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January 23, 2012

Bizball

How the AL West Has Become the AL East

by Maury Brown

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I touched on this briefly in my first piece back with BP (See “How Television Money and International Sponsorships Allowed the Rangers to Win the Yu Darvish Posting Fee Derby”), but while you weren’t looking, it happened: the AL West became the AL East. No, this has nothing to do with realignment or some West Coast tectonic shift resulting in the “The Big One.” No, this is about an arms race, and we ain’t talkin’ pitchers. It’s what I’ve coined “behavioral spending”—the impact of revenues increasing or decreasing quickly for a club and how it impacts roster construction.

It started, oddly enough, with a bankruptcy—the Texas Rangers’ bankruptcy, to be exact. Back when Tom Hicks owned the club and was floundering in red ink with his holding company Hicks Sports Group, he tried (just as Frank McCourt tried with the Dodgers) to get the league to let him use the media rights for the Rangers as a way to pay down debt. Selig said then (as he said again with McCourt), that the league doesn’t work that way. You can do media deals to advance a club, not to dig it out of a hole you foolishly made.

So, when Nolan Ryan and Chuck Greenberg eventually won the Rangers at auction, reaching that television deal was perfectly fair game.  And, it was a doozy.

In speaking with one of the principle negotiators of that television deal, he believed then, as he does now, that the $3 billion rights extension with FOX was a game changer. By comparison, the rights extension that the Seattle Mariners reached in 2010 that runs to 2020 but has an opt-out in 2015 is $450 million.

To see how the rights deal (along with new ownership, and yes, winning) changed the direction of the Rangers franchise, on Opening Day of 2010, the team had a player payroll of $55,250,544, ranking 27th in the league. By the end of the 2011 season, payroll had nearly doubled to $103,967,140, ranking 13th out of the 30 clubs. The Rangers saw the largest increase in year-over-year payroll by the end of 2011, jumping 40 percent from their $74,302,980 payroll at the end of the 2010 season (here’s the complete list of end of year player payroll for 2011).

Arte Moreno was surely watching. The Rangers, sitting in Dallas/Ft. Worth with the fifth largest media market as estimated by Designated Market Area (DMA ), is behind Los Angeles. And while you can say Anaheim isn’t LA, for the purposes of media rights, Moreno went shopping as such. Since February of 2010, he had been in negotiations. Now armed with the Rangers rights deal as leverage, he landed what has been reported as (yes), a 20-year, $3 billion deal. The prior deal for the Angels? Ten years, $500 million.

Since the Winter Meetings, it’s been on. Albert Pujols and C.J. Wilson hold a combined salary of $331.5 million over the life of their agreements. On December 18, the Rangers won the rights to negotiate with Yu Darvish for over $51.7 million and just inked him to a 6-year, $56 million deal. And, while Jon Daniels said the club was done spending, you wonder if that really is just a ruse to allow them to land Prince Fielder.

I began by saying the AL West was turning into the AL East, and here’s why: while the Yankees began getting competitive again in 2000, it coincided with the launch of YES Network that same year. NESN had been around since 1984, but it wasn’t until the Henry group took over and branched out that the battle began to rage.

All this makes some sense. If you apply cold logic to it, large markets have a competitive advantage, monetarily speaking. And, if the owners are competitive and want to take that money and divert it not into their pockets but toward on-field talent, you get what we have had going in the AL East and what we are now embarking on in the AL West.

But, that doesn’t mean it’s good for other clubs. Yes, we are about to expand the playoffs, which will help off-set this (somewhat), but in looking at the AL West, really… isn’t this going to be a two team show for a while? Pity poor Astros fans. They get to be whipping posts in this game along with the A’s and Mariners beginning in 2013.

They say a picture is worth a 1,000 words. So, are two pictures worth 2,000 of them? The below graph shows end-of-year payrolls for the AL East and the AL West since 1999:

Look at the massive gap between where the Rays and Yankees were in 1999 compared to 2011. In 1999, the gap between the highest and lowest payrolls in the AL East was $54,130,504. Jump to 2011, and the gap is a whopping $171,075,216. This isn’t to say money buys wins. What it says is money will always allow for sustained competitiveness if bright minds are at the controls. The Rays can be competitive for a few years, but their ability to sustain it is going to be an issue.

Now, here is the AL West. While the teams have changed, the gap between highest and lowest is substantially different than the AL East over the same period of time. In 1999, the difference between the lowest (A’s) and highest (Rangers) was $55,592,740. In 2011, the distance between the lowest (A’s) and highest (Angels) is $61,704,619.

But, look at the sharp spike for both the Rangers and Angels from 2010 to 2011. Yes, the spike for the Angels can largely be attributed to taking on the (bad) Vernon Wells contract, but the Rangers increase coincides with new ownership and the television deal. The A’s and M’s are pacing at roughly the rate of inflation, while the Rangers and Angels are in the beginnings of “lift off” mode (as an aside, even with the increases, notice that the Rangers and Mariners are roughly in the same payroll range, which doesn’t exactly speak well to where the M’s are at this stage).

The one saving grace is this: the changes to the Luxury Tax will keep all four clubs (Yankees, Red Sox, Angels, and Rangers) somewhat at bay (the threshold is $178 million next season). The Rangers could—repeat could—go north of $125-$128 million next season. That would place them very close to the top five in payroll by Opening Day. If so, it would be an increase of 130 percent from their Opening Day player payroll in 2010, a commentary on the television money and, sadly, how Hicks had run the club. As that exec that negotiated the television deal said, “The Rangers were horribly underutilized given the size of the market.”

This all plays into next year… and the year after… and the year after. Josh Hamilton is likely to get an extension that would have been impossible just three years ago. Other potential free agents in 2013, such as Ichiro Suzuki, Cole Hamels, Andre Ethier, and (if their options are not picked up) David Wright and Kevin Youkilis, no longer become targets of just the Red Sox and Yankees. The Rangers and Angels will have to be considered part of the equation.

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

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