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October 30, 2001

The Other Big Story This Week


by Gary Huckabay

The contraction drums are beating. Just recently, you may have seen this trial balloon:

Contraction would begin to reverse the damage done by two dumb and dumber expansions that cost nearsighted owners many times more than the relatively few pennies they pocketed.

-- Peter Gammons, Oct. 26, 2001.

This is really a two-part statement, so let's look at it in those two parts.

  1. The two most recent rounds of expansion, adding Tampa Bay, Colorado, Florida, and Arizona, were a bad idea.

  2. Contraction will be a step towards fixing the problems created by the most recent expansions.

Let's evaluate statement #1 first.

The two most recent rounds of expansion, adding Tampa Bay, Colorado, Florida, and Arizona, were a bad idea.

The two most recent expansions were fairly complicated. There were some negotiated ambiguities about which leagues the new teams would play in and delays in terms of sharing in the broadcast revenues available as part of the national broadcasting contracts. The result has been some well-broadcast financial difficulties for two of the clubs, Arizona and Tampa Bay, at least if you listen to the party line. The actual expenses that led to some of these financial difficulties are a bit murky, at best.

Tampa Bay has had an external chief operating officer imposed upon them, basically to straighten out the franchise and make sure everything is on sound financial and operational ground. Arizona's woes may be overstated; Jerry Colangelo, you may recall, abruptly ended an interview with a reporter from HBO's "Real Sports" when the reporter brought up a couple of expenses which amount to nothing more than extraction of cash (reportedly an eight-figure sum) from the Diamondbacks franchise. I contacted the Arizona front office about this issue, and have not yet heard back. (You think I should keep the phone line clear?)

So, what good has come from expansion?

  • The Florida Marlins got a ring, built a solid farm system, and might well be the favorites in the NL East going into 2002. But they didn't get the Florida taxpayers to build a shiny new stadium for them.

  • The Colorado Rockies built a baseball palace, packed it, have visited the postseason, and have one of the most promising front-office talent bases in baseball. The talent evaluation side will eventually come around, and they've already figured out how to market the club.

  • The Tampa Bay Devil Rays have been a disaster, playing lousy baseball under lousy management on a lousy ballfield. They've been an object lesson in the potential value of external validation of management. The "baseball men" they hired to build and run the franchise have been violently, obscenely inept, and when they did manage to find a truffle, the D-Rays were colossally unlucky, with unheralded starting pitcher and Good Guy Tony Saunders hit by a very unfortunate and career-ending humerus injury.

  • The Arizona Diamondbacks have visited the postseason twice already, and lead the defending champion New York Yankees 2-0 in the World Series.

I don't see what was bad about these two expansions. There's nothing here that we don't see in Pittsburgh, Baltimore, Montreal, Los Angeles, Anaheim, or Chicago, at the very least. Then again, statement #1 isn't really the biggie here.

Statement #2 is much more problematic.

Contraction will be a step towards fixing the problems created by the most recent expansions.

This is either Pythonesque, or so cynical as to make Scott "with cherry and nuts, please" Morris appear as Pollyanna.

The real secret to this statement is in its vagueness. It's a Rorschach test for people inside and outside of baseball. You see in it what you want to see in it. Think revenue disparities are destroying competitive balance? Games are too long? Offense is inflated because of diluted pitching? Too much Youppi? (Not to be confused with too much Whoopi, which, alas, won't be fixed any time soon.) Not to worry! Contraction is the clear first step to curing what ails you!

Sounds a little like Snake Oil, no?

The common scenario being bandied about is an abolition of the Montreal and Florida franchises, with the Loria ownership group then receiving ownership of the Tampa Bay club, and a dispersal draft taking place to redistribute the talent on the disbanded clubs. This would result in an approximate 7% increase in shared national broadcast revenue for each of the remaining teams, and would have a yet-to-be-determined, but not-all-that-enormous, effect on the shared revenue from local broadcasts. It doesn't look like a big impact from here. You can always fall back on the bedrock-solid argument that Montreal doesn't deserve a club because they're (a) Canadian and (b) Francophiles, I guess. It's hard to argue with that.

Of course, if you get down and actually take a look at the claims being made about the woes affecting baseball, most of them don't hold up. Contraction is a cynical and fatuous solution in search of a problem. The Yankees are winning World Series repeatedly because of some great homegrown talent and some all-time postseason performances, not because John Henry can't sign Elian Gonzalez to endorse a publicly-financed stadium. The D-Rays suck because they had management that really thought that, at the start of the 2000 season, bringing together Fred McGriff, Vinny Castilla, Greg Vaughn, and Jose Canseco would result in an unstoppable juggernaut of offensive turgidity.

This is a Ricky Jay move. Distraction with one hand, purposeful motion with the other.

Contraction serves one purpose and one purpose only: it creates negotiating leverage for the owners against the MLB Players Association and any potential municipalities they may be sitting across the table from in the next few years. Let's look at this from a traditional valuation perspective.

The value of a company is equal to the discounted value of that company's future earnings. The two biggest expenses that baseball clubs have, or think they have, are player salaries and stadia. Owners believe that in order to compete in the marketplace, they need fancy new ballparks--and they well might. Fancy new ballparks cost a carload of money. Baseball owners are not dumb, and would prefer to reap the benefits of HAVING a new ballpark without actually PAYING for a new ballpark. Peter Magowan loves Pacific Bell Park. He'd love it more if the hundreds of millions spent on its construction had come from someone else's pockets.

With contraction, MLB owners can make a credible threat of folding future franchises, such as Kansas City, Minnesota, Oakland, etc. by saying "Gosh, we'd hate to have happen here what happened in Florida." If a new park can increase revenue by 50%, almost all at the margin, the value of a franchise can absolutely freaking skyrocket. It's not unlike hitting a gold mine of a stock while trading on margin.

How about the MLBPA? Well, the owners still want one thing--a salary cap--and they're always going to try to get it. It's not a complicated thing. Grow your revenues, cap your expenses, and you have the same scenario as you do with the new stadium issue. Lots of revenue at the margin, and yummy new profits, leading to a dramatic increase in franchise value very quickly.

Contraction is a great idea for the owners, at least in the short term. They get a shiny bargaining chip or two at the very least. For the fans in the affected markets, it's a catastrophe of unparalleled dimensions. I can't imagine the void in my life that would be created if the Oakland A's were folded. It would probably turn me off of baseball forever, at least the MLB flavor. There are literally millions of fans who probably feel that way about even the Expos and Marlins.

But don't believe that contraction is going to solve some problems. Bud Selig will talk about "financial problems" without ever going into specifics. Before you believe Selig or any talking head about this issue, including me, ask yourself the basic questions of business and politics:

(1) Who benefits?

(2) Who pays?

It's really pretty simple.

The Commissioner's Office has not earned my trust, only my skepticism. Bud Selig appeared before Congress several years ago and testified that multiple clubs would go bankrupt unless the current financial system was dramatically changed.

He was either wrong or lying.

In November of 2000, he appeared again before the Senate, and claimed "At the start of spring training, there no longer exists hope and faith for the fans of more than half our 30 clubs."

He was either wrong or lying.

Now, as we're about to enter a time when a sizable Fog of War rolls in on several areas around baseball, Selig is making the claim that no decision has been made on contraction, but it is an option worthy of consideration to address the financial problems surrounding the game.

Do you think he's wrong or lying?

Maybe it's neither, but I can't say I have much hope and faith at this point. And if the behavior of the hardliners in management is enough to make a junkie like me consider just writing off the whole enterprise, imagine what the more casual fan thinks.

Then again, worrying about that is apparently not what's being done in the PR department at MLB. We're in the middle of the World Series, and the baseball news has Contraction as a major theme? Someone should look into the marketing of this game.

Gary Huckabay is an author of Baseball Prospectus. You can contact him by Other+Big+Story+This+Week>clicking here.

Gary Huckabay is an author of Baseball Prospectus. 
Click here to see Gary's other articles. You can contact Gary by Other
+Big+Story+This+Week>clicking here

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