KC Royals: How having new owner could affect organization
By Cody Rickman
With the news breaking that KC Royals owner David Glass is selling the team to John Sherman, how will having a new owner affect the Royals organization?
Most of the reports had suggested negotiations are under way and the purchase price for the Kansas City Royals would be just north of $1 billion and that ended up being the case. This is massive news in the MLB since teams don’t go up for sale very often. The last MLB team to be sold was the Miami Marlins in 2017 for $1.2 billion.
The Marlins sale is significantly different from the sale of the Royals. The price tag may be the same in the end, but the Marlins organization was dramatically changed by the sale.
The Marlins had just built a new stadium in 2012 with $155 million of the $515 million cost being the responsibility of the Marlins organization. The Marlins major league roster was filled with talent as well as expensive contracts. New ownership made the decision to commit to small market identity and completely rebuild the organization for long-term success.
KC #Royals owner David Glass has agreed to a deal for $1 billion with KC businessman John Sherman, a Cleveland #Indians minority owner, which will become official in November when ratified by the #MLB owners.
— Bob Nightengale (@BNightengale) August 30, 2019
After a complete fire sale of the major league roster, which saw the trades of two MVPs (Giancarlo Stanton and Christian Yelich), the Marlins are looking like a promising team to be competitive 2021 and beyond with their prospects. The most recent fire sale may have come at great cost to the fanbase and it is difficult to tell if the fanbase will come back after experiencing three fire sales in the team’s existence.
The sale of the Royals couldn’t come at a more opportune time in terms of the current state of the organization.
- The Royals appear to have a new local television contract valued at approximately $50 million per year (current deal at approximately $25 million).
- Most of the high salary players currently on the MLB roster will have their contracts expiring in 2020 and 2021.
- The fanbase is loyal and has attended games at an average of +18,000/game in consecutive losing seasons in 2018 and 2019.
- The baseball operations are currently in good standing with the farm system producing a young, cheap, and controllable core of position players currently on the roster and a potential wave of pitching prospects expecting to arrive in Kansas City in 2020 or 2021.
What does this all mean for the Royals moving forward with a new owner? What will the new owner John Sherman be like compared to previous owner David Glass?
According to Forbes, the Royals bring in an estimated revenue of $244 million annually. Current estimate operational costs are around $5.3 million and the roster costs are near $118 million. The new local television deal will bring in an additional $25 million per year and the expiring contracts of Ian Kennedy, Alex Gordon, Salvador Pérez, and Danny Duffy will remove $39.5 million after 2020 (Kennedy and Gordon) and an additional $29.7 million after 2021.
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Let’s assume the sale of the team is $1.2 billion. With the addition of the $25 million per year from the TV deal and a reduction of team salary costs of $39.5 million in 2021 and $29.7 million in 2022, the new owner will start to immediately reap the benefits of estimate revenue of $269 million between 2020 – 2022 with estimate $145.7 million profit margin in 2020, $185.2 million in 2021, and $214.9 million in 2022. Profit margin after three years of ownership would be approximately $545.8 million.
John Sherman is a partial owner of the Cleveland Indians and would have to divest his shares of the Indians prior to finalizing the purchase of Royals. Making the assumption that Sherman owns a 15% share of the Indians who are valued at an estimate of $1.2 billion, selling his shares would be valued at $180 million. Following the sale of his shares of the Indians and the subsequent revenues from the Royals purchase in 2020, 2021, and 2022 Sherman will have returned 60% his initial investment of $1.2 billion to purchase the Royals.
The personality of John Sherman will start to shine in the 2022 offseason. For the first two seasons following the purchase (2020 and 2021), I expect Sherman to have the following personality traits in terms of owning and running the Royals.
Sherman is exceptional at delegating operational responsibilities and has shown a willingness to learn the ins and outs of baseball operations. He will be lenient and understanding in regards to having patience for the Royals performance. He will be an economizing spender by cutting salary from Royals roster and committing smart/responsible free agent signings to fill a developing roster.
Sherman’s involvement with the organization will be to familiarize himself with the front office staff and organization top to bottom. Sherman will likely bring in his own people for upper management and business operations. I expect a full evaluation of the front office and management staff with few changes being made. Sherman’s expectations would be for the organization to continue to progress and develop players already in the system.
Starting in 2022, Sherman will begin to be more charitable towards fiscal spending on the Royals roster. More spending in roster retention (re-signing players long-term like Adalberto Mondesi) and free agency. I don’t think the Royals will overextend themselves on any big name free agents, but the Royals will much more aggressive under Sherman than they were in the past under Glass. Sherman will continue to invest in player development and scouting, as the Royals have proved to be most successful in building from within.
Overall having a new owner will affect the KC Royals for the good in the long-term. More money will be spent on player development, scouting, player retention, free agency, front office, and managerial staffing.
The sale transition period won’t be noticeable with the current state of the roster and progression of prospects in the farm system. The differences between Glass and Sherman will begin to be observable in 2022 and beyond.
dark. Next. Five Royals Who Need to Finish 2019 Strong
Sherman previously tried to purchase the Royals and lives in Kansas City. There is a minor chance he will be a meddling owner but overall, I get the impression he will delegate the right personnel to handle the baseball decisions in an effort to get the Royals into a cycle of long-term sustained success in a small market.