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May 30, 2002

Breaking Balls

The Master Plan

by Derek Zumsteg

(Ed. note: Derek Zumsteg and the voices in his head will be occupying this space every Thursday.--JSS)

I'm the new owner of the Angels.

Disney kept the team from leaving Anaheim, but their tax break was mostly expended, and running the team took energy the company wanted to spend persecuting peer-to-peer file sharing. The franchise didn't come cheap, mind you, but I think it will be worth the money.

Now, I'm Bud Selig's worst nightmare, because I'm going to derive millions of dollars through his proposed revenue-sharing plan and field a team that's going to thrash his precious Brewers for the foreseeable future.

Taking over the team was remarkably easy. A sympathetic actor fronting my group said all the right things to a star-struck Selig about being a team player, about his strong anti-players position, about wanting to use his image and the goodwill generated by an ownership change to get a new stadium built with public money. Our group included 20 people, faceless except for the famous guy, and all hand-picked. I don't think Selig even noticed I was on the ownership roster.

While I do write for Baseball Prospectus, I'm better known for being an early Internet success story (I founded and sold off my early Internet plays--you may remember eTissue.com, the leading Web retailer of tissue, which I sold for Mark Cuban-esque returns). In the interest of subtlety, though, I had my company, DerekCo, make the partial investment. They never got past the byzantine incorporation documents, and I was in. Then we did Jeffrey Loria-style cash calls, the other owners kept quiet, and I had a majority stake.

What now? Here's how revenue sharing has worked in the past: if you make too much, you give it to people who don't have enough. Despite being a top-ten media market, the Angels took $9.5 million out of the pot in 2001. I intend to drive that number through the roof, because--and I don't want to put too fine a point on this--the idea of taking money from the contraction-happy Rockies makes me giggle.

So I bring in the brain trust, all the smartest guys I can find who also think this is a hoot. First thing, we set our lawyers on all the contracts we can, trying to get out of them all. We form shell companies under LeechCo--LeechParkingCo, LeechConcessionCo (and we start serving reasonably-priced beers, my oppressed friends)--all of which may sub-contract to the companies currently doing the work. Except for some token payments, though, the money goes into LeechCo and not the team.

As soon as we can get out from under any current obligations, we'll bundle our media rights and form LeechMediaCo, which will pay the team next to nothing and ruthlessly extract maximum dollar for rights, forming our own local cable network if we need to and balancing the money against exposure, which I think is critical for the new venture. The Angels have a pathetically bad media contract that should be re-worked immediately. At the same time, once we're turned around, we should be able to extract more money from broadcasts, so if we can't start our own network, we'll avoid long-term deals while our value is low.

This is all aggressive, and we may have to engage in some financial opacity, but it's all been done before, particularly by Wayne Huizenga with the Marlins, and the media-owned teams. We'll be paying the nation's best accountants to keep MLB out of our hair and the money in the right places, because they'll be worth it.

We're hiring the best consultants in the business to do market surveys. There's a lot of apathy towards the Angels, and we need to cure that any way we can while the team rebuilds. Cheap tickets? Clever ad campaign? More giveaways? "Tourism Industry Workers Get in Free" weekly specials? Whatever it takes, we'll do it. We're going to need to make the Angels a strong brand while we compete in the toughest division in the American League.

After we've managed all this, here's how the balance sheet is going to look:

  • Angels, the team: $30MM in ticket revenue, $24MM in national revenue, $90MM in expenses...where does that put the Angels on the revenue-sharing plan? Jackpot, an Expos-esque $30m. Total losses: only about $6MM.
  • DerekCo: paper loss through magic of baseball accounting, plus a huge tax write-off to offset stealing the Department of Defense blind on Osprey-compatible hand tools.
  • LeechCo: $36MM in non-ticket revenue, a figure that will go rise as we become a lean, mean, money-making machine.

That's all in the Selig-approved numbers, which include me paying myself for being such a good owner, Kuzcotopia construction, and Rally Monkey clean-up. If we look at the Forbes numbers, there's an extra $10MM in revenue for LeechCo to pick up.

This is all a gross over-simplification, of course—LeechCo is not going to be able to take over all non-team revenues, but since as an owner I'm barred from releasing more detailed data without being fined a million bucks just for discussing these things (unless I'm one of Selig's cronies, in which case I can spout off pro-Selig all I want without so much as a wrist slap). So you' ll have to be content with these, at least until I can figure out how to leak the books to Zimbalist and really cause a stink.

Now there's this pesky matter of Selig's 60/40 rule. If Selig manages to get this past the labor complaints, we're going to get creamed, and he's going to fine the bejeezus out of us because we're making such pests of ourselves. If our lawyers can't stop enforcement--and we're going to employ the best lawyers to lead a team of the most lawyers because it goes on the expense side, thus increasing my revenue-sharing payout--LeechCo will turn on the money spigot enough to meet the threshold. Not a huge deal.

That's where we'll be at the end of this year: draining $30MM out of the revenue-sharing pool, making millions in a shell game we'll use to finance a top-to-bottom franchise renovation.

Selig's proposal to share 50% of all revenues for all teams is going to make this strategy even more lucrative. The Angels have little revenue to share, maybe $60MM. We share $30MM, and meanwhile everyone else shares half of their mostly un-hidden revenues, which in 2001 supposedly only came to $3.55B. Even if that doesn't go up, half of that, divided by 30 teams...we get a cool $60MM or so back. Combined with just the visible revenues, we're up to $90MM just for the team, and we've got at least $40-50MM coming in through LeechCo. I paid Disney $50MM over what the team was worth on the books, but I'll make all of that back easily in under five years through my financial shenanigans.

Then LeechCo forms LeechStadiumCo, which finances our stadium. We'll charge the team a ludicrous amount to lease it, which will avoid that team debt rule and keep the new revenue streams off the books, too.

As for fielding a team...well, I'm sure anyone familiar with BP has ideas about who we're going to hire, and how we're going to field a team. If you're a fan of one of the rich AL teams we're going to be scamming millions off for the foreseeable future while we whup you on the field...I'd like to say I'm sorry. I really would.

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Breaking Balls: The Ma... (05/30)
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