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August 20, 2012

Bizball

How Low Will Jim Crane Go with the Astros?

by Maury Brown

There was a time not too long ago when folks were leveraging themselves to the eye sockets in order to purchase goodies—big, expensive goodies such as homes and cars. In fact, many got in over their head and had these expensive, leveraged purchases repossessed, while others simply are straddled with mountains of debt.

Coming up on the end of the first season of owning the Houston Astros, Jim Crane seems to fit in with the latter group. He hasn’t done anything horribly wrong other than to strip the team down to the axels.

On Saturday, the club went further. No, it wasn’t money related, but it speaks to the “if you’re going to blow it up under new ownership, you might as well go all the way” direction that the club has been in.

Late Saturday, General Manager Jeff Luhnow announced that the club had relieved Brad Mills of his managerial duties; hitting coach Mike Barnett and first base coach Bobby Meacham were also relieved of their duties. On Sunday morning, Luhnow announced that Tony DeFrancesco would play interim manager for the remainder of the 2012 season with Dan Radison as first base coach and Ty Van Burkleo as hitting coach. DeFrancesco joined the club from Triple A Oklahoma City, where he’s managed the RedHawks since 2011—just one season.

“The goal is to find the best staff we can possibly assemble to take us to the next level,” said Luhnow. “We want to move forward and win as many games as we can the rest of this year and put ourselves in a position to have a successful 2013 and beyond.”

Well, good luck with that, Jeff. You see, the stripping down the Astros happened well before Crane took over this season. To make the $680 million sale fly (which seemed massive at the time, but after the sale of the Dodgers, it’s far less than what they would garner now on the market), former owner Drayton McLane began shedding payroll (outfielders Hunter Pence and Michael Bourn and second baseman Jeff Keppinger were all traded) to allow the leveraged sale to work for Crane.

That dismantling has continued this season with the dumping of Carlos Lee to the Marlins (although the club is still on the hook for the vast majority of the payroll. According to ESPN.com’s Buster Olney the Astros pick up all “of the $9 million still owed to Lee for the rest of the year other than a prorated minimum salary that is about $250,000”). In exchange, Houston got third baseman Matt Dominguez and left-handed pitcher Rob Rasmussen in the deal. After that, the Astros traded Wandy Rodriguez to the Pirates (although the club is covering $17.7 million in the deal to offset what could amount to over $30 million in salary for Rodriguez). In exchange, the Astros received Triple-A All-Star Rudy Owens and Colton Cain, both left-handers, and outfielder Robbie Grossman.

According to Cot’s Contracts here on BP, the Astros have gone from a team payroll of $102,996,414 in 2009 to $92,605,500 in 2010 to $76,969,000 in 2011 and finally to $60,799,000 to begin the 2012 season, the third lowest in the league. The highest-paid players left on the roster are RHP Francisco Cordero ($4.5 million) and Ben Francisco ($1.5375 million), both of whom were a part of a 10-player trade with the Blue Jays that sent pitchers Brandon Lyon, J.A. Happ, and David Carpenter out of town in July. Cordero is a free agent at the end of the season while Francisco would be in his third year of salary arbitration.

To place the salaries in perspective, according to the MLBPA’s annual report that came out in December, the average salary for an MLB player is $3,095,183. It’s entirely possible that next year, the Astros’ first season in the American League, could have them flirting with the lowest player payroll in the majors.

As of Sunday, the Astros were a league-worst 39-82 (.322 winning percentage). In other words, it’s entirely likely that the Astros will “better” their record from last season (when they were also worst in baseball) of 56-106 (.346 winning percentage). We’re not talking “1899 Cleveland Spiders bad” (that team has the mark for the worst season in league history at 20-134), but if the stars align, one wonders if the 1926 Red Sox or 1938 Phillies (the last teams to have a winning percentage of .300) are in reach.

As mentioned, however, this has all been about rebuilding. It was about stripping payroll down for the sale. In November, before the sale was finalized, Crane said, “The way we’ll approach it moving forward, and they’ve already started that, is get the payroll lined up with the revenue that’s coming in and continue to build our farm system. With the trades that have been made, we’ve got some very good prospects. I think you’ll see some more of that.”

Circling back to the concept of leveraging, Crane made the deal fly with a $220 million loan from Bank of America and a $55 million loan from the league facility fund. The $220 million loan was one of (if not the) first post-recession sports loan, so it was conservatively structured.

Here’s the rub: next season, money begins flowing in as part of the Comcast SportsNet Houston regional sports network deal, of which the Astros (along with partners the Houston Rockets) own 77 percent. The Astros will reportedly see a significant first-year payment as part of the deal, although what “significant” means is not yet known.

What is known is that a new revenue stream will be coming the Astros way while the club sends player payroll in the opposite direction. The league, still bruised from their dealings with Tom Hicks and Frank McCourt, aren’t likely to allow this upfront RSN money to go into paying down debt that was incurred to make the sale happen, so where will it go?

The bottom line of the bottom line is that there’s a good argument to make that those bloated payrolls of 2009 and 2010 weren’t helping the teams in the standings (for those keeping score, the team was 74-88 in 2009 and 76-86 in 2010), so a little bit of frugality to get efficiency and effectiveness aligned may be warranted. What the Astros really are is three seasons into a five-year rebuilding plan that’s certainly going to need more than five years to come to fruition. Ten years? Maybe. That all depends on how white-hot the spending of the Angels and Rangers continues to be given their newfound TV money, which exceeds that which the Astros pull in. Time will tell if the Astros become a leaner contender in subsequent years. It sure won’t be happening for a while, though.

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

Related Content:  Houston Astros,  Jeff Luhnow,  Jim Crane

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

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Sean

Maury, I can't tell if you're letting your issues with Jim Crane get in the way here. It certainly seems at odds with some of the praise being thrown around for the Astros' commitment to rebuilding with Jeff Luhnow. How does this differ from what's happening (belatedly) in Chicago? And it's surprising to me for a sports-business reporter to be implying that something is amiss when payroll won't match 2013 revenue. There's of course a value judgement there that everyone can make for him/herself, but ultimately 1) we expect that all owners are somewhat profit maximizers and 2) what's the point of an artificially high payroll versus rebuilding thoroughly?

Perhaps we just disagree when the rebuild started -- I'd say you start evaluating that from now, no matter if a few pieces were moved last year.

Aug 20, 2012 07:08 AM
rating: 2
 
BP staff member Maury Brown
BP staff

I don't think you're seeing the Cubs getting into payroll that is at the bottom of the food chain. And, I don't see the Cubs doing so with lucrative RSN money that wasn't there prior. Read the last paragraph... it's 3 years into a 5 year rebuilding that is likely to be much longer.

Aug 20, 2012 07:34 AM
 
Sean

Right, that's where I realized there may be disagreement on the rebuild timeframe. I'd start it with this past offseason considering the substantial turnover throughout the front office. You may be talking from a purely financial standpoint, but I think "rebuilding" is more of a baseball-side term.

The Cubs' payroll has dipped, though they have said they are merely investing the dollars elsewhere within the baseball budget -- Dominican academy, scouts, technology, amateur signings, etc. The Astros may be doing some of the same things. Regardless, as a relative proportion of revenues, the Cubs' payroll decline right now is at least in the same direction as that of the Astros'. The recent records are similar.

And ultimately, I'm still not convinced this is a bad thing, just as in Chicago. It needs to be done. And done well.

Aug 20, 2012 07:45 AM
rating: 4
 
SaberTJ

I don't understand why the league wouldn't let the Astros use the TV money to help pay down their debt. Wouldn't the Astros franchise value increase if they become free of debt?

Aug 20, 2012 07:09 AM
rating: 0
 
BP staff member Maury Brown
BP staff

It's against the CBA, for one thing

Aug 20, 2012 07:32 AM
 
BP staff member Maury Brown
BP staff

I'm up too early... that's the use of revenue-sharing.... But...

The league has always frowned upon using TV money to pay down debt. See the Rangers, Dodgers as examples (Hicks, McCourt were blocked).

Aug 20, 2012 07:39 AM
 
Leg4206

Not understanding this. Seems like a quicker drawdown of the debt would make MLB happy as it would help prevent future financial trouble and decrease the likelihood of MLB needing to step in.

Aug 20, 2012 12:04 PM
rating: 0
 
Sean

Perhaps this would be viewed differently if Crane agreed to not sell the team sooner than 10 years or something like that. The main concern has seemed to be whether owners were mortgaging the team's future when they were only going to be around another couple years.

Aug 20, 2012 15:28 PM
rating: 1
 
boards

This was exactly my thought. With the available talent in the FA market what it will be this year and their position in the rebuilding cycle, it is extremely likely the Astros will be amassing surpluses the next couple of years while still improving their club and farm system. Even considering paying going rates on arb and pre-arb players and possibly making a Castro-like extension to Altuve (I'm not promoting that idea, mind).

If the additional revenues are what you seem to think they will be, then I see no reason why anyone (Selig, other MLB owners, fans, the media) would oppose the Astros paying down debt in order to improve their overall stability. All while continuing rebuild the right way, not the Marlin way.

Maybe that's the big IF.

Aug 20, 2012 16:35 PM
rating: 0
 
Tarakas

Well, if the Asros were going to spend $100 million on payroll next year, given their talent level and the limited free agent market, would that get them anything close to a decent team anyway?

I know computer sims are different from real life, but in a sim like Out of the Park or Baseball Mogul I'd be doing everything the Astros are doing. I wouldn't spend a bunch of money on mediocre veterans and free agents (like the Pirates and Royals used to do) just to run up payroll.

Aug 20, 2012 09:06 AM
rating: 4
 
BP staff member Maury Brown
BP staff

You don't run up payroll. You also don't strip it to the bone. There are happy mediums.

Aug 21, 2012 07:13 AM
 
Behemoth

I get that there are potentially CBA/MLBPA issues with cutting the payroll back too much, but apart from that, why would the Astros want to spend more than they have to on the big league team? The long-term health of the franchise is probably better served by getting the highest draft picks possible until they have some elite talent coming through. They'd be better using money to pay down debt or improving facilities or something like that (given that spending on prospects is capped now) rather than spending money on the big league team to get up to 65 wins instead of being someehere in the fifties.

Aug 21, 2012 15:53 PM
rating: 2
 
Tarakas

But to what end? If they spend more on payroll to build upon their current team, will that lead to them being a competitive AL team next year? I doubt it. Given that they will not be good regardless of payroll, how much should they spend on not being good?

Aug 22, 2012 09:22 AM
rating: 0
 
iorg34

I don't see the problem with the Stros applying TV Revneues to pay down debt, with a few caveats:
- If Crane will use the future cash flow savings to invest more in the team when they're further along in the rebuild cycle.
- If a reasonable proportion of the cash is used to sign new talent, scout and develop new talent pipelines, research and develop improvements in baseball operations.
- If fan support, attendance, and public relations allow management to divert this cash without overwhelming backlash.
- If they comply with the MLB CBA related to payroll floor.

So far, it's hard to fault Crane's group for their execution so far. Yes, they have drastically slashed on-field payroll. They've also been willing to spend their full draft allotment, hire an imaginative GM willing to bring on smart, groundbreaking sabermetric thinkers.

I don't think comparing the current Astros regime to Hicks and McCourt is entirely fair. Both Hicks and McCourt were subject to high-profile litigation as a result of their poor financial discipline. I have no problem allowing the Astros to control their own financial destiny within reason.

Aug 21, 2012 11:25 AM
rating: 0
 
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