The Next Castellini Letter

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Welp, here we go again, Reds fans.

Our favorite club, pleading poverty and uncertainty, appears headed for another season of financial retrenchment. The upcoming offseason will seem all-too familiar. To pinch pennies, ownership will pare back payroll and force the front office to curb shop. The hope of improving the team by paying full market value for impact players will vanish into the ether once again.

After speaking with Reds President of Baseball Operations Nick Krall about the payroll budget, Reds beat writer Mark Sheldon reported yesterday “it’s clear” we’re looking at spending “close to the approximately $90 million” it was last year or that it could even “go down.”

Also writing yesterday, Cincinnati Enquirer beat writer Gordon Wittenmyer characterized the situation this way: Krall’s front office is bracing for “a winter of working at the margins to add help” and will need to “lean hard” on internal solutions.

Sigh. The Reds Opening Day roster seems destined to remain mangled, warped with out-of-position and unproven players. And, once again, it will be see-through thin.

Why? Because the Castellini family will adhere to an antiquated promise and unnecessary worst-case planning. Even though the simplest solution lingers right in front of them.

I imagine it’s simple, because it’s so straightforward. But then again, I’m not loaded.

It would require Bob Castellini to write another letter. But this one wouldn’t be addressed to Reds fans.

The First Letter

The first letter has become rather infamous.

Bob Castellini published it nearly two decades ago, timed to correspond with his assuming control of the Cincinnati Reds.

It was addressed to Cincinnati Reds Fans and began with a pledge to “bring championship baseball to Cincinnati.” That assurance was welcome and enough for most of us. Further on, Castellini promised “the right resources to win” and that ownership “will not rest until you are happy.”

Let’s check the win/loss ledger. To his credit, the Reds have won the NL Central twice since then, although the most recent time was five managers and more than ten seasons ago.

Since 2012, the club not only hasn’t finished first, it also hasn’t placed second. In 11 of the 19 seasons Bob Castellini has owned the Reds, the team has come in last place or next-to-last. And, as most Cincinnati Reds Fans know, since Castellini wrote that letter to us, the club hasn’t won a postseason series.

The Ownership Group

Since January 2006, Castellini has been the person with unilateral final authority to make decisions. Every pro sports league requires each team to designate such a person.

But Bob Castellini is not the sole owner of the Reds. The 19 members of the ownership group are listed on page four of the club’s annual media guide. Some are individuals, like Jeff Wyler and the Williams brothers. Others are entities such as the Heading for Home LLC. Those 19 members own at least one of the 27 ownership shares.

Each share represents slightly less than a 4% share of ownership of the club. So, when you read that Bob Castellini owns about 15% of the Reds, that means he controls four shares.

But not all the shares are voting shares. To help fund his purchase of the team, Castellini sold thirteen non-voting ownership shares for $6.5 million each. Bob Castellini still owns a majority of the voting shares and control of the club.

Even though they don’t have a vote, each share still represents roughly 4% of the overall equity of the club. The 2024 Reds were estimated to be worth between $1.25 billion and $1.51 billion.

If you use $1.38 billion, the midpoint of those two estimates, the annual rate of return for Reds owners has been about 9% since 2006, when the club was purchased for $270 million.

Payroll Spending

Based on the current reporting I cited above, it looks like Reds payroll will – at best – be stuck in the $90-$100 million range and may decline.

It’s easy to forget that for the three seasons of 2019-2021 the Reds payroll was almost at the league norm, averaging $137 million. The Reds had committed to spend around $150 million on payroll for the 2020 season before COVID hit.

If, as is being reported today, Nick Martinez accepts the Reds qualifying offer of $21.5 million, that would bring payroll for the current team to around $100 million. That means little if anything would left for an outfielder, backup catcher and bullpen help.

We’re looking at more of the same. Maybe exactly the same.

The Restrictive Breakeven Policy

Another promise Bob Castellini made in 2006 was to his wealthy pals and co-owners. He pledged he wouldn’t ask them for more money. Castellini has kept that particular promise and is proud of it.

Castellini’s no-cash-call policy has resulted in what he refers to as a “breakeven” approach to team payroll. Since asking the other owners for more money would violate his bright red line, Castellini adopts worst-case assumptions about revenues and budgets accordingly. In years of attendance decline and local broadcast rights uncertainty, that conservative approach has led to significant payroll cuts.

Meanwhile, outside the Reds small-market-mindset echo chamber, the sport has undergone tremendous change. Yet Castellini remains intransigent. To be clear, Castellini’s breakeven policy is a self-imposed straitjacket. Year after year, it imposes substantial limitations on the front office’s ability to build a winner. Do they expect different results? The word “quaint” doesn’t begin to describe the insanity of the arrangement. That path perpetuates what my friend Chad Dotson has called the sad state of affairs in Cincinnati.

A Modest Proposal

Earlier, I mentioned a simple solution and here it is.

Each Reds owner should kick in $2 million per share for each of the 2025 and 2026 seasons. That’s $4 million total spread out over two years. It would maintain the current equity structure.

More important, it would increase payroll spending by $54 million in each of those two seasons. So instead of spending $100 million on payroll this year, the Reds would spend $150 million.

Can the Reds owners afford to chip in? For the wealthiest, $2 million a season would be trivial. My guess is most would be glad or even eager to pay more. After all, each of those ownership shares that cost $6.5 million in 2006 is now worth about 10 times that, maybe significantly more (see my analysis from last year of Mrs. Nippert’s share sale).

The Second Letter

Dear Reds Owners,

I first want to thank you for your previous support of our great franchise, the Cincinnati Reds.

Our financial arrangement has lasted for 18 years. Our breakeven policy and my promise not to ask you for additional cash infusions, has held up a long time, likely longer than you expected. That’s especially noteworthy considering how fast this sport has changed. Not asking you for more money is probably the only thing that hasn’t changed.

But unforeseen developments – the COVID pandemic and the collapse of the regional sports network model – have created a context where our previous arrangement will not let us meet our pledge to Reds Fans to produce a winning team.

To rectify that, I’m asking each of you make a $2 million contribution per ownership share, once for the 2025 season, and another for the 2026 season. This infusion will go entirely to player payroll and allow us to bridge the uncertainty of the current financial environment.

You always have the option of selling your share. Given the annual rate of return they have enjoyed over the past two decades I doubt you will have trouble receiving a fair market value. Heck, I may even buy it from you.

I look forward to working with you as we move forward.

Sincerely,

Robert H. Castellini

Chief Executive Officer

Cincinnati Reds

Conclusion

To be sure, more payroll spending doesn’t guarantee success. It has to be spent wisely and that’s no gimme. But with wins comes revenue, now and in future years. Reds owners may see a quick return on the modest investment proposed here.

On the other hand, failing to boost payroll will continue the ongoing mediocrity Jonathan India warned about a few months ago. The current payroll stalemate will do nothing to reverse the downward spiral of lower attendance and losses on the field.

Photo: (John Minchillo / Associated Press)