Archive for Business
Coming off a season during which he hit .239 with 11 homers and a .359 slugging percentage, Francoeur is asking the Braves for $3.95 million. The club has offered the 25-year-old right fielder a salary of $2.8 million.
Is Francoeur worth $4 million to the Braves? The quick answer is yes, absolutely, and it’s not even close. Despite all the flaws in his game and his failure to meet misplaced expectations, he’s still a major-league baseball player. Even during his awful 2008 season, his marginal revenue product (MRP) contribution for his play in the field was approximately $12 million. This may seem like a lot, but all major-league quality baseball players are valuable assets. During the first six years of service, the Collective Bargaining Agreement (CBA) limits player compensation, and that is why we can easily say that many players are worth more than they are being paid.
However, that is not really the relevant question here. We want to know what he can expect to get. After completing three years of service—I’m simplifying here, because the exact criteria are complicated—players are eligible for arbitration. Each team and player submits salary figures that represent options to an arbitration panel. After a brief hearing, the panel decides which side’s figure is most appropriate and the player is awarded that salary: there is no compromise. The no-compromise requirement is designed to encourage the parties to negotiate a solution, or risk the other party’s preferred outcome.
The criteria for determining a player’s worth are set out in the CBA.
(a) The criteria will be the quality of the Player’s contribution to his Club during the past season (including but not limited to his overall performance, special qualities of leadership and public appeal), the length and consistency of his career contribution, the record of the Player’s past compensation, comparative baseball salaries (see paragraph (13) below for confidential salary data), the existence of any physical or mental defects on the part of the Player, and the recent performance record of the Club including but not limited to its League standing and attendance as an indication of public acceptance (subject to the exclusion stated in subparagraph (b)(i) below). Any evidence may be submitted which is relevant to the above criteria, and the arbitration panel shall assign such weight to the evidence as shall appear appropriate under the circumstances. The arbitration panel shall, except for a Player with five or more years of Major League service, give particular attention, for comparative salary purposes, to the contracts of Players with Major League service not exceeding one annual service group above the Player’s annual service group. This shall not limit the ability of a Player or his representative, because of special accomplishment, to argue the equal relevance of salaries of Players without regard to service, and the arbitration panel shall give whatever weight to such argument as is deemed appropriate.
(b) Evidence of the following shall not be admissible:
(i) The financial position of the Player and the Club;
(ii) Press comments, testimonials or similar material bearing on the performance of either the Player or the Club, except that recognized annual Player awards for playing excellence shall not be excluded;
(iii) Offers made by either Player or Club prior to arbitration;
(iv) The cost to the parties of their representatives, attorneys,
(v) Salaries in other sports or occupations.
The exact rules seem to place great emphasis on the most recent season; however, the “length and consistency” of career provision does open the door for mention of past performance. I don’t know the extent to which arbitrators are allowed to consider the quality of play from past seasons. Still, it seems that Francoeur’s bargaining position will suffer from having his worst season just prior to arbitration.
On his side is his 2007 Gold Glove Award. It is certainly a significant achievement that is eligible for consideration. However, once you bring up defense, his most-recent season is brought to light. And according Plus/Minus, 2008 was a poor defensive season for Francoeur: he made 17 fewer plays than the average right fielder, ranking him 30th in the league.
How about his “public appeal”? Jeff Francoeur has been the team’s most popular players for the past few seasons. Only recently have some fans turned on him; but even with that, he still remains popular. He’s a local boy who excelled when he was first called up, and fans still remember this. But how do you measure his popularity without resorting to press comments and testimonials, which are barred? Attendance likely isn’t going to help, as the team’s attendance fell by nearly eight percent last season. I’m not sure if marketing reports like a Q-Score are admissible, but if they are I think this information is going to have to carry the day if Francoeur is going to win his case.
I have done some analysis of player salaries during arbitration years, but I haven’t gone that in depth. In my book, I report that position players tend to receive 77 percent less than their estimated marginal revenue product during their fourth through sixth years of service (estimated). Based on his previous three-year average of his MRP ($13.78 million), that puts his expected salary at $3.17 million. Based on his past season alone, his expected salary is $2.84 million. The Braves appear to have the better offer on the table.
The estimates I present are rough, but I believe they are biased in Francoeur’s favor. I’m estimating his worth on the median difference in player salaries from their MRPs during four-to-six years of service. Francoeur is only entering his first arbitration hearing and therefore ought to be on the low side of this average.
John Manasso writes on Hank Aaron’s role in Sports Properties Acquisitions Corp (SPAC), which is one of the final groups bidding to purchase the Chicago Cubs. The story was originally written for Atlanta Business Chronicle, but Sporting News Today also picked up the story, which you can read here for free as long as you register.
It’s hard to imagine the Braves without Hank Aaron, but it is a very real possibility. At the end of the story, I comment on Aaron’s potential role in the deal, as well as discuss why the Cubs and Wrigley Field are being sold separately.
Last week, I got a call from the AJC’s Tim Tucker about a story he was doing on the impact of the economy and gas prices on sports attendance. As I was on the road and away from my desk, I pondered a few possibilities but could not give a definitive answer.
J.C. Bradbury, an associate professor of sports economics at Kennesaw State University, said he recently read a couple of articles suggesting that sports is recession-resistant. He’s skeptical of that view. But he noted that consumer behavior can be tricky to forecast, even at current gas prices.
“Certainly, you would see that some of the people who [typically] come to Braves games from afar might not come,” Bradbury said. “But gas prices might make other people say, ‘Instead of going to the beach or to Disney World, let’s go to a Braves game.’ “
Tim’s question caused me to think about the topic a little more. I was particularly interested in the impact if fuel costs given all of the media coverage of gas prices over Memorial Day weekend. According to the Federal Highway Administration, driving is down 4.3 percent from last year. Does this mean fewer people are driving to the ballpark? As I sat in the Turner Field stands yesterday, I thought it might be useful to look at how team’s Memorial Day game attendance has changed over the past few years.
Over the past five years, gas prices have risen steadily according to the various news stories that I found on the web. (I couldn’t find an official list over time, so the numbers below are rough dollar-per-gallon estimates from news stories about Memorial Day travel costs.)
2008 $3.98 2007 $3.23 2006 $2.93 2005 $2.11 2004 $2.02
Basically, gas prices have doubled since Memorial Day 2004. Now, we know that MLB attendance has been increasing in general over the past few years, despite the rise in gas prices. Of course, this is because many other factors influence fan decisions to attend games. Obviously, baseball attendance isn’t highly correlated with gas prices. However, on the margin, individuals might be less willing to spend a few extra dollars to travel to see a baseball game. Or, if gas prices reduce long trips, locals may be more willing to stay in town and go to a baseball game instead of traveling to more distant destinations.
Here is a list of average Memorial Day game attendance from the past five seasons.
Year Mean Games 2004 29,736 12 2005 33,946 10 2006 31,534 14 2007 29,761 12 2008 34,012 11
Mean attendance at Memorial Day games was actually the highest it has been in recent history in 2008. But, an obvious distorting factor is the impact of the markets which are hosting the games. So, here is the average attendance at Memorial Day games from teams that hosted Memorial Day games in 2008. This way, factors unique to these markets are taken into account.
Year Mean Games Home Teams 2004 33,950 4 ATL, CHN, PHI, SEA 2005 32,623 2 SEA, WAS 2006 35,893 7 ATL, CHN, CLE, LAA, NYN, PHI, TOR 2007 33,905 5 CHN, LAA, PHI, TBA, TOR 2008 33,921 10 ATL, CHN, CLE, LAA, NYN, PHI, SEA, TBA, TOR, WAS
In 2008, mean attendance was up over the previous year, but was less than in 2006. I excluded Baltimore, because it did not host a Memorial Day game during the previous four seasons. When Baltimore is included the 2008 mean rises to 34,012.
This analysis is complicated by the fact that we are looking at a small number of games. To see the impact of individual games, it’s easiest to view the data as a graph.
It looks like some teams did better and some teams did worse. Certainly, factors other than gas prices are important (i.e., starting pitchers, team quality, weather), but it is just too difficult to control for all the other factors given the limited number of observations. Still, I think it is interesting that 2008 attendance was similar to what it was in the previous year. Given that baseball’s attendance has been rising, maybe this is a sign that gas prices are keeping baseball from growing further. But ultimately, I think gas prices are not having much of an impact on baseball game attendance.
Monte Burke has a nice article on the financial direction of the Braves in Forbes. In particular, he takes a look at how the new owner is managing the team.
However, by last year the organization that once called itself “America’s Team” seemed to be running on fumes. Time Warner (nyse: TWX – news – people ) had acquired it as part of Turner Broadcasting in 1996 and after 2003 had dramatically reduced player payroll. In 2007 the Braves missed the playoffs for the second season in a row, and their 31-year-old television contract with superstation TBS–which provided a nationwide fan base–ran out. Home game attendance, at 2.7 million, was below the National League average.
The biggest blow appeared to come in May last year, when Major League Baseball owners approved Time Warner’s sale of the team to Liberty Media (nasdaq: LCAPA – news – people ), a Colorado cable and telecom conglomerate run by noted dealmaker John Malone….
Some of the Braves’ players worried out loud that Malone would care more about the bottom line than about winning. Fans were plain angry. “It was frustrating because it went against MLB’s stated policies of local and personal ownership,” says Mac A. Thomason, who writes a Braves fan blog.
They were in for a surprise: Malone, 66, whose Liberty already owned a small piece of the team through a stake in Time Warner, is starting to look like just what the Braves needed. He’s moving ahead with an ambitious and expensive turnaround plan that the team launched five years ago, and he’s even pumped in some Liberty money to push it along.
The turnaround effort has already begun to bear fruit. This year, with a mix of young fielders like Mark Teixeira and Brian McCann and veteran pitchers like Tim Hudson and John Smoltz, the Braves are contenders again. Attendance still lags behind that of the glory days of the 1990s, but it was up from 2.5 million last season and could reach 3 million this year, after vast stadium renovations and improvements in parking, concessions and guest services.
Even without making the postseason last year, the Braves brought in $28.1 million in operating income. FORBES values the team at $497 million, seventh among baseball’s 30 teams.
Malone has given his baseball people all the money they need, upping the club payroll from $87 million to $102 million, the tenth highest in the majors. “I think the management, if anything, is reasonably more empowered now,” says Liberty’s chief executive, Gregory Maffei. “We’ve backed them and given them freedom to move.” At first there was fear Malone might flip the team for a quick profit, but he says he can see owning it for decades, even though he’s contractually obliged to hold on only until 2011. “Most of the assets we’re in we’ve owned for a long time,” he says, citing his involvement in Turner Broadcasting–since 1986–and QVC. “I like to think the Braves are an appreciating asset.”
I’ve never understood fan dislike of corporate owners. Because financial success is largely a product of winning, I think the incentives are aligned to promote success. Time Warner owned the Braves for the majority of the Braves playoff streak. Yes, Time Warner put the breaks on spending in 2003, and that was probably the right move considering that profits were down to zero and fans were losing interest in the team.
I’m more fearful of a fan-owner than a corporate-owner. George Steinbrenner and Ted Turner were loved when they were winning, but for most of my childhood these men were hated for ruining their teams. Remember this?
I don’t know much about the actual development of Puerto Rican prospects, but assuming the story told is correct, Brian Joura provides a nice example of how weakening of property rights hurts investment.
In 1990, Puerto Rico, a U.S. territory, was added to the MLB amateur draft, meaning that players from the island were subject to the same signing rules and terms of draft eligibility as players in the U.S. and Canada. While players from countries outside the MLB amateur draft could be signed as soon as they reached the age of 16, those subject to the MLB amateur draft had to wait until they finished high school.
In the 17 years since being included in the draft, only four players from Puerto Rico have approached the level of success achieved by the players from the 1982-88 period. Only Carlos Beltran, Jorge Posada, Javy Vazquez and Jose Vidro have emerged from what previously was a booming market of star players from Puerto Rico.
What happened here?
In a word – money. When teams had to compete to sign the best talent in an open marketplace, they had to spend money, both in signing bonuses and in promoting their brand. Teams would spend money on facilities in these countries, hoping players would develop allegiances to an organization. It’s no coincidence that three of the 13 players listed above (Gonzalez, Rodriguez and Sierra) signed with the Texas Rangers. Teams added locally-based scouts to their payroll to help identify talented players at an early age so they could get the jump on other teams.
But with the addition of Puerto Rico to the annual amateur draft, a team no longer had incentive to invest money in developing relationships in Puerto Rico because a player they spent money on could be drafted by any of the other teams in MLB. So money that might have gone to Puerto Rico now went elsewhere. Like Venezuela, which has sent Bobby Abreu, Edgardo Alfonzo, Miguel Cabrera, Carlos Guillen, Ramon Hernandez, Richard Hidalgo, Victor Martinez, Melvin Mora, Magglio Ordonez and Johan Santana, among others, to the majors since 1990. The Astros have been very active in Venezuela, signing Abreu, Guillen, Hidalgo and Santana from the above list.
Now that there is less benefit to finding and signing a hidden gem in Puerto Rico, teams have little reason to stay. Also, informal local “agents” who scout and develop prospects in return for a cut of future player earnings have less incentive to find at groom pre-16 talent. The draft reduced signing bonuses, and agents may have then decided spend time doing things other than finding baseball talent.
CPA Jorge Costales has a new blog detailing the Florida Marlins Finances. He has put a lot of work into this project, and I think his posts are quite revealing.
Here is a brief description of his motivation and approach.
As someone with a financial background, I watch in slight amazement as the Marlins management suggests, typically without specifics [understandably we now understand], that they are not very profitable. Further, they seem rather dismissive in suggesting that their finances involve concepts beyond the grasp of their fans.
Normally, when someone points out that their finances are private and they won’t provide you access to them, that would cut-off most inquiries fairly quickly. But in the case of MLB, their player contracts, attendance and network television deals are public knowledge. In other words, their main revenues and expenses are in the public domain, just not specifically allocated. Forbes, one of the most prestigious business publications in the US, has provided a yearly franchise valuation of every MLB team since 1998. In the course of that valuation, Forbes’ analysis estimates such key financial information as total revenues, player expenses and operating income or loss.
One of my favorite writers, GK Chesterton, notes that, “even a bad shot is dignified when they accept a duel.” The challenge in this case was not issued personally, I don’t know anyone directly with the Florida Marlins or MLB. But this blog, my KHR [Keep Hanley Ramirez] Project, is my response to the suggestion that understanding the Marlins’ finances is a difficult concept. It’s not, as long as we’re willing to think about it in a rational way.
Few people are high on the Florida Marlins’s business practices. Since the club’s inception in 1993, it has had three owners who have employed a build-‘em-up then tear-‘em-down strategy. In addition, the team has consistently threatened to move from the Miami area to another locality unless taxpayers help build a new stadium for the team. Current owner Jeffrey Loria has received much of the criticism for the club’s stingy reputation. And though he can expect a new stadium in 2011, he is keeping payroll low for now.
A new stadium means the notoriously frugal Marlins plan to increase their payroll, but not until the team moves into the new park.
The Marlins’ payroll for 2008 is projected to be around $20 million, the lowest in the league and $10 million lower than last season.
“It’s a function of revenues, and we were not really able to derive any revenues out of this facility,” Loria said of the team’s current home, Dolphin Stadium. “As we get closer to the (new) stadium, those things will change. We need to be in that facility.”
Count Maury Brown as one of those who is disgusted with the Marlins’s current operation.
On the player payroll at $20 million, that would be $5 million less than what the club will receive in revenue-sharing, which is projected to be $25 million. Apparently, a “function of the revenues” is to make a mockery of the revenue-sharing system, and do a good bit of profit making.
Forbes estimated that the Marlins posted $43.3 million in operating income last year. That operating income included earnings before interest, taxes, depreciation and amortization. How did the Marlins rate in terms of operating income – a measure of profit – compared to their other 29 counterparts? They were first with the Dodgers in second at $25.5 million, a difference of 41 percent.
Cut your margins enough (low player payroll) and regardless of whether you have embarrassingly low attendance by rolling out a team of made up with what can best be described as replacement level players, take in a healthy level of revenue-sharing, and what you have is a prime example of Jeffrey Loria and David Sampson living on corporate welfare.
As much as I dislike Loria’s tactics for obtaining public funding, I think he is getting too much blame. After all, though his behavior seems juvenile, it worked: he’s getting a $500 million stadium for a third of the price. Why spend your own money when you can spend someone else’s? It’s the voters and the politicians who deserve the blame for giving in. But this is beside the point.
While the Marlins are not spending great sums of money on their players, they have actually put decent teams on the field. Since Loria became the owner in 2002, despite spending 45% less than the league-average payroll, the Marlins have been a .500 team with a World Series title. Teams with similar average wins over this time include Seattle (81 wins, +20% payroll), Toronto (80 wins, -15% payroll), New York Mets (80 wins, +42% payroll), and Cleveland (82 wins, -27% payroll). In terms of payroll frugality, only Tampa Bay had a lower payroll (-65%) while averaging a league low of 64 wins. Pittsburgh (70 wins, -42% payroll) , Montreal/Washington (76 wins, -36% payroll), Milwaukee (72 wins, -36% payroll), and Kansas City (65 wins, -35% payroll) had similarly-constrained budgets, yet were much less successful than the Marlins. Spending less certainly helps profitability, but you have to give Loria credit for not putting replacement players on the field.
Team % +/- Lg. Mean Mean Wins TBD -60% 64 FLA -45% 81 PIT -42% 70 WSN -36% 76 MIL -36% 72 KCR -35% 65 CLE -27% 82 SDP -25% 79 COL -24% 75 MIN -23% 89 CIN -23% 75 OAK -22% 91 TOR -15% 80 DET -11% 71 BAL -4% 72 ARI -1% 79 CHW 3% 85 TEX 5% 78 HOU 5% 85 PHI 12% 86 STL 17% 91 SFG 17% 85 CHC 20% 79 SEA 20% 81 ANA 24% 91 ATL 26% 92 LAD 33% 85 NYM 42% 80 BOS 64% 94 NYY 139% 99
While some of this might be luck, I think good management explains most of the difference (see Chapter 7 of my book). Some of that money not going to player payroll is going to baseball operations devoted to scouting young talent that is cheap. And because this practice yields substantial savings over signing expensive free agents, then this is a good use of funds. At least the Marlins deserve credit for putting a better team on the field than most teams with similar budgets.
If the Marlins can build a good core with cheap players, why doesn’t its front office fill out its roster with quality free agents in order to make a stronger bid for the post-season? Another point that I want to make is that Marlins fans don’t seem to be as sensitive to winning as other major-league franchises. Thus, buying free agents doesn’t yield the return at the turnstiles like it does for other teams.
The first figure below maps all major league teams’ attendance and wins since the 1994–1995 strike.
The Marlins’s data points are bordered in red and labeled with the year of observation. The graph also displays a linear prediction of attendance based on wins for the Marlins (red) and all other teams (black). The Marlins observations lie below the major-league average and its slope is flatter.
The second figure tracks the Marlins’s attendance and attendance predicted by the typical attendance yielded to non-Marlins teams in the year of observation. That is, I estimated what the Marlins’s attendance would have been if fans had reacted to the games the team won based on the typical response in other markets (Attendance = f(wins, vector of year effects); estimates corrected for serial correlation).
On average, the Marlins took in an average of 869,000 fewer fans than predicted. In 2003, the year that the Marlins won 91 games and won the World Series, the team attracted 1.1 million fewer fans than expected. In 2005, the Marlins increased their payroll by 43%: attendance increased by 8% and still their attendance was 25% below the average attendance for other teams.
In light of the the team’s current on-field situation, fiscal restraint in terms of player salaries seems to be the smart move. The front office looked at the team and felt the chance of this team winning the World Series was slim, so it traded away Miguel Cabrera and Dontrelle Willis for talent that will help the team win in the future. The Oakland A’s did the same thing by trading Nick Swisher and Dan Haren. Dumping expensive veterans for prospects is normally considered a smart strategy. The team’s new strategy is to win back fans with a new stadium and continuous core of farm products to keep the team consistently competitive at a high level.
Based on the low win-sensitivity of Marlins fans, I can understand why the owner does not want to put more into payroll. This isn’t to say that Marlins ownership isn’t partially responsible for alienating fans by holding a fire sale after winning the 1997 World Series and posturing for public subsidies; but, these actions cannot be reversed. The front office has learned that simply throwing money at free agents won’t bring the fans back.
Now that the initial shock of the move of the Triple-A Braves from Richmond to Gwinnett County has worn off, I’d like to take a look at the stadium deal. The AJC has run several articles on the subject, and the articles contain most of the details of the Braves’s lease with the city. Here are the details that I know.
- It is a 30-year lease (2009–2038) with the opportunity for termination by the Braves after the 2023 season (15 years); however, the conditions for termination look to be quite stringent.
- Gwinnett is responsible for design and construction of the stadium and parking facilities, as well as covering major capital repairs to the stadium and non-preventive maintenance (e.g., HVAC, scoreboard, seats, walls, floors). To ensure that the improvements will happen, Gwinnett must maintain a capital maintenance fund with a minimum balance of $500,000.
- The Braves are responsible for operation costs not associated with capital maintenance and repairs.
- The Braves retain all revenues from the operation of the facility during Braves events. This includes revenue from tickets, concessions, luxury suites, club seats, sponsorship, advertising, and broadcasting.
- The Braves have exclusive rights to the stadium, except for 10 non-Braves events hosted by Gwinnett. The Braves are entitled to concessions revenue from these events.
- Gwinnett is responsible for selling the naming rights. The Braves are entitled to $350,000 share of this revenue annually.
- The Braves will operate parking services and set parking fees. Revenues will be split 50-50 with Gwinnett.
- The Braves will pay rent of $250,000 per year for the first five years. After this time the rent will increase according to the growth of the Consumer Price Index. In addition, the Braves will pay Gwinnett a ticket fee of $1 per ticket sold, with a minimum guarantee of $400,000 remitted to Gwinnett.
After reviewing the agreement, I see why the Braves were so eager to sign this deal, and why Gwinnett officials negotiated this deal in private and approved it quickly. Gwinnett County administrator Jock Connell anticipates the total expenditure for the stadium to be $45 million. $12 million will come from tax dollars earmarked towards recreation, and the remaining $33 million will be borrowed with revenue from the stadium paying off the debt. From the information I have seen, I don’t think this is likely.
Gwinnett is guaranteed four sources of revenue: rent, naming rights, parking, and non-Braves events. Let’s look at what these sources will bring in.
- Gwinnett is guaranteed a minimum of $650,000 a year in rent: $250,000 (rent) +$400,000 (ticket fee minimum). While it is possible for the county to earn more from the ticket fee, I think it is unlikely. In 2006, the Richmond Braves total home attendance was 321,696 and averaged 4,730 per game.
- Gwinnett retains all naming rights sales beyond $350,000, which it must pay to the Braves. How much will the naming rights generate? Let’s look for a comparable deal. Lackawanna County Stadium—home of the Scranton/Wilkes-Barre Yankees—sold its rights to be called PNC Field for the price of $365,000 annually (a three-year deal) just last year . While I don’t doubt that a new stadium in Gwinnett can garner a higher price, I don’t think it will be that much higher. I’ll be generous and assume that they can sell the rights for $450,0000 per year. Thus, the county gets $100,000 ($450,000 — $350,000)
- Gwinnett receives 50% of the parking. Richmond charges $3 for parking. If we assume that the Braves sell out all 2,300 parking spaces for 70 games, this translates to $483,000 in revenue. Gwinnett would receive $241,500 of this.
- As for revenue from the 10 non-Braves events, I won’t even try to guess. But the fact that the Braves retain all of the concession revenues doesn’t help.
The current ballpark design is for 5,500 seats, 1,500 in grass seating, 300 club seats, and 16 suites. In order to earn more than $400,000 from the ticket fee, the team would have to average over 5,700 fans a game (assuming 70 home games). That is not going to happen.
[Update: This stadium design refers to an older design considered by Gwinnett for hosting an independent league team. To be a Triple-A facility, it most hold a minimum 10,000 fans. However, I still do not think the team will average more than 5,700 fans.]
So, let’s add up what we have. We anticipate an annual income stream of $991,500—I’ll make in an even million. Will the non-concession revenue from the 10 non-Braves events be enough to cover the debt payments and capital maintenance over the life of the stadium? The stadium will be financed through local bonds, which is complicated. But let’s just make this simple by pretending this is a regular 30-year mortgage for $33 million, and we will give the county a 3% interest rate. This results in annual payments of $1.67 million, which means that Gwinnett needs to bring in $670,000 per year on the 10 non-Braves events in order to cover its loan payments. If each of these events brings in 7,000 people (approaching stadium capacity), then the county must bring in about $10 per person in profits (revenue minus operating costs) at these events. I think that this is unlikely.
[Update: I have just received a copy of the feasibility study of bringing a minor league team to Gwinnett, which was released in summer 2007. The plan calls for borrowing for 25 years at a 5.5% interest rate. Keeping the term of the loan to 30 years and re-running the numbers with the higher interest rate, the annual dept payments rise to $2.25 million.—requiring nearly $18 per person in profit to cover the remaining debt with 10 events of 7,000 people.]
I want to caution that this is a first pass at these numbers, and I have had to make several simplifying assumptions. However, I have tried to be optimistic about revenue projections that favor Gwinnett. I am willing to update my estimates as new information comes to light.
I find it disturbing that Gwinnett officials pushed this through so quickly and without public debate. If the Braves sell 5,000 tickets a game for and average of $10, the team will bring in $3.5 million year just off of tickets. With naming rights ($350,000) and all of the other rights (concessions, advertising, etc.) adding in, this is a good deal for the Braves.
I think it is a shame that this was rushed through in secret. It is possible that Gwinnett County residents don’t mind an increased tax burden if it means they get the Braves. It could mean only a few dollars more in taxes a year for the next 30 years. But, I think everyone would be happier if we could have had the opportunity to agree on this with some advance notice.
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.
Independently, a poster (“Hairps”) at Sons of Sam Horn wondered the same thing and gathered information from all of the predictions. He aggregated the predictions on the graph below.
Thus he infers:
OK, so I’m not really into making cool charts, but you should get the idea. The “crowd” seems to foresee an 8YR/$261M deal (AAV = $32.6M). Pretty interesting to see how constant the AAV (green, secondary axis) of any deal stays pretty constant throughout, hovering around the $30M AAV marker Boras laid down at the onset.
Nice work, hairps.