Category Archives: Giants

03.04.12
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Selig slaps down Madden report

The Chronicle’s Giants beat writer Hank Schulman has the scoop directly from the commish’s office:

And, it is not true that Commissioner Bud Selig and baseball owners have all but decided to uphold the Giants’ territorial rights to San Jose, which would preclude the A’s from going there.

There are two schools of thought in how the owners operate in regards to these kinds of votes. One is that like other political bodies, there has to be some amount of lobbying – direct or indirect – to garner votes. That’s what a lot of the traditional media and Oakland-or-bust advocates say is the big obstacle for Lew Wolff in getting territorial rights to the South Bay granted to the A’s.

Then there’s the other school, proffered by many in the national media and the local beat writers, that Commissioner Bud Selig pulls all of the strings politically, and that a vote is effectively a formality, a formal show of unity. I subscribe to this view because Selig’s body of work is testament to it – witness how Selig pushed through the playoffs expansion. It took longer than most expected, but he waded through it and came up with short-term (2012 only) and long-term solutions.

LIke it or not, that’s how Selig works. He did the same thing with the Astros sale and coming move to the American League. It’s not that he’s rallying votes or support. He’s making the deal, or “engaging in shuttle diplomacy” as Schulman suggests. The owners begged Selig to continue as commissioner until he’s 80 years old at $20+ million per year. They’re paying him to act as a mediator, facilitator, and a leader for their cause (and to some degree, baseball’s). He’s there because the owners don’t have to deal with political infighting while he’s the commish because he arbitrates practically every major issue on their behalf. That, folks, is how The Lodge works.

Note: Remember how Selig’s extension was voted 29-1, with John Moores dissenting? They retook the vote ten days later, and the final tally was 30-0.

01.28.12
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Forbes loves the Warriors

As part of Forbes’ annual analysis of the NBA, staff writer Tom Van Riper put out a piece on our hometown heroes, the Golden State Warriors. Much of the info in the article has been dealt with elsewhere, such as the differences between Chris Cohan and the Joe Lacob/Peter Guber ownership group, or the latter’s interest in a new arena in San Francisco. More interesting and revealing is this tidbit about the new TV deal negotiated between the Warriors and Comcast:

That agreement paid the Warriors approximately $50 million up front—enough to take the sting off the purchase price—and roughly tripled the annual rights fee to over $25 million from $9 million. The agreement is for 18 years, with provisions to periodically renegotiate along the way.

Indeed, the $50 million probably did help pay down debt associated with the franchise purchase. Plus they didn’t take too much upfront, as $25 million per year is a healthy amount for an NBA team – though far less than the $150 million per year the Lakers are getting. No matter how bad the team gets (and they’re still bad despite a new coach this year), the Warriors remain an attendance and ratings bonanza. So hats off to Lacob and Guber for working the numbers. The TV deal runs well past the end of the new CBA, though it’s likely the team will option out and negotiate a new one before the decade is out.

When it comes to building a new arena, the obstacles are clear. It’s hard to build in this state. It costs 20% more to build than in most other markets. There is no redevelopment money available, let alone other public funds. The Bay Area won’t approve a stadium or arena tax. Yet it’s clear that ownership sees the gleaming lights of SF and wants to turn them into dollar signs. The only issue is the cost of a new arena, which Forbes pegs at up to $1 billion. That may be true, especially if the arena can’t open earlier than 2018. I think that $1 billion is the line of demarcation. Anything under that it and it would be worthwhile to invest in arena. Above that and it’s prohibitively expensive.

The actual raw cost to build at Mission Bay shouldn’t be more than $750 million even in 2017. Material and labor costs shouldn’t rise that high. The additional cost would be to furnish the arena, which would be co-owned and operated with the Giants, Burdened by a high construction cost (mortgage), both parties would be motivated to sell the arena for every kind of event from tiny to large, so the club areas, suites, and auxiliary spaces would be decked out to a degree never before seen in the Bay Area. And it’s likely that given the locale, the teams would attract a third party interested in fronting some of the construction cost in order to secure the operations contract for the venue. That could be AEG, Global Spectrum (a Comcast subsidiary), or even the Sharks, who operate HP Pavilion.

Right now the Warriors are a mere renter at Oracle Arena, and not for cheap at $4.7 million per year and little access to non-game revenues. They don’t have a say on who runs the arena, which has led to allegations that SMG didn’t try very hard to bring in events. Last summer, AEG and Live Nation were set to bid on the next deal to run Oracle Arena. Can’t exactly blame Lacob and Guber for trying to maximize their investment, though building in SF as opposed to staying in and improving Oracle Arena could prove a more cost-effective decision in the long run.

A perfect spot for a new arena is Lot C near AT&T Park.

As the Warriors reach the end of their contract, SF and Oakland will be “forced” into a bidding war for the W’s. SF and the Giants will be ready with an infrastructure/development rights deal, probably at Lot C on the other side of Mission Creek. The lot measures 400′ x 514′ not including sidewalks, which should be enough for a typical roundrect or oval arena, though not wide enough for the circular bowl layouts utilized at Oracle Arena or Staples Center. (HP Pavilion is roughly 440′ square). If Lot C were used, only 800 parking spaces would be lost, which would be easily replaced by a garage and ancillary development on Lot A. Lot C has a T-Third stop right outside it, plus Caltrain is only a few blocks away.

Oakland and Alameda County’s pitch lies squarely in the Coliseum City concept. By the time the cities get to brass tacks, we should know where the A’s and Raiders will be playing in 2014 and beyond. The A’s have a long-term play, the Raiders have both short and long-term scenarios. If both teams were to sign onto Coliseum City, it’d be very easy for the Warriors to partner up with everyone else. If the A’s and Raiders are headed elsewhere, it would be difficult to convince W’s ownership to shoulder the load for Coliseum City, especially if a compelling offer were coming from across the bay. I’ve advocated in the past for a downtown Oakland arena or one at Victory Court, but the cost to make that happen would probably be higher than the already city-owned lots in SF, so that’s not happening.

All the while, David Stern (or his replacement) would be pumping up the “need” for the Warriors, just as he’s done in practically every other city. The Cohan-era Warriors were analogous to the Autry-era Angels, in that they were generally undervalued and have great potential. Lacob and Guber intend to make good on the potential, preferably both on and off-court, though they’ll settle for off-court at least in the near term. If that path leads across a shiny new east span of the Bay Bridge, so be it. At least they don’t have territorial rights standing in their way.

01.17.12
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News for 1/17/12

Today I did an TV interview on Get Real with Brian Stuckey, a show produced out of CreaTV San Jose. CreaTV is a non-profit to whom Comcast has farmed out all of their public access programming for much of the South Bay. The segment will air January 30 on Comcast channel 15 with a web stream simulcast, so my ugly mug won’t show up until then. I doubt anything will have fundamentally changed by then, but you never know.

On to the news.

  • Matier and Ross report that nothing official happened on the A’s-to-San Jose front. That’s true at least when it comes to making a decision or coming to a compromise plan. We set those expectations going into the owners meetings. Yet background work did occur, including the presentation to the executive committee and Selig’s statement that the A’s are now on the front burner. Write that off all you want, it’s movement that wasn’t happening six, nine, twelve months ago. Remember that as incalcitrant the Giants are, there’s always the threat of binding arbitration to force the Giants’ hand. Commissioner Selig won’t give San Jose a greenlight for a vote (for either MLB owners or the city referendum) unless the Giants drop their lawsuit, making the legal action the last real weapon in the Giants’ arsenal to block the A’s efforts.
  • While the Giants are doing everything possible to stop A’s ownership, they’re actively encouraging new arena deals. We all know about their overtures towards the Warriors. Yesterday, Larry Baer gave a pep talk to Sacramento civic leaders pushing for a new downtown Kings arena. Baer said that after four defeats at the ballot box, the effort to get a ballpark going was “worth the fight.” I imagine that Lew Wolff feels the exact same way, Larry.

“It can be done, don’t give up,” Baer said. “You must persevere, you must exercise patience, you must have strong leadership in the private and public sector.”

When a man’s right, he’s right.

  • While the Oakland-only crowd was eager to jump on a graf in the M&R report, they buried the lead: Thanks to the death of redevelopment, the City of Oakland will have to cut 200 jobs and hand out 1,500 pink slips. The Mayor and City Council may also have to take huge cuts in pay on top of cuts already taken last year. How does this affect San Jose? Not that much, since as of the end of 2011 there were only about 10-12 people left in SJRA, with budget cuts and changes already enacted. Not that San Jose actually anticipated the change. SJRA’s fiscal issues forced it shut down early.
  • Less than three months from the opening of the Marlins Ballpark in Miami, and there’s no solution for funding transit options that can bring fans from downtown or the nearest Metrorail (BART-like) station.
  • The Cubs are replacing their right field bleacher section with a Green Monster Seats-style party deck, fronted by one of those new-fangled LED scoreboards.
  • Santa Clara’s City Attorney declared a petition effort by 49er stadium opponents illegal. That doesn’t mean the opponents can’t sue. We’ll see if they have the resources to sue for the right. We’ve seen this happen before.

On a lighter note – since Jeffrey and I will both be at FanFest, would any readers like to do a meetup? Not exactly sure of where we could do it, we can talk through the details.

01.11.12
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Owners Meetings and FanFest Open Thread

Update 5:44 PM – These tweets from Sports Business Journal’s Eric Fisher look important:

Now the original post:

Again, I don’t expect anything to happen at the owners’ meetings other than Bud Selig getting his extension and some rules-related changes. Yet there is this fresh off the wire from Mark Purdy:

It’s probably nothing. Or is it?

There is other news. Today I was asked to participate in the Blogger Event at FanFest. Naturally, I accepted the invite. Interviews with players and such are not where this blog usually goes, but I appreciate what the A’s are doing to work with the blogging community, so it’s incumbent upon me to reciprocate. Any ideas on how I should do this? Does anyone with a video camera want to tag along? I’m open to suggestions.

In the meantime, read Wendy Thurm’s (@hangingsliders) excellent post at SBNation detailing a very reasonable solution to compensate the Giants for territorial rights.

12.29.11
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Taking stock as the post-redevelopment era begins

It’s never too early to declare winners and losers that were made as a result of today’s earthshattering news.

First the losers:

  • Backers of the Victory Court site. The site was heavily dependent on tax increment (redevelopment funds) to buy the land and pay for improvements. Now that’s out of the question.
  • The City of Oakland. Strategically, it chose to sit back and wait for the originally passed “pay-to-play” ransom plan, which was scuttled today. Now they not only have no way to do redevelopment, they’re stuck trying to figure out how to fill in major holes that have just opened in the City’s budget that were filled by a large redevelopment operating budget.
  • San Jose Redevelopment Agency. As far as old school redevelopment goes, the City is now handcuffed with no way to raise funds. Of course, the City had already been choking the life out of SJRA by finishing several projects, laying off staff, and not taking on new projects. One word: prescient.
  • Affordable housing advocates. Not directly related to stadium building, but it’s a big point of emphasis for redevelopment backers. And consider this: any large mixed-use plan including residential development in any major city in California would require an affordable housing component. Who’s gonna subsidize that now? Already, San Diego is looking for a legislative means to bring back a scaled down version of redevelopment with a focus on affordable housing.
  • Oakland Raiders. Any options the Raiders may have been considering elsewhere in Bay Area (aside from the Coliseum and Santa Clara) have to be considered nonstarters at this point.
  • Redevelopment agency employees. Many agencies had planned for the “pay-to-play” scenario. This is armageddon. Good luck to them.
  • Anyone with a downtown gentrification initiative. Those projects are now for the birds.

The winners:

  • Lew Wolff and Baseball San Jose. If Wolff and his people were secretly rooting for redevelopment to wither and die, they certainly weren’t showing it. But the decision today has such wide ranging, powerful effects on municipalities throughout the state, that’s it’s easy to envision Lew Wolff sitting in his office, thinking, Okay, that narrows the field. With the MLB panel’s report distributed prior to today’s news, they probably laid out several scenarios, and the owners have to be aware by now the ramifications – if not by the panel’s report, then by the news reports. And that plays right into Wolff’s plans. If there was ever a tipping point event for a decision on San Jose, this is it.
  • San Jose Mayor Chuck Reed. It was Reed who oversaw the winding down of SJRA and the creation of SJDDA (SJ Diridon Development Authority) to sidestep the state raid. There may be a legal challenge against SJDDA, but where will it come from? The State doesn’t have the resources to start going after dozens, if not hundreds of redevelopment agencies. Santa Clara County might, but it seems the County got what it wanted by having redevelopment eliminated. Everything else is a matter of negotiation. As noted before: prescient.
  • San Francisco 49ers and Santa Clara. They got their tasks done before the end of the year. Now it’s a matter of selling suites and seat licenses, plus getting the Raiders on board.
  • Your local municipality’s General Fund and local schools. While the State will get a portion of the newly realized tax increment, part of it will be returned to cities, counties, and school districts. For cities with very large redevelopment areas such as San Jose and Oakland, this could actually mean a windfall of sorts, or at least a way to shore up their budgets. How much will it help? That’s for the bean counters to figure out.
  • Governor Jerry Brown. The beautiful irony of this situation is that Jerry Brown used redevelopment in Oakland as a stepping stone to get him back in power in Sacramento. Now he’s killed redevelopment. That’s an experienced politician.

Too early to tell:

  • San Francisco Giants. The death of redevelopment may tip MLB in the A’s favor. Then again, it may not. One thing to consider: the Giants overtures towards the Warriors about getting an arena in Mission Bay may be negatively affected by the ruling.
  • Backers of the Coliseum City plan. The Coliseum is part of a separate joint-powers agreement which allows the Coliseum Authority to raise money for its own projects. The track record isn’t great (Mt. Davis) but the power remains. Still, Coliseum City came about as part of a major planning and redevelopment initiative in and around the Coliseum and Airport. Now at least half of that project has been rendered irrelevant, which could have cascading effects on the Coliseum. On one hand, the Coliseum could be considered one of the only places with land where something could get done. On the other hand, the Coliseum is still pretty much limited to contributing site and infrastructure improvements, with little ability to contribute directly to any new facility or refurbishment. It’s also at the mercy of private developers to flesh out Coliseum City, which given the area, is definitely not a given.

It was hard enough getting something built in California with the state of the economy. Now, if you don’t at least have something already underway or an existing facility or land from which to base improvements, you may as well not show up. Redevelopment as an industry is over. Now bring on the new industry of “creatively” financing traditionally redevelopment-oriented projects.

12.26.11
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The Payoff

Update 12/27 5:40 PM – A report at MLB.com has Lew Wolff saying there is no movement on the stadium front yet. Yet.

Update 8:54 PM – Interviewed by Rick Tittle and John Dickinson on The Game (MP3), Bob Nightengale has the estimate at $50-100 million, which would fall in line with the other cases listed below. Nightengale guesses that the number will be less than what the O’s received, with some chance to compensate the Giants for lost attendance. (Thanks letsgoas)

There’s been plenty of discussion about a the A’s leaving Oakland for San Jose. Little has been said or written about what deal will have to be struck to make the move happen. The Giants have consistently said there is no acceptable price for ceding the South Bay, while the A’s would prefer they get the Valley for the same price Wally Haas gave it up in the first place: zero. Obviously, that’s a massive gap to bridge and neither side is going to get exactly what they want, so a compromise is in order. As much as I’d like to think Commissioner Bud Selig has spent significant effort in crafting a solution, I can’t help but think that he’ll simply go with whatever his handpicked panel put together (probably as early as 18-24 months ago).

The Giants believe the South Bay market is practically priceless, though they’ve surely been pressed privately by MLB, and upon being pressed, the market for them is worth nine figures. My semi-educated guess is that they said $200-250 million, which is representative of potential franchise value change for both the Giants and A’s. I mentioned in the last post that some within the Giants camp believe that if the A’s left the Bay Area altogether, the Giants’ valuation could jump as much as $500 million, making them a superteam with the Yankees, Red Sox, and the LA teams.

Roger Noll has estimated the value at $20-30 million, which has to be at the low end of the spectrum (I can’t see $0 happening). Some recent owner compensation examples also exist:

  • 2005: Peter Angelos (Orioles) gets a guarantee of at least $365 million for a future franchise sale price and $75 million to start a new regional sports network that would carry both the O’s and the soon-to-be Nationals. Half of the $75 million came from MLB, the rest came from the future owners of the Nats. The Orioles did not technically have territorial rights to DC.
  • 2011: Jim Crane (Astros) gets a $70 million discount from the original $680 million price for the franchise. Again, half came from MLB, the other half came from seller Drayton McLane. The discount was negotiated as the price to move the Astros from the National League Central to the American League West. The discount doesn’t necessarily mean any cash changed hands.

So it seems that MLB has a sort of standard in place when it comes to offering a compromise: fund half and make the desirous party pay the other half. Both the Giants and A’s know this, and it’s possible that Selig, wanting to cut to the chase, has already offered something to this effect. That brings us back to the number. Territorial rights (with regards to stadium placement) were at stake into the two aforementioned scenarios, which means they can’t be counted on as exact precedent. The method is in place, so there’s at least indicator of what could be done. While many fans and much of the media think of Selig’s panel as either a ruse or a joke, I think they’re quite important in terms of determining a fair value. That’s what’s really at stake here, not so much whether the Giants’ entitlement to the South Bay or A’s request for it are valid.

In August I brought up the Zito trade option again. He’s owed $19 million next season, $20 million in 2013, and either an $18 million full salary in 2014 (unlikely at this rate) or a $7 million buyout. That’s $46 million guaranteed to the former Cy Young winner, whose combined WAR in five seasons in orange and black is 6.6. I’m not particularly interested in a Zito return to the A’s other than it’s a business win-win for both teams. That the $46 million is essentially equivalent to $90 million in revenue over those three years based on how much revenue is allocated to team payroll, which is more meaningful in terms of putting together assets for a T-rights exchange agreement than a specific bottom line argument. In any case, moving Zito will make it much easier for the Giants to swallow the likely $20+ million arbitration award Tim Lincecum will get next month, and long term, easier to sign both Lincecum and Matt Cain for the next five years or so (combined: $350 million?). I’m the only person with any standing talking about this, so I won’t belabor the point any further.

Then there’s the issue of the remaining debt service on AT&T Park. Remember that this was the original argument put forth by the Giants, and it’s a valid one: $20 million per year through 2017. They even took it a step further by having SF City Attorney Dennis Herrera threaten MLB with a lawsuit because a move by the A’s to San Jose would hamper the Giants’ ability to pay SF its measly $2,000,000 in land rent, along with property and sales taxes. Legal sabre-rattling aside, what it comes down to is the years 2015 through 2017, which if a San Jose Athletics ballpark were to move forward, would be the years when debt service for both venues would be in play. The Giants argue that half of their fanbase and revenue comes from south of San Francisco, which means that their ability to pay half of the debt service would be in jeopardy. Taken at face value, the risk is $30 million, which may be where Noll gets his compensation estimate.

The big takeaway rumor I got from the GM Winter meetings a three weeks ago was that supposedly the Selig panel report was made available. If so, it probably has one or more recommendations on moving forward, including a primary consensus-building option that Selig has rubber-stamped. Only The Lodge knows what that is. Personally, I hope it’s something creative and not a simple cash payment, since that may not properly address both teams’ concerns and may handicap the A’s unnecessarily. The A’s are a gimp as they are right now.

At The Biz of Baseball, Maury Brown thinks that if the two sides can’t hammer out a compromise on T-rights, binding arbitration may be in order. That could explain why there’s talk of a final February solution. Player arbitration occurs during the first three weeks of February, so it wouldn’t be out of line for MLB to use the same resources take care of the A’s and Giants once and for all. Certainly there isn’t much in terms of precedent compared to negotiating a deal with a Super Two, but the principle is the same: the two parties name their figures, and a judge reviews the situation and picks a winner based on the one that is closest to market value. No appeals, no lawsuits (per ML Constitution), no whining. The important thing there is that since the winner is based on the appraised market value, there’s a sort of built-in protection from the sides making overly outlandish offers, since an unreasonable offer is more likely to be dismissed.

That leaves one question: Why has it taken this long? I suppose the reasoning is twofold. MLB wanted to defer to the Giants, who are still paying for China Basin and as mentioned, have six years left on the mortgage there. That ties into making the pain of compensation by the A’s (and MLB?) less since with every year that elapses, another $20 million comes off the ledger. That’s a big deal. Imagine if the A’s started playing in San Jose this past season. MLB would’ve had to account for seven years of debt service at AT&T Park, or $140 million. Even if that’s split in half, that’s nearly as much as the highest payroll in A’s history. Unfortunately, the collateral damage for the delay becomes the excruciatingly ongoing limbo of the have-not A’s. At least an end is in sight.

12.23.11
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The new Moneyball is… Money

Consider for a moment: the $51 million posting fee paid by the Rangers for the opportunity to negotiate a contract with Japanese pitcher Yu Darvish will surpass the entire 2012 A’s payroll by $15-20 million. We’ve heard enough about the big moves the Angels made. The Mariners are debating whether or not to sign Prince Fielder. Or not. The Astros have a lame duck year in the NL Central before moving to the AL West for good. By the time the Astros enter the AL West, they should be on an upswing with a new, rich TV deal and an incentive for Jim Crane to retain fans because of the move.

MLB and MLBPA announced yesterday that the sum of all salaries for the 2011 season was just a shade under $3 billion. I’ve heard that total revenue was $7.2-7.5 billion, which would put the salaries at only 40-42% of revenue. Average salary was around $3 million. In that same release was the point that only two teams paid the luxury tax: the Yankees ($13.9 million) and Red Sox ($3.4 million). The new CBA is set to be more punitive against luxury taxpayers, but no one should think it’s going to seriously deter the Yanks and Red Sox. If it were a dollar-for-dollar tax as in the old NBA agreement it might have teeth.

Going back to the AL West, there’s a tasty blog entry by the Seattle Times’ Mariners beat writer Geoff Baker about the M’s long-term prospects. Plans are complicated by the ownership situation there. Majority owner and former Nintendo head Hiroshi Yamauchi may be looking to end his ownership tenure, the same way Drayton McLane slow-peddled the Astros for years. The natural choice to take the reins may be minority partner Chris Larson. Unfortunately for he’s embroiled in a messy divorce that has frozen any chances of pulling something off in the near term. (Doesn’t it seem like the only ways owners sell teams – McLane the exception – is because of a divorce or bankruptcy?)

Baker mentions that if the M’s were to be sold, the franchise’s price would be anywhere from $551 to $750 million. That’s an enormous difference. Much of that new value is based on the potential for the M’s to launch their own regional sports network, though they’re locked into an agreement through at least the 2015 season.

Back home in the Bay Area, the Giants (and Angels) are taking advantage of the Dodgers’ malaise. The Bums aren’t going to be down for too long, as they’ll be the recipient of a $4 billion TV deal when they’re allowed to negotiate it. Fox and Frank McCourt have been duking it out in court over when this can happen. McCourt won a battle last week, but today Fox was granted an injunction to stop any sale until their appeal is heard in January. Regardless of the outcome, the new Dodgers owner will be flush with cash thanks to $200 million a year coming just from TV. While the Giants are holding firm to a $130 million payroll, soon the Dodgers will be able to field that payroll without selling a ticket. That, combined with their dubiously perceived threat of the A’s moving to the South Bay, has to scare them a ton. The Giants already have hegemony over the region, and by region I don’t just mean the Bay Area, I’m referring to the 14 million throughout Northern California. They have ownership stakes in the flagship radio and RSN outlets. The sell out China Basin. What else can they do besides hiking up ticket prices sky high?

Surely the Giants have to be thinking about getting more revenue in hopes of matching the Dodgers, even if it means alienating cable partner Comcast/NBC/Universal. It could mean renegotiating the current deal or starting their own network, probably in conjunction with the Warriors, who may be SF-bound. They’d have to go to the trouble of divorcing Comcast, which as we found out with the Orioles/Nationals, isn’t exactly a cakewalk. Still, it’s something that should be explored since the Giants get more households viewing their games than the Angels, yet the Angels stand to make tons more from TV than the Giants.

Moreover, the Giants have to be drooling at the prospect of the A’s leaving NorCal entirely. That would give the Giants completely control over the 7.2 million-strong Bay Area and 14.5 million-strong NorCal region. That last number would put the Giants in control of the largest one-team market in the nation, even larger than the whole of New England (which divides Connecticut between the Red Sox, Yankees, and Mets). One baseball insider I spoke to said that if the Giants got the market to themselves, their franchise value could go up as much $500 million. A billion dollar franchise in SF. That’s the Giants’ gambit. It’s nakedly aggressive and greedy, and it shows in their vociferous defense of territorial rights.

If MLB rules for the A’s to go to San Jose, expect the Giants to go hard at the RSN market. It might start with an attempt to raise the subscriber fee for CSNBA, which shouldn’t be a big deal for Comcast since they’ll get to reap the benefits as well. It would start protracted negotiations with other TV providers such as DirecTV, Dish, Charter, Verizon, and AT&T (oddly enough). And if the Giants weren’t getting enough, they could use their market presence and power to start their own network, Comcast be damned. That would actually be good for the A’s, since it would for the first time create real competition within the market. Right now having Comcast as the only game in town severely depresses the market for the A’s TV rights, even though ratings-wise they’re similar to the Angels. If the Giants were to leave, Comcast could latch onto the A’s as Fox did the Angels, a desperate move to keep valuable content in-house. The A’s could start their own network with the Sharks and Earthquakes, but they wouldn’t be able to muscle Comcast the way the 800-lb. Giants can. (For those who think the cable monopolies will wither as games and other content are going to IP-based solutions with the providers as dumb pipes – think again. There’s too much at stake.)

With all of that in mind, while I’m rooting for the A’s to be able to explore San Jose to keep them in the Bay Area, I’m rooting for the Giants to push forward with their own network and get more revenue, since the move should have positive cascading effects for the A’s as well. Alas, we’re a ways off from anything like this happening. Hang in there, A’s fans.

12.11.11
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Restraint of trade

It can be easy to forget that for all of the work Angels owner Arte Moreno has done to boost his franchise, the team has never won a World Series under his stewardship. Moreno bought the Angels from Disney at the outset of the 2003 season, as Orange County was still in its championship hangover. Renovations to Angel Stadium were only five years old, and the future seemed limitless. In the nine seasons Moreno has been at the helm, the Angels have gone to the postseason five times and the LCS twice. Moreno courted a PR disaster and was the butt of jokes when the team was renamed, but he emerged from that relatively unscathed as he curried favor with fans by dropping ticket and concession prices. Now Moreno has built up a huge amount of community goodwill and is cashing in two ways: by getting a new TV deal and signing Albert Pujols and C.J. Wilson. These moves are clearly designed to win that elusive World Series and perhaps to also gain parity with (if not surpass) the Dodgers. It’s a bold gambit that could pay off huge.

The Los Angeles market is defined as Los Angeles, Orange, and Ventura counties. All told, the combined population of the three counties is nearly 14 million. LA TV rights also extend up into Central California and east into the Inland Empire (Riverside/San Bernardino), adding another 5-6 million residents. Like the Chicago and New York markets, Los Angeles is shared. The Bay Area, through a series of procedural mistakes, is gerrymandered by county, five to two in favor of the Giants. Recently there has been some speculation that when the Wolff-Fisher group bought the A’s for $180 million in 2005, that price was a discount reflective of only having two East Bay counties, and certainly didn’t include Santa Clara County. It’s practically impossible to verify this kind of extremely inside baseball information. What we have to go on are the sale prices of the various franchises at different points in time. The last major sale of the Giants (to the Magowan-Burns group) occurred in 1993, for $100 million. The A’s were sold by Wally Haas to the Schott-Hofmann group in 1995 for $95 million. Back then franchises didn’t appreciate at the rate they have been over the last decade. The prices look pretty even, thus making it difficult to pin down what premium for the majority of the Bay Area actually exists.

Wolff-Fisher paid roughly the same amount for the A’s that Moreno did for the Angels two years prior. However, only a year after Moreno bought the Angels from Disney, Fox sold the Dodgers to Frank McCourt for $430 million. That figure included Dodger Stadium and its surrounding real estate so it’s an entirely fair comparison, but it’s clear that some premium was baked into the price by virtue of the Dodgers brand and presence in Southern California.

Franchise sales over the last decade

Good luck trying to find some consistency in the above table. The Brewers were sold to Mark Attanasio at the same time Wolff bought the A’s. Milwaukee is a smaller market than the Bay Area (or even the East Bay) but it has a new ballpark, which makes a big difference. The Marlins were worth less than the A’s and were subject to the same stadium issues. The Nats’ price was essentially a franchise expansion fee, done solely to get the best return for the other 29 owners and MLB as possible. As you would expect, the sale price was grossly inflated. The Rays sold for more than the A’s (and Angels) a year prior, also with poor stadium prospects in a worse market than Miami.

Given the history of franchise sales, it’s hard to argue what a proper premium would have been for the A’s in 2005 had the Bay Area been shared instead of split. $20 million? $40 million? Forbes had the Giants’ valuation at $381 million. At least a third of that could have been wrapped up in AT&T Park, some other amount related to being the team with the more established and historically larger fanbase.

With a renovated ballpark and a rejuvenated fanbase in his pocket, Moreno did what any good marketing wonk would do – shore up weak areas such as actively selling throughout the entire LA Basin and radio contracts. The freshly inked TV deal is another major step towards achieving parity with the Dodgers, a World Series win will be a crowning achievement. Wolff and Fisher, who bought the A’s for a similar amount two years later, have taken numerous backwards steps such as tarping and the constant trading of young talent. They’ve also worked on attaining better radio and TV deals and have been successful doing so. Unlike the Angels, the A’s are severely restricted in terms of where they can build a stadium, and it has done nothing but put the team in a corner while the Giants continue to enjoy near complete hegemony over the Bay Area. If the price for the A’s did not include Santa Clara County or a shared Bay Area, they are surely paying for it now with the worse economy, more difficult climate to build, and the roadblocks the Giants continue to put up to delay or stop the A’s. The team is going to take several years to repair the damage caused by all of this. If it doesn’t start soon, it may never happen.

05.22.11
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The Neukom Doctrine

In the mid-90’s, Microsoft was at the top of the world. With unmitigated dominance over the computer operating system market, smaller competitors were crying foul as Microsoft used its stature to enter new markets and take them over. Often MSFT did this by bundling features into Windows for free, such as its Internet Explorer browser. This strategy was called “embrace and extend” though it really meant “embrace, extend and extinguish” to competitors, as Microsoft frequently added features that would lock out competitors.

Giants managing partner Bill Neukom is no stranger to this strategy, as he defended Microsoft’s practice of it during his tenure as general counsel until he left the company in 2002. Initially he and Microsoft lost the landmark antitrust case against the Department of Justice in 1999, only to have the decision overturned by an appellate court. The company and the government eventually settled out of court, which allowed the company to stay intact (DoJ was seeking to break it up). Historically, the decision for Microsoft is viewed as a somewhat pyrrhic victory, as it has struggled to innovate in the face of Google, Apple, and smaller upstarts over the past decade, resulting in flat stock performance during that period.

By building AT&T Park, Peter Magowan initiated his own form of “embrace and extend” with the fanbase by choosing a more attractable, accessible location for the Giants than the windy, transit-poor Candlestick Park. Suddenly it became much easier to bring in fans from throughout the city proper, plus well-heeled fans in Marin County (via ferry) and the Peninsula (via train). The Giants got the added bonus of tons of fans coming from the East Bay via ferry and BART. Many of those fans were ex-SF residents who moved out to warmer, cheaper suburbs like Concord and Pleasanton. In doing so, they struck at a huge part of the A’s East Bay fanbase, and while many of the hardcore A’s fans would stay allied with Oakland, the A’s lost one very important demographic: Giants fans who could frequently go to A’s games as a more accessible substitute.

Since then-A’s-owner Steve Schott couldn’t object based on the fact that the Giants were building within city limits, all he could do was to deal with it and look to improve the A’s stadium situation, which he tried with Lew Wolff at the HomeBase site and in Santa Clara. The former was declined by Coliseum officials, the latter by Santa Clara officials when rumors of Schott wanting to sell arose. Schott also infamously didn’t show for a presentation on Oakland’s Uptown site, which is the very least he should’ve done – even though Jerry Brown was never going to let an Uptown ballpark happen on his watch.

Neukom further extended Magowan’s strategy by acquiring the San Jose Giants. He also had the World Series trophy paraded all over the East Bay – though not Oakland, obviously. Now, he’s preparing to make an interesting choice regarding the Giants’ future.

Since the beginning of his tenure as managing partner, Neukom has been steadfast about the Giants’ territorial rights to Santa Clara County. The argument goes that the value of those rights was baked into the financing of AT&T Park, which means they’re also baked into the franchise’s value. As such, they’re sacrosanct and not up for negotiation. Naturally, being steadfast is not the only option that he has since Bud Selig may choose to nudge him in one direction or another. With that in mind, it appears that Neukom and the rest of his ownership group have three distinct options moving forward.

  • Don’t budge, let the A’s leave the Bay Area. The Giants have said publicly that they “hope” that the A’s are able to work out a ballpark deal in the East Bay, since it would respect the existing six-counties-to-two distribution of territories in the Bay Area. Secretly, they have to be hoping the A’s fail completely in the Bay Area and are forced to look elsewhere. The only really advanced threat of building in either Alameda or Contra Costa Counties was when Pacific Commons was in the planning stages. It concerned Magowan and Giants President Larry Baer enough that they scouted the location to see how close it was to Santa Clara County. With Fremont a bust and many outside Oakland skeptical that a privately financed ballpark deal can be done in Oakland, the Giants have to be licking their chops at the thought of a Bay Area completely to themselves. While there don’t appear to be any good relocation markets for the A’s at the moment, there’s no certainty that will remain so five or ten years down the road. Should the A’s leave the Bay Area, they would be compensated by the Giants for ceding the East Bay. The interesting thing about such a transaction is that like the Giants ceding Santa Clara County, it would place a price tag on a territory. If the argument among the big market teams is that they don’t want to see such a precedent, then they don’t want either outcome to happen. Strange, huh? It would get even more complex if the A’s were to move to Sacramento as Baer has suggested, because the A’s could lobby MLB hard to split up Northern California to gain exclusivity over much of the region up to the Oregon border and Northern Nevada, the same way Warriors and Kings TV territories are split. The split would be damaging to the the value of the Giants’ TV rights since they’d give up millions of households every game. The result is ultimate dominance over the Bay Area for the Giants, but a huge loss throughout their broader territory. From a bottom line revenues standpoint, it’s hard to say how much this helps the Giants. If the A’s move out of state, the Giants pay nine figures upfront. If the A’s move to Sacramento, the Giants lose money on an annual basis. There have been rumors about the the Giants being willing to pay off the A’s to leave, so it’s not like both teams haven’t thought about it.
  • Don’t budge, keep status quo. This option assumes many events occurring in sequence. First, Lew Wolff (or whoever the owner is if Wolff sells) would have to stay in the Coliseum several more years past the existing end of the lease while working out the details of a ballpark in Oakland. It also assumes that MLB absolutely believes that a privately financed ballpark deal can be and is being done in Oakland. The Giants would be fine with this as it maintains regional hegemony. It might not work quite as well for MLB. If the A’s have trouble filling the ballpark due to poor performance, high priced tickets, or both, the A’s will have an extremely bad debt position for MLB to deal with. As long as the A’s struggle (whether in old or new digs), the Giants will continue to essentially pay part of their revenue sharing payment directly across the Bay to the A’s, which could be $20 million or more in coming years. Remember that the Bay Area is the only market where one team effectively subsidizes the other. That’s another situation that has to give MLB and Giants ownership pause.
  • Allow the A’s to move to San Jose. Again, Neukom has been steadfast about not allowing this. How bad would the Giants be damaged? Once you remove TV money and other Bay Area local revenue, I figure that Santa Clara County alone is worth at least $25 million per year in revenue to the Giants (back of napkin guess). That’s a lot. That pays off AT&T Park all by itself and then some. Neukom’s argument is that they’d lose that revenue. Wolff and South Bay proponents counter that hardcore Giants fans will remain that way and the Giants’ losses won’t be so deep. In particular, Wolff has argued that the league should look at compensation for T-rights on an annual basis, where a threshold is set and the A’s pay for the gap that doesn’t meet that threshold. Whatever the compensation model, I don’t think the Giants would lose $25 million annually. They’d probably lose 50% of that number since many of the fans are casual and both fans and sponsors can be replaced by East Bay fans. Years ago Magowan floated a number like $100 million for Santa Clara County, while Roger Noll estimates that the actual value is around to $20-30 million. If you’re Neukom and his partners, how do you attack this? A one-time payoff, even $100 million, dissipates within 7-10 years and doesn’t do much for franchise value (currently $563 million). Noll’s number is a mere pittance to them. Even if the A’s come off revenue sharing, it doesn’t mean the Giants won’t stop paying in – they most assuredly will continue to pay, though a few million less every year. The best thing for them may be to simply shut up. But that sets up the possibility that Selig will name the price for them.

No matter what Neukom decides, it looks like he’ll have to pay. He either keeps paying to keep the A’s in their stadium rut, he pays them to leave, or he gets less revenue if he cedes the South Bay. With the aura of the World Series and record revenues pouring in, such a possibility seems extremely remote. When the time comes to figure out how all of this should work out, that glow will be the furthest thing from his mind. By no means am I sympathetic to either Neukom or Selig for dragging this out for more than two years, but this is a thumbnail sketch of the dilemma and it took 1,600 words. What price hegemony? It’s definitely not cheap. Or easy.

05.18.11
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Blame it on the rain

Lately baseball writers have been looking far and wide to figure out what is keeping fans away from ballparks this year. Poor weather is the most often blamed culprit, thanks to 30-and-counting rainouts this season, 9 more than the entire total in 2010. Frank McCourt is also shouldering much of the blame, since the malaise hovering over the Dodgers is driving fans away from Chavez Ravine. Worse, the optics of ballparks with much worse (unannounced) turnstile counts than ticket sales makes the problem that much more apparent.

MLB isn’t alone in this regard. The NFL posted two straight annual attendance declines before bouncing back last year. NBA attendance has been flagging while the NHL has surged post-lockout. With the economy still spotty in many places, on-site pro sports consumption is considered something of a luxury for many consumers, making long-term commitments a tough sell in tough times.

We’re just past the quarter pole of the season, so I figured it was a good time to take a look at this. I’ve sampled off attendance statistics throughout the league, cutting off the last two seasons at May 20, 2010 and yesterday, respectively. The high number of rainouts this year and the generally irregular nature of the schedule makes it difficult to get a completely even comparison, so this was as close as I could get. While the Dodgers are the obvious trending team, when you look at the table below you might see something different.

Gains for last year’s two World Series participants, Texas and San Francisco, have more than made up for the Dodgers’ decline. In fact, the top five gainers have surpassed the losses incurred by the top five losers. Yet league attendance has gone down nearly 1% per game. The Dodgers are part of the economic foundation of the league, and once McCourt is rightfully ousted and a another owner enters the picture, the team’s attendance will be well on its way to recovery. So what’s the real problem?

If anything, the problem is the number of no-shows. Only the league and the teams know the actual number of people entering each stadium. If the announced crowd is double that of the actual number of people who show up, that could add up hundreds of thousands lost each game in terms of concessions and merchandise revenue. Take the A’s, for instance. The last two crowds were announced to be over 10,000, even though it was abundantly clear that far less than 10,000 were present. 5,000 no-shows x $10 per fan spent = $50,000. The A’s are used to this, so they staff accordingly for it and make it up on the back end thanks to revenue sharing. On the other hand, the Dodgers might have as many as 20,000 no-shows for a home date. 20,000 no-shows x $10 per fan spent = $200,000, and that might be conservative. Get 50 home dates like that, and suddenly the Dodgers have lost $10 million over the course of the season. If there’s anything that should provide impetus for Bud Selig to act on getting the Dodgers settled ASAP, that’s it.

As for the weather, that’s going to remain a tricky issue as the season progresses. The May 11 A’s-Rangers rainout had only one realistic makeup date thanks to complexities within the schedule. That date was July 7, which was confirmed earlier this week. Since teams can’t play more than 20 dates in a row and off days are scheduled to prevent that, putting a makeup date in one of those late season off days creates a risk of playing that kind of really long streak. The unbalanced schedule doesn’t help either because there’s no guarantee that one team will play an interdivisional opponent late in the season in a way that a makeup game can be accommodated. Worse, rainouts that are made up the following day as part of a doubleheader aren’t counted as part of attendance, which makes them a net loss on their own. Teams in the Midwest and East Coast are going so far as to preemptively postpone games, with upset fans reporting that the actual conditions at the cancelled game time weren’t as bad as feared.

We could run into a situation in which this season, which is to end on a Wednesday (September 28), may be strung out one or two days later to properly account for all teams in contention fulfilling a 162-game schedule. That would incredibly ironic because this season started on March 31/April 1 to ensure that the regular season part ended early and the postseason wouldn’t stretch too far into November. Looks like Selig and the competition committee might run into a solution for the rainouts that doesn’t solve their postseason problem. Maybe Selig is looking forward to a prolonged NFL lockout, which would cause MLB to be the only major pro sport on broadcast TV come November (NBA/NHL are relegated to cable then, and the NBA may also be in a lockout).