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April 1, 2010

Squawking Baseball

Predictions for 2010

by Shawn Hoffman

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We're now three days away from the opener, so what better time to throw out some predictions for the coming year. Business-wise, 2010 should be a pretty interesting season, if for no other reason than nobody really knows what to expect. Are we in a full-fledged economic recovery? On the verge of another recession? It's hard to say.

Last year, on the other hand, was a lot easier: business was going to stink. Attendance would go down, the free-agent market would be rough, etc. Making predictions in that environment wasn't all that hard, so I fully expected most of mine to come true. Here's the breakdown:

1) Small-market teams will be hit hard at the box office. Yup.

2) The Mets and Yankees will have empty seats, but they'll still be coining money. Yup

3) Class warfare will reemerge. This didn't happen nearly as much as I had figured. In fact, much of the battling had already taken place by the time I wrote the article.

4) The naming rights market will stay dry. This has held up, for the most part; the Nationals, Cowboys, and Giants/Jets are still without title sponsors for their new stadiums.

5) Media will thrive, relative to the rest of the industry. I just wrote about this a couple weeks ago. Ratings have been through the roof for every major sporting event recently, including the World Series.

6) Industry Revenues Will Go Up. I got a bunch of e-mail about this one from some very smart people, all calling me an idiot. Be that as it may, revenues went up, on the backs of the two new stadiums in New York, and the launch of MLB Network.

So with that out of the way, some predictions for the season ahead:

Local Streaming Will Continue To Be A Bust. After years of stops and starts, local streaming was finally introduced in New York and San Diego last year. But thanks to some really misguided assumptions and, as a result, a broken business model, the final numbers were pretty ugly: the Yankees sold just 6,000 subscriptions, and the Padres couldn't even break a thousand.

There were a bunch of problems here, many of which I covered when I wrote about it last summer, but the most obvious is that it's only offered to people who already own a cable service that airs the games. This makes sense if the package was free (as the cable providers are doing with their TV Everywhere program). But by charging for it ($70 for this season), they're essentially asking you to pay for something you already have, as opposed to offering it to, say, Mariners fans in Montana, who are in the team's "local territory" but can't get the games on cable.

Unfortunately, I wouldn't bet on any of this changing. Teams need to protect their local rights fees (rightfully so), and MLB still doesn't seem too concerned with the people in territorial purgatory. Until something changes, this will continue to be a negligible revenue source. (For what it's worth, I think they could actually make more giving it away to existing cable subscribers and finding a couple major sponsors to advertise on it.)

Mid-Level Players Will Make A Comeback In Free Agency. It's been a rough couple years for mid-level free agents, many of who have ended up taking cheap one-year deals, or even minor-league contracts, if they can even get a job at all. But that should start to change heading into 2011, even if MLB doesn't have a blow-away season in 2010; remember, budgets are set (and prices are therefore formed) based on projections for nextyear. If the economy can get a solid tailwind behind it heading into 2011, that'll be great news for guys like Lyle Overbay, Kevin Millwood, and others.

MLB Network Will Come To Dish. This almost has to happen, if MLBN wants to make any progress in its business this year. Advertising just isn't that great a revenue generator for a network that's usually channel 100-something on your cable service. Instead, they have to rely on subscriber fees, which accounted for about three quarters of their $200 million in revenue last year. Dish is easily the lowest-hanging fruit. At about 15 million subscribers, MLBN could add over $40 million in annual revenue if it can get a deal done.

A Surprise Team Will Be Sold. This is a pretty wild guess, but there are a lot of forces that could push one of a number of teams in this direction. The economy is better, but not exactly great, so small-market teams could still really be hurting. Combine that with the fact that sale prices have been shockingly high lately, and there could be an owner or two who finds that option a little too tempting.

(Note: I wouldn't consider the Dodgers a surprise team. In fact, I'd be surprised if that team wasn't sold, assuming the divorce proceedings don't carry on for more than another year).

Industry Revenues Will Be Up, Ever So Slightly. I'm actually less confident about this than I was last year, despite the newly un-horrible economy. The only major catalyst this year will be the Twins' new stadium, but the bigger story will be what happens in New York. If the Mets fall off a cliff, or the Yankees can't get their pricing right, there's a chance we could see a slight decline.

But with that said, I'll still bet the over. Corporate demand should be up this year, given that most companies were still facing Armageddon well into last summer. And the Yankees winning the World Series last year should help fill more of those lonely blue seats behind home plate, even if prices are still ridiculously high.

That doesn't mean most teams are out of the woods, though, not by a long shot. Teams that fall out of the race quickly could reach some really gloomy depths, especially those that aren't expected to compete (what's up Nationals and Pirates?). Looking at the league on an aggregate basis, these teams don't have nearly as large an impact as the Yankees, Mets, or Red Sox, which is why industry revenues can still go up even as most teams decline (like last year). But a greater test may be how many teams see attendance and revenue go up. That's a much, much tougher question to answer.

Shawn Hoffman is an author of Baseball Prospectus. 
Click here to see Shawn's other articles. You can contact Shawn by clicking here

14 comments have been left for this article. (Click to hide comments)

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mafrth77

It usually takes so long to sell a team, that if a team decides to sell it now, it probably won't happen until late 2011

Apr 01, 2010 05:26 AM
rating: 0
 
Ira

I know the Rangers sale wasn't much of a surprise, is the upcoming sale of the Astros shocking to anyone?

Apr 01, 2010 08:57 AM
rating: 0
 
jrbdmb

Regarding Dish and MLB Network - many of us Dish subs would love to see this happen. But MLB Network carriage is supposedly tied to carriage of MLB Extra Innings, and so far Dish has refused to pay the $$$ for this. (I could be way off here, but I thought that MLB wanted $100M+ per year for MLB EI.)

Apr 01, 2010 07:02 AM
rating: 0
 
BP staff member Will Carroll
BP staff

Given what Verizon just paid for NFL exclusivity, $100m for EI rights seems reasonable. Dish might be a bit cash poor if the rumors of them going after Tivo are true.

We're probably years from this, but I'm curious at what point cable subs and non-cable subs (MLB.tv, Roku, iPad, etc) even out.

Apr 01, 2010 09:23 AM
 
amazin_mess

That's why I switched. Dish Network is cheap as hell and incredibly anti-sports. Directv is far superior for the sports fan.

In fact, they GAVE me Mega March Madness for free this year just because I subscribed to MLB EI for three years running.

Apr 01, 2010 12:33 PM
rating: -1
 
jrbdmb

DirecTV has a history of treating major sports packages (MLB EI, NFL Sunday Ticket) as a loss leader in order to increase overall subscriber counts. Verizon apparently did the same thing with NFL audio rights. Dish has a history of not being willing to take a loss for these packages, and there's no way Dish would make $100M from its subs for MLB EI.

I guess whether this makes Dish cheap or smart depends on your point of view.

Apr 01, 2010 18:18 PM
rating: 0
 
amazin_mess

All true most likely, but the main point is they won't carry MLB EI.

Apr 01, 2010 20:05 PM
rating: 0
 
warclub

Please, please, let the surprise team be the Indians.

Apr 01, 2010 09:33 AM
rating: 0
 
misterjohnny
(925)

Dish has ceded the Sports Fan to Directv. They don't even try anymore. They will not add more cost to their platform by adding MLB TV.

Apr 01, 2010 09:35 AM
rating: 0
 
misterjohnny
(925)

As I was going through my fantasy draft, anecdotally it seemed like more teams were going the route of having minor league veterans populate their starting lineups. I think a lot of the smart teams have finally grasped the concept of replacement level players, and the market for mid-level veterans will continue to be poor.

Is it worth it to spend $3-5m on a player when you can get similar production for $450,000? Do that a couple times, and you can afford an upgrade that will really make a difference.

Apr 01, 2010 09:40 AM
rating: 0
 
amazin_mess

I totally agree.

Apr 01, 2010 20:06 PM
rating: 0
 
beerchaser42

That article on "territorial purgatory" (a good article, btw) was written two years ago, and absolutely nothing has been accomplished since. Another good reason for Bud Selig to be locked up in a phone booth with Frank and Jamie McCourt.

Apr 01, 2010 12:20 PM
rating: 1
 
amazin_mess

MLB Network will most certainly NOT come to Dish. That boat sailed in 2007.

Apr 01, 2010 12:35 PM
rating: -1
 
comish4lif

What can we do to get the Lerners to sell the Nats? They are terrible, cheap, incompetent owners.

Apr 01, 2010 12:36 PM
rating: 0
 
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