Ballpark on layaway

The new CBA has a major change to its debt rule that will affect the A’s as they try to put a ballpark deal together.

The Debt Service Rule will be maintained, but the default EBITDA multiplier has been lowered from ten to eight, and from fifteen to twelve for Clubs incurring stadium-related debt in the first ten years of a new or renovated stadium.

Questions about the commissioner’s actual enforcement of the rule aside, suddenly the A’s have a little less of a ceiling to play with when it comes to building a stadium. For Wolff/Fisher, debt will be limited to 12x the team’s gross income, which according to Forbes has been $22-23 million for the past two seasons, and probably won’t change significantly this year. Should that hold steady, the maximum debt the owners could incur is $270 million. The team already has $90 million on the books, which reduces to available figure to $180 million. Let’s say the team pays down $20 million in the next year. That would put the ceiling at $200 million…

…Unless something were to change dramatically for the A’s. As Billy Beane gets rid of arbitration-year guys like they’re going out of style, the effect is that it can drive up the team’s EBITDA/gross profit. Right now the A’s payroll projects at $24 million unless they sign a series of one-year veteran deals.  Beane told Murray Chass that he’s willing to go with a payroll in the $50+ million range, which would immediately turn into roughly $10 million of additional gross profit. If the A’s maintain that level over the next two seasons, the A’s profit figure will hit $30 million or more, which would put make their debt ceiling as much as $360 million, assuming the team pays down some of its existing debt (which it can do thanks to the saved payroll).

That extra $100-150 million is a huge difference, perhaps large enough to be difference between financing the ballpark and not financing it. We should remember a few basic things about how the A’s would move forward with a ballpark, regardless of location:

  • The projected cost was $450 million for the smaller, 32,000-seat stadium. Now that MLB has pushed for a larger park (35-36,000), the cost will go up to around $500 million.
  • Cisco’s naming rights deal in Fremont was worth $4 million per year for 30 years, or $60 million in net present value against the construction cost. I think the rights are worth more in San Jose than in Fremont, which could translate into $5 million a year or $75 million NPV if the A’s wanted to reopen the discussion.
  • Wolff/Fisher have to set aside additional money for the remaining land acquisitions and infrastructure work. Depending on what’s negotiated, that could be $50-75 million.

The total cost of the stadium is well above the team’s debt ceiling, however I think a little creative accounting is at play. Financing for any stadium usually falls into two debt buckets: one that is easily secured (naming rights, sponsorships, pouring and concessionaire rights, etc.) and one that is not (tickets, actual concession sales). The easily secured stuff can have a 5% or 6% interest rate, plus in some cases (East Coast) the team is able to sucker a city or county into raising tax exempt bonds, or some other instrument which can save millions. The other stuff often hits at 7-8%, or in the 49ers case, as much as 8.5%. That’s junk bond grade debt. It’s absolutely critical that the A’s structure their debt that as little as possible is at the higher rate, which is an automatic limiting factor (this is a good thing). For that reason, I can’t see the applicable stadium debt being any higher than $250 million. Everything else will either be paid down early or locked into the “first bucket” revenue streams. MLB doesn’t appear to be as worried about the first bucket as it is the second, which also goes for the banks that will eventually provide construction loans.

$250 million at 7% over 25 years translates into $20 million in annual debt service. It’s a lot, but it’s manageable. One thing to consider is that A’s tickets, with the exception the Diamond Level seats, are generally 25-50% lower than comparable tickets at other ballparks. That leaves a ton of headroom in ticket prices that the A’s can use when establishing their 2015 Cisco Field pricing structure. Yesterday I did a quick survey of 2012 season ticket prices for several non-New York ballparks.

2012 Season Ticket Prices for several MLB teams. Dodgers prices include large discounts which may only be in effect for 2012.

Now let’s take a look what happens if the A’s, entering the 2015 season, priced tickets more in line with (but slightly less than) the going market trend.

2015 estimated prices, factoring in 4% annual inflation

What does it mean for annual revenue? If the A’s sell 2.5 million tickets, they’ll rake in over $78 million just in tickets. If they sell out the season, that jumps up to $91 million. That doesn’t include proceeds from concessions or  parking, which are worth at least $30 million more in annual revenue, or $12-15 million in profit assuming a 40% margin.

2015 projected revenue with two scenarios: total attendance of 3 million (37,000/game) and 2.5 million (30,500/game)

Now you’re getting to a magical number of $1 million in ticket revenue per game. The challenge here is to maintain at least 2.5 million in annual attendance. If attendance drops to 2.2 million per game, that’s $8-9 million in revenue not realized, and that’s when the mortgage starts to hurt. Historically, the A’s have gotten 2.5 million fans or more only three teams in their tenure in Oakland, and never prior to that. The team will be highly dependent on new fans, casual fans, and existing fans who are so turned off by the Coliseum that they don’t bother going. Overcoming that stigma will be a challenge to say the least. If the Giants, Cardinals, and Phillies are successful examples of how to deal with an eight-figure annual debt service, it’s definitely feasible.


42 thoughts on “Ballpark on layaway

  1. That kind of supports the Giants argument to keep the A’s out of San Jose, got to maintain that attendance at all costs.

  2. @Jesse – Their argument is that they need 30,000+ crowds to pay off the mortgage. They didn’t say that they needed 3.2 million every year to stay out of the red. Big difference. The great thing is that the Giants have their own attendance history working against their argument. Even when the team was horrid, they’ve never had less than 2.86 million while at China Basin.

  3. 2006
    Record: 93-69
    Attendance: 1.98 million
    Record: 76-85
    Attendance. 3.13 million

  4. Definitely shoots down the idea that Wolff was selling pieces to make a point of some kind. If he were really doing that it would ultimately have been self defeating according to this data.

  5. @Jesse,
    Got proof the A’s in San Jose will hurt the Giants attendance 45 miles to the north? (Didn’t think so)

  6. If anything I would think more casual East Bay residents would go to SF for baseball than are going now with the A’s in Oakland. I can’t imagine the majority of them would make the trek to SJ.

  7. EB – That seems to be the argument, especially considering that casual fans don’t necessarily care what team they’re watching. What better place to do that than AT & T? If you’re a casual fan of course. As beautiful as it is, I have no desire to spend any more time there than I need to (soccer, Bay Bridge series, etc. the exceptions).

  8. @daveybaby I’ve been once on someone else’s dime. I have vowed to never financially support those a-holes.
    OT, but I wonder if the A’s do leave Oakland, who the typical A’s strongholds (Oakland, Alameda, San Leandro, Berkley, etc.) will root for a generation or two from now. Would old loyalties hold out or would geography dictate things?

  9. eb, geography will largely dictate as it always does. And unless BART comes to downtown SJ, SF and the Giants will remain the more viable option for the east bay as a whole. And even if it does eventually make it to downtown SJ, SF will still be the more viable destination for points north and east of San Leandro. The Giants actually stand to gain a fair bit of ground in areas where the A’s still have some sway today while the A’s will have to fight generations of the south bay being nominally Giants leaning. In the end it should balance out quite nicely for both teams.

  10. Do the A’s really have any strongholds left? WIth a Giants Dugout store in Walnut Creek? Giants fans all over the A’s supposed territory?…Once the A’s ballpark opens in San Jose (hopefully), the existing East Bay fan base out of curiosity will make at least one trip to San Jose. And then probably another. And another. Always amazes me that a 35-mile trip (something South Bay baseball fans have had no choice but to do all the time) is equated to a 1,500-mile move to San Antonio. When I was a kid, going to see Major League Baseball meant a 2+ hour trip from New Jersey across two major toll bridges to Shea Stadium.

  11. If and when the A’s open up a new park in SJ, they are going to have to rebrand themselves with a new organizational philosophy. One way to do that is to sign high-priced free agents much like the Marlins have done with their ballpark opening. Will this be possible? I’ve always thought the answer is no since the team will be paying for much of the ballpark themselves. The debt rule modification seems to confirm that assumption. From the beginning, Wolff has stated the new ballpark will allow the team to keep their best players in town, but not allow them to compete on equal footing with the Yankees, Red Sox, et al on open market. So how is this team going to convince fans that things are different?

  12. i doubt the a’s could do what the marlins have done. marlins got a sweetheart deal from the taypayers. a’s owners would basically be paying the park with their own money along with the naming rights from cisco.
    i could see the a’s sign their own free agents thru their arb seasons and maybe a season or two of their free agent years keeping the core together but i don’t think they’d be spending like crazy after big name free agents following the 2014 sesaon while entering the sj park the very next year. similar to what cle did when jacobs field opened in the mid 90s and they had a good 3-5 year run after it opened by keeping their homegrown talent.

  13. Agree with Dan’s last post. Pending excellent teams post 2015, I’d say south of Union City and Tri-Valley will remain solidly A’s, especially with BART all the way to San Jose.

  14. When we look at the fiscal challenges of a privately built South Bay ballpark, which would have a lucrative naming rights deal and Silicon Valley $$, we can see the insurmountable challenges of a privately built ballpark in Oakland, where corporate suite and sponsorship sales have traditionally been weak and A’s owners would be on the hook for the difference between the ballpark’s massive mortgage and the likely huge shortfall in funding. Any wonder A’s owners don’t want to build there? Yet they are demonized and vilified just the same. A’s playing in a privately built ballpark in Oakland would be a bottom-level team as far as salaries.

  15. I too agree with Dan’s last post. Funny how everyone talks about the Giants losing their support in the South Bay, but hardly anyone talks about them picking up fans from the East Bay.

  16. And this is why the A’s attendance history is important. Premium seats are an important part of paying for the park. Absent a large public subsidy, it is tough to see it happening in Oakland.

  17. The A’s will definately survive in SJ and improve greatly over their current situation in Oakland, but will they ever thrive? Probably not to the level that the Rangers and Angels are/will. And probably not as much as the Giants. I think SJ will allow for more runs like 2001-2006, but I don’t think it will put them in the running for top level free agents – they will still need to evaluate talent better and get more out their young guys than other big $ clubs need to. Certainly not until a big portion of their stadium debt is paid off. Maybe my 3 year old son will be the first $100 million player the A’s sign.

  18. You would hope a move to San Jose would also translate into better TV and radio deals.

  19. @pjk,
    Respectfully brah, it’s a new year. Time to stop beating a dead horse; leave Oakland alone already. No need to continue hammering them with the corporate support, public financing, suite sales, etc stuff.

  20. @fc – they’ll still be on CSN and a local radio affiliate. Is there room for more than marginal improvement without a significant outlay of money for a team-invested radio station or network. I am guessing, so I’m happy to be educated on the topic – probably a past post on the blog I should check.

  21. Tony: Yes, but the issue of the Giants trying to box the A’s into Oakland, where the Giants know the A’s will never get a new ballpark, remains. The problem is, there’s only a few people that understand why a privately funded ballpark in Oakland only works as an act of flat-out charity, a generous donation of some billionaire that is not likely to happen. Most, including East Bay and Frisco sportswriters, still see Oakland as at least as viable as San Jose as a place to build a ballpark. So maybe my repeating the facts for the new year isn’t such a bad idea. I saw one recent Facebook post from an Oakland-only guy spewing venom at the “villain” Wolfe. I then responded about the obstacles in Oakland and the city’s failure to do anything for the team but ruin the existing stadium. The response? Silence.

  22. Glenn Dickey is adamant that he will never ever support the A’s going to San Jose. He is holding out for a “deep pockets” owner to magically appear and build a ballpark in Oakland. ML, can you post a report on this when you have a chance?

  23. Purdy says nothing in Giants loan contracts regarding TR to SJ. Says he got that info from member of BRC.

  24. What are the call #s for KQED radio? I just turned on KQED TV and it was “Clifford the Big Red Dog.”

  25. ML, for those of us that missed it can you give us the play by play?

  26. @pjk – No offense to Glenn Dickey, but he may be dead before that happens.

    Call in numbers: Forum: 415-553-2227 or 1-866-SF-FORUM (1-866-733-6786)

    Note: I was originally asked to participate in the panel, but yesterday Forum felt they had enough people there. I concur.

    @Dan – The audio will be available in a few hours. Other than Purdy’s item regarding the BRC member, there’s little new info. Though Baer is up now, it could get interesting.

    I love it. Baer is struggling to define what the “South Bay” is. He mumbles at the end that it’s Santa Clara and San Mateo Counties.

  27. The BRC thing about the Giants contracts gives me more confidence that the r rights nonsense is going to be overturned.

  28. Baer is full of shit. When asked about how much of the Giants fanbase comes from the South Bay, he said A LOT. When pressed he couldn’t give a percentage. Gave some lame excuse about how you define the “south bay”.

  29. Since it sounds like Baer is holding to the usual refusal-to-negotiate nonsense, looks like MLB will have to impose a settlement. Vote on the Santa Clara County becoming shared: 29 aye, 1 no. Then vote on a compensation amount, say $50 million, and be done wit it.

  30. @ML- Your #s are way too low for a new ballpark in San Jose of all places.

    People have $$ and they can charge a far higher rate in several areas you are projecting.

    I think you know this but since the A’s have always been cheaper they may want to stay that route when compared to other teams…..but that still makes no sense to me business wise when the general population has $$.

    20M a year is like a big contract on the books, it is very manageable considering the new revenue streams.

    One more thing….why do you estimate 60M NPV for naming rights? please explain your math to me.

  31. Hour is done. I don’t think I would’ve added much.

    @Sid – $60 million is NPV of a 30-year loan, $4 million a year at 6%. You can’t count Cisco’s naming rights as $120 million unless you’re also willing to count all of the interest and fees associated with the construction loans.

    I intentionally err on the conservative side of projections. I’ve also run a scenario that has the A’s getting another $15-20 million and chose not to publish it.

  32. @pjk “When I was a kid, going to see Major League Baseball meant a 2+ hour trip from New Jersey across two major toll bridges to Shea Stadium.”
    Kudos to you for not taking the easy route and going to see the vile Yankees.

  33. For those who listened to the KQED spot did Larry “Big Brain” Baer say anything that would be good fodder during his deposition?

  34. FWIW Slusser was on XM radio prior to the Forum interview and suggested the A’s pay off the remaining debt on AT&T (7yrs @ $20 mil) as compensation. I just don’t see that happening, especially in light of this debt rule post. Do we know if any potential compensation would be counted towards the debt rule?

  35. @gojohn10 – Hard to say. My guess is that MLB would treat it as a special case or exception.

  36. bartleby: Yankee Stadium was a bit closer than Shea but I never liked them. My uncle used to work in the Fort Lee NJ Post Office and distributed mail to a bunch of the Yankee$. But I still didn’t root for them.

  37. Jesus Christ, $24 dollars for Bleacher seats?!!?!?!?!?

    • @BleachGuy – Sad to say it. I figure that the A’s will eventually go with the trend of fully dynamic pricing, which means those series against the Astros and Royals will cost $14 while games against the Yankees and Giants will cost $34. Think that’s high? The Giants are charging $42 this year for bleacher tickets against the Dodgers. The Cubs have $78 bleacher seats for games against the Cards.

      @pjk – Owners can call a vote for anything 20 days after the request is made.

      @Sid – There may be something to that. I wouldn’t put it past the Giants and Baer to simply not be present whenever the vote is made.

  38. ML: You’re responding here to my post in the other thread but obviously I’m getting your response.

  39. MarineLayer,

    So why punish Bleacher patrons, who are the ones are actually show up 70+ times a year? As a college student, with that price, I’m sure as fuck not getting my 81 game package anymore. Hell, even half the season would be way out of the question. Fucking right I think that’s high. We don’t need to be like AT&T. Why are Bleacher tickets at Petco, a new stadium, a mere $10? Have we forgotten that many A’s fans are blue-collar people who don’t own stock in any San Jose tech companies? This proves that moving to San Jose would shut real fans out of the ballpark, while corporate suits will buy tickets and leave in the fifth inning.

  40. @BleachGuy – Step back for a second. Those prices are estimates I made based on prevailing market trends. The A’s are not anywhere close to announcing pricing for tickets at a new stadium. Do not take the prices I listed as canon.

    Maybe bleacher prices will remain inexpensive. Maybe not. There are generally two places teams price cheap seats: in the bleachers and the upper deck towards the foul poles. Sometimes both. If there is great demand at a San Jose ballpark, prices should rise in accordance. If not (like Petco), prices for the “less desirable” locations could see a drop just to bring people into the park. The only way we’ll know how it plays out is if it gets built. One thing is clear though: wherever a new ballpark is built, the cost of the new stadium will be built into every ticket price at least a little bit.

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