« Archive for September, 2008

Won’t draw this out, quick and easy:

AL MVP: Joe Mauer

NL MVP: Albert Pujols

AL Cy Young: Roy Halladay

NL Cy Young: Tim Lincecum

AL ROY: Evan Longoria

NL ROY: Geovany Soto

AL Exec: Andrew Friedman

NL Exec: Dave Littlefield

Obviously, these are my picks if I had a vote, not who I think will actually win. Of the player awards, Pujols is about as simple a choice as it gets, as he was by far the best player in either league. Mauer is a pretty easy choice too, all things considered (and by all things, I do not mean his team’s performance). If there’s any argument to be made, it’s the AL Cy Young, since Cliff Lee seems to be the overwhelmingly popular choice amongst the both mainstream media and the blogosphere. But Halladay was better given a neutral context (more Ks, equal BBs, higher GB/FB) and I’ll leave it at that.

As for the execs, Andrew Friedman is about as easy a choice as Pujols was, despite some odd counter arguments. And in the NL, there just aren’t any great choices, unless I’m missing someone. So instead of picking the best of all evils, I’m choosing the worst. Congratulations Dave, you earned it.

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Back in March, SB contributor Mike (who is just back from Europe and presumably freshly sterilized) did our only set of preseason predictions, as he called over or under on each team’s Vegas-projected win total.

Umm, yeah, not so good.

Of the thirty teams, Mike got twelve right, and went an astonishing 4/16 in the National League.

Some of the greatest misses: the Padres over 84.5, the Braves over 84.5, the Rockies over 82.5, the Nationals over 70.5, and the Astros under 72.5.

There’s a valuable lesson here though: on a macro level, always assume regression to the mean, which of course is 81 wins. Had we simply assumed that each team would go 81-81, we would have gotten 21/30 right.

The question is, could we actually make any money in Vegas by simply betting on regression to the mean? That could be a fun project for Spring of ‘09 (once we have next year’s odds), unless someone wants to go back and figure it out for this past year.

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Image via Wikipedia

Omar Minaya has some very important skills as a general manager. He is very good at getting deals done when he can spend more than anyone else. He is also pretty good at making himself the face of those deals. And along the same lines, he has proven to be incredibly proficient at shaping his public image.

Willie Randolph was the one who took the fall for last year’s collapse and this year’s slow start, but this is Omar’s team. And it’s a team that has constantly been plagued by a lack of attention to detail.

Minaya is perpetually given the biggest payroll budget in his league, and the Mets routinely spend at least 30-40% more than any other team in the NL East. He inherited two of the best infielders in the sport, both of which have been (and will continue to be) playing at a massive discount relative to market value. This has allowed him to pursue (and acquire) just about every high-priced superstar he’s had his eye on: Carlos Beltran, Pedro Martinez, Billy Wagner, Carlos Delgado, Johan Santana.

And yet the Mets are fighting for their lives again, trailing the Phillies in run differential even more than in the regular standings.

Minaya’s core competency is making the big splash; his weakness is building a supporting cast. This past winter, the Mets re-upped an obviously-shot Luis Castillo for four years, and traded Lastings Milledge for pennies on the dollar. They came into 2008 with two notoriously injury-prone corner outfielders (Moises Alou and Ryan Church) and no real backup plan (Fernando Tatis’s resurgence has helped immensely on that end).

But that’s Omar. He’ll trade Heath Bell for Jon Adkins and Ben Johnson, and sign Scott Schoeneweis to a three year deal. But he’ll also do whatever it takes to get Johan Santana, making up for some of the small misses, if not entirely excusing them.

What it all adds up to is a blasé big market team that will probably be competitive year in and year out, but not nearly as good as it could be. The media has loved Omar since his Montreal days, even though it doesn’t take a very lengthy audit to see how much damage he did to the Expos. And they mostly stood by him through the worst of times, even with the fumbled handling of Randolph’s exit.

But the extension is a clear sign that the Wilpons are satisfied with his performance. Had they waited, and the Mets collapsed the rest of this week, there could have been a massive outcry for Omar’s head. Now all of that is nullified in advance. And if the Mets have a good playoff run, the Wilpons will look relatively smart.

But it’s not the move I would have made. Brian Cashman will probably be available within the next month, and there are plenty of other solid, lower-cost options out there that could outperform Omar. They’ll be paying him big money until at least 2013, and that seems like a bit of a waste.

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It had to happen. Today we’re launching SquawkingTech.com. If you’ve read SB for any period of time, you’ll have no doubt recognized a certain slant on technology. ST will be a place where we can expand on those ideas, outside of the baseball realm. The site will be written in large part by my brother Lee (who also happens to be the CEO of Veritocracy), but I’ll be poking my nose in there once in a while. If you like technology and/or business, I highly recommend you check it out.

Eric Fisher has the details (hat tip: Maury):

Major League Baseball’s historic, half-decade run of marked economic expansion has been blunted, as the sport will end 2008 falling short of its initial projections on overall attendance and industry revenue.

With a week left in the regular season, MLB is off its record-setting attendance pace of 2007 by 0.5 percent and will almost certainly fail to surpass Commissioner Bud Selig’s oft-stated goal of 80 million, or even set a new league mark for the fifth straight season. The current attendance pace points to a final 2008 mark of about 78.5 million to 79.1 million, just shy of last year’s 79.5 million.

The league will set a new overall revenue mark, with current projections of more than $6.4 billion beating last year’s $6.075 billion by 5 percent, according to industry sources, but even that higher figure will settle in below the initial projection for 2008 of $6.5 billion.

There’s a very downbeat tone to this article, and I’m not really sure it’s necessary. A ~5.3% growth rate isn’t great, but it’s certainly not disastrous.

Now, there are certain indicators that baseball could be a bit concerned about. From Fisher:

Other specific indices for the game showed the challenge MLB, like nearly every sports property, faces in the current economic climate. Merchandise sales are flat compared with last year, even after a record-setting All-Star Game and heavy nostalgia-driven licensing efforts around the final seasons at Yankee Stadium and Shea Stadium.

National TV ratings are similarly lacking in vibrancy. Fox’s Saturday game of the week coverage was off by 17 percent compared with last year entering the season’s final two weekends, games on ESPN and ESPN2 are both off their 2007 paces, and Turner was averaging a disappointing 645,000 viewers for its new Sunday afternoon national coverage.

Honestly, I’m not sure what to make of the TV ratings. I didn’t think TBS did a very good job of marketing their package, but I can’t think of a reason off the top of my head that ESPN and Fox’s ratings would decline so much. Meanwhile, merchandise sales are largely a function of attendance, so it makes sense that they would be flat.

MLB simply hasn’t innovated much over the past 2-3 years, and its growth has slowed as a result. But that should change in a big way next year. The MLB Network could be an enormous cash cow, as will the new stadiums in New York. Even in this suboptimal economy, I would expect MLB’s growth rate to jump back into the double digits in 2009.

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From what I understand, they’re not. And I don’t really get it. (If I’m wrong on this, someone please speak up.)

Last time out I mentioned that the Mets and Yankees might have to deal with a decline in corporate demand for tickets, which could negatively impact prices on their high end packages. Then I caught this in yesterday’s WSJ:

The New York Jets are joining with eBay to auction off licenses to 2,000 of the best seats in the stadium the team will share with the Giants, a new approach that will test the limits of what football fans will pay for top-of-the-line seats.

While online auctions for already-purchased tickets have become common, a major U.S. sports team has never before auctioned off personal seat licenses, or PSLs. The Jets expect the licenses to go for more than $25,000 each, the price the team will charge for licenses to less-desirable seats behind the visiting team’s bench…

No one knows where the market’s ceiling is. In Texas, Dallas Cowboys’ owner Jerry Jones last year set the price for licenses to 1,000 seats at the 50-yard line at $150,000 each. “We may have a few left, but that’s it,” said Brett Daniels, a Cowboys spokesman. The team is selling rights to about 80% of the seats in the 100,000-seat stadium…

On June 26, John Mara, the Giants’ chief executive, announced he needed to sell licenses for every seat in the new stadium to raise $370 million. Fans can buy the rights to seats comparable to the ones they now hold. The fixed prices start at $1,000 for the upper deck and rise to $20,000 for the field level. The tickets themselves cost $85 to $700…

But even at those prices, the Giants may be leaving money on the table, something the Jets want to avoid through their auction…

Those are pretty incredible prices. How much could the Yankees and Mets make from selling PSLs? What if they applied them to luxury suites, premium boxes, etc. This is an enormous opportunity that they appear to be missing.

On a side note, the eBay route is a brilliant play by the Jets; instead of dealing with the backlash the Giants are looking at, they can simply point to the market. I’m surprised more teams aren’t doing this for PSLs, or even high-end ticket packages.

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  • No, I don’t think the financial crisis will drastically impact MLB’s business, but it should have some effect on the Mets and Yankees in 2009. Both teams will be trying to fill newer, more expensive seats, as well as many more luxury boxes. They will undoubtedly have to lean on corporations to reach their goals, and there are now two less major corporations in New York than there were on Friday. Neither team will be crippled, of course, but both may have to recalibrate how much demand there will be for high end seats and boxes.
  • Mark Cuban is right, risk and reward have been decoupled for many top executives at major public companies. But I’m not going to get on board with the regulation he throws out there. That decoupling is something that should be priced into a company’s multiple. If it isn’t, then its investors are doing a poor job. Clearly, it hasn’t been over the past few years, and we’re now seeing an enormous correction. But the companies that are still doing well (or at least have survived; i.e. Goldman, Morgan Stanley, JPMorgan, etc.) are generally the ones with the most transparency and the least risk. And those companies’ investors will now be rewarded as they eat up market share that used to belong to Merrill, Lehman, and Bear Stearns.
  • Speaking of executives, Theo Epstein won’t be on the market this winter (to no one’s surprise). But more and more, it looks like Brian Cashman will be. He would be a terrific choice for just about any team, and I wouldn’t be surprised to see him end up in either Philadelphia or Washington. It’ll be interesting to see what the financials are on Epstein’s deal, since that could be a reasonable indicator of what Cashman could get, as well.

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So why exactly does Forbes value NFL teams at such high multiples relative to other leagues? There are some real, fundamental factors, but the best answer is either 1) the NFL is simply considered a much better long term bet than its competitors, or 2) Forbes is wrong.

Darren Rovell is supporting the latter, and he might be right. The magazine’s valuations of the Rams and Steelers seem high at the moment, although that could easily change. And we know for sure that their $642 million price tag for the Cubs is an enormous miss, considering Mark Cuban is supposedly bidding $1.3 billion.

But it’s still worth looking at some other fundamental figures, based on Forbes’ estimates. Here’s a spreadsheet comparing all four of the major sports leagues:

Forbes 2007-2008

Obviously, the P/E numbers seem a bit out of whack. MLB is noticeably lagging behind, and the NHL is way out in front. Is the NHL growing that much faster than the other leagues? Of course not.

So what’s going on here? Well, Forbes bases their valuations based on revenues, not earnings. They also use past franchise sales as benchmarks for their multiplier estimates.

So when we think of it that way, things start making at least a little more sense. The NFL has the highest P/R ratio at 4.69, followed by the NBA (3.13), MLB (2.58), and the NHL (2.46).

Now, I do believe that MLB teams are being systematically undervalued, and NFL teams a bit overvalued (albeit less so). The Cubs are a perfect real-world example of this, although there are other obvious hypotheticals here: are the Mets and Dodgers really worth less than the Arizona Cardinals? Doubtful.

There’s also another key piece that Forbes seems to leave out: MLB Advanced Media. That’s why the magazine’s total revenue estimate for MLB ($5.5 billion) falls short of the $6 billion estimate that MLB reported itself. This has a pretty substantive effect on franchise values; the thirty teams each own an equal piece of the company, which has been independently valued in the billions.

That said, an NFL team probably is, in general, a better long term bet than an MLB team; baseball tickets are far more elastic than football tickets, and NFL teams are more reliant on guaranteed income streams like television contracts.

But the difference is not exponential, as Forbes would have you believe. Baseball is still in the midst of a tremendous era of parity, which is boosting previously sagging brands all across the sport. And as I’ve written before, sports leagues are uniquely positioned as inventory providers in this advertising downturn, since their events are time sensitive. In other words, the volatility that was once priced into MLB franchise values is likely gone, at least for the foreseeable future.

The Cubs sale is a pretty good example of this. Cuban is just one of several bidders offering over $1 billion, and they’ve actually seen the club’s financials (whereas we only have the Forbes estimates).

Look for Forbes to drastically raise their MLB franchise values next April, and hopefully include the teams’ stakes in MLBAM. That should allow them to offer a much more precise set of data, because this year’s seems very shaky.

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Found this interesting:

The average team in the National Football League is now worth more than $1 billion, marking the first time any sports league has surpassed that level, according to a report released Wednesday.

The 2008 average valuation for the 32 NFL teams was $1.04 billion, up 8.7 percent from last year’s $957 million due to the sport’s popularity and cash-generating new stadiums, said Forbes magazine, which releases its rankings annually.

Ten years ago when Forbes first valued NFL teams, the average franchise was worth $288 million.

The NFL is the most popular U.S. sports league with strong television ratings and annual league revenue topping $7 billion. While TV ratings have slipped over the last decade, NFL games still boast the strongest ratings among sports leagues.

I’m going to take a look at the Forbes report tonight, and I’ll probably write about it in full tomorrow. This has to feel like a bucket of cold water for MLB and their aspirations to be number one in the U.S.

The revenue difference might not be so significant (it’s not inconceivable that MLB could reach $7 billion this season, if we’re including MLBAM). But the valuation difference is. According to Forbes, the average MLB team was worth around $472 million coming into this season. That’s about 45% of the average NFL team, and it’s a pretty incredible figure given the similarity in revenues.

A lot more on this tomorrow, or this weekend at the latest.

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Albert Pujols at bat, wearing a 1982 retro jer...Image via Wikipedia
  • Albert Pujols has constantly been mentioned as a “possible” MVP candidate over the last few weeks, proving once again how broken the awards system is. Pujols is hitting .359/.466/.649, good for a .374 EqA, making up a large component of his 13.3 WARP3. Every number I just listed, aside from his slugging percentage, is a career high. So in other words, despite doing a stint on the DL in June, this is a Hall of Fame player having his best year to date. And yet, this will likely be the third straight year in which he is easily the best player in his league, but barely garners any support for MVP.
  • MLB At Bat for the iPhone and iPod Touch got a pretty major face lift last week, adding Gameday pitch-by-pitch, field view, box scores, and game summaries. Of course, all of that is on top of the video highlights which made the app so cool in the first place. Needless to say, this is great stuff, especially if you have WiFi. In fact, I’d say it may be a better experience than Gameday on a PC. For me personally, this would be the ultimate killer app if the box scores included OBP and SLG. For a compulsive box score reader, that’s a must. But on the whole, great stuff from MLBAM.
  • I haven’t written about the Pedro Alvarez situation because I don’t have much to add beyond the incredible work Kevin Goldstein has done at BP. No doubt, this is Scott Boras trying to find a loophole that will make Pedro Alvarez a free agent. On the open market, he would probably pull in $15-20 million, making the gamble somewhat worthwhile if Boras really has something here.

Thanks to all of you that signed up for Veritocracy over the weekend. If anyone else is interested, e-mail me and I’ll make sure to get you in. Also, for anyone interested in the tech space, we’ve got something good coming soon.

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