« Archive for November, 2008

The WSJ has an interview with Sal Galatioto, a financier who advises buyers and sellers of sports franchises. Here’s the relevant excerpt:

The Wall Street Journal: How bad is the sports business?

Mr. Galatioto: It hasn’t hit home yet. The selling cycle starts early with season-ticket sales and sponsorships and luxury suites. If this lasts or gets much deeper into the next sales cycle, that is where you are going to see the impact. Sports has been resilient in the past, but it is not immune.

WSJ: So would baseball be the first to feel it?

Mr. Galatioto: Baseball had a lot of sponsors and tickets sold heading into the fall. Next summer, with basketball and hockey, if you are a team with sponsorships and suite contracts coming due, it may be hard to get them re-sold. That is where you are going to see it. Then, if we see renewal rates of season tickets going down and teams unable to pass on price increases, it’s ultimately going to trickle down to the players. Ticket price increases are built into these businesses.

It’s true that baseball has a lot of sponsorships and luxury suites / packages sold for next season, and you can add fixed TV contracts into that mix. But the NFL, NBA, and NHL all had their season tickets sold before the financial crisis hit in September. MLB has a lot of ticket inventory to sell this winter, and it’s not going to be easy.

The more salient point, which I’ve mentioned before, is that MLB is now very diversified, and doesn’t rely as much on ticket sales as it did in the past. I wouldn’t be surprised if the teams took out hefty dividends from MLB Advanced Media at some point in 2009, especially if some small market teams get into a real cash crunch. The MLB Network probably won’t be able to pay a dividend for a couple of years, but, depending on its initial profitability, it could be called upon in an emergency.

The rest of the interview is worth a read. Galatioto is predictably very bearish on the franchise-sale market, since those deals are usually very reliant on credit. Nothing Sam Zell and the Tribune Co. didn’t know already, but also not something they’re eager to hear at this point.

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Manny Acta just finished his second season as Washington Nationals manager. The team struggled this year, finishing 59-102, after a surprising 73 wins in 2007. Acta previously managed in the Astros system, and coached for the Montreal Expos and the New York Mets. He is known as one of, if not the most, statistically-progressive Major League managers. We caught up with him last week and discussed the Nationals, sabermetrics, pitch f/x, and the World Baseball Classic, among other things:

Squawking Baseball: How would you evaluate your second season?
Manny Acta: Obviously we didn’t win as many games as we had hoped for. A lot of things happened that nobody could control, especially in terms of injuries. But on the other side, it makes it a challenge to constantly progress, to constantly get better, even when you have setbacks.

SB: Are there any ways that you’ve evolved as a manager?
MA: You always learn things. I’ve been managing and coaching for many years, I managed for a long time in the minor leagues, and every year you run into things you had never experienced before that you learn from. And we’re in a great era now too, since every year there is more to learn from a sabermetrics side. Every piece of knowledge I take in, I try to use it to our advantage, for myself as a manager and for the ballclub.

SB: A number of your coaches were let go at the end of the season. How do you feel about the changes that were made?
MA: When you have a season like the one we had, it’s common practice for changes to be made. It was tough, I was with those guys for two years, had good relationships. But it’s part of the game. We had a sound process finding the new staff, and we are all looking forward to the challenge.

SB: Day-to-day, how do you prepare for the next opponent?
MA: We get a lot of reports for each series. Scouting reports, spray charts, statistical reports. We try to be on top of individual matchups that show a real significant edge to one side, especially for late in games. And in the future I think pitch f/x will play a big part in day-to-day preparation.

SB: How much, if at all, have you used pitch f/x thus far?
MA: I’m still learning. I think it’s going to be a huge part of scouting, especially when it matures and is 100% accurate, and is integrated in the minor leagues and even in college. There are so many things you can learn that we could never know for sure. How good is this guy’s slider, really? Why is it good? All of the conventional wisdom in scouting will be put to the test, and you’ll see a whole new world in terms of data and information.

SB: You’re obviously a very statistically-inclined manager. How do you think that gives you an advantage over managers that aren’t as progressive?
MA: I want to win. More than being statistically-inclined, I’m very open minded. If someone can show me things that I didn’t already know, I am willing to change. I’m not stubborn. If the statistical evidence shows I’m wrong, and it helps me and my team win baseball games, then I would be a fool not to listen.

SB: Looking back, have there been any decisions that you made that perhaps you wouldn’t have if you had not been so aware of sabermetrics?
MA: I would have bunted less when I managed in the minors. I still would have had the minor leaguers run, because winning isn’t the most important thing down there, and most players have the green light to work on their baserunning skills.

SB: The Nats have the number one pick in next year’s draft. How involved are you in that process?
MA: I’m not very involved. I trust the people that make those decisions, and all my energy goes into managing the team on the field.

SB: In 2006, you managed the Dominican team in the World Baseball Classic. Will you be involved at all next spring?
MA: I won’t be managing, but I’ll be a consultant for the Dominican Republic.

SB: What effect does the tournament have on the players that take part? Is it worth it?
MA: It’s a good event, and it helps make our game more global. If you get injured, I don’t believe that’s due to the Classic. Spring training starts a week earlier to help players better prepare for it, and you have the same chance of getting hurt whether you play in the Classic or play in the Grapefruit League.

SB: Do you think the WBC is helping spread baseball around the world?
MA: It has already helped big time. The last classic did a lot for the game. I saw it firsthand in the Dominican. The second one can only continue that and make things better.

SB: Tell us about the ImpACTA Kids Foundation.
MA: Right now we’re building a baseball complex in my hometown, Consuelo, in the Dominican. It will have two Little League fields and a full-sized field. And this will only be the start. There are lots of talented people that only need a chance, and we want to give them that chance.

MA: What’s your favorite blog?
SB: Squawking Baseball. It’s fantastic, really. I like Baseball Prospectus, too. Joe Sheehan, Will Carroll, Nate Silver, PECOTA, the essential stuff.

SB: And what did you think of the presidential election?
MA: Super fantastic. I’ve gotten to live the American dream, and Barack Obama is too. It’s great to see.

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Citigroup CFO Gary Crittenden was on CNBC this morning, and mentioned that he doesn’t think Citi will have to back out of its 20 year, $400 million naming rights deal with the Mets.

“You know, those (naming rights) decisions were made in a different time and a different place and we have a legal and binding agreement around that and so I never heard it discussed,” he said. “I don’t think it’s an issue.”

So that’s good news for the Mets since, as Darren Rovell wrote, “No other company, in this environment, would give them $20 million a year. I don’t even think they could get $12 million at this point, to be frank.”

The real losers in all this is the Washington Nationals. The Nats held out from signing a naming rights deal when their new ballpark opened last spring, presumably hoping to find a Citi-like partner that would pay an exorbitant amount.

Stadium naming rights is very much a vanity project for big companies and, needless to say, there’s a lot less room for vanity projects in this economy than there was in 2006. What was an enormous deal then (Citi-Mets) is completely unrealistic now.

So the Nats have to decide whether they can afford to wait out this negative atmosphere, and try again in 2010 or 2011 (assuming we have more or less recovered by then). Naming rights are generally factored into the team’s cut of stadium construction (not sure if the Nats did this; note that the local governments should technically own these rights, making this a hidden subsidy), and are all but assumed to bring in a fairly significant amount of money. Cashing a $100 million check before you have it can lead to some interesting behavior, so it’ll be very interesting to see what the Nats do going forward.

We didn’t ask Manny Acta about any of this, but we did discuss lots of other things, so make sure to check out our exclusive interview with him tomorrow afternoon.

Feedback? Write a comment, or e-mail the author at shawn(AT)squawkingbaseball.com

Check back Tuesday. We’ll be running an exclusive interview with Nationals manager Manny Acta. If you want an example of a well-rounded, stats-savvy field manager, Manny’s pretty tough to beat. We’ll be discussing the Nats, sabermetrics, pitch f/x, and the World Baseball Classic, among other things.

I was going to write more about the BBWAA, but there’s no point. Joe captures it perfectly:

1. Ryan Howard, Phil
2. CC Sabathia, Mil
3. Manny Ramirez, LA
4. Carlos Delgado, NY
5. Aramis Ramirez, Chi
6. Prince Fielder, Mil
7. Albert Pujols, Stl
8. Ryan Ludwick, Stl
9. Ryan Braun, Mil
10. David Wright, NY
There’s almost certainly a 15,000-word column in just that ballot alone. I’ll leave it at this: that ballot is everything that is wrong with the current state of award voting. It weights everything but the measurable performance of the player over the course of the season, including teammate performance, timing of performance, narrative, and as far as I can tell, actual weight. It tried to parse the word “valuable” so finely that it loses all meaning. And it puts Prince Fielder ahead of Albert Pujols, which may be the single worst individual vote I’ve ever seen.

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  • Albert Pujols won his second NL MVP yesterday, giving him two out of a deserved four (he’s been the most valuable player in the NL every year since Barry Bonds got hurt in 2005). Ryan Howard, who was a marginal candidate for second best player on his own team, was the consensus number two, nipping at Albert’s heels in the voting.
  • MLB.com is switching online video platforms, ditching Microsoft’s Silverlight in favor of the far more popular Adobe Flash. I’m still not sure why they chose Silverlight in the first place, perhaps betting (or hoping against hope) that Microsoft would develop the better product long term. Flash is more established, and far more popular. Many users have had to install Silverlight specifically for MLB.com, which always felt like an unnecessary step given that it’s not even the superior platform.
  • Despite laying off over 50,000 employees and taking bigger financial losses than any other American company over the past year and a half, Citigroup says it will have no problem keeping its naming rights deal for the Mets’ new stadium. Keep in mind, that agreement (which will be worth $400 million over 20 years) is very big money for the Mets, but not really for Citi, which has taken tens of billions in writedowns since the summer 0f 2007 (even if it’s not necessarily the best use of funds, at this point in time).
  • ESPN won the bidding to televisie the BCS starting in 2011, beating out Fox. This is a very significant move, just as it was when ESPN won Monday Night Football two and a half years ago. The balance of power is clearly moving to cable stations, which, unlike the networks, collect fees from the cable providers for every user that gets those stations. So even though advertising is tanking at the moment, cable stations (including the soon-to-launch MLB Network) are still sitting pretty. That is, at least until the internet wipes away any need to pay for cable.

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I’m trying to catch up with myself a bit after a computer-less weekend, and what better to start than with an insider trading scandal involving a multi-billionaire saving himself a whopping $750K?

Yesterday afternoon, the WSJ reported that the SEC is charging Mark Cuban with insider trading, alleging that he sold shares of Mamma.com (now Copernic) after finding out that the company was going to issue stock at a lower price than it was currently trading. According to the complaint, Cuban was unhappy with the decision, and had his broker immediately sell his stake.

Whether the story has any merit is beyond the point, for our sake (although I will say, it will be hard for the SEC to prove any malicious intent, considering the small amount of dollars involved). What this probably means, though, is that Cuban has even less of a chance of buying the Cubs. Even if he is completely exonnerated, it is just more ammunition for Bud and co. to use if he ever reached the approval stage.

(I do still think that the Tribune, or Cuban, or both, could take MLB to court and threaten to challenge the sport’s antitrust exemption. In the past, the threat alone has often been a way to strong arm the owners and the commissioner.)

The other piece of news on this front is that Sam Zell and the Tribune have loosened their November 27th deadline for the next round of bids. The calculus on this is pretty simple: all of the buyers are having trouble financing (including Cuban, according to the article linked above), and there is a greater than even chance that the bids will be significantly lower than they were this past summer. That would be a major setback for the Tribune, which has billions of dollars in debt payments due in the next year.

In all, not a good turn of events for Zell and the Trib, who clearly mistimed the market in deciding to wait to sell the team. Cuban reportedly offered $1.3 billion earlier this year; the Cubs may struggle to find a single buyer approaching $1 billion now.

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UPDATE: The deal also has Wilson Betemit and Jhonny Nunez going to the White Sox. The logic below doesn’t change.

Nick Swisher is going to the Yankees, after one season with the White Sox in which he performed at below his 10th percentile PECOTA projection. There’s nothing really that off about his numbers though, aside from a big drop in BABIP (his line drive rate was actually a career high). Bill James has him at .240/.359/.451 for 2009, almost pefectly mirroring his career averages.

Swisher will fill one of any number of roles with the Yankees. They’re short a first baseman and an outfielder as is, and Swisher can do either. That allows them to search for the best player they can find to play center, left, or first, and fill in the other two spots with Swisher and Johnny Damon (with Hideki Matsui as the regular DH, and Xavier Nady in right field).

The return, Jeff Marquez, is a nondescript starter who spent most of the year at AA. I haven’t read anything on the scouting side, but performance-wise he’s filler. The White Sox simply wanted to dump Swisher, and the Yankees pounced.

Swisher is due $21 million over the next three years, which, needless to say, is far less than a player of his caliber would get in the free agent market (that’s about what Andruw Jones will make in 2009 alone). So all in all, a pretty high upside move for the Yankees.

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There’s a lot being written about this today. It’s clearly a goodwill play for the Red Sox, who could charge far more for their tickets than they currently do and still sell out every game. Customer loyalty is important, especially in dealing with expensive goods (like luxury suites or five- and six-figure season ticket packages), and this is an excellent move on that end.

In terms of tangible value, are there any hidden benefits for the Red Sox here? Dave Pinto brings up the secondary ticket market, which the teams now have a stake in. It’s an interesting point, and it will certainly increase demand (since tickets will be harder to come by in the primary market), but we just don’t know the economics of it from a team’s point of view.

Here’s one interesting item from CNBC:

Premium seat ticket holders who are contractually obligated to an increase ticket prices are being given the option of freezing their tickets at 2008 prices for 2009 season—if they agree for the contracts to be extended for one additional season.

So that’s something. But again, we just don’t know the economics behind those packages.

Just to reiterate, goodwill is certainly valuable, and it’s not a bad move to sacrifice some short term gains for long-term customer loyalty. This move will also give the Red Sox some solid political capital going forward, which should help when the economy recovers.

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The Yankees have seven luxury suites left to sell for next season, at $600,000 a pop. They haven’t sold one since at least August, citing slow demand due to the economy:

“There’s no getting away from the fact that the world is different than it was, so traffic slows,” chief operating officer Lonn Trost said Tuesday. “So you don’t have 10 people banging on the door. You may only have two people.”

Trost said in August that 44 of 51 suites priced at $600,000 to $850,000 had been committed and that the $650,000 and $850,000 suites had sold out.

“We’re entertaining proposals from different folks,” he said. “I’m not going to put them into the sold column until somebody sends me an e-mail and says, ‘Done.’ It’s so hard to say close when you get attorneys involved and you start fighting over terms, and we don’t want to change terms.”

$4.2 million is a small, but not insignificant, amount of money for the Yankees. But what’s more important is that this is the first sign of a clear a slowdown in corporate demand for premium ticket packages. This is what Larry Lucchino was concerned about back in June (which seems like ages ago).

There’s still a long way to go until April, but it will be interesting to see whether the Yankees have to cut their suite prices a bit. Remember that just a few weeks ago, the Mets sold out their inventory, and were openly frustrated that they may have priced too low. If the Yankees went down to $500,000, there would surely be a market there.

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