The post-Fremont strategy

Georob writes:

As awful as this sounds, this may be a good time to revisit the subject of contraction and why it could or could not happen.

I know you and others have stood by the theory that the only reason it was brought up last time was as a premptive threat leading up to renewing the players association contract.

People forget though that at time we were still getting over the high tech bust as well as 9/11; and that the economic future looked very shaky.

So as the dow tanks yet again this morning, I ask the question: What about now? If the Fremont project is put on hold for an extended period, the A’s won’t stay in Oakland beyond 2012, and it makes no sense to move out of the Bay Area, what’s left to do?

Perhaps this is where San Jose finally comes into play, but I’m sorry Tony; the Giants will still want to be compensated for it. And in this economic climate, who’s gonna come up with the money to do it?

Sorry, but we need to discuss contraction.

Let’s separate this into the two core issues. First, is contraction possible or likely? Second, what is the A’s next move should the Fremont plan fail?

I’ve maintained a pretty consistent stance regarding contraction over the years. The current economic downturn won’t change that. Over the last decade, the commissioner has timed talk of contraction to gain concessions – either from cities deciding whether or not to publicly finance ballparks, or from the players union during CBA negotiations. Of all MLB teams, only three remain in outdated or suboptimal facilities: Tampa Bay, Oakland, and Florida. Florida had the bulk of their legal obstacles removed in their quest for a ballpark at the Orange Bowl site, so they can be removed. Tampa Bay ownership’s waterfront ballpark plan was shelved in June, and though they may want to take advantage of the team’s success to piggyback a new deal, a fast-track situation such as the proposed plan isn’t likely. That leaves the A’s, and we know what that situation is.

In retail or the service industry, talk about closing locations comes up because they underperform as individual entities. That doesn’t really apply here thanks to revenue sharing and the fact that teams rarely if ever lose money. MLB made $5 billion last year. I don’t think they’re struggling in the least.

Contraction doesn’t work with a single team. Two would be required, thanks to MLB’s constant, serial scheduling format. Realignment would also happen, bringing two NL teams into the AL (Colorado/Arizona and one Central/East team), a prospect either target team’s owner would surely fight hard. Then there’s the issue of buying out both teams. Team valuations aren’t likely to drop much if at all, compared to the stock market and real estate. Why? Because the valuations are based on long-term deals such as stadium and suite leases, naming rights and sponsorship agreements, broadcasting deals, and of course, fans attending games. These factors tend to be locked in for years at a time, and while fans tend to be transient for the lower revenue teams, those teams aren’t going to become insolvent just because they lose a half-million fans from one year to the next. Let’s say that despite these issues, MLB decides to contract anyway. The combined price for the two teams will approach $700 million, because they couldn’t be contracted until after the current CBA expires after the 2011 season. That translates to $28 million per team. Perhaps new Giants managing partner Bill Neukom might be interested in paying $28 million to get rid of the A’s, but would any other owner? I doubt it. Even if you drop the Rays and A’s from the current revenue structure, other teams’ shares and net payout/receipts don’t budge more than $1 million (assuming the basic terms of the CBA are carried over), creating little financial incentive to perform the contractions. And would MLB be able to make up for the loss of revenue in affected parts of the country? That’s hard to say. The Giants certainly won’t change from being a $200 million revenue team to a $300+ million revenue team due to the factors described previously.

It’s for these reasons that I can’t see contraction happening anytime in the next decade.

Move, or contract and expand
The simpler prospect would be to move either or both franchises. Coincidentally, Forbes published a new article two days ago titled, “The 10 Sports Franchises Most Likely to Move.” Surprisingly, the A’s aren’t on the list. The article appears to be a bit behind in its assessments of teams, especially the Marlins’ situation. That said, the list isn’t surprising at all – other than the prospect of the Phoenix Coyotes possibly moving back to their original home, Winnipeg (Go Jets!). Moving a team is now a competitive situation. As alluring as Las Vegas once was, it has suffered significantly from the real estate crisis and probably can’t support more than one major league team. No one there is talking MLB, preferring to focus on either the NBA or NHL (hockey is more likely). An arena is planned for east of the strip, the principals being sports giant AEG and a consortium including financiers and blockbuster movie producer Jerry Bruckheimer. Other cities such as Portland and San Antonio may not be in financial dire straits, but the current credit market makes even publicly financed venues much more difficult than they were a decade ago. Sacramento is as bad off as Las Vegas, and there’s already one team there struggling to get a new venue.

I suppose there is a chance of MLB doing the same sort of “sale” that was done with the Expos when they were moved to DC. MLB and the owners effectively contracted the team, then expanded anew, extracting a franchise fee from new owner Ted Lerner. It’s a akin to a publicly traded company initiating a stock buyback program, then issuing new stock down the road. That was made more complicated due to the “musical chairs” method of shifting ownership groups among teams, and that’s one among several reasons why I don’t think MLB could pull it off again. Despite the fact that the move process IMHO was rigged in favor of DC, all sorts of machinations had to take place for it to occur. There’s no large market out there that would elicit such large offers should either the A’s or Rays be contracted and moved like the Expos. Having both available would drive down their potential post-contraction sales prices since they would be competing with each other for the same bidding pool of prospective owners. If the remaining MLB team owners’ primary motivation is to make money from the purchase and sale of one or more teams, there’s no guarantee of it now or in the immediate future.

Stay put
Wolff angered many Oakland partisans by claiming on multiple occasions that the A’s won’t stay in Oakland. Still, I wouldn’t put it past them to stay, especially if the economic mess remains for years to come. The reckoning will come in 2011, when the Raiders have to decide what to do next. It won’t be possible to house both in different stadiums within the Coliseum site due to the expense and upheaval required. Oakland and the Coliseum Authority will have to choose who to deal with. Take away your green-and-gold colored glasses, and it’s hard to say which team they should choose. Should the A’s have difficulty getting a stadium deal done outside of Oakland, they can continue their lease through 2013, stifling the Raiders’ ability to transform the Coliseum – if that’s what they want to do in the first place. The political and economic realities of getting something done in Oakland remain, though it’s possible that the next mayor may be more sports-friendly.

San Jose
That leaves the elephant-in-the-room option, the South Bay. I’ve said for a while that if Fremont falls through, the A’s will look there before they look anywhere else, including out-of-state. That’s where the A’s biggest corporate support will come from, that’s where Lew Wolff has such deep roots in the community. San Jose has the certified EIR, transit links, the land for the ballpark, and available adjacent land to be developed for other purposes.

However, there’s a question of how a ballpark would be financed. A lifestyle center shopping village couldn’t be built there. Housing could but it would be of limited height. Lastly, there’s the issue of territorial rights. There’s no reason to believe Neukom won’t be as recalcitrant as Peter Magowan.

Look at it from a different perspective. Which option, of the ones I’ve described, sounds easiest? Contracting teams is incredibly expensive and doesn’t show any tangible financial benefit for the remaining teams. Moving, or contracting and expanding, is a difficult proposition for the governing parties and also doesn’t move the needle appreciably. Staying put is still at best an interim step until the permanent move is made, wherever that is. Territorial rights negotiations may be the least difficult proposition because of its fundamentals: it’s done only within the confines of MLB, doesn’t require changes to the basic tenets of t-rights, precludes an owner from suing, doesn’t require another team such as the Rays to accomplish, and has real prospects for better revenues coming from the A’s. I continue to think that much of this still goes back to Selig, who wants to cement his legacy by having new or renovated venues and unprecedented “prosperity” in place for all 30 teams before he leaves office. Should Fremont fail, one of these options appears to be far easier to accomplish than the rest.

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