A conversation about MLB, on the field, off the field.

Saturday, December 22, 2007

From the basement December 22


MLB revenue growth is outpacing salary growth. I REPEAT,....OUTPACING!!!

Jeff Passan . "In 1992...., the sport's gross revenues were $1.5 billion. Payrolls from that season added up to about $784 million, meaning 52.3 percent of baseball's money went back to the players. By 2001...the money going toward players had increased to 56.1 percent, even with revenues at $3.5 billion....by 2005, owners were taking the majority of the profit, giving 48.7 percent back to players. Today, the numbers are shocking. Baseball claims it will reap more than $6 billion in revenue this season...the sum of the 30 MLB teams' opening day payrolls for 2007 was approximately $2,478,970,000 – about 41.3 percent of the gross revenues."

Remember this the next time - believe me, it won't take long - you read that Team X has grossly overspent for Player Y in the most recent contract signed. I have read dozens - I'm guessing - of opinions in the baseball media this offseason, all deriding GMs and owners for their perceived overspending. The writers make their argument by comparing the newly signed deal with already existing deals in the market. The wrong question is being asked. We shouldn't be asking how this new deal stacks up against other current deals for similar players. Instead we need to ask how this deal will stack up in it's latter years. Joe Sheehan . "The baseball industry is growing revenues at such a pace that each new offseason is a market completely detached from the previous one....the industry is awash in money, so much so that there’s virtually no way to reconcile each offseason’s contracts with those that came before."

The Hot Stove bleating over excessive salaries last offseason - Burnett, Meche i.e. - was equally as loud and off target. Commissioner Selig even whacked his owners' pee pees last offseason - David Glass evidently was a prime target - over their excessive spending. ( I digress, but what happened to the sabre rattling over collusion that resulted from Selig's scolding and the controversial "slotting" recommendations from MLB for the Rule IV draft? )

I think - obviously a stoned guy in his basement isn't so credible - the increase in salaries is not being driven any longer by primarily the large market teams. The small market teams - unless they're using their welfare cheques to pay down team debt ( can geek darling Neal Huntington - he's saber tolerant - solve that problem? ) - are spending their revenue sharing / luxury tax / central fund windfall on veteran players. Did Andrew Zimbalist get it right in the last CBA? Did he adjust the marginal tax rates ( whatever that means ) such that there is more incentive for small markets to spend on payroll? When he writes about "the cliff", is this what he's talking about? Does anybody understand Andrew Zimbalist?



Dr. Zimbalist sent me an email! I am truly astounded. He told me he couldn't post his comments here - Lisa Gray emailed me similarly recently - Blogger is one of the many things I don't understand. Dr. Zimbalist told me I could post the contents of his email and so here it is.

"someone sent me your comment about not understanding me. briefly, the new cba does not solve the incentive problem, it only ameliorates it. marginal tax rates (how much extra revenue sharing you pay for each dollar of additional revenue your team generates) have gone down for the low revenue teams from 48% to 31%, and more of the sharing is invariant to revenue. finally, the salary share in baseball revenue, properly reckoned, has stayed steady the last few years, though it is still considerably below where it was at the beginning of the decade."

I think I understand that. Nonetheless, I honestly don't understand much of what Dr. Zimbalist writes, which doesn't stop me from reading him. I've read 2 of his books, I read his semi regular column in SBJ ( unless it's about Title IX, which doesn't interest me, I think because I live in Canada ), his occassional commentary @ biz of baseball, Op-Ed pieces that I've surfed on to....

I don't understand a lot of it because I'm not smart enough. My comments in the original post re. Dr. Zimbalist were meant to poke fun at my "near smart", amateurish attempts to understand the baseball industry. Obviously there are people who understand Dr. Zimbalist. I suspect they're not stoned guys in a basement.

Thanks to Dr. Zimbalist for responding, I am so flattered. His comments will forever stand as the intellectual high point of this blog.

Now back to the regularly scheduled idiocy.

Why has the players' percentage of revenues declined? Is this a sign that my theory on more players signing for the " home town discount " - due to the enormity of salaries - is valid? Are they not maxing out their market value via free agency? I.E. Peavy? Or is it temporary and there will be a "correction" as the luxury tax threshold increases in the last years of the CBA and there is less disincentive for larger markets to boost payroll?

Ultimately our opinions on the value of player contracts being signed this offseason have to be tied to our expectations of industry growth. Will revenues continue to grow? If yes we have to assume that salaries will grow as well.

In no particular order, are these the "issues" ( hate that ) which will determine the future of MLB revenues?

How much additional growth is there in the RSN business? I do know the Giants are the latest club to "get in", they with FSN. Is anybody next? Few, many?

Is the stadium boom over? The Nats move in to their new publicly funded ATM this spring. After decades of threats & haggling, construction of the new Twins stadium is going ahead. This leaves MLB with only the Marlins - soon to be the Miami Marlins? - D Rays ( does this remind anybody else of the Big O? ) and the A's in outdated "stadia". ( Neil deMause says stadia ) Will the novelty of new / retro stadia wear off - see Camden Yards?

Ticket prices are going up - seems every time I surf on to biz of baseball there is another report about ticket price hikes somewhere. Guess ownership isn't that concerned about a Mitchell backlash. Will ticket prices continue to rise?

Real estate development. The A's, Rangers, Cards, D Rays are all part of larger real estate "plays" ( whatever that means). I wonder if this is the next battleground between the PA & the owners? ( I'm not convinced that it's PEDs ) How the revenues from these "ballpark villages" ( the D Rays scheme is different, developing the site of their current stadium after it's detonated is their "approach" ) are treated? Is it baseball income? Watch how the NFLPA reacts to Bob Kraft's "legacy" ( how shallow, your legacy is a big box shopping development ), Patriot Place. He'll tell you it has nothing to do with his Patriots football team - althought it's called Patriot Place and is located beside the football stadium. Also see AEG's L.A. Live development, hopefully more another time on this subject...

The continued growth of BAM? ( I dislike BAM, prefer MLBAM ) Is it maxed out? Will MLB take BAM public as has been often rumored? If yes will the players get their hands on none, some or a lot of that cash?

The 09 launch of the MLB channel. The most successful launch ever for a cable channel, reaching 40 million homes? "Steve Greenberg, with the bank Allen & Co. that's advising MLB, says the 40 million households means the channel is worth $1.2 billion — "Every owner woke up with his franchise worth $40 million more."

FSG. Will other clubs copy John Henry & Mike Dee? Does it generate enough revenue to matter?

Will the love affair between Corporate America & MLB ( all pro sports really ) continue? Is the market "softening" ( hate that ) for stadium naming rights? Casey Wasserman didn't get a naming rights deal done for the initial season in Nationals Park. Will MLB / pro sports continue to appeal to the affluent who fill luxury suites and club seats? I hope not but again I digress.

Gambling. Teams are allowing lotteries to use their "brand" ( ick ) on their tickets. I think they're allowing the lotteries to sell the tickets inside their stadiums also. Evidently, it works. Lottery tickets with team logos outsell those without. I think that's how it goes.

Is there money to be made in the minors? They too have record atendance and a bunch of relatively new stadiums. The Red Sox recently purchased an A Ball club. Teams are starting to see their affiliates as RSN programming ( they have to move them into their broadcast territory to accomplish that in some cases ) and Miles Wolff tells me that teams are "buying into their affliates".

Fantasy Sports. The most underreported sports story of the year is CDM Fantasy Sports vs MLB. I read an SBJ feature on internet metrics and didn't understand a lot of it. I did understand that a lot of people who should know think that internet metrics are worthless. Having said that, the Fantasy Sports Association estimates that there are 3.69 million fantasy baseball players ( is that a "unique user"? ) - as opposed to 11.68 million for fantasy football. Perhaps more importantly, these same folks report that over 50% of fantasy baseball & football participants earn in excess of $75,000 per year. Contrary to the long held stereotype of sports fans, many of us are fairly prosperous ( well, not me ). Looks like MLB and the MLBPA along with all the "ball & stick" leagues will miss out on the fantasy sports cash cow.

World Series TV ratings suck relative to prior years but the value of it to advertisers has never been greater. Will pro sports continue to deliver the mass audience? Or will we all be doing what I'm doing here?

How large an impact will the new Yankee Stadium & Citi Field have on the industry?

Secondary ticketing. So much being written about this and it is really, really important. Unfortunately I don't understand a lot of it. I did read that teams might adapt the same model to ticket pricing that is used in the pricing of airline tickets. I don't know if that means that the stadiums will be overbooked and the food will be shitty but I think there is a mountain of cash to be made.

What WILL NOT have an impact on MLB revenues - The Mitchell Report.

I would wager that in a handful of years the contracts of Silva, Rowand, Hunter, Linebrink et al won't look so bad.


The baseball media has never been larger. During Hot Stove season you can read rumors and speculation about upcoming signings and trades ad nauseam. I would think given the volume of speculation, that the Hot Stove League would have to be right about some stuff. After all, it's a finite subject. I got to the point where I concluded that I had read a rumor about every player on every 25 man roster and all of this offseason's FA's. Some of this crap has to stick to the wall, doesn't it? Evidently not. I think the baseball media and the bloggers - so far - have been wrong about most everything this offseason. I guess randomness in baseball applies not only to the game on the field but to punditry as well.

Some of what the Hot Stove got wrong so far this winter.

A Rod - Once Boras announced that A Rod was opting out the reaction was instant and near unanimous. A Rod was done as a Yankee. I think this stems from the unprecedented degree of competition in the media. Writers are pressured to form opinions almost instantly. Many wrote that in retrospect A Rod in the Bronx was the most viable option all along.

Managerial - Baker, Russell & Torre. Perhaps not Torre so much but Baker surprised all and well, nobody cares about Russell.

This would be the offseason of " the deal " due to the relatively small number of FA's this offseason. Save for Cabrera / Willis it hasn't been, has it?

Trades - Renteria, Cabrera / Willis, Lidge, Cabrera / Garland, Young / Garza, Milledge ( well not to DC ).

FA destinations. Cordero, Eckstein, Hunter, Linebrink, Rowand,

Johan Santana. Please, everybody stop it. Hasn't every player in the Angels', Yanks' & Red Sox' organizations been rumored as going to Minnesota at some point? I'm not saying he won't be dealt but the amount of conjecture devoted to it is inane.

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