Friday, April 02, 2010

How I Stopped Worrying About the Budget: the Intersection of the Internet and the A's

El Lefty Malo has been writing (latest here) about the payroll problem that has been building up with all the extensions signed over the past week plus the existing contracts and expected raises owed to arbitration eligible players over the next few years, including in particular Lincecum and Sandoval, as well as Sanchez. These are valid concerns but I'm not as up in arms as he is for a couple of big reasons.

BAM! MLBAM!

One reason is the MLB Alternative Media (or MLB AM) organization. Equally owned by all 30 teams, it has been an unadulterated success, beyond their wildest dreams. Expected to take a four years to repay the costs of creating it, it covered the costs in less than two and has been delivering $3-5M to each team (The Biz of Baseball had that covered here, with an in-depth look here).

It has been my hope that MLBAM will the linchpin towards reducing the disparity in revenues between the Yankees and the rest of the majors. Their advantage has come from their local broadcast rights, but as everything is moving to the Internet, it is my hope that MLBAM will eventually steal away most of the viewers of Yankees broadcast, thus sharing all those revenues with every team (since every team gets 1/30th). Don't know if there is a loophole somewhere or what, but given the simple view of this situation, MLBAM appears to be the trojan horse that brings down the Yankee's revenue advantage over all other teams. That could be why the Yankees got their new stadium built, to make up for potential future revenue shortfalls.

In addition, MLBAM has been much more successful than any other sport's on-line venture, and thus they have been handling the on-line ventures for other sports like golf (they run tigerwoods.com and used to run MLS's operations) and recently won a contract to handle ESPN's on-line technology infrastructure and customer support. They are a leader in streaming live video. Contracts like this plus expansion into other products, like the Bloomberg baseball stats analytics service, plus other gaming products, should contribute further growth.

There is also talk about an IPO, valuing the company at over $2B, which would roughly value each team's share at over $70M. These are all ways the Giants can generated additional cash to help pay for re-signing players.

San Jose A's

The A's are hoping to move down to San Jose, but the rights belong to the Giants right now. Similar to how the Orioles were compensated by the move of the Expos to Washington D.C., a nearby location in the area controlled by the Orioles, I have believed that the Giants and A's were on a course towards such a resolution. Hence the hard line by the Giants management since this came up, yet the rumors persisted until the A's requested the rights. Mark Purdy covers a lot of the issues in his recent column. Biz of Baseball also covered it, though not as biz as I would have liked, there was no clear final dollar amount.

Frankly, South Bay Giants fans are not going to change their allegiance just because the A's are close, though they might go there to get their fill of MLB baseball. Those going to games will still go. Corporate season ticket buyers will probably buy down there, but as long as the Giants have had a winning product, they have always been able to draw the fans into the park, they have always opened up their wallets to get their fix.

Now we are heading into the stretch. Bud Selig is reportedly considering the proposition - FYI, he and the A's owner were former COLLEGE ROOMMATES and long-time old buddies - and will report on this soon. He brokered/ordered the concessions made to the Orioles to allow the Washington Nationals to come into existence, and I expect that to happen again in this situation. And I expect the price tag to be pretty high, at least $20M, if not more (the Orioles got all sorts of cash and income, plus guarantees, which I assume the Giants will want on their 3M attendance - roughly - up to now, plus majority ownership of a sports network, which won't work for the Giants, so I expect some sort of cash buyout, over time).

Other Sources of Cash to Pay for Contracts

There are a number of other ways for the Giants to generate money for increases in their payroll. First, they own a percentage of the Bay Area sports network that was set up by Comcast. That could be sold and generate money to pay for players. Second, their mortgage ends in 2017 if I remember right. That is $20M in additional money right there, every year. They could use that to fund borrowing additional money now to help pay for player salaries today, and with the low interest rates, would not result in much discounting in terms of net present value. Third, they had been funding $5M per year in recent years to cover Barry Bonds's deferred payments, but it should be over by this year or next. That will be $5M more available.

Lastly, there is the old fashion and time proven way to get more cash: find more investors to pony up more money into the Giants. Neukom had been buying out other owners over time to get to his position, he has a lot of Silicon Valley and Redmond connections and networks that he should be able to tap into to find people willing to invest in the Giants.

Plus, he's not getting younger - he was older than Magowan when Magowan stated he was stepping down to spend more time with his grandchildren - and could bring in the next owner of the Giants. And Larry Ellison is a local billionaires with billions of dollars burning a hole in his pocket, and with his win in America's Cup, wouldn't the Giants be a great place to bring his sports obsession to, particularly with our history of no World Series championships in SF? He has reported kick the tires on acquiring the 49er's, and when rebuffed, looked into the LA football expansion possibility, and recently was noted as interested when Chris Cohan said that he's open to selling the Warriors (particularly since the IRS said there was mistakes made regarding his sale of his family's cable company that funded his purchase of the Warriors, and thus he owns millions to the IRS now).

And I've been beating the drums for Larry Ellison's purchase of the Giants since Sabean/Magowan noted that they basically passed up looking into getting Vladimir Guerrero because of finances, back when I was fanatical and not obsessed. :^) We need someone with deep pockets for the Giants to get our championship. The Angel's were helped by their billionaire owner opening up his pockets and the Giants could use similar deep pockets, particularly those as deep as Ellison.

2 comments:

  1. Any concern that Larry Ellison migh be the a Peter Angelos or Daniel Snyder type owner who basically trashes the farm system and spends his $ Billions on lousy FA's in a hubris filled effort to "make a big splash" and win instantly?

    I rather like the direction the team is going in now building via scouting, draft, international signings and the farm system and would hope a well-heeled owner would put even more resources into that part of the operation.

    ReplyDelete
  2. I think that is the risk with any Type-A entrepreneur.

    Now that you got me thinking of the consequences of my suggestions :^), I can see him doing a Jerry Jones redux, letting Sabean et al do their stuff, then thinking he's better than they are and hiring someone to take over.

    The plus side is that his money will help us keep all of our young stars into their free agency years and for a while after. Hopefully we would have won it all by the time he goes power mad.

    What I was thinking of regarding Ellison and his handling of the Giants management was how he handled Oracle. Sure, he is a heavy handed and intense guy, but if you follow his hirings for CEO over the years, he got people who were very experienced with what they were doing, experts in that field, in some way, Ray Lane, and more recently the Wall Street expert who helped him hostile takeover a number of companies.

    Going for the jugular is not always a good trait, but while not desperate, time is reminding me that I am not going to be here forever, and I see a window for getting that World Series championship with the players we have now. I will make a deal with the devil (and it doesn't have to be now, it could be when we need the money, in 2-4 years) to maximize our chances of doing it, of creating a dynasty, of keeping guys instead of watching them be traded to say money.

    ReplyDelete

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