Money Paves the Way to San Jose

Sorry, no links, but the news is that Selig is suddenly moving forward with the A's desire to move to San Jose, and will meet with the Giants about this.

I guess the other news is that San Jose has sold an option to Wolff to purchase the parcel of land that they are hoping to build the stadium on. Sold for $50,000, the city spent something over $25M to buy those pieces but has agreed to sell it to Wolff for just under $7M. Hope that is contingent on a stadium deal, else he just made a lot of money off the backs of San Jose citizens.

The catch there is that the city has not finished buying all the parcels of land, that is why they are selling him those parcels, in hopes that he can finish up that process, as the city is tapped dry apparently by the fiscal crisis that has hit most state and local governments since the Great Recession.
Giants Thoughts

I think the only way this is resolved is through a lot of money being paid by the A's to the Giants. That, historically, is the right thing to happen (I've written on this before, latest post is here).

I see A's fans and newspaper columnists moaning about how the Giants don't really own the South Bay rights, that it was given to them only because of a proposed move by the Giants to Santa Clara, and thus owe the Giants nothing and should just move to the South Bay unhindered.  Some magnanimously will give back the Oakland/East Bay region back to the Giants.

Baloney.

The Giants owned the rights to the region the moment they landed in San Francisco in 1958. The A's should have paid them a lot of money to enter the region in the first place, the evidence is clear with the huge drop in attendence and support in the decade after the A's came into the region and siphoned off a lot of fans.   Giving the South Bay rights to the Giants was only the MLB correcting the wrong that was done when the A's moved into the region without compensating the Giants for that move.

Or more simply and bottom line, as Giantsrainman noted in my post I linked to (I also have a label on the San Jose Relocation topic), when the current Giants owners bought this team, that purchase included the value of the rights to the South Bay whlie when the current A's owners bought their team, that purchase did not include the rights to the South Bay.  If they want the rights today, they need to pay for it.



There is also the real danger that by allowing the move to San Jose by the A's, the MLB might damage the Giants.  The A's have royally screwed up their fan base in the East Bay and Oakland.  Who is to say that they don't do the same in the South Bay too?  The Giants depend on the South Bay for a large percentage of their fan base.  The rhetoric by the supporters is that those fans will still support the Giants, as well as the new San Jose A's.

Baloney.

Economic logic suggests that this is a zero sum game, fans won't suddenly open up their pockets more to support both teams, they will made a decision on where to split their current spending between the two teams.  Then, should the A's screw up the South Bay fan base, then these fans just simply stop spending money on MLB baseball, whether A's or Giants, much like most of the Oakland A's fan base no longer support the Giants and, as lovely as the offer to give Oakland back to the Giants is, they are not likely to suddenly become Giants fans again.  Remember, these are the same fans who pined for their Raiders while they were off in LA, travelling 1,000 miles round trip to see them, when the 49ers were just across the Bay.  They should pay for this as well.

Pay Like Other Teams and How For Rainy Day

So if the A's want to relocate to the South Bay, they should pay the Giants a lot of money.  Historical precedence supports this.  The Washington Nat's paid someething like $60-75M to the Baltimore Orioles to compensate them for moving into their territory.  And that was almost a decade ago now, 2003-2004, something like that, so with how team values have rocketed in the years since, the A's should be looking at paying the Giants at least $100M in order to move down there.

That would help cover the roughly $150-200M left in mortgage payments that the Giants still owe.  That would also help with the economic damage the A's would create by moving into the South Bay and siphoning off a portion of the Giants fanbase.  And this could easily be financed, the A's, according to Forbes, has sucked out $132M in EBITDA since Wolff bought the team, so they should have a huge cash balance (unless they drain it dry every year) sitting around somewhere which they can spend on paying the Giants.  And I would note that Forbes reports that their owners are worth $1.4B (and it might just be Fisher, I'm not absolutely sure), so they have a lot of net worth that they can tap into to pay off the Giants. 

FYI, the team value of $307M does not include any of the cash in the business that they have accrued, that is, none of the $132M in EBITDA that they have earned out of the business since taking over (prior to that, the former A's owners only had EBITDA in the $5-10M range approximately, for comparison) is included in the valuation of the team.

Given that huge amount of money that he has collected, one could speculate that the A's had forseen this day coming where they would have to pay the Giants a lot of money.  Perhaps they even asked Selig to officially stall on any decision so that the A's could pick up more coin, while officially wondering why Selig is taking so long.  In fact, it was four seasons ago that the A's ramped up the money they were making, going from mid-teens to lower-middle 20's (average $23.8M in 2008-2010 timeperiod) plus whatever they make in 2011, the numbers above does not include any cash flow he made in 2011, which I would guess is in the $20-25M range again.  During the time that Selig has stalled on a decision, the A's have probably made $70-75M in profits that went straight to their cash balance.  It could be that they have been saving for a rainy day like paying off the Giants all along. 

Revenue Sharing

And based on revenue sharing figures I could locate (from early-2000's), basically what the Giants paid into the revenue-sharing pot, the A's got roughly the same amount (2001-2003, Giants paid $28.9M, while A's got $31.5M). 

Also, I would note that Forbes in their latest valuation, noted this about the Giants:

One area of concern for the Giants beginning in 2011 is revenue-sharing. Because the team decided to amortize its stadium costs over 10 years in calculating its local revenue for the league sharing pool, the Giants contribution to lower-revenue teams is going to increase significantly in 2011.

So the Giants should be paying even more into the pot, which further hampers their ability to spend the money that many fans thinks they are getting but are not because these fans were not aware of the impact this is having on the Giants finances.  And making their need for a big settlement with the A's paramount.

Private Business Negotiations

The Giants, however you want to describe it, has been doing exactly, at least publicly, what they should do in a business negotiation.  If everyone played "fair" and just say what they are willing to do, then there would be no need for negotiations.  But neither side is going to budge off their positions of the A's not wanting to pay anything (naturally) and the Giants not willing to give up their rights to the South Bay (naturally).  That will force the mediator (which will be Selig at some point, like it was in the Oriole's-Nat's case) to work between those two points and find a medium point.  If either side started with a "fair" amount, then the negotations would have started between the fair point and the extreme point, resulting in an "unfair" (at least with respect to the side the provided the "fair" position) decision for the team that went first with a public position.

That is why most teams do not let their position be known in the press, you don't want to be negotiating in the press or via the press.  Some agents like to do that because then it might entice another team to join the bidding war.  When when it is team vs. team as in this case, you gain nothing by being soft in public.  You take the hardline approach and only once you all are behind closed doors do you start moving away from the extremes to a compromise agreement somewhere in the middle.

Hopefully, the Giants will stand their ground and get paid for their rights to the area.  The A's have cost the Giants much over the years by, first, not paying anything for the Oakland rights, and second, taking away a lot of paying customers.   The A's appear to be either saying for a rainy day or pocketing a lot of money for something or perhaps both, as it will cost a lot to build their own stadium in San Jose as well as pay off the Giants.  They have profited enough in the three years since Selig has been stalling to pay the Giants off for their rights to the South Bay. 

Perhaps they realized that the Giants were not going to give in on their rights nor that they would get enough votes to bypass the Giants and have the teams vote for taking away the Giants rights without fair payment.   So by Selig's stalling, the A's have profited enough to pay off the Giants for their rights now, hence why the sudden decision by Selig to finally do something about the South Bay, else why would they seemingly been twiddling their thumbs for three years and then suddenly start moving on the decision now? 

Did Recession Cause Delay?  Or Final Negotiations?

I guess that brings me to the decision of San Jose to sell the option to Wolff.  Maybe the MLB was worried about San Jose following up on their side of the bargain and been waiting for San Jose to buy up all the parcels, because until that is done, the Giants could give up their rights and still nothing would happen.  Perhaps the option was sold to Wolff to get the MLB to start moving again.

Since the recession hit basically three years ago, one of the parties in the decision, whether A's or MLB, could have decided that there should not be any movement on this until the land situation is finalized as any movement was useless until that happened.  With most local governments in crisis due to the recession, the odds of the city buying up all the parcels anytime soon was slim to none, but if they sell the land to Wolff so that he can buy the final parcels of land (perhaps the discounted price accounts for how much money Wolff estimated it would cost him to personally buy the remaining parcels to complete ownership of all the land necessary to build the park). 

San Jose tried but failed, short of all the parcels.  But if they basically sold the land to Wolff via the option, with the understanding that he would not execute the option until he had secured ownership of all the parcels of land, so that construction could legally start at any time once the South Bay rights issue is settled, then the MLB and/or Wolff would be in control of the situation and thus be able to finalize purchase of the entire piece of land necessary to build the stadium.  And thus substantive negotiations with the Giants could then proceed, unhindered by the relative uncertainty of obtaining ownership of the land necessary to build upon. 

Of course, with the parcels not all obtained right now, there is some uncertainty involved.  Perhaps it took Wolff all of three years to gain informal agreement with the remaining parcel owners (he did make his money in real estate), but now that he has the agreements with all the parcels, that freed the city to sell him that option since they don't have the money to finalize the deal, and allow Wolff, who does have the money to finalize the deal, to buy the remaining parcels to complete the land purchase.

That seems the most logical reason for why this has dragged on for three years with no movement, then suddenly there is a lot of movement.