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.

I'm More Than Ecstatic: And Cain Makes Three - Cain Signs Extension

Reports from Baggs, sfgiants.com, and Hank say that the Giants have signed Matt Cain to a contract extension. Some call it a three year extension, but really, it keeps his current year salary the same ($4.25M), gives him a bump upward in the last year of the contract ($7M plus $1M signing bonus for 2011), which was a vestable option year (nearly $2M raise over the $6.25M vestable option that has escalators and stuff), and $15M for his first year in free agency, which is 2012. They held off of announcing the official signing of Jeremy Affeldt and Brian Wilson which had been leaked out before last week, in order to announce all three signings over the weekend.

As Brian Sabean noted, "It's our window. ... To have these guys for [2012] now. The comfort in knowing that they are going to be in Giants uniforms helping us win games is a statement in itself. It seems fitting. It seems the right thing to do it. Having said that, if we didn't get business done in spring training, we would have halted [the negotiations]. We didn't want it to be a distraction." Sabean noted that they started the talks during the off-season, then started in earnest with everyone at the start of March. Sabean also noted, "We have cost certainty and the fans have the comfort of knowing these guys are going to be in Giants uniforms helping us win games."

Baggarly had a quote with Cain regarding the deal on his blog and Schulman in his article, where Cain discusses how happy he and his wife were with the deal. Cain said, "I think it shows some appreciation of all the things I've done for the Giants, but I also think it shows the way they run the organization. It's a great situation where we could do something for both sides. Me and [wife] Chelsea are more than ecstatic about doing this."

Baggarly wrote in his blog:

So the Giants could be looking at a dynastic staff, which is partially what motivated Cain to re-up. He’s not the type to seek his own glory as a No.1 elsewhere. He’s never begrudged “living under Timmy’s shadow” the past couple seasons. On the contrary, he said he loves the competition.

“Obviously, the best I got to see were the big three in Atlanta,” Cain said. “We saw it in Oakland with Zito, Mulder and Hudson. It builds us all up. I feel we all share the leadership every time we go out there and pitch.”

“That’s what we’ve been talking about all spring training, that all of us love playing together and really feed off each other. We’ve got great chemistry and that shows with them being able to do these deals. They see this core group and they want to keep these guys together.” "

Baggarly noted in the article:

Cain said he had no reservations about signing away his first year of free agency. He hadn't thought ahead about testing the market, nor was he motivated by the thought of going to another club where he could escape Tim Lincecum's shadow and be the staff ace

"When you see a group of pitchers stay together like that "... it builds us all up," said Cain, citing the 1990s-era Atlanta Braves and the Oakland A's staffs with Barry Zito, Tim Hudson and Mark Mulder. "I feel we all share the leadership every time we go out there and pitch."

Lincecum and No. 4 starter Jonathan Sanchez won't be eligible for free agency until after the 2013 season.

"It's amazing to watch these guys throwing seven shutout innings every night," Wilson said. "Every player strives to be part of an organization that values you. "... You work even harder to maintain it and go for the next one. I'll try to be a Giant for the rest of my career."

How wide could this window open for the Giants? Sabean was hesitant to say it could match the unprecedented run the club made from 1997-2003 behind Bonds.

"This group would really have to step it up," Sabean said. "Having said that, maybe last year was the beginning of a run the pitching staff will help to carry. We'll have to figure out more offense in and around this."

They will need much of that offense to come from the farm. The Giants forecast to have limited financial flexibility, particularly in 2012 when Cain and Zito will make $35 million and Tim Lincecum could be due another huge number in arbitration. Aware that his rotation could become a budget killer, Sabean said he's hoping the organization's young hitting prospects will pan out.

As for the risk of investing in pitching?

"It's not like we're giving four- or five-year deals," Sabean said. "We're past that. They're short-window deals that you'd expect both parties would make out."

Schulman wrote:

In all, ownership agreed to shell out $43.5 million above its previous commitments to Cain, Affeldt and Wilson. The team gains cost certainty while risking guaranteed money to pitchers who might get hurt. The pitchers enjoy that guaranteed money against the risk of leaving more dollars on the table in arbitration and free agency. ...

Cain also said he and his teammates want to be together well into the future.

"We really feed off each other," he said. "We feel we've got great chemistry with everybody. We love this, the fact that we'll be able to play with Wilson the next couple of years, Zito, Timmy, all these guys."

Cain compared the continuity of the Giants' rotation now to the Braves' trio of Greg Maddux, John Smoltz and Tom Glavine, and the A's big three of Zito, Tim Hudson and Mark Mulder.

Wilson, whose 79 saves the last two seasons rank fourth in the majors, said, "Oh, sweet," when told all the deals were done. He pledged to work harder than ever so he can earn another contract "and try to be a Giant for the rest of my career."

Giants Thoughts

Dynastic staff is what I've been talking about the Giants rotation. I'm been writing for a while now about how pitching is our future (since the Giants said that Bonds was no longer our future, one of the Mercury columnist wondered what next and I noted that it's clearly pitching) and how powerful it is to have a pitching rotation that can dominate the other teams in a series, when they have a high PQS DOM%. And now we have all the major pieces covered to 2012 plus still control Lincecum and Sanchez to 2013.

Some are not happy because of the restrictions on the payroll budget due to these guaranteed monies. But at some point, you have to realize that this was coming along with the success of our pitchers, that at some point they are going to get paid big money. And that the Giants management realized that.

I think that Neukom's stance with Sabean regarding the budget, that he should not feel constrained by the budget when bringing baseball recommendations to Neukom, shows that he understood this budget dynamic, punctuated by Zito's huge contract and then Rowand's contract.

But people forget that by 2011, the year some are worried about the Giants payroll, the Giants only have two more seasons of Rowand's salary and three more of Zito (highly unlikely his team option will be picked up nor that he earn the vesting by averaging 200 IP over any stretch). And that by the end of the 2011 season, that's only one season of Rowand and two of Zito remaining, making their contracts easier to trade off if the Giants pony up some money to push their final cost to the other team down to more reasonable levels. And who knows, if Rowand is as improved as he appears to be this spring - after finally figuring out that he should get in shape to earn his money - and if Zito can continue his great second half of 2009 into 2010 and 2011, the Giants could make the trade easily, again with some money added in, but which would save a huge chunk of money for our young players due raises.

In addition, Neukom should not offer to extend the payroll if he wasn't serious, because that would be seriously bad PR for Sabean to say this publicly and it don't happen and we end up trading someone good just to save money. Reportedly they were kicking the tires on Manny Ramirez when the D-gers were trying to re-sign him, which would have meant a bump in the budget of up to $20M that season (I think they were a little under budget at that time).

That is a serious bump of money to allow, even for only one season, so Neukom has a sugar daddy somewhere he can tap into easily for that big coin because from my observation of how much money he supposedly made off Microsoft stock, money he has invested in owning a big chunk of the Giants, and donations he and his wife have made to universities, he should not have a lot of money left (well, plenty for you and me but not to cover that) to cover such a big bump upward.

Other Giants News and Thoughts

Speaking of Neukom, there was a nice article on him on sfgiants.com recently. He talked about this plans for the Giants, both present and future, and about The Giants Way. Part of this way is that they are investing in helping their prospects and players stay in better shape and conditioning, hiring staff and buying equipment:

"The baseball's got to speak for itself because there are so many variables," he said. "We're investing in homegrown talent. We have this very clear strategy, which is better conditioning, better prepared, more clear-headed people playing baseball, and we want to get to a sustainable level of exciting baseball played the right way. After that, we'll have to see what happens."

Neukom raved about the team's mini-camp in January and how much he was impressed with the players' condition when they arrived for Spring Training. ...

"We're at a stage now where we are strong enough to think we don't have to rush [Minor League players] ahead of schedule," he said. "Traditionally, you think in terms of the best and most talented prospects, baseball people would want him to spend probably four years in the Minors before he was ready to come up and contribute at the Major League level.

"It varies from player to player and team to team. We don't want to be desperate. We don't want to rush kids ahead of when they should be coming up, and I think we're in that situation." ...

Neukom said he has spoken to fans and has answers for those who have questions about the team's approach.

"I tell them our goal is a medium-term, long-term goal," he said. "The immediate step was getting the Giants to play winning baseball and to build on that increasingly from homegrown talent and become the kind of team that contend year in and year out. Nobody can have a strict timetable on that."

Finally, we are working to get all our prospects in shape and a good state of mind to focus on baseball. One step at a time. And a great commitment to bulding up the farm system and using that as a key component of keeping the team strong now and in the future. Assuming the team continues to win, that means going after players who fell in the draft because of concerns over how much they want in bonus and paying much over slot for them (which they appear to have had no problem with previously, going way over for Posey and Wheeler) and going after the top Latin American talent out there, preferably hitters as they seem to be better bets relatively (and which is the way they have been doing it, as Villalona and RafRod are the two big signings plus the Giants were in on a couple of other position prospects as well before losing to other clubs).

In other news, Todd Wellemeyer should get announced as the 5th starter. Also, I heard Schulman on KNBR over the weekend (I really liked him on radio, I enjoyed that a lot, he should do a lot more of that on KNBR, I hope) and he covered his blog on the 25-man roster that I wrote about the other day. He made his point that the Giants don't want to put additional stress on their young starter's arm early in the season by giving them additional games, so Wellemeyer will be taking his 5th starter starts which means the Giants will need a long relief guy to be there, which in his thinking would mean Pucetas. And I agree that it is likely that Pucetas will win that role because of how well he had done in spring until his outing this weekend, which ultimately wasn't that bad as he recovered to give us three innings.

However, Schulman also noted that Henry Sosa is being given the opportunity to make the team - a good sign is that he's still with the team - and Sosa has experience as a starter but looks to be a reliever long-term because he's a high effort thrower who has been battling physical problems, and relief would put less stress on him. Sosa has had a great spring as well and would not cost the Giants a 40-man slot because he's already on it (unlike, say, Denny Bautista; the Giants do have two spots open now with the Frandsen trade, but Wellemeyer and Mota appear to have them locked up, Wellemeyer particularly so). So the Giants could decide to bring him up to be the long reliever and sent Pucetas down to AAA to be ready to start if we need it.

I think that is a strong possibility. Pucetas wouldn't be prepared to take a starter's spot if he's pitching long-relief for us. Of course, Bumgarner is probably the first line of defense there, and Pucetas could be sent down at that time to be prepared in case there is another need for a starter. But Pucetas did not do that well last season in AAA, he had a couple of good months early but overall was not that great, and in particular could not strike out very many hitters.

So he still has something to prove in terms of dominating hitters at a higher level, he could have been very lucky this spring (that is why scouting is so much more important than just eyeing the stats like I and others do - but then again, that is all that is available to me). I can see the Giants wanting to see him do well for a season in AAA and be ready to start for them as necessary during the season, while Sosa be our long-guy. That could lead to Sosa joining middle relief next season while Pucetas then take the long reliever role, assuming he does well in AAA this season plus beat out Joe Martinez next spring.

In addition, Baggarly noted that Fred Lewis has been complaining about a rib injury problem, so I smell an extended stint for Lewis on the DL, while the starting RF situation sorts itself out on the 25-man roster in the meanwhile. Schierholtz has been struggling - again unfortunately - and with Bowker's sudden surge (I would note that he wasn't doing that great until those few games, so it would seem odd that Bowker could win the position with just a couple of good games of hitting when not doing that great before), there has been a lot of news about Schierholtz still battling to win the RF spot, and now with Bowker's surge, the Giants might visit Bowker starting in LF while DeRosa starts in RF (which someone else noted DeRosa hasn't played any of this spring, but I would note that he played RF a bit in previous seasons - and well usign UZR/150 rating - and didn't get many/any starts in LF prior to this season, which hasn't even started yet).

Sabean also discussed extensively about Nate's struggles, which can't help him either. Still, that's life as a major leaguer, and the sooner Schierholtz gets used to all that, the sooner he can show what he got at the major league level. He needs to stop tinkering and just do the old rule of: see ball, hit ball, and not complicate it with whether to use batting gloves or not, and so forth.

In any case, if Lewis is on the DL, then the Bowker and Schierholtz (and Torres too I suppose, and maybe Velez too) situation will unfold and perhaps the Giants will put Lewis back on the 25-man roster and move someone else off, instead of trading him. Or by then some other team might be a bit more desperate for an OF capable of starting and give us a better prospect for him.

Prospects: Hitters vs. Pitchers

People have been complaining about the Giants prospects, but for some reason, despite winning two Cy Youngs and doing what he has done, Lincecum doesn't seem to do it enough for fans. The thing is, we have a great crop of young players on our team or soon on our team: Lincecum, Cain, Sanchez, Bumgarner, Wilson, Romo, Runzler, Sandoval, Posey, Schierholtz.

Look over most teams, they would be lucky to have such a good ten from their farm system and they are only on the cusp of what they can do, they probably have at least another 3-4 seasons together, assuming Neukom does as he says he would and we extend our top pitchers.

And we have other prospects who look like they could do something for us in Hinshaw, Joaquin, Sosa, Noonan (keep an eye on him in 2010), Kieschnick, Neal, Crawford, plus a number of other good prospects down lower in Peguero, RafRod, maybe Villalona, Adrianza, Sanchez.

And people note that we haven't had hitters like Will Clark and Matt Williams, though now Sandoval and Posey looks posed to match or pass up that pair, but don't seem to realize what a renaissance we are having in terms of pitching. Really, the best pitchers the Giants have had before Cain came along in the past 40 years was probably John "the Count" Montefusco, Scott Garrelts, John Burkett, and Trevor Wilson. Ron Bryant would have made the list if not for his swimming pool accident, and so would have Bob Knepper if he wasn't traded away so early. And what type of pitching staff did we have during the Clark/Williams era? It was mainly cobbled together with veterans and castoffs, yet there was no crying over how the Giants couldn't develop a starting pitcher.

And within the San Francisco Giants era, the only comparables are Juan Marichal and Mike McCormick. And as great Marichal was and good McCormick was, neither one was a strikeout artist. And as I've been noting (plus posted in my business plan link), Baseball Prospectus did a study of success in the playoffs and found that it was having pitchers who struck out a lot of batters that was a key success factor in going deeper in the playoffs.

Just think about that, then think about how it worked in the 60's, how the Giants probably had one of the best offensive teams ever plus Marichal and McCormick and others, and yet the dominant names in the playoffs of that era were Koufax and Gibson, the two premier strikeout artists of that era.

Nobody Rebuilds All At Once, Something Always Sucks

So maybe the Giants don't have a lineup yet. No team is suddenly good in their lineup, pitching, and defense. No other teams that rebuilt themselves had everything working from the get-go, they fixed up one thing at a time, each season. If you think so, find me examples, if this is true, it should be easy to find, they should not be hard to find nor should they be rare occurrences. People don't appreciate how hard it is to rebuild a baseball team nor do they understand the process that a team undergoes.

So the Giants lineup sucks. Other team's pitching sucks. And yet others, defense. Rebuilding teams always have things that suck. The successful ones add on pieces each year and make the playoffs eventually. Prospects don't all blossom all at once, they take time and not all take the same time. Lincecum took less than a couple of months to figure it all out. Sanchez took a number of years (so did Koufax and Randy Johnson, FYI).

And the way to rebuild, assuming that your goal is to go deep in the playoffs and that you believe the study results of Baseball Prospectus and The Hardball Times, two of the most respected baseball research resources around, is to build up your pitching staff and build a good defense. BP specifically found that a fire-balling pitching staff, a great closer, and great defense are key elements to have on your team if you want to maximize your chances in the playoffs of going deep.

Business Core Competencies

It is like any other business. You focus on the core competencies that are necessary for success in your business. According to BP and THT, it is your pitching staff and your defense. BP's guidelines is that you need a high strikeout pitching staff, both starters and relievers, you need an effective closer, and you need a good defense. And that is what the Giants have mostly focused on with their drafts, pitching and defense.

And they did not always hewed to this philosophy in the draft, but that is OK, you always have to pick the best player available when drafting. But where it is close, with the low odds of actually finding a good player anyway in the draft, the Giants have mostly focused on getting pitchers and on players who can play good defense, plus have some speed. And they have a nice collection of high-speed arms in their system, Lincecum, Cain, Sanchez, Wilson, Joaquin, Hinshaw, Sosa, Wheeler.

So now they, and specifically Sabean, have built up the team with strong strikeout pitchers and a good closer, and now are adding on the position players who can help the team win, whether internally or via free agency, mostly. What is wrong with that? The Giants teams that won over the past 20 years were built with players who were not that good and were not raised in our farm system, yet they were no less beloved.

The Clark-Williams era pitching rotation were filled with pitchers who were not developed within our farm system. Garrelts and Grant were the only ones to really contribute anything, but they were not main cogs, the main guys were pitchers we traded for at some point. And in the early Sabean years of few games without the pennant on the line, only Ortiz was developed within. Why is it OK that those teams developed few pitchers, but did develop good hitters, but not OK for today's Giants to develop a lot of good pitchers but did not yet develop good hitters, though Sandoval looks pretty good and Posey looks to be good eventually?