Monthly Archives: September 2010
The Sacramento Bee has the story and the money quote:
“On the heels of the disappointing – but not surprising – action (or inaction) of the state and Cal Expo board, it is fair to say that the NBA has ceased its activities on the Sacramento arena front,” league representative John Moag said in an e-mail to The Bee. “However, we will continue to monitor and respond to the activities and options of others that might reasonably ensure the competitiveness and viability of the Kings’ franchise.”
Not much in-between line reading to do with that one, now is there?
Mayor Kevin Johnson is proposing an Arco remodel. The Kings and the NBA are flat out rejecting that idea. The NBA is ceasing any activities related to a new arena in Sacramento but looking for a way to reasonably ensure competitiveness of the Kings franchise.
The only question that seems to remain… Will the NBA go for an already built modern facility, like the one in Kansas City, or will they go to a temporary solution, like HP Pavilion or Key Arena, with promises of future renovations? We have a whole season to watch the answer evolve.
For an in-depth analysis on the inadequacies at ARCO, check out this article (PDF).
When the current CBA was ratified in 2006, it was largely seen as little more than extension to the 2002 CBA. That is, except for one pretty important detail. Prior to 2006, all MLB teams had to conform to what was called the 60/40 debt rule (assets/liabilities). Enforcement of the rule was at best lax, allowing teams to make some really bizarre long term contracts without batting an eye. With the new CBA, the debt rule had radically changed. Instead of pinning available debt to franchise value under the 60/40 rule, debt was to be capped based on earnings. Here’s the initial language of the rule:
DEBT SERVICE RULE
Section 1. The Rule. No Club may maintain more Total Club Debt than can reasonably be supported by its EBITDA. A Club’s Total Club Debt cannot reasonably be supported by its EBITDA if Total Club Debt exceeds the product of the average of that Club’s EBITDA over the most recent two years multiplied by the Cash Flow Multiplier applicable to that Club; provided, however, that a Club may elect, on or before April 1, 2007, to utilize, in both 2007 and 2008, the average of its EBITDA over the most recent three years.
To illustrate this, let’s look at Forbes’ 2010 financial profile of the A’s. In it, operating income (EBITDA) came out to $22.1 million. For 2009, it was $26 million. Averaged, it’s $24 million. To get the Total Club Debt ceiling, multiply that last figure by 10, and you get $240 million in debt ceiling. Also in the profile, the A’s have a 30% debt/value ratio, putting the team’s applicable current debt at $88.5 million. Every team gets a debt exemption of $36.5 million. Factored in, that puts the A’s debt at $52 million. That leaves $188 million under the team’s cap.
According to the listed definitions of what constitutes debt, just about anything that is borrowed or to be paid later falls in. This includes loans from MLB or third parties such as banks, non-player deferred compensation, stadium debt (only when the stadium opens), loans from related parties (ex.: partly or wholly owned regional sports networks), and any other debt except for a player compensation and an initial $36.5 million deduction (like the standard income tax deduction).
The 10x multiplier changes to 15x when a new stadium opens. This is important, because, as Jeffrey pointed out two weeks ago, MLB is ready to provide a loan of up to $150 million for construction. Assuming that EBITDA stays fairly constant, the A’s debt ceiling will move to $360 million. In the meantime, the A’s would likely pay down existing debt (either from annual profits or by bringing in additional partners) to get itself in the right position to get the stadium financing.
The kicker here is that while player compensation is not supposed to be part of the calculus, it is no doubt a considering factor. Selig has a mandate for mid/small market teams to get their houses in order prior to opening a new ballpark. Any number of punitive measures can be taken against a club if they go over their debt cap, including restrictions against future borrowing and even limits to new player contracts. If anything, this is the true spirit of the debt rule: to keep teams living within their means. (Big market teams such as the Dodgers and the Rangers under Tom Hicks benefited from selective enforcement.)
Now let’s assume that certain housekeeping moves are made. Trevor Cahill is locked up through his arb years in a similar deal to what Brett Anderson received, plus Daric Barton is also secured. In addition, Mark Ellis is brought back, as well as Kevin Kouzmanoff. Jack Cust is gone, while Michael Taylor starts the season in RF. Gio Gonzalez, Dallas Braden, and Andrew Bailey are also back through short-term/non-arb deals. No one of note is traded, but a free agent slugger is brought in for a 2-year, $20 million deal with a third year team option. Here’s what that would look like:
If you’re Selig and you’re looking at the two tables, you’re thinking “That’s it. Give me your credit card.” It doesn’t matter that this kind of debt technically doesn’t count toward’s the CBA definition, it’s still debt. Salaries weren’t supposed to count under the old 60/40 rule either, but they did. It’s a terribly unfair way to run a competitive league, but them’s the breaks. By 2013, the payroll will head into the $80 million territory because of the normally occurring raises. As a team that is not yet fully capable of carrying its own weight, the A’s have their own de facto salary cap. Most of it is due to circumstance. Type A free agents aren’t going to sign 2-3 year deals here unless they have a problem that makes other teams balk at giving them 5-6 year deals (injury history, age, consistency). Yet that 2-3 year window is exactly what the team should exercise while costs are contained. Lew Wolff mentioned recently that the one-year rental idea doesn’t work that well, which is true at least historically. So what’s the best way to fill in the holes in the lineup? More Coco Crisps? Trade one or more of the pitchers for a bat?
Most importantly, how does this affect how you view the A’s future, or the league in general?
Note: If you’re wondering how the Yankees operate within the rules even though they’ve accrued billions of dollars of debt, the answer is simple. The team doesn’t “own” most of the debt. Its related parties do.
KCBS Radio did one of their In Depth interviews with Santa Clara County Assessor Larry Stone (MP3 download). Stone has, of course, been a active, constant proponent of bringing MLB to the South Bay, and has used his easily won public office as a bully pulpit. Stone was asked about the history of now 24-year effort to get this done, plus fielded questions about whether his roles as assessor and developer are conflicts of interest. If you’re a South Bay partisan, you’re going to think what he’s saying is gospel. If you’re an Oakland partisan, your ears may bleed profusely. It’s over 27 minutes long and well worth the listen (thanks, I.C.).
Among the morsels from the interview:
- Within the first two minutes, Stone makes the claim that the A’s can’t survive in Oakland.
- Stone is (IIRC) the first public figure to say that the Giants are trying to drive the A’s out of the market. When challenged on this, his response is, “Anybody would try to do this.”
- Apparently the Earthquakes are not considered a major pro sports team, at least according to Stone. He must’ve forgotten them.
- He thinks the Giants could spend $2-3 million to defeat the spring ballot measure.
- Stone dances around the idea that some of the owners might feel threatened by another team invading their respective territories.
- SJRA has the money set aside for the last two parcels (AT&T and Aegis).
- Stone claims that when he talked to Schott some time ago, Schott had 75% of the owners lined up for a vote for a move south.
- Stone speculates that Selig gave the Giants a “10 year head start” for the SC Co. t-rights, in effect protecting the county for a decade.
- Interviewer Jane McMillan characterizes the Diridon area as “suburban” in comparison to what would normally be considered urban areas for other ballparks. Where does urban end and suburban begin?
- McMillan also asks if a deal is done, but unfortunately says that the ballpark will be shared with the Quakes (which it won’t), which got Stone’s response moving in the wrong direction.
It’s a good listen, though if you’re on the SJ bandwagon you’ve already heard many of the talking points.
BTW, on an unrelated note, the Rangers secured a 20 year, $3 billion extension to the current TV rights deal with Fox Sports Southwest. $150 million a year (Maury Brown thinks the numbers could be off). Guess they won’t have that big debt problem that could keep them from re-signing Cliff Lee and extending Josh Hamilton.
After several months of review, Cal Expo’s board came back and formally rejected a land swap proposal that would’ve placed the future home of the Kings on top of the old railyards near downtown and private development at the old fairgrounds, while Expo itself would’ve moved to the site of ARCO Arena.
Cal Expo board members voted 7-2 against the idea, saying the Natomas site is too small and not visible enough from the freeway.
“It’s the wrong site. We’ve said that time and time again,” said Cal Expo General Manager Norb Bartosik.
The complicated land swap proposal is the latest in a series of unsuccessful efforts – dating back a dozen years – to finance a new arena.
While the Maloofs were demure when asked to comment on the news – as they have been since David Stern took the wheel – you can’t help but think that whatever frustration they’ve held has to be spilling over at this point. They’ve said all the right things about not wanting to move the team, but Der Kommissar has to be getting ready to break out the big guns now. After all, he had few qualms about ripping the Sonics from Seattle, and the Emerald City had a much longer hoops lineage (and a ring) than Sactown.
So here’s the poll question for the week:
Where will the Kings end up?
A. Sacramento (where they flounder or a miracle deal is made)
B. Las Vegas (where the Maloofs get their unspeakable wish fulfilled)
C. Seattle (bought by Steve Ballmer and/or Howard Schultz)
D. San Jose (bought by Larry Ellison)
E. Kansas City (where they came from and an empty arena awaits, owner unknown)
Not much to report on the home front, at least when it comes to the A’s stadium saga. However, there are a few other news items that might be of interest.
- Going back to speculation about how the club section at Cisco Field might work, MLBAM is piloting an “order from your seat” system from within its At Bat iPhone app. The brief pilot runs through the end of the season, and claims order delivery of 30 minutes or less.
- With the Pac-10 expanding to 12 teams next year, the conference will be broken into two divisions, requiring a football championship game in the process. While such games have been a boon for powerhouse conferences such as the Big-12 and SEC, it remains to be seen if the Pac-10, whose basketball championship has been notorious for poor attendance, will see much success. Las Vegas has emerged with some initial buzz, though the game could be held almost anywhere within the conference’s area, including San Francisco or Oakland. The league and its member schools are meeting in SF in two weeks to hash all of this out. FWIW, the Pac-10′s headquarters are in Walnut Creek.
- The A’s got caught up in the annual shuffle of minor league affiliates. Vancouver switched to the Blue Jays, leaving the A’s in the lurch until they signed a deal with the Vermont Lake Monsters (Burlington, VT) yesterday. Kane County left the A’s for Kansas City, leaving an opening for the Burlington (IA) Bees. The Sacramento River Cats re-upped through 2014 with little drama. Midland and Stockton remain unchanged. Vermont’s Centennial Field is notable for being owned by the University of Vermont, and for its capacious foul territory (~85 feet from home plate to the backstop).
- A threat by the Red Sox to leave spring training home Fort Myers has worked, as Lee County is ponying up $81 million in bonds for a new stadium, even though $17.5 million in city debt remains on the old one.
- Escondido is spending nearly $400k on its own study of a Padres’ AAA stadium.
Will we hear something about the A’s soon? Maybe… Consider this an open thread.
Update 9/21 7:40 PM - Resolutions (city and redev agency) passed unanimously. Mayor Reed says that he’ll be talking to MLB COO Bob DuPuy soon to get some direction, and that he’s cautiously optimistic that he’ll get a resolution soon.
Tomorrow night, the San Jose City Council will vote on another set of resolutions (city and redevelopment agency have slightly different versions) in support of a move south. From what I can tell, the only significant language change was the recognition of recent statement of support by SVLG and 75 of its constituent CEO’s.
I will not be attending the session, but I will be monitoring it remotely. Action on the resolution is slated to be early in the agenda. If you’re interested, here’s the newest language:
RESOLUTION NO. ____
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN JOSE:
(A) REAFFIRMING THE NEGOTIATING PRINCIPLES PREVIOUSLY ESTABLISHED AND AMENDED BY THE CITY COUNCIL; AND (B) SUPPORTING THE EFFORTS OF THE OAKLAND ATHLETICS OWNERSHIP TO MOVE THE TEAM TO SAN JOSÉ AND THE ASSISTANCE OF THE SILICON VALLEY LEADERSHIP GROUP AND OTHER LOCAL GROUPS IN THEIR EFFORTS TO BRING MAJOR LEAGUE BASEBALL TO SAN JOSE
WHEREAS, on April 7, 2009 and August 3, 2010, the City Council and Agency Board affirmed its interest in supporting the efforts of the Oakland Athletics’ ownership to move the team to the City of San Jose; and
WHEREAS, on May 12, 2009, the City Council and Agency Board established Negotiating Principles for the development of a stadium in the Downtown for a Major League Baseball team, which were subsequently amended by Council on August 3, 2010; and
WHEREAS, on September 10, 2010, through the efforts of the Silicon Valley Leadership Group, a letter from seventy five (75) of Silicon Valley’s leading CEOs was sent to Major League Baseball urging Commissioner Selig to approve the Athletics’ move to San Jose; and
WHEREAS, various local organizations, including the San Jose Silicon Valley Chamber of Commerce, the San Jose Convention and Visitors Bureau, the San Jose Sports Authority and Baseball San Jose, have all expressed their support for the Athletics’ move to San Jose, and Lew Wolff, the Athletics’ owner, is also on record as indicating he would prefer San Jose as the new home of the Athletics; and
WHEREAS, the Council desires to reaffirm the following previously-approved Negotiating Principles that will guide the City’s efforts in bringing a Major League Baseball stadium to San Jose:
1. No new taxes are imposed to fund ballpark-related expenditures.
2. The City must determine that the ballpark development will generate a significant economic benefit to the City and have a positive impact on City General Fund revenues.
3. No public funds shall be spent to finance or reimburse any costs associated with construction of the ballpark or construction of any on-site infrastructure or improvements needed for the ballpark.
4. No public funds of any kind are spent to finance or reimburse any ballpark operational or maintenance costs related to activities conducted by or under the authority of the baseball team that uses the ballpark either at the ballpark or in the streets surrounding the ballpark.
5. No public funds shall be spent to finance or reimburse the cost of any traffic control, street cleanup, emergency or security services within the ballpark site or within the streets surrounding the ballpark that are related to activities at the ballpark conducted by or under the authority of the baseball team.
6. If the property is leased for a ballpark, the baseball team must be willing, at the end of the term of the lease, either to purchase the property at fair market value or to do one of the following things at the City’s option and at no cost to the City or the Redevelopment Agency:
a. Transfer ownership of the improvements to the City or Redevelopment Agency; or
b. Demolish the improvements and clear the site to make way for other development.
7. The entity that builds or operates the ballpark must be willing, if the City deems it appropriate, to make the ballpark available to the City during baseball’s offseason for up to 10 days per year for community-related events, at no rental charge to the City.
8. The name of the baseball team must include San Jose.
NOW, THEREFORE, BE IT RESOLVED THAT THE COUNCIL OF THE CITY OF SAN JOSE:
(a) Reaffirms the negotiating principles previously established and amended by the City Council; and
(b) Supports the efforts of the Oakland Athletics ownership to move the team to San José and the assistance of the Silicon Valley Leadership Group and other local groups in their efforts to bring Major League Baseball to San Jose.
I don’t expect this to change unless MLB makes its own announcement, after which the resolution would be amended again. This is what we can expect until the spring election, if it occurs.
Some choice quotes from public speakers at the session tonight:
Michael Mulcahy: I’m not a San Francisco Giants fan, but I’m rooting for them to make the playoffs so that we can see how that transforms a city.
Former Mayor Susan Hammer: I’m getting a little impatient with the snail’s pace of Major League Baseball.