Column: Royals’ struggle has seeped into their finances



September 4, 2018 - 10:38 AM

KANSAS CITY, Mo. — The worst part of what will almost certainly be the worst season in Royals history isn’t the losses — hey, they’ll be picking first or second in the draft next year.
The worst part of what will almost certainly be the worst season in Royals history isn’t losing a star catcher and power-hitting prospect to separate luggage related injuries — hey, if you can’t laugh a little, what’s the point?
No, the worst part of what will almost certainly be the worst season in Royals history is that the impact will last — the team is about to take a bath financially.
Obviously, this is not a call for sympathy. David Glass is a billionaire. He’ll be OK. But internal projections have the Royals losing more money this season than any other in at least a decade. Hard numbers aren’t available, and at this point they’d only be estimates, but it’s worth remembering that general manager Dayton Moore said the team lost $65 million in 2016 and 2017.
The Royals are an institution here, they are entertainment, but Glass has always run the franchise like a business.
So club officials expect financial losses now will have consequences later, even as a major boost expected when a new TV contract begins in the 2020 season. Internally, the hope is that pulling back now — coupled with more TV money after next season — will put the team in more solid financial standing to support the next group of prospects once they get to the big leagues.
In the short-term, the front office aims to have payroll under $90 million next year, and another major cut for 2020.
Revenue is tumbling with attendance. The Royals have not drawn even 20,000 fans since the Cardinals left town, and their average of 21,007 (entering the weekend) is down nearly 25 percent from last year.
Even in a year of league-wide attendance problems, that’s the second biggest drop by percentage in baseball.
The Royals have generally counted on each fan being worth about $35 in revenue, meaning the club can expect a drop of more than $19 million from last year — when it also lost money.
If you prefer Forbes’ numbers over Moore’s claim, the Royals lost $17 million in 2017. The additional loss would be offset by a payroll drop between $25 million and $30 million, but club officials say additional expenses and circumstance mean a bigger loss.
Using Forbes’ numbers, the franchise value has ballooned by nearly $1 billion since Glass purchased the team for Glass’ $96 million in 2000. Players and agents often grumble about Glass and others citing financial constraints in that context, particularly with revenue sharing, but it’s also true that the Royals have never been among the clubs formally cited by the union for not spending enough.
Glass has often said his goal is to break even over time operationally — leaving the rising franchise value out of it. That can be frustrating for fans, and makes the front office’s job objectively more difficult.
So, as much as anything else, this will control how the team is run over the next few years.
Moore has consistently and publicly cited lowering payroll as a priority. The club went from around $130 million in 2017 to an opening day payroll of around $103 million in 2018.
Trades of Kelvin Herrera, Mike Moustakas, and Lucas Duda shaved some money off overall expenditures. Particularly in Herrera’s case, money was a major factor in the timing and return.
In baseball terms, the Royals are in a place where roster turnover will be more tweak than overhaul.
The club is committed to giving Adalberto Mondesi, Jorge Bonifacio, Brett Phillips, Ryan O’Hearn, Jorge Soler and others continued regular plate appearances. A top priority for next season will be developing a more focused timeline for Brady Singer, Jackson Kowar, Nick Pratto, Emmanuel Rivera, M.J. Melendez, Khalil Lee and other prospects.
But any moves will come with major financial considerations. If not totally out of the market, the club is thought to be a major longshot for any new multi-year contract — particularly through free agency, but also through trade.
Some of the payroll slashing will come naturally. Jason Hammel is making $9 million this year, and will be a free agent after the Royals give him a $2 million buyout. Alcides Escobar is making a $2.5 million base salary and is unlikely to return.
Much of those lowered costs will be canceled out by escalating salaries elsewhere. Sal Perez is due a $2.5 million raise next year, and another $3 million raise in 2020. Danny Duffy will have a $1.25 million raise. The club will probably pick up Wily Peralta’s option, which would mean a $1.5 million raise.
The Royals’ payroll remains bloated by the two biggest free-agent contracts in franchise history, both of which have become albatrosses. Alex Gordon is making $20 million this year and next, and will be due a $4 million buyout for 2020. Ian Kennedy is making $16 million this year, and due $33 million over the next two years.
The expensive players will be replaced by younger and cheaper options, not dissimilar to what happened when payroll dropped from $76 million in 2010 to $40 million in 2011 as Moustakas, Eric Hosmer, Lorenzo Cain and others came to the big leagues.
These are the factors that will control and determine the Royals’ immediate future.
Done right, the team will cut fat from the payroll to reset with younger players still on their career arc’s rise. The new TV contract will give the front office more flexibility — if some of the loopholes in amateur signings have been closed, the Royals’ financial disadvantage won’t be as great.
Done wrong, this is the beginning of another rotten cycle of failure — payroll drops as players become more expensive, attendance drops as the team becomes less competitive, and there’s less money to fix more problems.
The front office that managed this balance before is largely intact. Privately, they are confident they can do it again.
But there’s a reason people called the first rise a miracle. The next one figures to be similarly difficult.

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