Barnabas Health Care. You name it, they are gone.

How did this happen? According to sources, Red Bull told sponsors that they would no longer be able to use team logos in advertising or even call themselves the official anything of the Red Bulls. These exlusions made the sponsorships far less valuable than ever before, but that didn't stop Red Bull from trying to charge the same prices, or more. I have been told that the club wants to focus on a small selection of large sponsors that would pay more money and have more visibility as sponsors. This strategy would work if the team could actually attract new sponsors. To date, the club hasn't landed any major sponsors and some sources believe that difficulty is due in part because of the club's treatment of its previous sponsors.

The loss of long-time sponsors such as McDonald's, Verizon and St. Barnabas goes beyond the dollar figures. We are also talking about exposure for the club. You will no longer see McDonald's ads or offers combined with Red Bulls tickets, you won't be seeing St. Barnabas Health Care being identified as the official health care provider of the Red Bulls. Less exposure means fewer people being reminded that the team exists.

As for the notion that Red Bull is biding its time until the opening of the stadium, you can argue that this is the team's approach this year. The fact that the team only used one of its two designated player slots and the fact that the team has cut back its marketing budget makes it seem that this is the approach. That being said, it certainly was not the approach in Red Bull's first year. Last year Red Bull thought it had all the marketing muscle necessary to fill the seats at Giants Stadium. Even after the harsh reality set in after the season opener that it wouldn't be that easy the club still found a way to spend lavish amounts of money without much to show for it.

So where did the $14 million go? $3.5 million was spent on the marketing and entertainment for the 2006 opening day show alone (which averaged out to almost $100 spent on every fan in attendance that day), leaving $10.5 million to be accounted for. If you take out the  $3 million lost the previous year that still leaves $7.5 million in losses that aren't accounted for. Bruce Arena didn't cost THAT much. It would be nice if RBNY opened up its books to help us better understand what happened with that money but that won't be happening. 

Then you have the television contract situation. It is downright embarrasing for a pro sports team to be less than a month from the start of its season without a TV deal. That's not spin, that's a reality. They could announce a deal tomorrow but does that make the situation any less absurd? Not really.

What is funny is that I actually gave Red Bull a little too much credit in the column. Someone was quick to remind me, and rightly so, that the stadium deal was already complete when Red Bull bought the MetroStars. Actually, Red Bull wouldn't have bought the team unless the stadium deal was finalized.

So why did I write the column? I thought the public might want to know that the new owners of its soccer team just lost more money than any MLS club before it and $11 million more than the previous year without there even being a real improvement in the product. More importantly, there is a growing belief in the area's business sector that the folks at RBNY don't have a clue about what they're doing. That cannot be good for the club's financial future, regardless of how much money Mr. Mateschitz has in the bank or how good a team Bruce Arena builds.

Comments

[Voros McCracken]

Ives, I'd be willing to wager money that most of that loss is a "depreciation of assets" loss. Sports teams in the U.S. can write off up to 50% of the purchase price of the club within five years of purchase (thanks to Bill Veeck).

It's a little complicated, but if the Red Bulls cost $40 million, you could explain $4 million in losses right there. It would also explain why those losses weren't there last year, since it had been more than five years since AEG bought the club.

Toss in a little interest on the debt accrued to purchase the club (another non-loss "loss") and it's explained pretty quickly.

As for expecting ownership to open their books, would you like a pony for Christmas, too? :)

[joshua]

Ives, great article. I found you on a MLS Notebook blog.
It's a shame thought that they have treated the New York market this way. There's so much potential. Why aren't every game sold out like the Cosmo's...I guess we'll have to wait for the DP.

[Josh]

As voros points out, just because the team lost $14 mil, there are ways to actually write off a lot of those losses in the sports world. Donald Sterling with the Clippers made this into an art form.
As for the tv deal, I can think of a few other teams that haven't solidified that either. I think thats a huge issue as well. Not to mention the lack of teams using the jersey sponsor revenue avenue to this point. We have RSL and...well Red Bulls I guess..wow

[ag nigrin]

Guess Shep Messing (if he is back doing color commentary for the Red Bulls games on MSG) won't be able to say "I'm loving it any longer."

[luis]

It is disappointing. Guess things have to fall apart before they get better.

[the metrologist]

"As for the tv deal, I can think of a few other teams that haven't solidified that either."

This is a great case of going backwards. Unlike the couple clubs who couldn't even get all their matches on TV, Metro had the best and most comprehensive local TV coverage in the league with MSG, and it's not like they (MSG) went and picked up the Yankees or Mets to fill up all their broadcast time more lucratively this summer. All signs point to RB lousing it up somehow.

[Tony M]

Not saying this is happening here, but sports teams have all sorts of ways to do funny accounting. For example, before that guy dismantled the Florida Marlins, he claimed to be losing millions. But what he did was broke off streams of income into separate companies. So the parking money went to one company, the television money went to another, etc. Then he was able to plead poverty about the ball club.

Red Bull can also be setting the stage for a 'success story' once they are in the new stadium. Make things look worse now so they can make them look better in a couple years.

The point is that we just don't know for sure what is going on despite the loss. But it certainly bears watching. It would be a disaster to see them decide to walk away from MLS.

[Jim]

Well done. Great follow up. Not that I like what I'm hearing. These were the details I was wondering after reading your first two articles.

[Alex]

What about the installation of natural grass into Giants Stadium? Is that included into the 14 mil? How about the money team spent on a new training center?

[Jay G.]

Ives, is the search for a permanent practice facility now back at square one? I still remember a quote from Arena soon after his hiring sounding confident that a deal would be in place within a couple months. It would be a shame if a deal in Kearny was completely off the table. While I realize a permanent practice facility doesn't guarantee results (see the Crew), I do think that it will be as beneficial to the team's performance as the new stadium... especially with the academy teams becoming more linked to an actual player pipeline to the pro Red Bulls roster.

[Area Code 212]

You look at it from the wrong prospective.

RB wants to sell cans of RB. They use their teams as advetising machines. So, the real question is, how many additional cans of RBs did they sell as a result of the $14 million spent on "advertising" expense.

[Robert Green]

area code--you are exactly right. RB doesn't give a rat's arse about last year or this year upcoming in terms of audience numbers. they get their advertising in targeted at a segment of the market they like (or they wouldn't have bought in in the first place) AND when the stadium opens they can decide if they also want a winning team.

single entity structure and billionaires are a weird and ultimately non-workable combo.