Nationals' Expected '05 Profit Is $20 Million
Windfall Is Likely To Raise Sale Price

By Thomas Heath
Washington Post Staff Writer
Tuesday, June 21, 2005

The Washington Nationals are on pace to earn a pre-tax profit of $20 million this season, reversing the fortunes of one of baseball's biggest economic underperformers during the past decade and increasing the potential value of the franchise as Major League Baseball attempts to sell it, according to Nationals officials and people involved in the sale.

The projected profits are fueled by robust attendance, strong sponsorship and television deals, and one of the lowest player payrolls in baseball. The Nationals have swung from a $10 million loss last year as the Montreal Expos into the top half of teams, ranked on the basis of revenue and profits, according to people who closely follow baseball economics.

"I think $20 million might be conservative," said Andrew Zimbalist, who teaches economics at Smith College and writes frequently about baseball. "If they go to the postseason, you can add another $5 million or $10 million. And when they get the new stadium, it will go up even more."

The team's financial success could play a major role in determining the Nationals' sale price. MLB, which bought the franchise for $120 million in 2002, has received eight bids, most of them believed to be between $300 million and $400 million. MLB officials say they hope to reach a decision on a new owner this summer and are currently interviewing prospective buyers. Most MLB teams sell for between two and three times their revenue, according to investment bankers, so the Nationals' projected revenue of approximately $129 million this year could push the sales price to $400 million or more.

"It could end up toward the high end of the range," said Scott Levine, a sports team valuation expert and director at Stout Risius Ross Inc., a Detroit-based financial advisory firm. Levine said he thinks the price also could go higher given what he called "the ego factor" among the bidding groups. "You are dealing with people worth billions of dollars," he said. "To some extent, this is an expensive toy."

The Nationals play in 44-year-old Robert F. Kennedy Memorial Stadium, which seats 45,250 and has none of the cash-generating amenities such as club seats and luxury suites modern sports stadiums and arenas feature. The District has pledged to build a $535 million stadium along the Anacostia River in return for baseball's decision to move the team here.

Some sports experts cautioned that the Nationals' financial success could be fleeting. "You went from a greatly depressed market in Montreal to one where pent-up demand was dramatic," said David Carter, who teaches sports business at the University of Southern California Marshall School of Business. "Where you will really be able to tell how financially successful this team will be is in the next several years, where we find if the revenue numbers are sustainable."

"They are enjoying every bit of their honeymoon, but everything looks great when you are in first place or within striking distance of first place," said Raul Fernandez, one of the partners in the MCI Center sports complex, which includes the arena and the Washington Wizards, Capitals and Mystics. "But building great franchises takes dedication, effort and smart moves over a longer period of time than half of a season."

Nationals President Tony Tavares, who declined to comment publicly on specific revenue numbers, said he had counted on the excitement over baseball's return to Washington after a 34-year absence when he calculated his projections on how the franchise would fare financially in its first season in the city. He might not have counted on the team being in first place in the National League East Division this late in the season, which could also spur attendance.

The Nationals, who this month surpassed the 1 million mark in attendance, are averaging 31,912 tickets sold per game, 13th highest in the league and one spot ahead of the Baltimore Orioles, who are selling 30,756 tickets per game, according to league statistics. That puts the Nationals on track to sell about 2.5 million tickets this year. With about 22,000 season tickets sold per game, at an average price of $24 per seat, plus an average walk-up crowd of more than 8,000 per game, Washington will generate nearly $60 million at the gate this year after local taxes.

In terms of gross revenue, the easiest way to compare the financial success of baseball teams, the Nationals' projected earnings of $129 million this year would rank among the top 20 teams in baseball. Last year, Forbes magazine estimated that the Orioles earned $148 million in revenue, 12th best in the league. By comparison, the New York Yankees earned $264 million to the lead the league and the Boston Red Sox were second at $201 million. Six teams at the bottom, including the Kansas City Royals, Florida Marlins and Minnesota Twins, hovered around $100 million in revenue, according to Forbes. The Expos' revenue last year was about $80 million after a revenue-sharing payment of about $40 million from the league.

In addition to money earned from ticket sales, the Nationals receive about $20 million in local television revenue from the Mid-Atlantic Sports Network, which is jointly owned by the Baltimore Orioles and MLB. They also will take in about $10 million from merchandise sales and concessions at RFK Stadium, according to several sources who have seen the team's projections. They spoke on condition of anonymity because teams' earnings are not generally made public. The Nationals also will get a boost from more than $10 million in advertising sponsorships from companies who wanted to capitalize on baseball's return to the District, the sources said.

"The timing was perfect," said Mitchell Modell, owner of Modell's Sporting Goods, which is a major Nationals sponsor at RFK. "When a club comes into the market for the first time, we knew it would be a great opportunity to hook up with the Nationals. We knew it was a young team with great potential and a great manager with Frank Robinson driving the whole process."

Part of the team's financial success is baseball's commitment to keeping costs low until it sells the club. The Nationals' $50 million payroll is one of the lowest in the league, and the team's scouting, player development and front-office costs of $55 million are well below the league average.

MLB has told Tavares that the financial turnaround could justify the Nationals -- who have been atop the NL East in the standings the last two weeks -- using some of the profits to buy better, more expensive players, for a playoff run. "Always in the past, when we needed to add players, baseball rightfully said that because of the financial losses we were experiencing, we could not add payroll," Tavares said. "This year, they are saying that because we are doing so well financially, we can strategically add to our payroll numbers."

Researcher Julie Tate contributed to this report.

© 2005 The Washington Post Company