On Saturday, the White Sox scored a big victory for the rebuilding effort when they landed 19-year old Cuban phenom Luis Robert. This was the type of move that everyone should be happy about, not only because Robert is incredibly talented and will likely be a top-15 global prospect upon his arrival in the minor leagues, but because White Sox ownership allowed Rick Hahn to give out a signing bonus to an amateur player that was one of the largest in MLB history. This is the type of investment that Jerry Reinsdorf and the rest of the ownership group has never approved before, even for domestic players in years past where the draft limits were not the hard caps they are today.
The White Sox have historically favored putting all of their available resources into veteran players to increasingly poor results over the last few years. In the age of analytics, teams are getting smarter and smarter about the value of young players, in turn allowing fewer and fewer talented players to reach free agency. When talented players did enter the free agent market, their markets were inflated due to a lack of supply in the marketplace, and with recent CBAs cutting off avenues of leveraging financial advantages elsewhere. The White Sox were unwilling to pay this premium for talent and the return on their free agent investments suffered dearly. Their old strategy of under-investing in amateur talent while simultaneously avoiding the highest priced free agents was becoming more and more archaic as evidenced by eight (and soon to be nine) seasons without a playoff berth, and four-going-on-five consecutive seasons without a winning record. My hope is that the Robert signing signifies a paradigm shift in how the White Sox operate as a franchise and how they value talent, because they desperately needed to adapt in order to keep up with the changing landscape of the league.
The White Sox will also need to continue to adapt if they want to keep up with the Joneses, so to speak. And that starts with ownership continuing to invest in the team. Yes, the Robert signing was a huge undertaking to the tune of nearly $50 million, but it should be noted that White Sox ownership had plenty of money to burn, and this move in no way jeopardized the organization’s profitability. When Forbes released their Major League Baseball valuations for 2017, they estimated that not only did the White Sox produce an operating income* of $41.9 million in 2016, but they also saw the value of the franchise balloon from $1.05 billion to $1.35 billion, an equity increase of $300 million. These numbers would certainly not be indicative of an organization that is strapped for cash.
It is always very important to caveat that these Forbes financial numbers are just estimates and shouldn’t be taken as gospel, but the folks at Forbes are all professionals and they do put a great deal of time and effort into their calculations. As a result, their work has become the best publicly available resource for financial information on teams. MLB organizations are all privately owned, which means they are not required to publish a year-end financial report, and all MLB organizations take full advantage of this. This has become a strategic tool that these franchises utilize to keep individuals like myself busy arguing about whether or not teams have made money, perhaps instead of asking the more important question of whether or not these organizations should make money.
Looking specifically at the White Sox, by almost any measure of on-field success, they have been a failure for nearly a decade, and yet, according to Forbes, they’ve posted a cumulative total of $223.4 million in operating income during that time period and seen the equity of the franchise increase in value from $443 million in 2008 to $1.35 billion today. It is the rare business that consistently produces a well below average product to its consumers and not only survives for a decade but thrives.
Built into the Forbes’ numbers are estimates for team board members’ (owners) salaries which are treated as expenses and reduce the operating profit, and more importantly, even without the operating profits of years past, ownership would have still realized more than $1 billion in equity gains in the franchise under Reinsdorf’s tenure. The current White Sox ownership group bought the team for $19 million in 1981 and now have a more than $1.3 billion investment. MLB teams are gigantic equity enterprises, so even if they were to run at a loss from an operating income standpoint, it’s virtually impossible for them to lose money in a given year.This is why the move to sign Robert was so important to the White Sox. The team had plenty of money. The team had a lack of prospect depth, especially in the outfield. It was a no-brainer.
But the investments from ownership cannot stop with Robert. There still is an opportunity for the White Sox to turn things around and seriously invest in the team, even though they’ve chosen the rebuilding path. They should be willing to eat 100 percent of the money left on veterans like David Robertson, Todd Frazier, and Melky Cabrera in trades in order to improve upon their potential prospect return. They made money last year, and this year’s team payroll is lower than the previous years, so they should capitalize and treat their player expenses as sunk costs and use that to make their trade chips look more enticing. They should also be actively seeking out salary dumps from other cash-strapped teams, similar to the strategy the Braves employed, in order to add a marginal prospect or two. The White Sox need to be exhausting every opportunity they have to use financial flexibility as a tool to improve the team. It’s the biggest asset they currently have as an organization outside of Jose Quintana.
Purely going off of past experience, it’s far more likely they’re looking to dump the salaries of their own players like they did years back with Alex Rios and Jake Peavy. So although things appear to be changing in many respects, until they actually undertake a financial investment that pushes the organization out of its comfortable profit zone, there is reason to be concerned for the White Sox’ future. The Luis Robert signing was a refreshing change of pace, and a good start to a brighter tomorrow for the team. But the White Sox cannot stop there. It’s time for the White Sox back up rhetoric such as “White Sox will spend on free agents when time is right, Hahn says” with resources and actions. They’ve failed to capitalize on this in the recent past and the results have been disastrous, it’s time for a new, more competitive approach.
*Operating income represents a party’s earnings before interest is accrued and taxes are paid.
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