« Archive for October, 2009

A look at how the uncertainty in the economy will impact this winter’s free agent market.

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First off, ignore all the the articles you’re reading today saying that Fred Wilpon actually made money from their relationship with Bernie Madoff. Technically, he did — records show that the family deposited a total of $523 million, and withdrew $571. So leaving it at that, they actually turned a $48 million profit.

But that’s nonsense. Imagine if you had a significant portion of your life savings in a bank, and the bank called you one day and said it was all gone. Think about what that would do to your day-to-day spending, your retirement, etc. Wilpon is lucky to have taken out as much as he did, but it’s still more than likely that he lost a ton here.

So the question remains, how much? This filing that came out could actually give us some hints. I’m not sure what Madoff charged in fees, but let’s say it was 2 and 20 (2% of assets, 20% of gains). Let’s try to come up with a high-end estimate. We’ll also assume 12% returns every year, which is what Madoff was so famous for faux-delivering. If Wilpon put his money in twenty years ago, and left it in until the day before Madoff was arrested, he would have had $2.26 billion invested. Subtract the $571M that we know he withdrew, and you get $1.69 billion. Think of this as an absolute cap; it would have been almost impossible for Wilpon to have lost more than that number.

Now let’s come up with an absolute low-end figure. Assume Wilpon put the money in ten years ago, and the returns were only 10% per year. We’ll also assume to withdrew the $571 million equally over that ten-year period. In that case, he would have lost about $170 million.

If we split the difference, we get about $900 million. The original press reports had it at about $700 million, so I’m willing to guess it’s somewhere between those numbers.

Whatever the number, it’s a devastating loss, and it’s a pretty good bet that the Mets now account for a significant majority of Wilpon’s net worth. And the fact that he made a paper profit off of it may end up costing him even more money, since part of those “earnings” will likely be clawed back and spread around to the other victims. Whether he’ll eventually have to sell part of the team is anybody’s guess. But it definitely wouldn’t shock me.

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Breaking stories — or “scooping” your competition — used to be the entire news business. Back in the day, there were several daily newspapers in every big city, and people had to actually pay for the ones they wanted to read. The papers also had quasi-oligopolies on their local ad markets, so their readers’ eyeballs were very valuable as well. If one paper — or later, radio / TV station — had stories that the others didn’t, you can bet which one readers would buy.

The model is totally different now, obviously. News is basically commoditized — once a story has been published by one newspaper or website, every other one will have it minutes later. Is there still value in breaking stories? Sure — for one thing, all those other sites will usually reference and link to yours, which can drive significant traffic and SEO juice. It can also become a bit self-fulfilling — if your guy has broken one story, he’s that much more likely to get the next one as well.

Mark Cuban clearly thinks there’s still a lot of value to this. Or at least he hopes there is:

I only care about the coverage of the Dallas Mavericks.  From ESPN Dallas, its non existent.  Its hard to offer any coverage when you dont actually have anyone at the games.  Last two Mavs games. No local reporter.  Maybe the ESPN Dallas standard of coverage is to have their reporters watch the game on TV…

Behind the scenes it impacts who gets the “scoops”.  If we have just done something, trade, signing, whatever. Guess who gets the heads up email first ? The website with no one at our games, or the Newspaper/website with more than one reporter at our games ?

I hope ESPN Dallas decides to make a commitment to the Mavs, the more Mavs coverage the better. But until they do..

If you are a Mavs fan, diehard or casual, make your first stop Mavs.com and your next stop The Dallas Morning News, or just open up your morning newspaper.

Obviously, teams want reporters at their games; the more reporters there are at Mavericks games, the more free PR they get.

But having reporters travel with teams is expensive, and news organizations are starting to question whether being the first to a story is still worth it. The LA Kings didn’t have a traveling beat reporter with them on the road last season (I’m not sure if this is still the case), and there will certainly be many others in that same boat.

I’m kind of surprised ESPN Dallas hasn’t been sending someone out to the Mavs games, but I’m also kind of not surprised. Regardless of how much money ESPN makes, it’s still a pretty simple cost-benefit analysis, and clearly they don’t think it’s worth it right now (it’s entirely possible they will during the regular season).

If anything, this should really worry teams. Sports have always gotten a disproportionate amount of space in newspapers (relative to their real-world value) and that’s undoubtedly been good for business. But as newspapers die, teams are going to have to rely more on regional web players to cover their games in person. if the biggest, richest sports media organization in the world feels like it’s not worth it, that’s a pretty bearish sign.

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I’ve been beating this same horse since last winter, and I’m probably more confident in it now than ever, even after a pretty bad (albeit fully expected) final attendance report.

First, the grim numbers: down 6.77%, the steepest drop since 1952. 22 of 30 teams saw declines, including many small market teams like the Pirates, who were also cutting ticket prices — not exactly an optimal combination.

But there were some extenuating circumstances, if not necessarily “bright” spots: 30% of the total decline can be attributed to the Yankees and Mets, both of whom significantly cut capacity and vastly overpriced their tickets. Both teams will still be bringing in far more revenue this year than last, as both had pretty much sold out their corporate inventory before the season even started. I don’t think it’s out of the question that their gains will almost make up for the rest of the teams’ declines.

Also, remember that MLB Network will be adding about $200 million to this year’s top line. I originally thought that the network could bring in much more than that, but MLB clearly had to keep its subscriber fees low in order to appease their minority partners, the cable distributors. But even so, that $200M will at least make up the rest of the difference in gate receipts, and go a long way toward keeping this year’s total revenues in line with last year’s.

And last but probably not least, most of the largest-market teams have made the playoffs — aside from the Cubs and Mets, I guess. The Yankees, Red Sox, Angels, Dodgers, Phillies, and Cardinals all have very strong postseason earning power, which should give another decent boost to the aggregate revenue number.

So all told, I’m sticking to my original prediction. Maybe it’s not the best way for it to have happened — some small market teams are really getting crushed — but that’s a very different question.

Looking forward, 2010 is going to be very difficult to predict — nobody really knows whether we’re out of the recession yet, how strong the eventual recovery will be, or whether we could slide right back into another recession shortly thereafter. Unlike last year, where everyone except the Yankees was bunkering down, we might see a much larger mix this winter.

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Looking at why the AL is kicking the NL’s ass so consistently lately. Two key factors: money, and the number of teams in each league.

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Hard to say, but we can now look at the high end, thanks to Patrick Clark’s list of the top 31 Latin signings of all-time. It’s always been the conventional wisdom that the international free agent system gives large market teams a huge edge, and that’s why we need a worldwide draft. But as I’ve said before, many of the big contracts shelled out in Latin America are done by small- or mid-market teams — including the top two, of course, Michael Ynoa (A’s) and Miguel Sano (Twins).

Here’s how the top 31 breaks down:

  • Yankees: 6
  • Mariners: 4
  • Padres: 3
  • Dodgers: 2
  • Rangers: 2
  • Giants: 2
  • Mets: 2
  • Reds: 2
  • Red Sox: 2
  • Twins: 1
  • Marlins: 1
  • Athletics: 1
  • Royals: 1
  • Nationals: 1
  • Cardinals: 1

So the Yankees come out with the most, which matches with the general consensus, but the rest seems pretty mixed. The Mariners with 4 and the Padres with 3? The Red Sox and Mets with no more than the Reds or Giants? And remember, the A’s and Twins have the top two overall, but those are their only big spends.

Also keep in mind, the ceiling has been set at around $3 million, with Ynoa’s $4.25M still a bit of an outlier. Put that into perspective; even compared to the draft (let alone arbitration or free agency), that’s still ridiculously cheap.

My biggest contention is still that the worldwide draft could kill baseball participation abroad — not just in the Dominican and Venezuela, but also emerging markets such as China, India, and Brazil, which are far more important business-wise. Whether it’s even possible logistically… I’ll refer you to Kiley McDaniel on that one (his answer will be a very loud no).

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On BP, and Insider. Bottom Line:

The Braves are obviously disappointed to be going home early for a fourth season in a row, but all things considered, 2009 was a massive improvement on 2008, and they could easily be the favorites to win the NL East going into 2010 if they can improve in a couple of spots… If the rotation can hold some of its gains, and Chipper Jones can at least maintain his current level, the Braves could be very, very tough.

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ESPN is building something, but to be honest, I can’t really tell what it will be yet. For the sake of argument, let’s assume they’re building an SB Nation clone: lots of local blogs, all co-branded and housed under one roof. Where would that leave SBN? And even more importantly, how should they respond? Some thoughts:

  • Stop focusing so much on the national portal. The company’s core competency is covering local markets; this is where they can win, not competing with ESPN and Fox Sports and a thousand others on the national level.
  • Keep pushing distribution deals. They’re going to need the SEO juice. It’s already very tough to get your posts noticed, but it will be even harder if ESPN starts putting out similar stories.
  • Build a self-serve local ad network. I’m surprised they haven’t done this yet — the ads you see on SB Nation blogs aren’t highly targeted, and aren’t very elegantly placed on the pages. Presumably, they’re only selling ad space in-house to a limited number of sponsors. This despite the fact that SBN’s most value asset is its highly-targeted local content. They need to find a way to connect local advertisers with their readers — if I run a local sporting goods store, there aren’t many places that I could potentially get a bigger bang for my buck than an SBN blog.
  • Stay lean. Or maybe I should say, become even more lean. It’s absolutely crucial that SBN is in a position to shift and iterate their product, especially if bigger companies are trying to eat their lunch. A massive sales team doesn’t really fit with that. A model that leans more on software (like a self-serve network) is far more sustainable, and SBN should be looking for more ways to make themselves as lean and agile as humanly possible.
  • Find new revenue sources. Why not become a major affiliate for the sports leagues? I.e. teams can sell tickets and merchandise through the local SBN blogs, with SBN taking a 5-15% cut, depending on volume. How many times have I said that MLB should be trying to sell MLB.tv through SBN? Well, maybe SBN should become the aggressor here, since it doesn’t seem like the leagues are going to take the initiative. Another possibility: some sort of value-add subscription plan — NOT subscription content, just something above and beyond what they already do that their users might be willing to pay for.
  • Better design. I’m a stickler for this. I don’t think their sites are poorly designed, relative to some other sports sites, but they could definitely use an upgrade, both in terms of aesthetics and usability.

All in all, I’m obviously not going to call this a positive development, but it may not be the worst thing either: ESPN could help validate the business model, and it should force SB Nation to become even better in the long run.

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Pittsburgh Florist