The following is the first article by David Simmons on The Biz of Baseball -- Maury Brown
Baseball fans love statistics. From Bill James to RBI to xWHIP, we love to find new ways to quantify how and why what meets the eye is true. Much is the same for MLB front-office executives, but the most important number to them isn’t wins/losses or even the operating profit. When New York Yankees Chief Operating Officer Lonn Trost walks into the office, the first number he needs to know is his FSE count.
FSE stands for Full Season Equivalents. It’s the number of seats guaranteed to be sold every night at a ballpark before groups and individuals buy tickets. A team with a large FSE count, which is also known as its season-ticket base, is a financially sound one. To count attendance in one night, team executives count FSEs, group tickets and individual tickets. The FSE number will vary slightly (1-3 percent) due to how the team packages and leverages its 81 home games.
In order to compute the FSE number, take the number of full season tickets, add that to the total number of tickets sold in mini-plans or packages and divide by 81. Years ago, many teams sold just season tickets. Mini-plans or packages have become a much larger part of the business thanks to the growth of the secondary market and a sour economy in many MLB cities. Many teams sell anywhere between 12 and 15 different packages over the course of a season, so while the exercise above seems simple at first look, one needs to multiply out the number of all plans sold times the number of games in each plan before inputting the second number into the formula.
For the 20-25 prospective buyers of the Houston Astros, the first place they'll look to gauge the team's financial landscape will be the FSE count. Season-ticket revenue is crucial, as it goes directly into teams' pockets in the six months of the offseason and is invested before the large player payroll checks get doled out in mid-April. It’s the largest revenue producer for any MLB team, accounting for 20-33 percent of a team’s overall revenue. Additionally, if the team performs poorly in the latter stages off the season, it creates a buffer against empty ballparks in Back-to-School September. This underscores why season tickets and FSE counts are so important.
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The FSE count is also the biggest determinant of all ancillary team income. MLB teams earn local income across nine categories: broadcast rights, radio rights, sponsorship, merchandise, licensing, premium tickets, tickets, parking and concessions. The first six items are locked in over long-term contracts or vary nominally year-to-year and are, to some extent, fixed revenue while the others are variable revenue.
A slight increase or decrease in FSE count can create a swing of millions of dollars toward a team's books due to the gain or loss in parking and concession revenues. Every team knows the value of each fan in the building, known as "percaps," based on their in-house attendance (teams report paid attendance) or the dollars of revenue each fan brings in additional to the price on their ticket. So when a fan doesn't buy a season ticket, the team loses the value of 81 games of that ticket plus anywhere from $7-25 in ancillary revenue every night.
For some perspective on why the Yankees have such an economic advantage, it was reported that their FSE count was 37,000 in 2009 before they won the World Series. Based on this number, the Yankees out-sell more than 20 teams in annual sales before they sell one group or individual ticket to the general public. Factor that in along with the highest average ticket price in the game, and one doesn’t need to wonder why some small-market owners lash out at the revenue disparity.
Looking ahead to the upcoming season, one can project a decrease in FSEs in Los Angeles, as the Dodgers didn’t reach the playoffs for the first time in three years and lost Manny Ramirez on the field and Joe Torre in the dugout. Their neighbors to the south, the Angels, can also expect a decrease. Their FSE count received a boost in 2010 by hosting the All-Star Game, but the team missed the postseason and followed that by being a spectator in free agency. On the flip-side, expect to see an increase in Arizona, which hosts the All-Star Game in 2011.
This time of year, the phones must be buzzing at the ticket offices in San Francisco, after the Giants' surprising World Series win; in Cincinnati, where the Reds ended their 15-year playoff drought with a division crown in 2010; and in Texas, where the Rangers are defending American League champions and added Adrian Beltre in the offseason. Need an example of one player swaying a franchise's financial fortune? In the days following Kansas City's trade of Zach Greinke to Milwaukee, the Brewers added 1,500 FSEs to their count.
So the next time you wonder why your team might be wavering when deciding whether to sign a free agent, think of it in terms of FSEs. It’ll help you better understand the business decision behind the baseball decision.
David Simmons is a graduate of the University of Central Florida who worked in the front office of the Los Angeles Dodgers over 4 seasons. He has a decade of ticketing experience and currently resides in Baltimore. You can follow David on Twitter @davidesimmons
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