« Archive for August, 2008

Instant replay is here, above the protestations of umpires, Luddites, and impatient fans.

Of those three groups, only the latter have a real argument. Replay probably will slow down games, but it doesn’t have to. The system that is being instituted is much like the NFL’s, where the officials have to leave the field of play, stick their heads into a booth, and come out minutes later with a decision.

But what if instead, the crew chief was given a tablet PC (something a bit larger than an iPhone) with a custom-made application that is administered by the MLBAM offices. Each baseline would be equipped with a broadband router, which would kill two birds with one stone (stadium WiFi will be in high demand as smartphones gain marketshare). The crew chief wouldn’t have to leave the field, and he could confer with the other umpires as he would have last week.

The off-field monitors could be kept as a backup plan, in case the mini-PC malfunctions. If the call could be made on the field in even 75 percent of replay situations, a significant amount of time could be saved.

Now, while the umpires don’t have a real legitimate gripe, they probably should fight this. Although it’s taken for granted that human umpires will remain a part of the game (partly because old habits tend to die hard in MLB), there are already several aspects of the game in which they could be rendered obsolete.

Tactile and motion sensors are becoming more and more prevalent in major sports. Tennis, in particular, has instituted this technology to assist human umpires. When Michael Phelps touches the wall a split second before his opponent, a human isn’t making the call. If MLB wanted, they could easily install sensors to make fair/foul calls, and probably call balls and strikes.

Not that this will happen any time soon, but at some point the cost savings may become too large to ignore. If nothing else, it will be a bargaining chip for the league against the umpires union.

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The NBA is taking an entirely different approach to streaming games online:

The NBA is poised to become the first major U.S. sports league to stream live games in local markets, an aggressive offering that will set up a showdown between cable operators and regional sports networks.

The move marks the latest evolution in digital rights and adds fuel to one of the most contentious issues in local sports media as teams look to broaden their reach while operators look to protect the rights to their most expensive programming.

The NBA has authorized its teams to launch three distinct digital services by the start of the 2008-09 season in late October: video streaming, interactive TV and video-on-demand.

Obviously, this is very different than MLB.tv, where users can only watch out-of-market games, and local games are blacked out.

Here’s the issue, and it’s a point that I’ve heard Bob Bowman make several times: people will almost always choose to watch something on the largest screen possible. It’s why people still pay $10 to go to the movies, when most major releases can be downloaded via bittorrent. And it’s why most analysts now believe that NBC’s online streaming of the Olympics has actually increased television ratings, instead of cannibalizing them.

So good for the NBA, who have been very slow to get on this bandwagon. I’ll be curious to see if the service is free (which it should be; I’m not sure how many people would pay a subscription fee to watch games online that are easily available on television). But regardless, it’s a positive step for the league.

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Dave Cameron certainly thinks so, but I’m not so sure.

Dave is making a lot of good points, and there are many aspects of the system that could be improved. But he’s not taking into account the actual reason the system was put in place to begin with. Here are the reasons he lists:

Goal #1: Promote parity by allowing teams to recoup talent lost when big market teams steal their players

Goal #2: Provide a disincentive for teams to sign free agents away from other clubs, making it more likely for players to stay with their original franchise.

In reality, though, free agent compensation exists for only one simple reason: to increase the costs of signing another team’s player, therefore driving down free agent salaries (at least in theory).

This was once a huge issue in collective bargaining, as it was the primary reason for the 1981 strike. The owners wanted a system where the team losing a player would be able to pick a player from the signing team’s roster (the signing team would be able to protect a certain portion of its roster). From Wikipedia:

On July 31, 1981, a compromise was reached. In the settlement, teams that lost a “premium” free agent could be compensated by drawing from a pool of players left unprotected from all of the clubs rather than just the signing club. Players agree to restricting free agency to players with six or more years of major league service. [2] The settlement gave the owners a limited victory on the compensation issue.

That system eventually became what we have today, where the signing team gives up their top draft pick, unless it is in the top 15 overall picks.

So, here are the basic economics. If each draft pick represents a surplus for the drafting team, then the system should do what it’s supposed to. Let’s say the 18th pick in the draft will, on average, create a $2 million value surplus for his team (I’m making this number up, for the sake of this example; the actual number could be much higher or much lower). If a team signs a Type A free agent, it loses that pick, and the value that comes with it. If the free agent’s expected marginal revenue product (MRP) had been $8 million for the following season, the team should only be willing to pay $6 million for that production.

Is this how it plays out in practice? Honestly, I’m not sure. We’ve had cases like the Giants a few years back, who deliberately signed mediocre free agents (e.g. Michael Tucker) before the arbitration deadline in order to ditch their first round picks. Obviously, they felt that investing in the draft wasn’t a sound practice (although they’ve changed their stance since). There are also the Moneyball A’s, who had seven first round picks in 2002, and had to come up with creative solutions just to afford their signing bonuses.

So is the system broken? I don’t think it’s as black and white as Dave makes it out to be. There are certainly holes, including the ones he points out. And it certainly doesn’t have a massive effect on the free agent market, like a direct player-compensation system would. But it still should be a net gain for the owners (albeit a small one), and is therefore still serving its intended purpose.

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Cito Gaston seems convinced that A.J. Burnett will opt out of the last two years of his contract and test the free agent market this winter:

“It certainly looks like A.J. probably won’t be here — I don’t know,” Gaston said on Saturday. “He seems to want to get closer to home. Just put the numbers together and you can figure that one out real easy. He’s probably got to do what’s best for his family.

“I’d love to have him here, but if he wants to go somewhere else, you can’t do anything about that.”

It’s a logical enough move. Burnett would be owed $24 million over the next two seasons if he were to stick in Toronto. Unless he tears a ligament in the next six weeks, he should do much better than that as a free agent.

But is this as much of a given as people seem to think? Remember, player salaries are simply a function of industry revenues. And while baseball seems to be holding up very well despite the negative economic climate, if the expectations for future revenues fall, the free agent market will be drier than most expect.

I already wrote most of my thoughts on this in March, so I’ll reprint instead of rehashing:

Kyle Lohse is still a free agent, and IÕm convinced itÕs because of the economic downturn. Consider that guys like Josh Fogg and Bartolo Colon have had to take one year deals with little or no guaranteed money, when similar pitchers were cashing in a year ago. I canÕt buy into the theory that teams are evaluating performance better on an industry-wide level, not when weÕre talking about a one year timespan.

HereÕs one alternative thought: there are only a certain amount of teams that a) have money to spend, b) are competitive or close to it, and c) canÕt tell that Jason Marquis isnÕt that good. ItÕs possible that the demand for high-priced, Òmid-levelÓ starting pitchers has dried up within that subset, and never really existed outside of it. Some of these teams (the Cubs, for one) have no need for another high-priced starter, while others are being weighed down by fear of a recession.

A.J. probably won’t get squeezed. Unlike Lohse, Colon, and Fogg, he’s a top-tier starter, and should have plenty of bidders. Had he been a midlevel starter with an oversized contract, this would have been a more interesting case study.

But it should be an interesting winter regardless. A lot of this will be driven by psychology, perhaps more so than by actual financial projections. If certain big spenders tighten their wallets a bit, many others will likely follow.

The question is, will guys like Lohse (who will be a free agent again) be willing to wait it out, and risk having the market seize on them? And what about the agents’ strategies? Will they push their clients to sign early, or hope that it becomes a buyer’s market like 2006 and 2007?

Here’s one thought, on a bit of a side note: A.J. Burnett is probably hoping the Yankees are interested. If so, he should do just fine, wherever he lands.

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In case you missed it.

Nothing really groundbreaking here. MLB.com is trying to target mobile users as much as possible, which is a smart play. I still think they can make massive gains just by improving their desktop-based experience, but mobile is going to be crucial going forward. Also, no chance for an IPO in the near future, as we could have guessed.

Here’s one question that could have been worded better, and perhaps resulted in a more interesting answer:

WSJ: What do you think of the NFL and NBC’s recent agreement to start streaming games online?

Mr. Bowman: I think it’s a great idea. As a football fan, I’m excited about it because sometimes I can’t be in front of my TV. Sometimes it isn’t so much that I can’t be in front of my TV, it’s that I don’t win the remote battle. That’s what I do with baseball. We watch “American Idol” and I got a baseball game on my PC ’cause I didn’t win the remote battle. There are a lot of homes where the football fan isn’t going to win the remote battle. I commend the NFL and NBC for doing it. I’m sure there’s going to be some concerns raised from affiliates and things like that. But our belief is that if you take care of your customer and fans, that water will rise and all boats will rise.

My thoughts here.

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I got an e-mail from Hulu today pointing out that they actually have distribution deals with the NBA and NHL. You can view their individual channels here and here.

The videos they have are pretty cool. Fairly high quality, dead simple to use, embeddable (I’ve embedded Game 6 of the NHL’s Eastern Conference Finals below, in its entirety (ED. Note: This old version of WordPress didn’t think that was such a good idea; I’ve taken the video down); it’s a very good product, for what it is.

But it’s limited, especially when you consider the incredible amount of content that is produced naturally over the course of a season. What you have here is a good window into what online sports videos should look like on the quality side, but not on the quantity side.

In the end, Hulu should become a great business, with or without sports. It has high-quality videos that people want to watch, and the company actually owns the content. Therefore, they can charge advertisers much higher CPMs than a third-party site like Youtube ever could.

The sports leagues could create a similar setup, but first they need to be willing to take a massive step toward openness. As I said yesterday, this usually happens more out of necessity than choice. We shouldn’t be surprised that the NHL seems to be furthest along in this sense (since they are still a distant fourth overall), while the NFL and MLB are busy setting restrictions on how news stations can use their highlights.

We will see, but if anything, we should expect MLB to become even more protectionist, since the MLB Network is set to launch next spring.

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Hulu, LLCImage via WikipediaThis almost seems too obvious. There is no existing destination site for online sports videos. If anything, people are using Youtube, which is poor in quality, and low on selection.

So why aren’t the leagues teaming up and creating a powerhouse site with high quality videos and an almost unlimited amount of clips?

This is essentially what Fox, NBC, and a number of cable networks and movie studios have done with Hulu. The site features free, high quality videos from the aforementioned sources, all monetized by short, mid-stream ads. The content collection includes full length television episodes and feature films, from both today and the past.

Although it’s hard to say definitively, Hulu seems likely to become a great success for the companies involved. For the first time, they seem to have gotten it: you win on the web with high quality content, openness, and an unobtrusive advertising scheme. And best of all, they own the content, making it that much easier to control and monetize (unlike Youtube, or any of the other video sharing sites).

The problem for the sports leagues isn’t necessarily that they don’t get it; it’s that they haven’t been forced out of their old-world way of thinking yet. Hulu was born out of necessity. For Fox and NBC, monetizing taped content is their primary business. For the leagues, it is a side project, since the great majority of their revenues come from live events and merchandise sales.

But that is a pretty weak excuse, given the amounts of dollars that could be involved here. Not to stutter, but as successful as MLB.com and MLB Advanced Media have been, they are still not maximizing their potential as a premier content creator. Just watch a 30 second highlight clip on MLB.com, and then watch a full-length movie on Hulu (or even one of the networks’ sites), and you’ll see how different the experiences are.

There’s a massive opportunity here. The leagues’ sites are always improving and opening up, but they are doing so at a snail’s pace compared to the major media companies, let alone the major internet players. You still can’t even embed a video from MLB.com onto another site, and much of their best content remains behind a pay wall.

There’s no need to reinvent the wheel. Just look at Hulu, and imagine it filled with full length games, highlights, press conferences, talking heads, and whatever else the four major sports leagues can provide. That sounds like a pretty exciting proposition to me, although I’m certainly not holding my breath.

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Chrysler building.Image via WikipediaTo no one’s surprise, we’ve seen an influx of foreign buyers snatching up American properties recently. The Chrysler Building is now majority-owned by an Abu Dhabi sovereign wealth fund, and Belgian brewer InBev has a deal in place to buy Anheuser-Busch (an iconic American brand, if there ever was one).

The math isn’t that complicated. The dollar has gotten pummeled over the last few years, so American assets are essentially on sale for overseas buyers.

The question is, why aren’t any of them interested in the Chicago Cubs?

The remaining bidders for the Cubs are reportedly Mark Cuban, Tom Ricketts, Hersch Klaff, Michael Tokarz, and the Sports Properties Acquisitions Corporation. All Americans, all rich in American dollars.

It’s possible that foreign interests feel they wouldn’t have a solid grasp of the business, or were scared off by the seemingly expensive valuation (Cuban’s $1.3B bid is 62 times 2007 earnings, according to Forbes’ numbers).

But this isn’t just a bet on the Cubs, or professional sports franchises in general (which rarely go down in value). It’s also a long-term bet on the dollar, which logically will get stronger at some point in the next 10-15 years.

What’s even better about this situation is that the current owners (the Tribune Company) couldn’t care less who it sells to, as long as it is the best deal financially. The Trib needs to pay down its debt; if a European (or middle-eastern, or Japanese, or Chinese, etc.) buyer gives them the clearest path to doing so, no amount of external pressure will stop them.

So where are all the foreign bidders? It’s hard to say. This would have been a great investment in American business, and I’m surprised nobody bit.

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Picture taken of Wrigley Field scoreboard by m...Image via WikipediaIf you’ve ever taken a sports economics class, you’ve probably heard the ha-ha, wink-wink scenario that supposedly would play out if the government chose to enforce strict antitrust laws on the major professional sports leagues. In Major League Baseball’s case, the AL and the NL would split, and any collusion between the two would be outlawed. In theory, this would drive each league to act more competitively, and would likely result in several rounds of expansion, a whole host of startup leagues, and a wave of team relocations.

In this scenario, or even in a less extreme version, the value of existing teams would no doubt fall, as a couple of commenters pointed out in my last post. So if Mark Cuban were to sue Major League Baseball on antitrust grounds, he could be damaging the value of one of his existing assets (the Mavericks), as well as the one he is trying to buy (the Cubs).

As I said Tuesday, it’s a very intriguing situation. But as interesting as it would be to see what Cuban’s next move would be if he was rejected by the other owners, he wouldn’t need to sue MLB. The Tribune would undoubtedly do it first.

Consider that the Tribune, which is suffocating in debt, has a $650 million payment due in December, and a $750 million payment due next June. Cuban supposedly has the high bid, offering upwards of $300 million more than the next best contender (and reportedly would require less debt, making him an even more attractive buyer).

Needless to say, if MLB tries to stop the Tribune from selling to him, that is a fairly obvious restraint of trade. And as expensive as a legal battle can be, it would certainly cost less than $300 million.

But I don’t think it will come to that. MLB knows the stakes; accepting Cuban as part of their club is the path of least resistance. Unless the fundamentals of this story change, I would be stunned if he doesn’t own the Cubs come spring.

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Mark CubanImage via WikipediaI personally find this Mark Cuban situation fascinating. Here’s a guy who has been extraordinarily successful in a number of businesses (including as the owner of a professional sports team), and he is presumably the highest bidder for the Cubs. Yet despite all of that, there’s a pretty good chance he won’t be approved by the other 29 owners.

Now, that dynamic is interesting enough by itself. But here’s where I think it could get really interesting: if the Tribune Company does in fact choose Cuban’s bid, and Cuban fails to get the 23 votes needed for approval, will he be willing to challenge MLB’s antitrust exemption in the courts?

A lot of this will probably depend on how much he really values the asset. The exemption is the result of a Supreme Court ruling, and has been held up by that court twice since. Needless to say, it would be a terribly expensive battle, although I think Cuban would stand a very good chance at winning.

But then there’s the other side. The last thing Major League Baseball wants is for that exemption to come under judicial scrutiny. Could the threat of this be enough for them to approve Cuban as a member of their fraternity, even if many of them would be uncomfortable with it?

It’s a bit ridiculous that this discussion could even come up. Cuban may seem like a publicity whore, but he’s created that image in a way that’s made himself and his companies boatloads of money. He is a master evangelist and a new-media-billionaire, both of which make him a very enticing owner of a major entertainment brand like the Cubs.

The question is, will the other owners let their egos get in the way of common sense? It should be very interesting.

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