Fisking Bob Raissman

In today’s New York Daily News, Bob Raissman takes Scott Boras to task for arguing that his client Alex Rodriguez will improve the value of the SportsNet New York, the regional sports television network partially owned by the New York Mets. I don’t think he succeeded. Time for a Fisking.

Just as it was with the Yankees, there is a prevailing opinion, presented as fact in the media, that it will benefit the Mets to overpay Alex Rodriguez because his presence would increase the value – and significantly enhance the ratings – of SportsNet New York.

First, economists don’t like statements justifying reasons to “overpay”. If A-Rod’s presence on the NY Mets does increase revenues to the network, then his value goes up along with his salary. The higher salary isn’t an overpayment, it reflects the additional value he provides to the team.

This is baloney. Actually, it’s a lie. The original premise suggesting Rodriguez could help produce a financial windfall for a team-owned TV network like SNY (Fred Wilpon owns a big chunk of the network with partners Time Warner and Comcast) was concocted by A-Rod’s agent, Scott Boras. It is one of the selling points Boras is using to help establish his client’s market value.

Here’s a news flash: No one baseball player, whether it be A-Rod or Nim-Rod, is a factor when it comes to valuing a network. And no one baseball player is ever going to be responsible for significantly impacting a network’s ratings.

A player who helps a team win induces fans to watch more games, yet this has no impact on the revenue stream of a television network? I’m not following.

The financial structure of SNY – or the Yankees Entertainment & Sports Network, for that matter – is not hard to figure out. Its very nature proves why Rodriguez, as a singular entity, would be just a blip on SNY’s bottom line.

SNY basically has two revenue streams. One is carriage fees (the amount a cable company pays SNY per month per subscriber), which usually account for about 80% of a regional sports network’s revenue. The other is advertising revenue.

OK, now we are getting somewhere.

The carriage fee contracts SNY has with cable operators are locked in for a few more years. Rodriguez coming to the Mets could not change that. It’s not like SNY suits could call up Cablevision and say: “Hey, A-Rod is coming to the Mets,. so we are going to increase your carriage fee from $1.85 to $2.50 per month per subscriber.”

SNY is a new network, and according to its website, it’s not on some area cable systems, especially outside of New York. And many of the carriers that do offer the channel are not picking up the HD feed. It seems to me that there are significant gains to be made in getting on cable networks. It might make him even more valuable to the Mets than other teams that have less opportunities for expanding their RSNs.

I also wonder how long the current contracts are locked in. My guess is that most of the carriage contracts are shorter than any deal that A-Rod will sign.

As for advertising revenue, well, SNY’s sales force is already out selling for the 2008 season. SNY’s ad rates for 2008 are based on the Mets’ 2007 ratings. So, even if the Mets signed Rodriguez, he would have little impact on advertising sales in the short run.

If there is a bump in revenue from adding Rodriguez, the Mets could capture this quickly. Even if they previously sold air time at lower rates, they can buy it back and sell it at a higher price. Executives do not naively assume that 2008 ratings will be identical to 2007. If A-Rod increases ratings, advertising rates will rise. Furthermore, this isn’t going to be a one-year contract. He’ll be around to increase advertising revenue for years to come.

Rodriguez alone would not be a one-man ratings gang in the long run, either. According to Sports Business Journal, Yankees ratings on YES were up 47% since A-Rod landed in the Bronx, from a 3.2 in 2003 (the year before he came to the Yankees) to a 4.7 last season.

Even Boras, under the influence of truth serum, would have to admit the Yankees’ consistent winning – along with the Bombers’ other marquee players – produced those ratings. Rodriguez was just one of the contributors.

A-Rod was not 100% responsible for the growth in Yankees ratings. But, he most certainly did contribute to it by helping the team win, and he ought to expect compensation for his exceptionally large contribution. While Boras is wrong to suggest his client is responsible for all of the gains, it is equally wrong to say he contributed nothing. How much he contributes is a negotiating point about which both the Mets and A-Rod will understate and overstate until a contract is signed.

When A-Rod went it alone, with maximum fanfare and hype, he did not move the ratings needle. When the eyes of Texas – and the entire baseball world – were upon him, he did not deliver as a TV “star.” In 2001, his first season with the Rangers, Texas’ ratings on Fox Sports Net Southwest were down 15%, from a 2.0 in 2000 to a 1.7 in 2001.

The teammates get the benefit when the team wins in New York but A-Rod gets the blame when his team loses in Texas. I don’t think anyone believes that A-Rod can win games all by himself. The question is, what would these teams’ ratings have been had A-Rod not been there? I suspect they would have been worse in Texas and New York. In both cases is marginal contribution was almost certainly positive.

This is why SNY boss Steve Raab likely did not go to either Fred or Jeff Wilpon and encourage them, for the good of the network, to make a strong play for Rodriguez. If anything, he probably – if asked – told them the acquisition of A-Rod would not significantly impact SNY.

Winning will. The Mets could have a team full of A-Rods, but if they are not consistent winners, viewers will bail and the TV ratings will tank. This is really not a revelation. Still, with Boras’ negotiating spin being treated as gospel by a segment of the media, it’s worth emphasizing what should be obvious to anyone who actually can spell the word “Mets.”

I don’t understand the disconnect here between A-Rod’s presence and winning. That is the main mechanism through which A-Rod will help any team he plays for. I’ve estimated that impact to be around $35 million per year. Rodriguez is the best offensive player in baseball. If he joins the team, it will win more. If the team wins more, its ratings will go up, which will generate more revenue for the team.

But what if the Mets had a team of A-Rods but didn’t win? This idea reduces itself to absurdity without comment.

5 Responses “Fisking Bob Raissman”

  1. Cliff says:

    JC,

    It is so interesting how Raissman undoes his own argument. With the new stadium, the extra sky boxes, the still new and expanding Regional TV network, he probably means as much or more to the Mets than anyone.

    I guess the perfect team for A=Rod financially would be one that can add his contract without paying luxury tax, but just barely. That would mean they are large enough market to have greater TV revenue impact with a good enough team that the post season probability would rise enough to add money there. Like maybe the Cubs, if they traded Aramis? Or maybe the Dodgers?

    By the way, is over the dish WGN going to still be carrying the Cubs and White Sox? My understanding is that MLB pushed Time Warner out of the Braves, but maybe that wasn’t so.

  2. Frank says:

    ARod not helping inprove the value of a network is just plain silly. Imagine what would happen to the Golf Channel if it got to carry more rounds of tournaments being played by Tiger Woods.

    Re Yankees ratings improving–I’d say they improved even though the Yankees were becoming less successful on the field (no WS win over that time). The gain in ratings may well understate the ARod effect.

  3. Marc Schneider says:

    Expecting a sports writer to discuss economics (or any other serious subject) intelligently is like expecting Bobby Cox to expound on string theory. I can’t even count how many times I have seen or heard sports media discuss legal issues (I’m a lawyer) without having the faintest idea of what they are talking about.

  4. J Beaumont says:

    Marc is correct–“fisking” sportswriters on discussions of economic is only too easy. (And, honestly, you could probably say the same of sportswriters writing on just about anything.)

    I think the point that interests me most about all of these A-Rod discussions is what appears to be above all an underlying prejudice distorting nearly every argument, a prejudice that ultimately “A-Rod just doesn’t have what it takes to win.” This is what leads a guy like this to make–as you point out–the absolutely RIDICULOUS “point” about having even a “team of A-Rods.” Up until this point in the article, the writer has at least attempted to adhere to some level of “logic” in explaining his understanding of the economics of the situation, but then he just go and lets the CRAZY fly. Also, you didn’t call it out, but isn’t it almost equally crazy that he suggests that “Boras’ negotiating spin [is] treated as gospel by a segment of the media”? Seriously, tell me who he’s talking about? Boras is one of the most hated men in sports, on all sides of the coin, and I would imagine that, if anything, his presence actually hurts A-Rod’s arguments in the eyes of the media and public. So anyway, whatever.

  5. Josh Hall says:

    While I agree with the whole “shooting ducks in a barrel” argument going on here in the comments, I commend J.C. for taking the time to fight these battles against economic illiteracy. Especially, since Raissman likes to trumpet the fact that he won a fellowship to enhance his understanding of business and economics.

    From his bio:

    “A native of New Rochelle, N.Y., he graduated from the University of Tennessee. Raissman was a recipient of Columbia University’s Walter Bagehot fellowship in business and economics.”

    From Columbia University (http://tinyurl.com/39gc5c)
    “The Knight-Bagehot Fellowship Program in Economics and Business Journalism offers qualified journalists the opportunity to enhance their understanding and knowledge of business, economics, and finance. Founded in 1975, the program was designed to meet the growing public interest in business and economics news and increasing demand for trained editors and reporters in the field. The Fellowship is named for the John S. and James L. Knight Foundation, which has established an endowment for the program, and Walter Bagehot, the 19th-century editor of The Economist.”