Long-term CBT considerations on 2025 roster planning

More to the economics discussion...

New England has ~3M cable subscribers. NESN received ~$300M in subscription fees (cable, satellite, streaming, though the latter is paltry). Avg subscription fee is $5.14/mo (let's round up to $5.20 to reflect, though small, revenue derived from streaming at $30/mo. That would suggest NESN is distributed to approx 4.8M customers (cable, satellite and streaming). In reality, though, only 10-15% of cable/satellite customers watch the RSN channel provided in their package. That would mean only 500-700K people actually watch NESN (true users). So the more than 4M subscribers are subsidizing the true users. It's a fantastic model for content providers like the Sox. In some ways it's like taxes. Retired people have to contribute to the govt's cost of public education through their taxes, even though they don't really directly benefit from it (i.e., they don't have kids that their taxes are paying for).

NESN distributes to the Red Sox close to $100M in rights fees derived from the 4.8M people. As folks cut the cord and move to a-la-carte alternatives, that significantly reduces NESN's true user market. Cable subscribers have been declining at a rate of about 10% per year. At that rate, the 4.8M number will be 2.8M in 5 years. This will reduce NESN subscription fee revenue (assuming statis $5.14/mo rate with distribution providers) to $177M. But the cost of programming isn't really changing. Every media provider is struggling with the same issues, which is why they're all rushing to build their own streaming platforms.

The problem for channel operators is programming. Red Sox games provide, what, 4 hours of programming each game (incl pre and post game), multiplied by 150 games (gotta exclude nationally televised), gets us to 600 hours, or 7% of total programming time per year. Add another 300 hours for Bruins games, and live-action sports accounts for 10% of programming time. NESN has to pay for other programming to fill up the time; otherwise, distributors won't carry their channels and advertisers won't buy ad time. So, programming costs are somewhat fixed, which means as traditional subscriber revenue decreases...big problems.

To offset this loss, and to maintain margins on programming, NESN has to look elsewhere, like streaming. But of those 2M of cord cutters, only 200-300K are actually really interested in NESN to begin with, so recouping the lost $123M in revenue, NESN has to charge $60/mo to those true users, or they need to significantly reduce programming costs, which may further deplete true users due to degraded content. This is the fundamental problem with the traditional distribution model. Since BOS owns 80% of NESN, they're significantly exposed; whereas, NYY only owns 20% of YES (they've syndicated the risk). LAD is in the best position, since they negotiated a mind-blowing 25-year contract with TWC that guarantees massive annual sums, leaving TWC (now Spectrum) with all the downside. And they have 14 years of fixed revenue, giving them time and money to invest in model changes that bridge to a new economic paradigm in 2038.

Bottom line, owning a RSN is bad business, and the Sox are paying for going all in on that model.  And that's a big part of the economic reality that shapes the team's payroll calculus now and into the future. Not just BOS, but most other teams, too. So when we complain about why we don't spend like the top clubs, that handwringing ignores the economic realities. LAD played 3D chess, NYY defrayed their risk, and we played it wrong.

At least that's how I read it.  (But I'm also kind of an idiot, so...)

I didn't move the goal posts at all, I explained the reasoning behind everything. I wasn't trying to be unreasonable either, just looking for an honest response.

I guess the best I could get was "The Red Sox aren't the Mets, Dodgers, or Yankees." Which I guess is fair? But if there should be a 4th team behind all those other teams, it should be the Red Sox. Due to the cap situation, there's not a better time for the Sox to go for more revenues, push for the best free agent, to augment behind the new core coming. But I'll give you my honest response (you won't be surprised). The Sox won't put in a legitimate (500 million) offer, just like with the Yamamoto situation. They'll be "involved" but nothing more than that for all the reasons I listed the last two pages. Hey thanks for the response!

You are very much entitled to your opinion and I too wish the Sox would spend a little more money, hopefully they do this year but stating your opinion as fact doesn't make it so. 

My question is when did the Mets become a bigger market than the Red Sox? 

The only diff is the Mets are spending much more of their revenue. 

Mets 2023 revenue-393 M/Payroll of 342M (87% payroll spent on players). 

Red Sox 2023 revenue-500M/Payroll of 219M (43.8% spent). 

In terms of overall value? I'd say it's pretty easily 1. Nyy 2. Dodgers 3. Red Sox. 

Obviously I don't expect henry to spend at a 100% clip when taking into the front office etc but it would be more to get up close to 60%..which would mean another 75M added. 

Soto has several things going for him

1. He just turned 26

2.  He's a generational type bat with an already strong track record. Career 160 OPS+ puts him just slightly below Foxx and infront of guys like manny. Pretty elite company. 

3. He's a very productive hitter in oct 

4. He's not known for glove but it's not awful. Granted this is the least important point imo bc he's just such a good hitter. 

I think he's going to get 600+ 

If Kennedy is to be fully believed (he's paid by the owners of course) then the Red Sox ownership doesn't make any money off of the team. This may be true given the money committed to renovations, revenue sharing and dwindling team revenue. I'm sure if Henry has the option to take in an extra 40mil in revenue or win a World Series, he would take the latter, if simply due to the increase in team valuation which would come as a result (pretty sure this is what he really cares about).

For those interested in the Red Sox finances and why they don't spend more on payroll:
1. We do not know how much revenue the Red Sox make year-to-year as they are a privately held team so any numbers are estimates and may be off by a significant margin (either way). Only the Braves revenue is known due to their public holding.
2. A team is not being cheap simply by spending less than 50% of their revenue on player payroll. Players took-in between ~44% and ~48% (with benefits) of the total 'estimated' revenue of MLB in 2023, so it should be expected that any given team pay less than 50% of revenue on player salaries - teams that pay substantially more, like the Mets, are typically doing so in order to increase future revenue streams/valuations (Dodgers did this a decade ago and it worked out quite well for them); given the Red Sox strong fanbase, there likely isn't a substantial increase to be gained in this manner. For comparison, The NFL pays players about 48.8% (salary cap) of revenue and NBA pays somewhere between 49% and 51%.
3. Any estimates of local TV revenue likely don't account for costs. Fenway Sports Group owns 80% of NESN, which means they have costs associated with operating NESN which go against this revenue; most MLB teams are given a check for their local TV rights from a 3rd party and don't accrue these costs.
4. The Red Sox are a revenue sharing team. Each year the Red Sox share 48% of their local revenue with all of MLB, so their local revenues aren't as profitable as they seem.
5. There are many more costs associated with operating MLB teams. We all focus on player income because that's the part that interests fans, but operating expenses have huge costs. As the Red Sox renovate Fenway, costs are greatly increased - if they spend 300mil on the ballpark, they are likely accruing that over a given period of time (ex: 30mil/yr for 10 years) which greatly increase the costs. Clubs whose parks, or renovations, are fully paid for by the city don't have to incur these costs.
6. Red Sox revenue is down since 2018. Estimated revenue in 2018 for the Red Sox was 513m (per Statista) while in 2023 it was 500m; down 2.5%. During this time frame MLB total revenue has increased from 9.9b to 11.34b; up 15%. So the Red Sox seem to be bringing in less revenue while teams in general are taking in more revenue; this doesn't account for inflation over this period. This could lead fans to feeling their team is being cheap and leaving them behind.

If Kennedy is to be fully believed (he's paid by the owners of course) then the Red Sox ownership doesn't make any money off of the team. This may be true given the money committed to renovations, revenue sharing and dwindling team revenue. I'm sure if Henry has the option to take in an extra 40mil in revenue or win a World Series, he would take the latter, if simply due to the increase in team valuation which would come as a result (pretty sure this is what he really cares about).

This doesn't mean the Red Sox are/aren't being cheap (like everyone else I hope they spend more this off-season), that's a matter of opinion, but I hope this contributes to any discussions being on the same page.

This leaves out the appreciating value of the team itself. Sports team revenue is like the dividends paid from a stock and is only a fraction of the gains accrued by the investment. Historically, baseball teams have been increasing in value by something in the vicinity of 11%/yr (that is, on top of whatever year-to-year profit they make).

100% agree.  

As a fan, we like the idea of a spare-no-expense approach to roster building.  But owners live in the real world, where the laws of mathematics are inescapable, so they have to scale their expenses to their revenues.  There really aren’t that many owners like Cohen, who seem willing to take huge losses to chase a championship (perhaps over the short-run, but not perpetually).  And even that approach backfired for him.  

John Henry’s success was built upon his investment management business, characterized as a disciplined and unemotional approach to portfolio decision making.  He continues to operate this way, only his investment portfolio now is comprised of sports and entertainment assets.  If FSG feels other assets in their portfolio are likely to achieve a higher return on investment than an incremental dollar invested in the Red Sox, they’ll behave rationally and reallocate capital.  No one with his pedigree would NOT invest in something that was sure to make him money, unless there was an alternative that would make him more.  It stands to reason, then, that recent reallocation of capital to PGA, and away from Liverpool FC and Red Sox, is a rational business decision, even if we don’t like it.

I find it nonsensical when people accuse owners of being greedy in this context, as if it’s a bad thing.  I imagine they all want to be richer, and if investing in the baseball team achieves that end, that greed works in our favor as fans. Owners don’t operate these teams as a public good, but a lot of comments on this board demand the FO behaves just that way.  That’s not to mean that ownership can’t be criticized for their deployment of that capital or their lack of management effectiveness to find more revenue streams—these criticisms can be reasonable. But no team operates with perfect efficiency, and the teams with significantly more revenue tend to have more room for error, and can absorb poor investments more easily.

Hate to break it to you, but Henry loves fans like you too. Irrational love or irrational hate, all pays. Really doubt he cares.

Forbes estimates the 2023-2024 Celtics had $192mil in player expenses against an operating revenue of 457mil with a 121mil profit - Red Sox aren't coming anywhere close to that type of profit. The Celtics owners have made a consistent profit (estimated at ~50mil/yr) off the team while Red Sox owners claim not to be making a profit (aside from valuation increases). Celtics are also now valued at 6bil (1.5bil more than Red Sox) and the principal owner (H. Irving Grousbeck; not son Wyc) has decided to sell high before the roster gets really expensive.

Blue Jays payroll was above the Red Sox in 2023 and 2024 - Red Sox had higher payrolls every year before that dating back to when Henry purchased the team. I don't know enough about the Blue Jays to explain why their payroll has suddenly skyrocketed, but the post you quoted explains why the Red Sox payroll has not increased. We all hope that changes.

As much as fans feel that increased payroll leads to more winning, the Blue Jays, who finished last in the division, are proof that's not always the case. Henry has consistently increased payroll when the team has won (likely due to increased revenues). So he's looking at it the exact opposite way you're looking at it - it's a vicious circle only solved by smart front office and scouting decisions. With the strong farm system and money to spend this offseason, let's hope success comes - increased payroll is likely to follow if that happens.