June 30, 2009 / 6:46 AM / 8 years ago

Costs squeeze profits at Japan's baseball teams

TOKYO (Reuters) - Japanese baseball pulls in the fans, produces the players and rakes in revenue many American clubs would be proud of -- but in terms of profit they still languish in the little league.

Despite earning similar revenues to Major League Baseball teams in North America, few of Japan’s 12 big professional outfits say they are profitable, prompting even their once-indulgent owners to cut costs in tough times.

Add in the credit crunch and sliding TV revenues and teams are tightening their purse strings in ever more dramatic and visible ways, including the imminent departure of high-profile American manager Bobby Valentine from the Chiba Lotte Marines.

“However hard Japanese baseball teams work to cut costs and boost revenue, most of them can’t become profitable,” said Munehiko Harada, a sports management professor at Waseda University. “They have done so much but they are still struggling. We might be seeing the limit of their potential now.”

The contrast with U.S. teams, almost all of which are reported to be profitable according to a Forbes magazine list, comes down to huge stadium fees faced by Japan’s teams.

DIFFICULT TIMES

U.S. baseball teams typically own stadiums or get subsidized access to public facilities but most Japanese teams hire venues at commercial rates, often from private investors.

The Fukuoka Softbank Hawks pay 4.8 billion yen ($49 million) a year, a quarter of their annual revenue, to the Government of Singapore Investment Corp (GIC), owner of the team’s home stadium, said Itaru Kobayashi, a team director.

That is about seven times the sum the New York Yankees paid New York City for its former home, the Yankee Stadium, records from the New York City Comptroller’s Office show.

The Hawks, now owned by a mobile phone company, Softbank Corp, have never made a profit since the team was founded in 1938 despite having the fourth-highest audience.

“I always ask myself why it costs so much to operate a baseball team in Japan,” Kobayashi laments.

Japanese teams survive because their losses are treated as tax-deductible marketing costs for their corporate owners, which include meat packer Nippon Meat Packers Inc, leasing company Orix Corp and drink maker Yakult Honsha.

But the sustainability of that model may be in doubt as team owners such as Orix, with a huge exposure to a troubled property market, face difficult times.

FIGHTING BACK

The departure of just one team could threaten a 60-year-old system of two leagues with just six teams each, as it did when high costs drove out Kintetsu Corp’s Buffaloes.

Only the arrival of a new team, internet shopping mall operator Rakuten’s Eagles, saved the day back then.

Some teams are fighting back. The six Pacific League teams created in 2007 a company, Pacific League Marketing, to woo sponsors and generate cash from a mobile phone website.

The exit of Kintetsu jolted other teams, said George Morimoto, a director at Pacific League Marketing.

“Other teams started feeling that they could be another team that would be abandoned by their owner,” Morimoto said.

Pacific League teams have tended to earn less than those in the rival league, which wins high TV ratings for the Yomiuri Giants, the one team with a national following.

Pacific League teams have also taken practical decisions, such as moving to smaller cities in pursuit of more loyal fans.

The Nippon-Ham Fighters moved to the northern city of Sapporo from Tokyo while the Eagles’ home is Sendai, also north of Tokyo.

The Eagles also won a cheap stadium deal, paying the local authority only around $500,000 in rent for an old stadium, although it has spent $88 million to restore it.

CONSTANT BATTLE

The Eagles control sales of food, drinks and advertising in the ballpark, a sharp contrast to other teams paying commercial rents and watching such revenues go to the stadium owner.

It’s a constant battle to make money, even for the Giants, the Central League champions for the past two years.

Its profits have fallen for three years in a row to just 1.3 billion yen ($13.5 million) in the year to March 2008 despite revenues of 24 billion yen -- on a par with MLB’s fourth largest revenue earner the Los Angeles Dodgers, according to Forbes.

Faced with sliding sales of lucrative season tickets in tough times, the Giants have innovated with day games to attract families and increase attendance.

But with 90 percent of its 46,000-seat Tokyo Dome already filled each game and stadium owner Tokyo Dome Corp running concession stalls, it has few options to boost revenue.

“There may not be much room left for us to boost profits with the Tokyo Dome’s capacity being limited,” said team president Tsunekazu Momoi.

($1=95.86 Yen)

Editing by Rodney Joyce and Ossian Shine

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