April 1, 2010

Squawking Baseball

Predictions for 2010

by Shawn Hoffman

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We're now three days away from the opener, so what better time to throw out some predictions for the coming year. Business-wise, 2010 should be a pretty interesting season, if for no other reason than nobody really knows what to expect. Are we in a full-fledged economic recovery? On the verge of another recession? It's hard to say.

Last year, on the other hand, was a lot easier: business was going to stink. Attendance would go down, the free-agent market would be rough, etc. Making predictions in that environment wasn't all that hard, so I fully expected most of mine to come true. Here's the breakdown:

1) Small-market teams will be hit hard at the box office. Yup.

2) The Mets and Yankees will have empty seats, but they'll still be coining money. Yup

3) Class warfare will reemerge. This didn't happen nearly as much as I had figured. In fact, much of the battling had already taken place by the time I wrote the article.

4) The naming rights market will stay dry. This has held up, for the most part; the Nationals, Cowboys, and Giants/Jets are still without title sponsors for their new stadiums.

5) Media will thrive, relative to the rest of the industry. I just wrote about this a couple weeks ago. Ratings have been through the roof for every major sporting event recently, including the World Series.

6) Industry Revenues Will Go Up. I got a bunch of e-mail about this one from some very smart people, all calling me an idiot. Be that as it may, revenues went up, on the backs of the two new stadiums in New York, and the launch of MLB Network.

So with that out of the way, some predictions for the season ahead:

Local Streaming Will Continue To Be A Bust. After years of stops and starts, local streaming was finally introduced in New York and San Diego last year. But thanks to some really misguided assumptions and, as a result, a broken business model, the final numbers were pretty ugly: the Yankees sold just 6,000 subscriptions, and the Padres couldn't even break a thousand.

There were a bunch of problems here, many of which I covered when I wrote about it last summer, but the most obvious is that it's only offered to people who already own a cable service that airs the games. This makes sense if the package was free (as the cable providers are doing with their TV Everywhere program). But by charging for it ($70 for this season), they're essentially asking you to pay for something you already have, as opposed to offering it to, say, Mariners fans in Montana, who are in the team's "local territory" but can't get the games on cable.

Unfortunately, I wouldn't bet on any of this changing. Teams need to protect their local rights fees (rightfully so), and MLB still doesn't seem too concerned with the people in territorial purgatory. Until something changes, this will continue to be a negligible revenue source. (For what it's worth, I think they could actually make more giving it away to existing cable subscribers and finding a couple major sponsors to advertise on it.)

Mid-Level Players Will Make A Comeback In Free Agency. It's been a rough couple years for mid-level free agents, many of who have ended up taking cheap one-year deals, or even minor-league contracts, if they can even get a job at all. But that should start to change heading into 2011, even if MLB doesn't have a blow-away season in 2010; remember, budgets are set (and prices are therefore formed) based on projections for nextyear. If the economy can get a solid tailwind behind it heading into 2011, that'll be great news for guys like Lyle Overbay, Kevin Millwood, and others.

MLB Network Will Come To Dish. This almost has to happen, if MLBN wants to make any progress in its business this year. Advertising just isn't that great a revenue generator for a network that's usually channel 100-something on your cable service. Instead, they have to rely on subscriber fees, which accounted for about three quarters of their $200 million in revenue last year. Dish is easily the lowest-hanging fruit. At about 15 million subscribers, MLBN could add over $40 million in annual revenue if it can get a deal done.

A Surprise Team Will Be Sold. This is a pretty wild guess, but there are a lot of forces that could push one of a number of teams in this direction. The economy is better, but not exactly great, so small-market teams could still really be hurting. Combine that with the fact that sale prices have been shockingly high lately, and there could be an owner or two who finds that option a little too tempting.

(Note: I wouldn't consider the Dodgers a surprise team. In fact, I'd be surprised if that team wasn't sold, assuming the divorce proceedings don't carry on for more than another year).

Industry Revenues Will Be Up, Ever So Slightly. I'm actually less confident about this than I was last year, despite the newly un-horrible economy. The only major catalyst this year will be the Twins' new stadium, but the bigger story will be what happens in New York. If the Mets fall off a cliff, or the Yankees can't get their pricing right, there's a chance we could see a slight decline.

But with that said, I'll still bet the over. Corporate demand should be up this year, given that most companies were still facing Armageddon well into last summer. And the Yankees winning the World Series last year should help fill more of those lonely blue seats behind home plate, even if prices are still ridiculously high.

That doesn't mean most teams are out of the woods, though, not by a long shot. Teams that fall out of the race quickly could reach some really gloomy depths, especially those that aren't expected to compete (what's up Nationals and Pirates?). Looking at the league on an aggregate basis, these teams don't have nearly as large an impact as the Yankees, Mets, or Red Sox, which is why industry revenues can still go up even as most teams decline (like last year). But a greater test may be how many teams see attendance and revenue go up. That's a much, much tougher question to answer.

Shawn Hoffman is an author of Baseball Prospectus. 
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