« Archive for October, 2008

If I was hiring a Major League manager, it wouldn’t be Jerry Manuel.

This is pretty old news already, but it’s been on my mind with more recycled managers getting second chances. Here’s what Manuel said after having his interim tag removed:

“You get so many statistical people together, they put so many stats on paper, and they say, well, if you do this and you score this many runs, you do that many times, you’ll be in the playoffs,” he said.

“That’s not really how it works, and that’s what we have to get away from. And that’s going to have to be a different mind-set of the team in going forward. We must win and we must know how to win rather than win because we have statistical people. We have to win because we have baseball players that know and can understand the game.”

“You don’t see a lot of guys that have statistical numbers play well in these championship series,” Manuel said. “What you see is usually the little second baseman or somebody like that carries off the MVP trophy that nobody expected him to do. That’s because he’s comfortable in playing that form of baseball, so therefore when the stage comes, it’s not a struggle for him.”

FJM already tore him up for all this (”First of all: what are ’statistical numbers’? How do they differ from ‘numbers,’ ’statistics,’ or ‘numerical statistics’? Are there ’statistical letters’?”), so no need to go down that road. And really, no need to get angry or high-horse about it at all. The Mets made a business decision, and they can run their business however they’d like.

But I’m still not sure what teams are looking for when they hire field managers. The Rays, for one example, are a very smart team. I wasn’t impressed by their manager in the postseason, and I wasn’t alone.

So what makes a good field manager? Probably the same things that make a good manager in any other business. Leadership, smarts, decision making, etc. And for all I know, Jerry Manuel could be the greatest leader of our generation. But if any manager, in baseball or otherwise, based his or her decisions purely on intuition and not on data, he or she probably wouldn’t last very long in the job.

Peter Ueberroth once told the owners, “If there’s a half-million dollar decision in your other businesses, you’ll go to the purchasing agent and make him justify it. In baseball, you’ll make a five-million-dollar player decision and you’ll say, ‘That’s not me. That’s my general manager.’”

Most owners realize this now, and hire CEOs and general managers accordingly. Why that hasn’t trickled down to the field manager level yet is very hard to say.

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Via BP’s Adjusted Standings, the Phillies finished the regular season 5th in wins, 3rd in first order wins, 5th in second order wins, and 9th in third order wins. W1 uses runs scored/against, W2 adjusts for offensive and defensive components (i.e. how many runs should this team have scored, based on their peripheral stats), and W3 adjusts for components and strength of schedule. Here are the teams that finished ahead of the Phillies in each:

Wins: Angels, Rays, Cubs, Red Sox

W1: Cubs, Red Sox

W2: Red Sox, Cubs, Rays, Dodgers, Mets

W3: Red Sox, Rays, Cubs, Blue Jays, Yankees, Dodgers, White Sox, Mets

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Major League Baseball is a major media company. As a collective unit, the thirty teams produce about as much content as any other outlet in the country. And as a whole, media companies are really struggling. Newspaper and magazine circulation rates are plummeting. Less and less people are watching television commercials. CD and DVD sales

In other words, almost all of the old business models are becoming obsolete. The companies that relied on them are being forced to change, as they look for new ways to monetize their content. Hulu is a great example of what can be created with new-world ideas and old-world resources.

MTV just launched a really cool site along these same lines. Imagine every music video ever made, all in one easy-to-use place, with a pretty high quality player. Here you go. (By the way, if imitation is the strongest form of flattery, Hulu should take this as a huge compliment.)

This site could be huge for MTV and Viacom. It’ll be easier to come here and know you can find the video you want, instead of going to YouTube and taking your chances. Not to mention how much better the quality is on MTV’s site. All clips are embeddable (see below), and there are easy links to share on Facebook, MySpace, and Twitter, among others.

I’ve said this too many times to even link to all of them: this is exactly what MLB.com should be doing. Open up the vault, and publish as much video as possible in a high quality format. Make the site easy to use, and the videos easy to share.

The reason MLB and the other sports leagues haven’t come around to this model yet is because they haven’t had to. The leagues have other more essential sources of income, like ticket sales, merchandise, and television contracts. Plus, live events are much less prone to being DVRed than a taped program, which is why advertisers and TV networks have flocked back to sports the past few years.

But if MLB and the others are going to maximize their media dollars in the long run, it is essential for them to accept and embrace this new paradigm. There is an incredible opportunity here, since being a first mover on the web can be such a huge advantage.

It may just be a matter of urgency, though, and MLB.com doesn’t seem to have it yet.

Bruce Springsteen |MTV Music

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That quote is from Wednesday’s WSJ, and it’s a strong statement even for an organization that is posturing for a new stadium. The scary thing is, it’s not that unreasonable.

Let’s start with Forbes’ 2007 audit: $29.7 million earnings on $138 million in revenue, $24 million of which came from gate receipts.

Doing some basic math, we can make an educated guess as to what these numbers will look like for 2008. Attendance rose 30.5%, from 1,387,603 to 1,811,986, so we’ll assume regular season gate revenue rose the same amount, to $31.3 million. Overall MLB revenue was up about 5%, so we’ll assume the Rays saw similar growth in their non-gate items, which comes out to $119.7 million. We’ll tack on an extra $10 million for the postseason, which obviously is a stab-in-the-dark figure, and could be far too much or far too little.

All told, we can estimate the Ray’s 2008 top line figure to be ~$160 million.

On the expenses side, we don’t have as much to go on, other than player payroll. According to USAToday’s salary database, the Rays’ payroll rose from $24.1 million in 2007 to $43.8 million in 2008. Let’s assume a basic cost-of-living increase of 3% to the rest of the team’s expenses, and we have an estimated total figure of $130 million.

This means that we should expect the Rays to pull in close to $30 million for the second straight year. Taken at face value, this seems to make Sternberg look like just another pandering owner.

But as I said at the beginning, his statement may not have been so unreasonable. Consider the sample seasons. In 2007, the Rays had an unsustainably low player payroll. In 2008, the team is in the World Series with the 29th ranked payroll in the game.

This path simply cannot hold long term. The Rays will have to raise their payroll to remain competitive year-to-year, and it should rise naturally in the coming seasons as the escalators in their homegrown players’ long-term deals kick in.

For the sake of perspective, the median MLB payroll in 2008 was ~$80 million. That figure would have almost certainly put the Rays in the red, even counting all playoff and World Series revenue.

So with all that said, 2009 will be a key year for the franchise. The brand has been given a major jolt this season, which should help in creating a true sense of fan loyalty if the team can capitalize on the momentum. But that window could be very short (as it has proven to be with the Marlins), and the team may eventually need increased cashflows in order to perenially compete with the two superpowers in the AL East. Needless to say, that cash could be hard to come by when potential customers are being laid off, and the values of their homes are plummeting.

Florida has proven again and again to be a very tough market for professional sports. That the Rays’ management team has been able to succeed this quickly is a major credit to them, as there are some brilliant people working in that front office. But the fundamental realities of their market haven’t changed, and the next couple of seasons could end up being much tougher financially than most would now assume.

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I’m going to play devil’s advocate on this one… or at least try to.

There has been a lot written about Mark Ellis in the last 24 hours, after he signed a two year, $11 million with the A’s. The deal leaves him very underpaid relative to his production, and it’s very strange that he didn’t at least test the free agent market.

But with all that said, there are a number of factors working against him right now:

  1. The free agent market should be significantly more bearish than in recent years, due to the economy.
  2. There are other top-tier second basemen available, including Orlando Hudson (who is a free agent) and Brian Roberts (who is entering the final year of his contract).
  3. Ellis is fresh off of shoulder surgery, the results of which are known only by him, and presumably the A’s.
  4. Ellis’s reputation isn’t nearly as good inside baseball as it is in the blogosphere. We can scream all we want, but it’s the insiders that set the market.
  5. Adding to that, his nominal offensive numbers weren’t very good this year (.233/.321/.373), and he has only hit over .300 once in his career.

With all that taken into account, what could Ellis have gotten on the open market? More than $11 million over two years, certainly, but how much more? It’s possible that Ellis legitimately felt that he was better off taking another shot at free agency in two years.

That said, it’s great deal for the A’s. And it has to be an unexpected bonus for them, since I’m sure they figured Eric Patterson was going to be their second baseman next year.

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I’m getting ahead of myself, but for sake of argument let’s assume the Rays will win one of the next three games. That will make them the 28th World Series team in the wild card era. As a quick and dirty experiment, here’s the breakdown of how those 28 teams ranked within their respective leagues by B-R’s pythagorean numbers:

First: 13

Second: 4

Third: 3

Fourth: 5

Fifth: 0

Sixth: 3

The Rays were third in the AL this year, and the Red Sox were first, so if Boston comes back you can adjust accordingly.

That’s a very top-heavy breakdown, although I’m pretty certain a statistical model with a larger sample size would show a more even distribution (if anyone can find/do one, make sure to send it this way). Anyway, some notes:

  • The thirteen teams that finished first went 7-6 in the World Series.
  • Of those 13 teams, 5 were wild cards: the ‘02 Angels, the ‘02 Giants, the ‘04 Red Sox, the ‘06 Tigers, and the ‘07 Rockies. This year’s Red Sox would also be on the list.
  • The average finish of wild card World Series teams: 2.3. Average finish of division winners: 2.5.
  • Average AL finish: 2.4. Average NL finish: 2.5.
  • The teams that finished second, third, or fourth went a combined 3-7. All three teams that finished sixth ended up winning the Series: the ‘00 Yankees, the ‘03 Marlins, and the ‘06 Cardinals.

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This isn’t exactly a groundbreaking conclusion. But the WSJ put out its obligatory this-industry-is-also-suffering article about the major sports leagues today, without making any real distinction between them. In part:

Fans have packed the nation’s stadiums for the baseball playoffs this fall, and end-zone tickets for next month’s football game between the New York Giants and Dallas Cowboys are fetching hundreds of dollars.

But, as the upheaval in global markets, mounting job losses in the U.S. and other signs of a worsening economy continue to undermine consumer confidence, it is already clear sports won’t escape unscathed.

“We’re not just competing for people’s entertainment dollars anymore,” said Brett Yormark, chief executive of the National Basketball Association’s New Jersey Nets. “We’re going up against milk and orange juice.”

The article mentions some specific areas where leagues are having (or will have) some trouble, in particular stadium naming rights and stadium construction financing. And no doubt, those will be tough. But there are a limited number of teams in each sport that will actually be affected in those areas (in MLB’s case, the Nationals still don’t have a corporate sponsor for their park, and the Marlins may hit a major roadblock in trying to get their stadium built).

The leagues’ core revenue drivers are television contracts and ticket sales. The TV deals are almost all locked in for 2009 and 2010 for the four major sports, so that revenue is already fixed. But ticket prices are generally very elastic, particularly so during a downturn (as MLB found during the last recession in 2001 and 2002).

So what businesses generally do well during a period like this? Necessities (i.e. food), and low cost entertainment. Movies, in particular, are often thought of as recession-proof, since it is a relatively cheap way of getting out of the house for a night.

In the same sense, baseball tickets are still very affordable, especially compared with the other leagues. According to Team Marketing Report, the average ticket prices for each sport go as follows: $72.20 (NFL), $49.66 (NHL), $48.84 (NBA), $25.43 (MLB).

In general, baseball relies much less on the high-end consumer market than the other leagues. If corporate demand holds (as I think it will, since season tickets and/or luxury suites represent fairly minimal expenses for a big company), MLB ticket revenue should hold up very well.

It is the NHL and NBA that should be most concerned. Both rely on ticket revenue far more than the NFL does, and football tickets are usually much more inelastic since supply is so low. Single-game tickets are very expensive in both leagues, and both may have a very tough time this season.

On a side note, the economy may end up really hurting the Cowboys, Jets, and Giants, all of whom are looking for $10 million+ annually for naming rights (the Jets and Giants will share their new stadium). Just two years ago, the Mets scored a 20-year, $300 million deal with Citigroup, which now looks even more outlandish.

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“The most important thing to remember is this: If you didn’t get it from me or my brother [Hal], it doesn’t mean [anything]. I don’t care about some piss-ant employee. If you don’t get it from me or Hal, it’s meaningless. I have a lot of things [in Tampa] and Hal is in New York, which is good.”

- Hank Steinbrenner (New York Post)

Leadership 101: Calling your employees piss-ants.

Darren Rovell has an interview with Dave Howard, the Mets’ executive vice president of business operations (i.e. the guy in charge of selling the suites). Some quick notes, following up on yesterday’s post:

  • The Mets sold 10 “Sterling Suites” for $500,000 each. They sold 45 “Empire Suites,” 39 for $250,000, and 6 for $275,000. Total suite revenue: $16,400,000, plus whatever the teams brings in for their single game plans.
  • They seemed to do a lot of research on pricing, but Howard admits they probably priced too low (which I speculated on yesterday). The Yankees sold their suites for $600,000 to $850,000, a hefty premium over the Mets’ pricepoints.
  • The Mets offered 3-, 5-, 7-, and 10- year plans, with discounted escalators for the longer term deals. This fixed-revenue approach is interesting, and I wonder how much they’re charging for 2018.
  • Over 80% of their customers are corporations, and none have backed out due to the financial crisis.

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Just wanted to mention this quickly. On one hand, it could be taken as a sign that corporate demand for luxury suites should stay strong next season (something we’ve discussed in the past). On the other hand, I’m actually a little surprised this is all they were charging. If the Cowboys can charge consumers $150,000 for a personal seat license, can’t the Mets charge corporations $800,000 for a one-year luxury suite?

This brings up some other questions, such as: what are the Yankees charging? How do the Yankees’ plans compare to the Mets’ (i.e. which are more inclusive)? Will this be indicative of strong corporate demand throughout the league? And going along with what I wrote yesterday, could teams benefit from going to an alternate deal structure, such as multi-year contracts, or long-term timeshares? Hopefully we’ll get more information on all of this as the offseason goes along.

Unrelated side note: just posted on Squawking Tech about Facebook and collaborative software. Check it.

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