Once upon a time, the Marlins were big sellers, not big buyers. Their reputation took years to recover from their last big sell-off, but are firesales sometimes justified?
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Nate tackled the question of when it makes sense to be a seller in the article reproduced below, which originally ran as a "Lies, Damned Lies" column on November 22, 2005.
A brief history of revenue sharing, from Bill Veeck to Randy Levine.
A little over a week ago, Yankees president and designated apoplectic pit bull Randy Levine decided to divert attention from his team's pitching woes by going after a new target: Rangers owner Chuck Greenberg. Five days earlier, the Texas honcho had asserted that it was his team's efforts to sign Cliff Lee that had stalled the Yankees long enough for the Phillies to enter the picture with their ultimately winning bid. Levine, hearing these as fighting words, lashed out by calling Greenberg a welfare case:
Are the Pirates not trying to be competitive by making a profit or just being good businessmen?
Many fans were outraged last weekend when the Associated Press, which had leaked some of the team's financial statements, reported that the Pirates had earned a profit while receiving money from Major League Baseball via revenue sharing while spending less on player payroll than nearly every other team in the sport. Apparently, fans are shocked that the people who charge them $5 for a hot dog are more interested in their money than their happiness. However, this is exactly what a system like MLB's revenue sharing is bound to do. It creates an incentive for small-market teams to earn more money by not investing in the product on the field.
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The addition of a new revenue stream to the industry won't necessarily flow into everybody's pockets.
After just three weeks on the air, the MLB Network is already the most successful cable station ever built by a major American sports league. Thanks to some nifty maneuvering in the spring of 2007, MLBN reaches approximately fifty million homes, making it the biggest launch in the history of cable television. It will also be lucrative from day one: MLBN is expected to bring in $200 million in revenue this year, and $300 million by 2012.
Bud Selig deserves a lot of the credit for this denouement. For all of his public faux pas, Czar Bud has steered MLB through its greatest (and longest) period of financial expansion. In 1993, his first year as acting commissioner, the sport took in $1.8 billion in revenues. This past season, MLB reached $6.5 billion, and is quickly closing the gap between itself and the NFL. The expanded playoffs, the stadium boom, and MLB Advance Media have all been tremendous growth engines, and MLBN could be the next profit center in that lineup. As Maury Brown detailed on Monday, the benefits to the owners are pretty wide-ranging: cash, equity, increased borrowing capacity-all in all, the network should be a very solid business for the foreseeable future.
"[Economics] is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions."
--John Maynard Keynes, as quoted in the introduction to J.C. Bradbury's The Baseball Economist: The Real Game Exposed
Maury chats with Vince Gennaro, a former consultant to MLB clubs and author of Diamond Dollars.
When Michael Lewis wrote Moneyball, a larger audience became aware of Doug Pappas and his groundbreaking metric, Marginal Payroll/Marginal Wins, published here at Baseball Prospectus. The metric placed an economic value on how much a club was spending to earn wins, and how much a club was spending in the overall in terms of marginal payroll. It placed the value of a win into perspective, and was seen as a way for clubs to better valuate how they spent, not how much they spent.
Neil responds to reader mail about last week's re-evaluation of Marginal Payroll and Marginal Wins.
The loudest gasps were prompted by the article's final conclusion, that by looking at teams' ROPE scores (Return on Payroll Expenditure, which is essentially the old Wall Street term "return on investment" with a cute acronym tacked on) we can determine that nearly every team in baseball is spending more on payroll than it gets back in new revenues, many by a factor of more than two to one. To be honest, this shocked me when I saw the numbers--I've long held to the position that sports team owners are in it to make a profit, first and foremost, and will only spend on players what they figure they can recoup from the increased ticket sales, TV rights deals, etc., that result from a winning ballclub.
That's not what ROPE shows, though. As I wrote last week, aside from the handful of teams that are getting a decent return on their investment, "Every other team in baseball would have been better off, from a revenue perspective, by fielding a minimum-wage team and taking their lumps on the field." That prompted reader W.L. to ask:
Now that some of the details of the new CBA are coming to light, Neil's able to look at a few of the finer points of how teams will now receive and spend money.
For anyone trying to analyze the new deal, though, the way it was
announced was less revolutionary. All that MLB and the MLBPA signed last
week was a "memorandum of understanding" sketching out the broad strokes
of the deal--and what was released to the press was even less than that,
effectively a summary of a summary. As a result, most of the reporting
thus far has necessarily been a mix of incomplete facts, rumor, and guesswork. Maury Brown began to untangle
the CBA's new revenue-sharing rules on Monday. My job today is to take
a deeper look at some of the implications of the new system for how teams
will actually be receiving--and spending--money.
First off, a quick recap of the rule changes, as we understand them so far. Under the old system, as Maury explained, revenue sharing consisted of two separate pieces: A "straight pool" that skimmed off 34% of every team's revenues and divided equally among all 30 teams, and a "split pool" that was levied only on the top-revenue teams and redistributed to the lowest-revenue ones. (This two-headed system was a compromise put into place during the last labor talks in 2002, when the owners wanted a straight-pool plan, and the players a split one.) The overall effect was that several hundred million dollars a year was shuffled around, mostly from the rich teams to the less-rich, but with the odd effect that teams at the top of the economic ladder actually got to keep a bit more of each dollar of new revenue (giving up 39%) than those at the bottom (who gave up 47%).
Maury begins a savage journey to the heart of the new CBA by tackling how revenue sharing will look from 2007 on.
The CBA hasn't been ratified yet, and what has been released about it doesn't show the details that the final version will. Still, researching and interviewing several sources that have seen the details has painted a pretty clear picture.
Which teams get the most bang for their buck? Maury uses the Marginal Payroll/Marginal Wins formula to examine the most efficient teams of 2006.
There's something sweetly seductive about the stealthy nature of a Major League Baseball team that seems completely outgunned, yet at the end of the season, has overpowered teams that seemed stacked with more weapons than two, maybe three teams combined. It's that cold efficiency that gets us going--doing things right. But efficiency is really only part of the equation; as Drucker suggests, being effective is the key. You can be efficient all you like, but if the outcome isn't effective, or in this case, if it doesn't lead you to the promised land of the playoffs, then all the efficiency in the world is moot, right?