The small market A’s and some serious equity

Like clockwork, the annual Forbes MLB valuations roteere released yesterday, just prior to the start of the regular season. Unlike last year (which I didn’t bother to write about), there were several surprises. The biggest was the Giants’ 100% boost from $1 billion to $2 billion, on the strength of the team’s third World Series win and development potential at Mission Rock.

The other surprise was the huge gains for small market teams, led by the Royals, Indians, and yes, your Oakland Athletics. Forbes awarded the A’s a 46% gain, from $495 million last year to $725 million this year. While many revenue-related factors are responsible, Forbes also chose to up its revenue multiplier in determining the valuations, which had been falling behind actual sale prices in what has been over the last several years a hot seller’s market.

Higher enterprise ratios are being fueled by the stock market’s six-year bull run (which has inflated asset values and created a lot more buyer than seller of teams), baseball’s unmatched inventory of live, DVR-proof content, real estate development around stadiums, higher profitability (which reduces the need for capital calls) and the incredible success of Major League Baseball Advanced Media, the sports’ digital arm that is equally-owned by the league’s 30 teams.

Even the new A’s valuation may be behind the teams a bit. When Bloomberg released its own independently derived valuations after the 2013 season, then-PR man Bob Rose suggested that the number was closer to $700 million based on revenue. Before franchises started going for insane amounts, it was common for franchise owners – including Lew Wolff – to claim that Forbes’ numbers were incorrect, overselling certain aspects of a franchise’s operation. Now we’re starting to approach $1 billion for a team that has at best average TV/radio deals and no new stadium. A 300% return in a decade is pretty impressive, no matter how slice it – though Wolff and John Fisher can’t realize that until they sell the club. They’ve shown no indication that they’re interested in selling, despite how much the stAy crowd clamors for it.

As nice as the new valuation looks, it’s miles from where the Giants, Dodgers, and almighty Yankees ($3.2 billion) are. The Bronx Bombers recorded more than $500 million in revenue last year, confirming a quote from an unnamed Yankee exec in the fall. The luxury tax was designed to dissuade teams from profligate spending, but until recently that hasn’t stopped the Yankees and the Dodgers don’t seem to care one iota about the luxury tax. Redefining luxury tax penalties may become a sticking point in the next CBA negotiations, one that goes hand-in-hand with shifting the revenue sharing model for lower revenue (small market) franchises.

Let’s do a deeper dive into the Forbes figures. First the A’s:

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Forbes breakdown of the A’s valuation

 

Now the Giants:

Forbes Giants valuation

Forbes’ Giants valuation

In nearly every key measurable, the Giants double or even quadruple the A’s. The Giants hit a perfect storm of on-field success and savvy management, which was parlayed into impressive revenues. The Giants are a money-making machine. They are also a big market club, no doubt. Though they aren’t profligate spenders in terms of payroll, everything else about them is big market, just like the Yankees, Dodgers, and Red Sox.

The A’s, on the other hand, bear all the marks of a small market team. Gate revenues are abysmal compared to the Giants. It’s so lacking that the A’s could untarp all the regular upper deck seats, sell out the entire season, and still only reach 50% of the Giants’ revenue. The flipside to that is that the A’s are a far more affordable, accessible product for baseball fans in the Bay Area. The market itself, which is defined as the East Bay, compares to a lot of other small markets like Tampa Bay and Kansas City. As long as the A’s are pigeonholed to the East Bay, it’s likely they’ll remain small market, or perhaps boost themselves to a medium-sized market if a new stadium comes.

New and improved national media revenues are the tide that has lifted the A’s boat. As big market teams keep getting bigger and bigger annual revenues, the A’s will continue to be a club that receives a nice revenue sharing check, at least as long as they play at the Coliseum. Per the current CBA, they’ll continue to be eligible for revenue sharing until they start playing in a new Bay Area ballpark. So the A’s are in a sort of limbo in which right now they’re considered a small market team in that they receive revenue sharing, but will be redefined as a big market team once they open a new park. That arrangement could continue into the next CBA, or it could change. I suspect that if the A’s build a new park in Oakland, they’ll remain a small market team by definition, simply because they don’t have the same direct access to big sponsors as they would in San Francisco or San Jose.

The other big takeaway from the valuation news is that the A’s debt position has significantly improved from doing nothing. Forbes reports that the A’s debt is now 8% of franchise value, or around $60 million. That leaves an astounding $665 million of equity for the ownership group. Wolff has suggested that he would use equity to help finance a ballpark. He could conceivably cover the entire cost with the team’s equity, but MLB rules about debt load preclude such a plan. The most debt the A’s can accrue without running afoul of MLB is 12 times their operating income if they’re building a new ballpark, 10x if not. If you take the average of income from the last three years you get $25 million. Multiply that by 12 and you get $300 million. The A’s have $60 million of existing debt, but according to MLB rules they can exempt $40 million of that. Combine all of those together and the A’s can in theory finance $280 million of a stadium. Even with the added debt, chances are that by the time the stadium opens it would hit only 35-40% of the franchise’s value, an acceptable amount for a sports franchise.

Naturally, the problem is servicing that debt. $280 million over 30 years at 4% is $16 million a year. To ensure that gets covered and it doesn’t have a deleterious effect on payroll, the A’s would have to get 30-32,000 average attendance per game for several seasons, at much more expensive prices than the Coliseum to boot. Then there’s the combination of suite sales, sponsorships, and maybe even seat licenses if fans are willing to invest. If this sounds similar to what the Giants did, that’s because it is. Maybe there’s a real estate component that can come in to offset that debt service requirement, but Wolff indicated in recent comments that grand development concept such as Coliseum City is not forthcoming from him.

Nevertheless, if Wolff and Fisher want to build, and fans are willing to pay, the path is there. Getting to a deal is the hard part.

P.S. – Speaking of getting to deal, there’s been some noise about wanting Wolff to show his plans. Show a rendering, something to indicate that he actually wants to build in Oakland. To which I say – come on. He just finished opening a soccer stadium, the spring training facility renovation, and is finishing scoreboards at the Coliseum. Are those not indicators of wanting to build?

All of these sentiments, while well-placed, are based on some unrealistic expectations. Fact is that the stadium development process is dog slow. It’s tedious. No premature release of renderings will do anything other than getting a small handful of fans excited. Believe me, I’m one of them. But I’ve also learned over the years is that all of that is sizzle, not steak. If you want real progress, you need rules. You need a framework. Here’s the “framework” for the A’s right now:

framework

That’s not a framework for anything other than random discussions between the A’s and East Bay pols. If the A’s, City, and County are going to work on an actual deal, they need to establish a real framework for talks and for a stadium/development deal. It would help if Oakland or the JPA started by creating an RFP (request for proposal), that would allow the A’s to formally propose something. The A’s are in the process of hiring a person to interface with City/County/JPA. If the Raiders wanted to present their own vision, the RFP could accommodate them too. That is how the Coliseum City process started, and is the proper – not to mention legal – way to do government business. Frankly, I’m past renderings. I want steak. You should too.

Corey Busch talks Blue Ribbon Committee on CSN

Comcast Sportsnet Bay Area provided a bit of a surprise on Yahoo! Sports Talk Live, when they had Corey Busch, former Giants executive and member of the three-person Blue Ribbon Committee (Irwin Raij & Bob Starkey were the other two). Busch explained some of the panel’s activities and charges. Jim Kozimor did his best to pry what little information he could out of Busch, who didn’t answer a number of key questions because of the state of the San Jose-vs.-MLB lawsuit.

Corey Busch interview Part 1

Corey Busch interview Part 2

Busch clarified the territorial rights deal that occurred in 1991, giving the Giants control of the Santa Clara County, which prior to that point had been an open territory. He also called San Jose’s lawsuit a mistake on their part. While you may glean additional information from the segment, you’ll probably come out of it even more frustrated than before, whether you’re an Oakland or San Jose partisan or are location-agnostic. My preference for the show: Ray Ratto in a talking head box in a corner, providing running commentary as Busch answered questions. Good work on the interview Koz, and maybe we’ll get to uncover the bodies when the lawsuit business is over. Busch promised!

Happy Opening Day, Earthquakes

Sure, they did a dry run a few weeks ago with a 10,000-strong crowd, but this was to be the test. Opening match at Avaya Stadium, full house, new infrastructure in place, systems tested to the fullest. The Quakes scored two quick goals and then held on for dear life, 2-1 over the Chicago Fire. The fans were ebullient, raving about the home they’ve wanted and deserved for more than 40 years.

I asked about how people were doing with with transit or parking. Some of the feedback:

All in all, it seemed as if the team, the fans, and the league got everything they wanted out of the experience. A privately funded stadium with great amenities, but not done in a way that would take the focus away from the game.

The original vision for the stadium, unveiled during the throes of the recession, had no club seats or suites. The horseshoe-shaped bowl was the same, including the huge double-sided scoreboard at the open end. As the economy improved and the team reached out to the community, there was interest for luxury seating options, though in implementation they weren’t like those at other stadiums. The result is a tight seating bowl configuration with a steep rake, allowing for great sightlines. An extensive roof over the bowl provides ample shade and holds in noise. And the price tag rose from $60 million to $100 million. About $10 million will be paid for by real estate sales in South San Jose. It’s a refreshing example of restraint that somehow comes without a great deal of compromise. Even Don Garber, the MLS commissioner who approved the previous Quakes incarnation’s move to Houston, understood:

“Not every stadium’s got to be several hundred million dollars. It’s actually got to have them built in a way where the economic model makes sense. That’s what we have here.”

The biggest issue going forward is the fact that there’s no room to accommodate an expansion. There’s always Levi’s and Stanford for the bigger crowds. For decades to come, this is home. It’s something to be proud of, no need to make any apologies. I suspect Quakes fans will be savoring it for some time to come, sellout after sellout.

P.S. – The USGS, which has an office in Menlo Park, set up a seismograph at the stadium.

Kroenke releases new Inglewood stadium renderings on eve of NFL owners meetings

The jockeying for position in the race for LA continues. Oakland approved its ENA extension on Friday, paving the way for Alameda County doing the same on Tuesday. I’ll have more on that following the Tuesday meeting. The Carson stadium project has gotten enough signatures for a public vote later this year (or more likely a City Council action bypassing a vote). Rams owner Stan Kroenke has new renderings of his proposed stadium at the old Hollywood Park in Inglewood. All of this is in advance of the NFL owners meetings in Phoenix this week. All of the players want to give the impression that they have the most advanced, stable plan. All of them, except perhaps Mark Davis, who continues to prefer riding on the coattails of others’ plans (Carson, Coliseum City). Both Dean Spanos and Kroenke are making the case for having their own stadia, privately financed, with no need to house a second team – but the capacity to do so if the opportunity arises. This saga will continue to unfold over the coming months, with everything coming to a head after the Super Bowl 50 when the relocation window opens. Unlike 2014, these stadium plans are becoming more concrete with each passing week, thanks to political actions by Inglewood and Carson.

Previous renderings of the City of Champions development showed zoomed out, distant images of the stadium. Now we’re getting closeups of the exterior and interior. The design is groundbreaking and familiar, all at once. Undertaken by HKS, the architectural firm that penned the more showy NFL stadia of recent years (Cowboys Stadium, Lucas Oil Stadium, the upcoming Vikings’ stadium), the stadium is is covered by a transparent roof canopy, with open sides to allow for air to circulate from outside.

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Like (half of) the fixed, transparent roof at the Vikings’ football cathedral, Kroenke’s roof will be covered in a fabric called ETFE (ethylene tetrafluoroethylene). It’s extremely thin while having excellent light transmissive and insulation properties. Most importantly, it’s very light for a roof material, weighing around 3 ounces per square foot depending on the number of layers used. The lightness of ETFE allows the roof structural work supporting it to be lighter and less complex compared to steel roof structures, and more reliable than the previous generations of fabric roof technology that used Teflon or fiberglass-embedded fabric. ETFE was first used in high-profile sports applications such as the 2008 Beijing Olympics, where it was employed at the Birds Nest national stadium and the Aquatics venue. Instead of being part and parcel with the stadium, the roof will extended over a public plaza, acting like one gigantic canopy. While Southern California never needs a roof for football, the canopy will allow the stadium to be used for numerous big indoor events, such as the Final Four.

Baseball in the Vikings' stadium? Yes! Golden Gophers, baby.

Baseball in the Vikings’ stadium? Yes! Golden Gophers, during the early spring of the college baseball season.

Google’s proposed campus in Mountain View is also likely to use ETFE as a canopy over constantly evolving workspaces.

google-campus1

Google’s buildings will be surrounded by transparent roof canopies, with fresh air allowed to circulate from open areas.

Technology has come a long way since the first domed stadia were built. The Astrodome, which used skylights for the roof, was fatally flawed as not enough light came through to grow grass indoors successfully. That led to the invention of Astroturf, which had the even more appealing original name of ChemGrass (should’ve stuck with it, Monsanto). Numerous other domes became the unfortunate going trend in many cities in northern climates. Most had an air-supported roof, such as the Hubert Horatio Humphrey Metrodome, Pontiac Silverdome, BC Place, and the Hoosier (later RCA) Dome. After a number of deflations and weather-related incidents, air-supported roofs gave way to more reliable technology. Some of the newer domes in the late 80’s and 90’s used fabric roofs but weren’t air supported, using compression rings or cable supports to hold the roof up (ex.: Alamodome, Georgia Dome, Tropicana Field). Few air-supported structures remain in use, most notably the Carrier Dome at Syracuse University. Many of those will give way to replacement venues if not replacement roofs.

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The always aesthetically pleasing ceiling at the Trop

 

That gets me thinking about St. Petersburg. Yes, the location of the Trop is terrible for the other Bay Area trying to get to a Rays game, but what if the dome roof were replaced by ETFE? Would that help the aesthetic there? At least fans would be able to see the sky instead a dull roof, and maybe the use of a lighter material would allow the roof to be re-engineered so that one or two of those compression rings could go away. Too practical to be a solution, right?

City and County set new targets for Coliseum City ENA

Update 3/19 1:20 PM – Oakland’s City Council has scheduled a special meeting for Friday, March 20 at 11:30 AM to vote on a resolution supporting the ENA. You can find the agenda at the meeting link. In addition to the deadlines set forth in yesterday’s news, there’s also an option to extend the agreement for up to six months if some of the deliverables aren’t met or other holdups. There’s also this:

competing

Nothing about the “alternative proposals” shows up in the resolution, however. Once the City and County both approve the ENA including this facet, the A’s (and Raiders for that matter) could start sending in their own concepts. I expect one at some point from the A’s, but as noted previously, they are under no deadlines to deliver anything as New City and the Raiders are.

Original post:

Yes, we wrote two months ago about how the City of Oakland and Alameda County were coming together to work on Coliseum City. The signs were that both parties were finally on the same page.

Well, we’re hearing the same thing again, though this time it might actually be for real. After some back and forth between the County and Floyd Kephart of New City, the County’s Board of Supervisors are looking to vote on the ENA at the end of this week. Or early next week. Or something. The SF Business Times’ Ron Leuty has the details.

Besides the ever plodding deal machinations, Leuty also picked up the new terms of the ENA. June 21 marks a midterm deadline for New City to provide certain deliverables. The “final” deadline is August 21, with even more deliverables. All told it’s 23 separate items, all important, few minor.

June 21st’s set is all about creating the framework of the deal. It should answer basic questions like How many teams will be involved? and How long will it take to develop?

  • An initial financing plan for a new stadium for the Raiders, including ancillary development and land and infrastructure to support a potential new stadium for the Oakland Athletics. It will include projected sources and types of funding as well as the estimated equity stake from New City, its partners and affiliates.
  • Terms and conditions required to win a commitment from the Raiders, A’s or the Golden State Warriors to Coliseum City. This will include an update on the status of negotiations between New City and each team.
  • Initial site plans for new Raiders and/or A’s stadiums.
  • Financial and market feasibility analyses for various elements of the development other than sports facilities.
  • A development schedule for the sports facilities and ancillary development, including the timing of entitlements for all phases of the project.
  • An estimate of infrastructure cost and a funding plan for the infrastructure, including a list of potential regional, state and federal grant sources.
  • Plans for tax financing districts for infrastructure.
  • A preliminary plan for subdividing parcels, if needed.
  • Proposals for addressing the existing Coliseum debt.
  • Proposed timetables for disposing of land for various parts of the project.
  • An outline contracting plan.
  • An outline community benefits plan for the project.

August 21 is about buttoning up the deal and figuring out all of the little details defined in June.

  • A detailed description of the plan for project development.
  • Refined terms and conditions required to win a commitment from the Raiders and/or A’s and a project schedule for obtaining a commitment.
  • A refined financing plan for Raiders and/or A’s stadiums, including identification of all sources of financing.
  • A refined description of the financing structure for ancillary development and the proposed developers for each element of those pieces of the development.
  • A clearer schedule for development of the stadiums and the ancillary development, including the timing of entitlements.
  • A better estimate of infrastructure cost and a funding plan for the infrastructure.
  • A refined proposal for establishing tax financing districts for financing infrastructure.
  • A clearer plan for subdividing parcels.
  • A refined proposal addressing existing Coliseum debt.
  • Proposed terms for the lease disposition and development agreement and financing for various elements of the project.
  • A refined contracting plan and community benefits plan.

By late April we should expect that the EIR will be certified and the Specific Plan approved, which are their own framework in that it defines zoning. With that zoning component there are no entitlements on which developers can build at the Coliseum.

To date many of the deadlines put forth by the City have been about timing in concert with some important date for the Raiders and the NFL. Previously the ENA was supposed to be completed before the 2014 season over, then before the franchise relocation window opened, then 90 days from that (April). Now the ENA deadline is being pushed to just before the 2015 NFL regular season starts. That itself is arbitrary, and allows for yet another 3-5 months of slack before the Raiders have to make a decision on LA or another possible move. With that in mind, I fully expect Coliseum City to slip yet again past August. The list of deliverables above is daunting. The DDA alone can take months to put together. While everyone’s operating from the notion that once a team signs on everything else will fall into place, there’s little reason to believe that negotiations will be that tidy. This project has a growing number of stakeholders, including housing and jobs activists who will make their stamp on a community benefits agreement. The financing for a project of this size is incredibly complex. And the City and County have to be on their toes to ensure that they don’t get taken by the private stakeholders in the project: New City, developers, and the team(s). Without clear terms done in thoughtful, deliberate manner, you get Mt. Davis.

I haven’t mentioned the A’s or Lew Wolff yet. Wolff has made his position clear in that he has no interest in Coliseum City. The difference for him is that he and the A’s have no deadlines, arbitrary or otherwise. What happened to the idea of allowing competing bids? That appears to have disappeared into the ether. For now.

Manfred: No blue ribbon panel for A’s

From Susan Slusser:

The commish is checking in with every team during the spring, so he should’ve expected this and other questions about the A’s future. While it’s encouraging that Manfred won’t hide behind a panel, that’s a long way from actually working things out. We’ll know for sure if Manfred becomes more hands-on regarding the A’s. If he is, that’s because he’s eager for a quick resolution. The same couldn’t be said for his predecessor.

Ten Years Prior, Ten Years Hence

This blog was launched at Blogger on March 14, 2005. I wrote seven (!) posts that day.

I must’ve been really excited. If you want to get a taste for what was happening then and how bad my writing was (still is), run through those posts. I’m at a more comfortable, columnist-like three or four posts a week nowadays. Will I have another post like this ten years from now? I sure hope not.

I’ll have new stuff on Monday.