Thursday, September 11, 2008

A $3000 Profit?

A meeting of the stockholders of the St. Louis Base Ball Association was held in one of the parlors of the Southern Hotels last night, the attendance being large. The reports of the various officers were read and adopted, after which officers for the ensuing year were elected, no change being made except in the directory, Messrs. Carr, Medart and Steigers dropping out. The report of the Treasurer showed that there was a balance in the treasury of over $3,000. Park improvements cost the association between $3,000 and $4,000, and quite a sum was paid in advance to secure players for next year's nine, otherwise there would have been a larger sum to report. Financially, the season was a success, but as members of the press were excluded from the meeting, for purposes best known to the association, and those most interested do not evince any desire to make the affairs of the club public, the figures cannot be given.
-The St. Louis Globe-Democrat, November 10, 1875

So while the Globe was unable to get all the Brown Stockings' financial numbers for 1875, they report that they had "over $3000" in the treasury at the end of the year. I may be wrong but I read that as a $3000 profit for the year. I'm not certain if, in context, that's good or bad but it doesn't seem too bad to me.


Richard Hershberger said...

I'm not an accountant, but I will go out on a limb and say that this absolutely cannot be interpreted as a $3000 profit. It is merely cash on hand. Based on this article alone, I don't even know if it has anything to do with the 1875 season. The club might have already paid dividends, if that season was profitable, or even dissolved and reorganized. Some of these corporations were legally set up for the purpose of fielding a team for one season, and the legalities would have to be repeated each year. I have no idea if this was the case here. Either way, without knowing how much had been invested, we don't know if that $3000 was from the previous season's gate income or selling stock or what.

For what it is worth, more detailed accountings of the Athletic Club were published in this era. As I recall, in 1875 they essentially broke even, including as income membership dues. They tried to convert to a stock company for 1876 and more or less botched it, and weren't able to raise as much cash for the upcoming season as they needed. I regard this as a symptom of the organization's decline, not the cause.

Jeff Kittel said...

For some reason I thought you were an accountant, Richard. Don't know why I thought that but regardless you're probably right about this. We simply don't have enough information to say what this $3ooo was. My thinking was that the information sounded like it came from the treasurer's end of year report and that any cash on hand at the end of the year could be seen as profit. The article states that they had already had outlays for improvements to the grounds and for acquisition of players. That had to be their major expenditures for the year and they still had cash left over.

I don't see any evidence that the club disbanded, reorganized, and sold more stock. If they had already paid dividends then that would make the $3000 figure more impressive.

The Brown Stockings, one would think, had a financially successful 1875 season. Their attendance (based on best available evidence) lead the NA by a good margin and was better than their attendance for 1876 an 1877 combined. If this club ever made money, it would have been in 1875.

I'm inclined to think that the $3000, if not profit, was certainly a sign of financial health going into the 1876 season.

Richard Hershberger said...

I am a paralegal, not an accountant. As for reorganizing the corporation, it could be pro forma and not news, but it could also be that the corporation was ongoing. Come to think of it, do we actually know that they were incorporated?

In any case, I don't think it is controversial that the Browns made a profit in 1875. Baseball was doing pretty well at that point. If a badly run organization like the Athletics could break even, the Browns making money is unsurprising.

The economic downturn really hit from 1876 to 1880. (This is obscured by the apparent proliferation of professional clubs in 1877, but on closer examination many, or even most, of these had been crypto-professional clubs for several years.) I am not surprised that the Browns had falling attendance, though I hadn't realized that it hit them that hard. They were quite respectable in 1876. I would have guessed their attendance to have been better than this.

On the other hand, it does make their disbanding following the 1877 season make more sense. The explanation of their having signed some of the subsequently banned players never quite made sense to me. But if they were financially on the margin anyway, I can see this being the final straw.

Jeff Kittel said...

I don't think we do know if they were legally incorporated. It seems that I remember stumbling across the word being used but I can't seem to find the source in my files.

Their attendence declined every year from 1875-1877, going from 78,000 to 36,000 to 29,000. They finished first in attendance in the NA in 75 and third in the NL in both 76 an 77 (based on best evidence). I have all the StL attendance data for the 19th century from 1875-1899 (I think I got it from Baseball Reference) but I haven't posted it because I can't get the formating right. I have graphs and charts and all that but I can't figure out how to make it work with Blogger's software. One of these days I'll figure it out.

I keep running the math through my head but I just don't have enough information to say how profitable the Brown Stockings could have been. Somewhere I think I have some information on salaries and expenses but I think the numbers were inflated to illustrate how tough it was to run a club (I think it mentioned something like $30,000 in expenses). It's probable that they brought in about $20,000 in ticket sales (I think that's a high end estimate) and Tobias states that they had stock subscribed for the amount of $6000 at the first meeting of the organization.

So let's say, for the sake of argument, that they brought in $26,000 in 1875 and had a profit of $3000. That would mean that they had around $23,000 in expenses. The article stated that they spent about four grand on park improvements. Give them a couple grand in misc. expenditures (advertising and what not). That leaves them with $17,000 for players. Thirteen guys on the roster but throw out Galvin and Fleet and we're really only talking about eleven players. That comes out to an average salary of $1545 per player.

Is it feasible that they could have put together the team they had (Pearce, Bradley, Pike, Cuthbert, etc) for that kind of money?

David Ball said...

You can't ever have enough people who aren't accountants talking about accounting problems. I'm not one, either, but more or less all the balance statements I see for ball clubs from this period start with cash on hand, which I presume is not really revenue but certainly is an asset. So I think it's true that the $3,000 is not profit, since the beginning balance has to be deducted, but then there are also the payments for salary advances already made, which ought really to be counted against the following year's salaries.

It does sound like a pretty good season, although that depends in part on how many of their team they had signed. And if you look at the history of the St. Louis club, it's easy to guess that they did pretty well in 1875 and by 1877 were in bad shape. The disbandment after the 1877 season is often attributed to the effects of the Louisville game-throwing scandal, primarily because one or two of the banned players were signed to come to St. Louis, but it's clear that was at most the last straw for a club in dire straits already.

I believe most balance statements for teams that were organized as clubs include dues as revenue, which means that the health of the organization as a profit-making business was not as good as the bottom line makes it appear. Even the Boston club, which was organized as a stock company, charged its share owners an initiation fee and annual dues, which you wouldn't normally expect to pay as a share holder.

On the other hand, in all teams, I would guess, club members or stock holders alike got free tickets to all the games. To the extent that the tickets were the primary attraction to membership, and I suspect that was the case for many individuals, it becomes more reasonable to regard dues as business revenue. Seen from this angle, the distinction between club member, stockholder and season ticket buyer becomes a lot fuzzier than the dichotomy between stock company and club would suggest.

Those attendance statistics probably come from an old edition of Total Baseball. I enjoy playing around with them, but I don't really trust them much at all. You don't know where they've been -- there's no indication of source, or of how attendance is calculated (actual or paid, etc.)
We need to take into account their admission price (probably fifty cents but maybe 25 for general admission), and income from exhibition games was still a very important item in the middle 1870's. You need to account for their payments to visiting clubs and their gate share on the road, which was probably a net loss in 1875 if they really drew so well at home.

Richard Hershberger said...

We can add to David's list of potential income sources.

If the club controlled the ballpark, they might sublet it to other clubs. The Athletics sublet one day a week to the Olympics, resulting in the odd phenomenon in 1876 of a major league team asking permission of an amateur club to use their own field to make up a game postponed by rain.

The gate income was merely for the right to enter the park. There was an additional fee for a seat in the grandstand. I believe that this was generally not split with the visiting club, and I would not assume it is included in reported gate earnings.

Concessions. I'm not sure how this was handled in this era. My guess is that vendors paid the hosting club for the right to peddle their wares, but don't quote me on that.

Jeff Kittel said...

To paraphrase the late, great Warren Zevon: Send lawyers, guns, and money...and accountants. This conversation has made me realize how much I've really neglected the 1875-1877 Brown Stockings. I have bits and pieces of research in my files but have never bothered to put it all together. My original plan was to do all the work on the Reds and then move on to the Brown Stockings and put together something on the 1875 season. But the best laid schemes of mice and men and all that...

I'm still looking for that piece in the Globe about club expenses in 1875 (and I'm berating myself for not having saved it the first time I stumbled upon it). But I did find something from the Chicago Tribune in 1877 talking about the Brown Stockings financial troubles. The writer states that the reasons for the collapse of the club were financial. According to the article, the club had sold $20,000 worth of stock and had collected $16,000 of that. Also, "some of the Directors raised money on their notes for the use of the Club and then had to pay the notes, amounting to close to $9,000." Also, they owed the players $3000 for the 1877 season. The writer adds this all up, saying that they essentially lost $28,000 over three years.

The reasons given by the writer for the losses included the location of the Grand Avenue Park, which he deemed too far from the city center (of course this wasn't a problem in 1875 or for the Empire and Union Clubs prior to that), and Sunday baseball, which he believed lost the club the support of "a certain class of people." He also mentions the question of dishonesty and specifically mentions the umpire that the club often used as being in with gamblers (while also stating that the players were all above board). Interestingly, he stated that the Louisville expulsions hurt the club just as they were trying to raise more money for the 1878 season.

As to 1875, I'm not certain what kind of arrangement the club had with August Solari as far as the Grand Avenue Grounds are concerned. But the club didn't own the park and so they had a major expense there rather than a source of revenue. Also, the Globe reported on November 7, 1875 that the club had already signed all their players for 1876 and the November 10th article states that that expense had already been accounted for.

And I can't believe I did it but I just googled the difference between profit and cash on hand (I really need to make friends with an accountant so they can explain this stuff to me). From what I just read, a company usually reports a larger profit than actual cash on hand (don't ask me why; something about stock on hand). Also, you're going to get different numbers depending on if you're using a balance sheet or an income statement (which makes sense). So it looks like what we have in the November 10th article is the club treasurer reporting on the balance sheet, showing $3,000 cash on hand. What we need to see now is the income statement.