Thursday, October 06, 2005

Better Late, Maybe Never

The already-delayed lease negotiations for the stadium will be even later. Today, MLB's thug-in-chief, Jerry Reinsdorf claimed that he's too busy with the White Sox to negotiate properly, so that it's highly unlikely that the stadium lease will be signed before the end of the post-season, and, by extension, that the Nats won't have new owners til the end of the World Series. (Remember, the offseason truly gets started two weeks after the World Series.)

If it wasn't so expected, it'd be depressing.

The problem is that it's one big clusterfark. You have three parties trying to conduct bilateral negotiations, and each party is trying to screw over at least one of the other parties. And, as in all cases involving sports business, it's the fans who get it in the keister.

First is the DC Sports and Entertainment Commission. They're the quasi-public agency that runs RFK. They're the ones ultimately responsible for the stadium, and have been the ones negotiating directly with MLB.

Second is the DC Council. Now mostly comprised of anti-stadium zealots, and fairly powerless to stop the stadium, it appears that obstruction is their drug of choice.

Lastly are the thugs at MLB. Jerry Reinsdorf, who makes it especially difficult to root for the 'underdog' White Sox, is the principle negotiator, and has been instrumental in steering the team towards DC -- but I'll get to the problem with that later.

What follows is my read on the issues, based on the articles we've seen, and some conjecture.

DCSEC contends that the DC Council doesn't have to sign off on the lease. The Council claims they do. There's infighting there. Presumably, MLB sides with DCSEC on that issue; they know the DC Council would be a losing proposition.

DC Council wants local ownership. MLB wants free reign to pick who they want *cough*smulyan*cough*. DCSEC, wanting to get the deal done, hopes to cut out the DC Council altogether to avoid hassles.

Essentially, it seems like it's coming down to Smulyan. Reinsdorf wants him. The council doesn't. (It hurts to type this, but I side with the council!)

First, I think the carpetbagger angle is pure horsecrap. We all generalize from our personal experiences, and those who make that argument are mostly the people viewing things through the Bob Short prism. Prior to the Nats, a team hadn't moved in a bazillion years. They're not going to allow him to move, especially if there's a binding lease. (See the Devil Rays as an example)

But more importantly, if the going price really is $450 largelarge, he HAS to stay in DC. Portland might be a nice city, but it's not the size of this metro region. The team is going to need DC's large cash flow to stay solvent; they simply are going to need a large market.

What really worries me about the prospect of Smulyan is the same reason that Reinsdorf likes him: he won't rock the boat. Reinsdorf knows that Smulyan isn't going to be Steinbrenner South. Smulyan has already proven, in his time in Seattle, that he's the kind of owner who will put a minimal product on the field -- just enough to stay competitive and bleed money from the hopes of the fans.

Instead of maximizing the revenue streams and running this team like it was a top-10 market, he'll stay in the middle of the pack, and would be unlikely to raise the bar on player's salaries.

And that's where the problem of Smulyan's ownership structure rears its head as well. He recently announced that, contrary to my earlier speculation (hope's probably a better word), that Emmis, his communications company, would contribute a large portion of the price of the team.

Corporate ownership has been a problem. Fox, Disney, AOL, and the Tribune company have all tried. In all cases, their focus wasn't necessarily on maximizing revenues and plowing them back into the team, but in ensuring that the team turned a profit so that they could go back to their shareholders with bright smiles on their faces.

Think about the Cubs. They've been owned by the Tribune Company since the dawn of time. They play in a big market in a beautiful stadium, and are backed by one of the largest media conglomerates in the country. Yet they rarely win. The company doesn't make the extra effort to put a winner on the field, and is instead content to put an adequate team out there, knowing that the lure of the ballpark and that winning slightly more often than not is probably enough to turn a profit.

Do we want the same here?

Smulyan may be a nice guy -- he certainly has a lot of defenders -- but he's already failed as an owner. (It does make you wonder, though, that if things were SO bad in Seattle, why would he want back in?) Here comes my cheap shot: This is an owner who thought that the Seattle market was so completely horrible for baseball that he tried moving to Tampa Freakin' Bay. Is that the judgement of a guy you want running your team?

But back to the lease...

With Smulyan as the heir apparent to the team, the DC Council is fighting tooth and nail, wanting MLB to name ownership before the lease process is finalized.

So what happens next?

The stadium agreement calls for the deal to be done by the end of the year. But as far as I know, there isn't a penalty for non-compliance. Hypothetically, MLB COULD walk away from the deal. But it's such a sweetheart setup that I can't see them pulling away -- especially considering how much their calves were fattened by the team's successs.

Could they pull up the team and move? I suppose it's possible. But remember, they're not going to make the money they made here anywhere else -- especially because no other market has a facility as capable as RFK of hosting them.

But here's where my paranoia meter starts screaming out.

In the last Collective Bargaining Agreement, the Player's Association agreed to drop their objections to contraction after the '06 season. I know it's a longshot, but it IS a possibility again, especially with Florida's continued inability to get their stadium built. If MLB decides to hold on to the team through the end of next season, the likelihood skyrockets.

Why would they turn down $450 million though? Because they stand to make more money.

Short-term, they'd each have a larger share of the $2.37 billion TV contract they just signed with ESPN. Long-term, MLB could expand in a decade when Las Vegas or Portland become more viable markets. Arizona and Tampa Bay, for example, paid $130 million as an expansion fee. That's a price that's only going to go up, netting them more money down the road.

Who really knows where it's headed though. If I was a betting man, I'd say that this gets done; it's in everyone's best interest. But MLB has shown a propensity to shoot itself in the foot if it thinks it can get the insurance settlement.

We'll know when we know, I suppose.

What would you bet?

11 Comments:

  • I'd argue that, right now, the only thing that makes Vegas not a viable market today is no existing stadium (could be fixed in 2-3 years) and the gambling boogeyman. Though I'll admit the latter is probably a BIG problem in MLB's eyes, and may be a good part of what let DC land the Nationals. If any city looked like Vegas without gambling had come along, they would have gotten the 'Spos so that baseball wouldn't have to deal with the Angelos Issue.

    By Blogger thurdl, at 10/06/2005 11:56 AM  

  • Chris...this is an excellent analysis, and one that I think even our vaunted WaPo reporters have missed. You're right, the problem isn't Smulyan, it's disinterested corporate ownership. As much as I hate Dan Snyder, at least he's up in the booth following the team's every down. I'd hate to see the Nats owners following the team only through a corporate 10-Q.

    I also agree that MLB would be hard-pressed to move the team. Vegas is sketchy for obvious reasons and Portland seems like another Tampa Bay waiting to happen. DC is really the last unexplored big market frontier for MLB. Even if they do decide to contract, I'd be shocked to see DC get the ax over Tampa Bay and Kansas City.

    Thanks for the perceptive analysis

    By Blogger Brandon Kriner, at 10/06/2005 12:46 PM  

  • Smulyan wants back in because he was lying when he said baseball is a terrible business; check out the appreciation in the value of the Mariners in the three years he owned it. Further, he never had any intention of moving to Tampa Bay. Neither did the Giants nor the White Sox when they threatened to do so. They just wanted to use Tampa as blackmail to get a new stadium where they were. Note how, when the city of San Francisco called the Giants bluff, they went ahead and built their own stadium with their own money rather than follow through on the threats.

    By Blogger J. Michael Neal, at 10/06/2005 3:16 PM  

  • That's exactly right. If he thought it was bad, he wouldn't be itching to get back in, or paying a record price for the team.

    I've got a laundry list of reasons why I don't want Smulyan.

    By Blogger Chris Needham, at 10/06/2005 3:20 PM  

  • You know what could very well happen (and I hate to say it).

    1) Ownership by MLB until 2006. Get the most money milked out of this as possible.

    2) Contraction of the Nationals and one Florida Teams (If Tampa then the Marlins move to the AL).

    3) Expansion around 2010 to Portland/Vegas and..wait for it...Washington DC.

    We're already certain DC is the best available market, and that baseball wants to be here.

    I'm still fuzzy on the math though. 300 mill a year on the TV deal = roughly 10 mill a team. Without two teams it's roughly an extra $700,000 for each team per year. At that rate they'd only get an extra 5-6 mill from the TV deal over the life of the 8yr contract. They'd get roughly 20 mill from the sale. Expansion costs would have to be getting near 400 mill for them to be better off contracting. (Though my math could easily be off)

    By Blogger El Gran Color Naranja, at 10/06/2005 3:46 PM  

  • You're right on the math -- it's only about $5 MM over the life of that contract per team.

    BUT, depending on the time frame of that future expansion there will be more money.

    The other thing to remember is that there are other shared revenues -- online, merchandise, advertising, sponsorship, etc. I don't know what that totals up to, but it's not a small amount of money.

    And why not wait a decade and do four-team expansion?

    I don't think it's likely, but the possibility is out there.

    By Blogger Chris Needham, at 10/06/2005 3:51 PM  

  • Actually what you said made me think and I take back what I said. If the plan is the contraction of two teams then the expansion price would only have to be $200 mill to get more money from this, rather than keeping all the 29 teams as is and selling the Nats. That price is probably already been hit if not passed.

    By Blogger El Gran Color Naranja, at 10/06/2005 4:11 PM  

  • I agree that contraction could happen, but why do you guys think it would be the Nats? I see the two Florida teams getting contracted before I see MLB giving up the DC market. The Nats (2.7 mil) almost out-drew the two Florida teams combined! (2.9 mil).

    And this in a season (as everyone keeps pointing out) where the Nats had zero marketing/TV exposure. I just don't see contraction of the Nationals.

    Actually, I don't see contraction at all. When is the last time that any sport contracted teams?

    By Blogger Brandon Kriner, at 10/06/2005 5:40 PM  

  • I'm not saying it's likely -- just that it's a possibility.

    As I said in the piece, TB can't be contracted. Florida could, however.

    And while I think it's mostly posturing, the possibility, however remote, is floating out there.

    By Blogger Chris Needham, at 10/06/2005 6:25 PM  

  • The Rays won't be contracted, as per their iron maiden lease.

    By Blogger Basil, at 10/06/2005 9:35 PM  

  • a pedant writes:

    both mls (90s) and the nhl (80s)have contracted. if you go back even further to the dark days of the depression: nhl and nfl. baseball also lost the aa, then contracted the nl in the 1890s.

    contraction is still on the cards, but i guess mlb wants both the nats revenue stream and a slice of the 350 mil sale fee now rather than next decade.

    By Blogger pete, at 10/07/2005 10:08 AM  

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