Financial Analysis (5) - Extreme Budget Changes
Nov 8, 2015 21:18:24 GMT -5
Chicago(N)GMMike, David_ExposGM, and 1 more like this
Post by Tim_GiantsGM on Nov 8, 2015 21:18:24 GMT -5
Let's investigate extreme budget changes.
I considered posting the results for the teams with budget increases and decreases greater than $20m, but doing so would not yield much useful information. Too much data.
Only two of the five teams awarded extreme increases were playoff teams. Some teams with budget reductions turned profits. Others lost money. Total budgets are small, medium, and large.
Using a couple of examples, let's focus on performance over time.
1. Minnesota Twins - a team located in an average market and owned by a lenient, hands-off, generous owner who emphasizes a balanced approach. This team had the distinction of being the only team to be hit twice with the maximum, observed budget decrease: $42m.
My take:
What you can't see in the history is that from '25-'29 MIN had five winning seasons, two playoff appearances, and a WS championship. In '29 they won 94 games. Financial performance was mixed. In only two of the seasons they earned a significant profit, In one year they essentially broke even, and in two seasons they lost money. Then they hit a brick wall.
In '30 they recorded 30 fewer wins AND lost nearly $16m. The owner responded to the dramatic decrease in wins and financial futility - a significant downward trend - by slamming the GM with a $42m budget reduction.
For the next five seasons the team won between 80 and 84 games before falling to 74. Despite losing money in three of the five seasons and missing the playoffs each season, the lenient, generous owner rewarded the GM with modest budget increases.
In '36 it seems that the owner's patience reached its limit when wins dropped again to 63 and the team lost $39m. Can you blame him for cutting the budget by $42m a second time?
During the next three seasons the team became even worse before beginning to improve. The team lost another $29m and $36m before turning a profit, but it seems that the owner took pity on the team and the GM and approved a $2m increase in each year.
2. New York Yankees - a team located in a huge market and owned by a demanding, normally-involved economizer who emphasizes a balanced approach. In terms of budget changes, this team was one one the most volatile. They were rewarded with one of the most substantial budget increases, $22m, while also suffering three significant reductions: $30m, $42m, and $22m.
My take:
Entering the '32 season NYY had reached the playoffs 6 straight seasons and won two WS championships. Win totals in the most recent five seasons ranged from 93 to 110. In each of those seasons they had earned a season profit anywhere from $23m to $60m. Life was good. Then their win total dropped by 29 games AND they lost $37m. The owner responded to the negative performance and trend by reducing the budget by $30m.
After another bad year NYY returned to the playoffs. From '33 to '36 the team earned profits between $40m and $63m. And after winning 101 games in '36 the owner rewarded the team with a $22m budget increase it seems due to the positive trend in wins, playoff appearances, and profitability.
The '37 season is an interesting one in that the team won 95 games and made the playoffs, but lost $5m. Apparently the owner did not like the result, as evidenced by the budget reduction of $16m.
Results for '38 and '39 seem to emphasize the importance of trend. In '38 the win total dropped by 15, missed the playoffs, yet generated a profit. Despite the profit, the owner seemed to have responded to a 2-year downward trend in wins coupled with mixed financial results by reducing the budget by $42m after the '39 season. Then, after another poor year in '39 in terms of wins and profitability, the owner slammed the team with a second consecutive, dramatic reduction, this time $22m.
Observations
Based on observation of results of the remainder of the teams, following is a summary.
Regarding extreme budget reductions, it seems that teams winning roughly 20-30 games fewer than the prior season AND that lose money run the risk of severe budget cuts. The risk is increased if the team has a negative trend in terms of wins and has a history of net losses.
On Deck
I shared my take on the results of two franchises. They involved examples of extreme budget changes. I also would like to share examples that explore additional conditions. For example, in terms of budget changes what might a GM of a team with mediocre results in terms of wins (i.e., a consistently below .500 team) but a team that generates profits each year expect?
If you have a combination you would like me to pursue, post it here. I will identify the closest match. With 10 years of history for each of 30 teams, I should be able to find an acceptably close match.
Next Steps
Earlier today I realized that I should have collected data for ending cash balance and available budget dollars on opening day.
I suspect that ending cash balance influences the budget for the new year. if negative (i.e., a debt), it seems the risk of a significant budget reduction would work into the mix.
In the test league I have observed many teams with negative available budget amounts. Given that the vast majority of teams earn significant profits ($20m+ average), I suspect that available balance does not influence budget changes.
So, I need to expand the database and capture history that includes these two data elements.
Sim, sim, sim.
I considered posting the results for the teams with budget increases and decreases greater than $20m, but doing so would not yield much useful information. Too much data.
Only two of the five teams awarded extreme increases were playoff teams. Some teams with budget reductions turned profits. Others lost money. Total budgets are small, medium, and large.
Using a couple of examples, let's focus on performance over time.
1. Minnesota Twins - a team located in an average market and owned by a lenient, hands-off, generous owner who emphasizes a balanced approach. This team had the distinction of being the only team to be hit twice with the maximum, observed budget decrease: $42m.
My take:
What you can't see in the history is that from '25-'29 MIN had five winning seasons, two playoff appearances, and a WS championship. In '29 they won 94 games. Financial performance was mixed. In only two of the seasons they earned a significant profit, In one year they essentially broke even, and in two seasons they lost money. Then they hit a brick wall.
In '30 they recorded 30 fewer wins AND lost nearly $16m. The owner responded to the dramatic decrease in wins and financial futility - a significant downward trend - by slamming the GM with a $42m budget reduction.
For the next five seasons the team won between 80 and 84 games before falling to 74. Despite losing money in three of the five seasons and missing the playoffs each season, the lenient, generous owner rewarded the GM with modest budget increases.
In '36 it seems that the owner's patience reached its limit when wins dropped again to 63 and the team lost $39m. Can you blame him for cutting the budget by $42m a second time?
During the next three seasons the team became even worse before beginning to improve. The team lost another $29m and $36m before turning a profit, but it seems that the owner took pity on the team and the GM and approved a $2m increase in each year.
2. New York Yankees - a team located in a huge market and owned by a demanding, normally-involved economizer who emphasizes a balanced approach. In terms of budget changes, this team was one one the most volatile. They were rewarded with one of the most substantial budget increases, $22m, while also suffering three significant reductions: $30m, $42m, and $22m.
My take:
Entering the '32 season NYY had reached the playoffs 6 straight seasons and won two WS championships. Win totals in the most recent five seasons ranged from 93 to 110. In each of those seasons they had earned a season profit anywhere from $23m to $60m. Life was good. Then their win total dropped by 29 games AND they lost $37m. The owner responded to the negative performance and trend by reducing the budget by $30m.
After another bad year NYY returned to the playoffs. From '33 to '36 the team earned profits between $40m and $63m. And after winning 101 games in '36 the owner rewarded the team with a $22m budget increase it seems due to the positive trend in wins, playoff appearances, and profitability.
The '37 season is an interesting one in that the team won 95 games and made the playoffs, but lost $5m. Apparently the owner did not like the result, as evidenced by the budget reduction of $16m.
Results for '38 and '39 seem to emphasize the importance of trend. In '38 the win total dropped by 15, missed the playoffs, yet generated a profit. Despite the profit, the owner seemed to have responded to a 2-year downward trend in wins coupled with mixed financial results by reducing the budget by $42m after the '39 season. Then, after another poor year in '39 in terms of wins and profitability, the owner slammed the team with a second consecutive, dramatic reduction, this time $22m.
Observations
Based on observation of results of the remainder of the teams, following is a summary.
Regarding extreme budget reductions, it seems that teams winning roughly 20-30 games fewer than the prior season AND that lose money run the risk of severe budget cuts. The risk is increased if the team has a negative trend in terms of wins and has a history of net losses.
On Deck
I shared my take on the results of two franchises. They involved examples of extreme budget changes. I also would like to share examples that explore additional conditions. For example, in terms of budget changes what might a GM of a team with mediocre results in terms of wins (i.e., a consistently below .500 team) but a team that generates profits each year expect?
If you have a combination you would like me to pursue, post it here. I will identify the closest match. With 10 years of history for each of 30 teams, I should be able to find an acceptably close match.
Next Steps
Earlier today I realized that I should have collected data for ending cash balance and available budget dollars on opening day.
I suspect that ending cash balance influences the budget for the new year. if negative (i.e., a debt), it seems the risk of a significant budget reduction would work into the mix.
In the test league I have observed many teams with negative available budget amounts. Given that the vast majority of teams earn significant profits ($20m+ average), I suspect that available balance does not influence budget changes.
So, I need to expand the database and capture history that includes these two data elements.
Sim, sim, sim.