« Archive for July, 2008

This is just too horrific to pass up. J.C. does a very good recap.

I understand that the NY Times generally has a very liberal, often populist, slant. But this isn’t even populism, it’s just pure nonsense. He goes on a rant about player salaries, and suggests that this year’s all-stars should take 10% of their wages and donate it to the workers who are being laid off from the Chicago Tribune (of all places).

Then, after acknowledging that player salaries are simply a function of industry revenues, he fires off this piece of fascinating insight:

Zimbalist believes that professional sports, like other industries, will have little choice but to pare down if the economy continues to falter. ÒI think the salaries in all of the sports follow revenues,Ó he told me. ÒThe longer and deeper the recession, the more sports industry will feel it.Ó

I for one canÕt wait.

Really Buzz? You can’t wait for a long, deep American recession, just so Major League Baseball players will be slightly less rich?

I don’t even get it.

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According to the WSJ, the league and the network will partner to show NBC’s 17 Sunday night games online. This should be a very good test case for the free, ad-supported business model:

The move will help the NFL demonstrate how much value there is in the online rights to its games, potentially giving it another bargaining chip when its broadcast deals next come up for negotiation. Several major sports organizations already allow some live games to be shown on the Web. CBS Sports has streamed the National Collegiate Athletic Association’s March Madness basketball tournament. At the Olympics next month, NBC is streaming 25 out of 34 events online. And Major League Baseball has its own Web site, MLB.com, that has created a lucrative business selling subscriptions to MLB.tv, which streams out-of-market games.

The question is, how lucrative is MLB.tv, and does MLB Advanced Media have the optimal model in place?

It’s important to note that this isn’t an apples-to-apples comparison. Each NFL game has massive value relative to each MLB game, and the NFL has historically made much more from their television deals than MLB has (MLB, in turn, makes more off of ticket sales). So what’s good for one may not be good for another.

But one thing both leagues have in common is a strong set of relationships with major advertisers, which greatly lowers the marginal costs of creating a major ad-supported product. Live sports is one of the few old-world pillars of strength amidst the digital revolution; it is largely DVR- and bittorrent-proof. Networks and advertisers that were backing away from sports are now flocking back (this includes NBC, who couldn’t get out of its NFL contract fast enough in the late-’90s).

With all of that given, there’s a strong argument to be made against the subscription model. And that’s before we take into account the potential halo effect that free online content can have on ticket and merchandise sales.

As much as I’ve always disagreed with MLBAM about their pay walls, this is one area where I’ve been a bit more ambivalent. Live games are premium content, and it’s reasonable to make users pay a fee for the service (unlike archived games, or classic highlights, which MLB.com also charges for). I’m just not yet convinced it is the optimal business model.

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In the big picture, good for the Pirates that they were able to extract any value out of Nady at all (MGL summarizes my thoughts on Nady pretty well here).

As always, it’s impossible to decipher what is “maximum value” looking from the outside, but Jose Tabata was a very highly regarded prospect until just recently, and he’s only 19. If he ever becomes anything, it should coincide nicely with the Pirates’ latest rebuilding plan.

As far as the Yankees go, they could have done better.

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Now here’s a high-upside move if I’ve ever seen one:

For Mr. Rodriguez, the move marks the latest turn in his relationship with Scott Boras, one of baseball’s most successful and controversial agents. It was Mr. Boras’s decision to announce during last year’s World Series that Mr. Rodriguez would opt out of his contract with the Yankees. That move dented the future Hall of Famer’s reputation and forced him to pursue a new deal directly with Yankees brass.

Mr. Boras, who has represented Mr. Rodriguez throughout his career, said he will continue to represent the slugger in any baseball-related negotiations. “I do Alex’s baseball work,” Mr. Boras said Monday.

Now, with what is likely the final contract of his sports career complete, Mr. Rodriguez is turning to William Morris to burnish his image as an athlete with appeal beyond his sport.

As much as I’ve been called a Boras apologist, he and A-Rod have left a lot of money on the table in terms of endorsements, largely because A-Rod hasn’t been very salable. Darren Rovell estimates that he is pulling in less than $2 million annually off the field, falling below at least forty other American athletes.

Maybe William Morris can change that. Granted, it’s a very tough job right now. Opting out during the World Series didn’t go over so well, and he’s been tabloid fodder more than once. But an even bigger issue is that he remains the second most popular player on his own team, and a lot of people consider Jeter the more accomplished player (especially in the media). Fair or not, Jeter has built a much better brand for himself, and that has translated to greater off-field earning potential.

One interesting aspect of the WSJ article is that William Morris may focus on long-term investments for A-Rod (a la Magic Johnson) instead of short-term earnings maximization (a la Tiger Woods). That’s a pretty reasonable goal, and corporate equity generally goes farther than a regular paycheck can.

But it will still be important to get A-Rod in the right light publicly, especially as he approaches Barry Bonds over the next several years. Needless to say, there will be an incredible amount of money at stake, and A-Rod’s image could be a huge determinant in how much he actually makes.

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Image via WikipediaAt the risk of writing a post that will be obsolete in an hour, I’m going to assume that the Yankees will sign Richie Sexson, and are not actively in negotiations with Barry Bonds.

No, this isn’t necessarily a binary choice. But it seems like the Yankees are set on adding a LF/DH/1B type to replace Hideki Matsui, who presumably will miss the rest of the season. The easiest way to do this, of course, is to sign a free agent for the prorated minimum. Sexson and Bonds, then, are the logical choices.

Obviously, there’s no pretending that this is a baseball decision. Bonds is, at worst, a top tier hitter. Sexson is, at best, a hot major streak away from being a league average first baseman.

Brian Cashman is very sensible, and I wonder if he is the one making this decision. That the Yankees are choosing Sexson amidst a very competitive, high-pressure pennant race (which they are trailing, no less) actually surprises me a bit. The upside of signing Bonds is so enormous, I would have a lot of trouble turning it down.

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Maury beat me to it by getting his review in on iPhone’s opening day. But nonetheless, I’ve downloaded the app, and I have to say I’m fairly impressed. In-game highlights are available literally minutes after the play has happened, and the video quality is outstanding on WiFi (although not quite as good on the 3G network, at least in my experience). As far as the cost, $4.99 is a very reasonable price point, given the value.

The real question to me, though, is whether MLB.com can actually turn the app into a significant amount of revenue. If Apple sells 10-15 million iPhones this year, and 1 in 20 buy the app (certainly a high end estimate), that translates to $2.5-$3.75 million (with Apple skimming another thirty percent off the top). In other words, approximately one year of Jamie Walker.

I will not go on a rant about the value of free digital content. I think I’ve done that enough for the time being (including the post right below this one), and this isn’t quite apples to apples. The app store is a completely new market, and we still don’t really know how it will play out.

Also, it’s important to remember that the price doesn’t make the app harder to download in terms of time, since the fee is automatically charged to your iTunes account. This is very different from shopping online, where you generally have to go through several extra steps in order to pay for something. It’s the same model Apple uses to get people to buy songs for $0.99 when they could just as easily be had for free.

But that still doesn’t explain what sort of value MLB.com is looking for here. The app will probably have more features next spring, and I would be surprised if the price isn’t $9.99. Aside from the video, there is only a generic scoreboard (with line scores), and links to MLB.com’s browser-based box scores. Needless to say, there’s a lot that can be built on top of this, and I’m sure MLB.com is already working on it.

But even then, what is the potential upside? Is it better to charge for the app and bring in $10-$15 million in revenue, or would MLB be better off trying to extend its reach by making the app free? How much could they make with an ad-supported app, a la the New York Times? Could they create an e-commerce portal?

That’s what’s so fun about the app store business at this point: we just don’t know. As time goes on, we can better analyze what works and what doesn’t. Until then, companies will just have to take their best educated guesses.

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I got this in my inbox last week:

The key term in that ad is “Only $2.95.”

There was a time when offering a trial run of your product for a superficially low price was a great way to grow your business. But those days are over if your product is digital content.

Last year, venture capitalist Josh Kopelman wrote, “The truth is, scaling from $5 to $50 million is not the toughest part of a new venture - it’s getting your users to pay you anything at all. The biggest gap in any venture is that between a service that is free and one that costs a penny.”

Kopelman called this “The Penny Gap.” In other words, the psychological difference between free and almost free is actually very large.

Chris Anderson also wrote about this in Wired this past February (hat tip: Josh Kopelman):

From the consumer’s perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you’re in an entirely different business, one of clawing and scratching for every customer. The psychology of “free” is powerful indeed, as any marketer will tell you.

This difference between cheap and free is what venture capitalist Josh Kopelman calls the “penny gap.” People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that’s the difference between a great market and none at all.

The huge psychological gap between “almost zero” and “zero” is why micropayments failed. It’s why Google doesn’t show up on your credit card. It’s why modern Web companies don’t charge their users anything. And it’s why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first.

MLB.com is clawing and scratching for paying customers, instead of embracing viral channels. By charging $2.95 for the All-Star week, they limit their exposure to those fans that have an extreme desire to watch the events, but have no way of reaching a television. That’s a very limited segment. Had it been free, they could have enticed many more casual fans to try out MLB.tv.

MLB.com has done a lot of things right in recent years, but their focus is still misguided. The most successful online content sites are free for consumers, and supported by advertising. Given MLB’s ever-growing popularity, as well as their strong relationships with major advertisers, MLB.com could become a true internet powerhouse with some small, but crucial, changes.

Unfortunately, they are still very much stuck in a twentieth century, brick-and-mortar mindset. The site is a very closed community, and they have even resisted making their free videos embeddable on other sites. While MLB Advanced Media’s revenues continue to grow, they continue to miss a very significant opportunity.

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Photo by Justin Lafferty 16:41, 23 August 2006...Image via WikipediaI’m not going to get into the merits of the Rich Harden trade for the teams involved; enough people have done that already, and the blogosphere is predictably lining up behind the A’s.

But I do want to point out how differently Billy Beane and the A’s go about their business than just about any other team in pro sports.

As unfair as it is to throw every other front office into one big basket, it really isn’t that much of an overstatement. Almost all teams are driven by public perception, to one extent or another. This is especially true amongst owners, most of whom are in sports as a hobby, and often choose being liked by the media over making rational decisions.

And then there are the A’s, who are rational at all times, and will trade their ace starter in the middle of a pennant race if they feel his value has peaked.

That seems ballsy on the surface, and I guess it is since so few other teams would have done it. But Lew Wolff and Billy Beane get it on a deeper level: for the A’s to be a successful business, they must win on the field. Therefore, every move should be made with that goal in mind, public perception be damned.

Many people like to point out that Beane can get away with these things because he has an extraordinary amount of political capital, and Oakland’s fanbase isn’t nearly as intense as some others. But every team is a business, and should be run like one. Getting maximum value out of all of your assets is a key function of that.

Not to pick on the Pirates, given that it’s tough to gauge the trade market from the outside looking in, but they should have been shopping Freddy Sanchez this past winter. He was coming off of back-to-back All-Star seasons, one in which he won the National League batting title. His value had peaked, and yet they held on to him, possibly because he is extremely popular in the area.

Again, that is a completely circumstantial assertion, but it is the norm amongst Major League front offices. There is an attitude that “we can’t trade him, or people will be pissed.” And yet the great majority of fans just want their team to win, and will spend more money at the ballpark if they do, regardless of who is wearing the uniform.

Whether this trade actually will help the A’s win is a different discussion. But the rationale behind it is solid, and the A’s should be given credit for being bold where others would have sat on their hands.

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