Baseball Prospectus - Chat with Maury Brown

Chat: Maury Brown

Welcome to Baseball Prospectus' Thursday November 08, 2012 1:00 PM ET chat session with Maury Brown.

Ask Maury about the baseball business beat.

Maury Brown: Hey there, my beautiful baseball peeps. How's your Weds? Shall we party? Remember, I cover the business side of things (a lot of contract structure, CBA, and other picture postcards), each Monday with the "Bizball" articles. Let's get going

William (Orange Beach, AL): Question regarding the Reading Phillies name change. Were the Reading Phillies paying a licensing fee to use the name "Phillies" ? Money being saved is the only reason I can come up with a name change after 46 years.

Maury Brown: While I don't have any insider info on this, I doubt it. Rebranding is often done to spur interest. It's Double-A, so change for marketing comes often. But, I do know this... I'd expect more unhappiness about the change than acceptance, no matter what the name winds up being. Forty-six years is a heck of a long time to build up fan loyalty.

Pete Toms (Ottawa): Hey Maury. Skyrocketing local TV rights fees has been THE baseball biz story in recent years. The increase in fees is due to the cable industry's belief that live sports is the key to staving off "cord-cutting". I think the bubble is soon to burst with MSOs offering less costly "sports free" tiers to their customers (target audience primarily women). In a nutshell, I don't think cable subscribers will continue to absorb the soaring costs of sports channels (RSNs). What do you foresee happening?

Maury Brown: Pete, as usual, you're right on. I don't know if the glass ceiling has yet hit, but it's coming. The carriers have to pass much of the costs down to consumers in the way of subscription fees. You start piling these deals on top of each other (and remember, this story is bigger than baseball. See the TWC Sports deal with the Lakers, NCAA conference network deals, etc), and the bubble is bound to burst. The question is, who gets in before it happens? The Phillies have their deal expiring in 2015. While I haven't heard, it wouldn't surprise me to see them negotiate an extension well in advance.

Hoot Stromboli (not my mother's basement): Hi, Maury. What marketing disasters contributed to all those empty seats in Yankee Stadium II during the play-offs?

Maury Brown: I don't think it was marketing. I think it's the fact that season tickets in the Legends section are astronomically expensive.

Steve G. (Athens, OH): Hey Maury, How much negotiating do you think teams do during the GM meetings and the Winter Meetings? A significant amount or do we (fans and media) blow it out of proportion? Go Bobcats!

Maury Brown: Well, the GM meetings will probably see more now that changes in the CBA have come about that impact the calendar (qualifying offers, et al). Both meetings have activity, albeit not as much as we used to see. Still, you always see some major deals go down during them. Remember, the Werth deal with the Nationals went down on the Sunday before the Winter Meetings in Orlando a couple years back, which set the table for other deals (namely, Crawford). Last year, it was the Angels landing Pujols. I love the Winter Meetings. With the exception of the postseason, I find them the most enjoyable thing of the year (makes sense, right? My beat focuses mostly on contract structures).

edwardarthur (Illinois): Maury, Is there any way to play games with options and the luxury tax? For example, could the Yankees give Josh Hamilton 2 years for 30M, with a player option for another 5/145 after 2014, thus giving Hamilton the money he wants and helping keep the Yankees under the luxury tax threshold for 2014?

Maury Brown: Sure. You can work extra years into a deal with creativity (read: option years, either club, player, or mutual). It requires the sides to want to allow that to happen so you don't often see more than one or two option years in a deal. The one thing you *won't* see is using marketing type clauses. Things tied to achievements or adding service contracts into the deals like we saw with A-Rod, Pujols, and Zimmerman. That is now forbidden as part of the CBA.

Paul (DC): Without adding in the resolution of their MASN cable contract deal, what sort of revenue growth would you expect to see for the Nationals following their 98 win season?

Maury Brown: I'd expect a healthy uptick in season ticket sales, which means paid attendance will go up, and with it, gate revenues. Possibly tens of millions to work with, but remember, you don't get your season ticket numbers locked in until a couple months before the season starts. While you can *expect* a revenue increase, it doesn't always mean that club CFOs are going to give owners data that will then cascade into a GM budget increasing in advance of the season where it, of course, matters most. Odds are, however, if the Nationals see a need to be buyers again this year, the gate increase will help. And, as you mention, there's still the MASN "reset" that will parlay into even more revenues. How much, is the big question (still).

Matt (SD, CA): More and more players are signing long term contracts before reaching free agency. In light of this, does it make sense to rethink the current structure of 3 years minimum salary, 2-3 years of arbitration?

Maury Brown: Matt, this is a great question and something that's been on my mind as of late. I don't think the change will happen, mostly because I don't see the sides (owners, union) wanting to adjust anything more than incrementally. While there is an increase in wrapping up young talent through either arb or FA years, there is still enough players that don't to make monkeying with either extending the 1-3 club control or messing salary arb years to warrant keeping it as such. What will likely happen is this continuation of the definition of a Super Two, which has bounced around nearly every CBA that's come along.

Ashitaka1110 (Houston, TX): It hasn't affected Astros fans/games (yet), but currently around 60% of Houston-area households don't have access to the Astros/Rockets new RSN, CSN-Houston. CSN is pointing the finger at the carriers, who are pointing the fingers at CSN. The first three Rockets regular season games have been blacked out to those on the major non-Comcast networks so far (DirecTV, Dish Network and ATT). Who is generally to blame the most in these situation? Do you have any insight into this particular case you could share?

Maury Brown: I have nothing directly on negotiations, but you hit on the point that happens with all these regional sports networks: getting carriers to carry them. As you note, the battle rages on each side as the costs continue to soar (see my answer to Pete Toms question earlier). Back to the Lakers deal, which a soaring $4 billion, Time Warner Cable still hasn't gotten DirecTV and DISH onboard and that covers a huge swath of the LA market. The Houston market is in the same battle as the NY market (how many have been stuck in a Cablevision tug of war before?) as is the case for years between NFL Network and Time Warner Cable. As the costs mount, the carriers seek justification to pay the fees that they have to pass on to customers and advertisers. I don't see this issue getting better anytime soon. Both sides are to blame, but really, I'd side with the carriers having a slight edge in terms of a case to make. These RSN deals are going through the roof.

Mikeleelop (Canada): Any idea of the value of the Blue Jays TV rights vs. other AL east clubs? I've heard the # of viewers in Canada is dramitically higher than what the Yankees or Red Sox get. Why do Jays still have payroll under $100million??

Maury Brown: We need to address a couple of things first... the Red Sox, Yankees, Jays, and Orioles have equity in Rogers Cable, NESN, MASN and YES. They take a bit less in fees, but then 3 out of 4 of these clubs own the RSNs meaning they gain through equity. In other words, depending on how a club decides to structure it, they can garner more revenues. Rogers is the odd one here. While the Blue Jays are able to call all of Canada their entire broadcast "market", they don't truly have a regional sports network. This is all splitting hairs, in some regards – money is moving from one hand to the other – but the point is, depending on how that money moves, some clubs (read the Red Sox and Yankees) will garner more revenues by being able to charge for carrier fees directly tied to those RSNs. How much? I can't say. The insectual relationship between club owned RSNs and the clubs themselves makes for an easy time to move money around.

Tony (Queens ): Hi Maury, With the massive amount of debt the Wilpons have, combined with Irving Picard saying they have a very limited cash flow in his settlement reasoning, is there any chance they are forced to sell the Mets in the future?

Maury Brown: I've been saying this for some time, but I don't see them selling. This deal yesterday with Jason Bay shows that there's more than one way to get creative (albeit, you'd think they would have learned with the Bobby Bonilla contract that deferring compensation past the time the player is with the club is really messing with payroll flexibility). The point is, I think that part of the deal with Bay is to free up some payroll space to potentially use in negotiations to extend David Wright and/or R.A. Dickey. That means, the club isn't really in "selling mode" at the moment, even under all the heavy debt weight.

Paul (DC): Is the Qualifying Offer for Free Agents under the new CBA a significant change or more of a window dressing treatment?

Maury Brown: Good question. We don't have enough under the new CBA to spot trends, but I don't see it as "window dressing." There's some gambling that could potentially come into play. The Nick Swisher deal could be one. The Yankees made the offer but they're looking for him to reject it. Josh Hamilton is entirely different. It's being reported that the Rangers still have interest, but the qualifying offer *appears* to be more like cover. After all, the qualifying offer needs to be $13.3 million. How much did Hamilton make last season? $13.75 million.

Alex (Anaheim): I read on ESPN that the Yankees are going to take a hard line in the Cano negotiations. Really?

Maury Brown: This surprises you? Go back and read the comments by Cashman in the press when they were in the midst of an extension with Jeter. If they're willing to take the hard line with Jeter, they're going to take the hard line with anyone.

comish4lif (Alexandria, VA): Since someone brought the MASN thing up, how much longer will we have to wait until we see a deal? Part 2 - this is taking way too long to resolve, is this just a little bit of business as usual, or are the Orioles/Angelos really being divisive on this issue?

Maury Brown: No, this one is a tough, tough deal. The Nationals have the right to do what's called a "reset" on their end of the MASN deal every five years. Word is, the Nats are seeking $100 million, mostly because of their ability to be competitive in the standings this year, and therefore, increased interest. The problem is, the Orioles also get a "reset". See my article from June. Here's a snippet:

Currently, the Nats pull in $29 million in the D.C. market that is eighth in terms of Designated Market Area (2,360,180 television homes) and are looking for a sizeable bump in rights fees as part of a clause in their agreement that allows for what is called a "reset." In that arrangement, the Nationals can opt to get a bump in the fee in the middle of the broadcast agreement, and it's here that things get messy.

The Nationals point to the deals that the Rangers, Angels, and Padres are getting; the increased ratings bump this year due to better play on the field; Stephen Strasburg's return; and the excitement around the Bryce Harper call-up. Put it all together, and the Nationals would like to see $100 million annually, or a $71 million annual bump for the next five years. The problem is that these "resets" are tied to the Orioles as a partner in the MASN framework. In other words, if the Nationals get a reset, so do the Orioles, and you can do the math: if the Nats get $100 million, the Orioles will want the same, and now MASN has to kick out $200 million annually.

On the other side of the coin, MASN isn't really seeing things the same way as the Nationals. Fine, the Nationals want a bump, but the increase should be more like $35 million based on how ratings have been in the past and their low attendance. As of Saturday, the Nationals were averaging 29,482 per game, ranking 15th out of the 30 clubs in terms of attendance. The Nats pulled in a 24,877 for the 2011 season, 22,568 in 2010, and 22,715 for 2009 by average attendance.

SC (Arcata, CA): Do you MLB keeping its online offerings bundled as a league, or will teams (particularly those who don't own their RSN) have an opportunity to sell their own subscriptions and keep more of the revenue? While mlb.tv is a nice product, I'd rather pay half as much and just get to follow my team all summer. Seems like my team would rather have most of that money than 1/30th of my mlb.tv subscription.

Maury Brown: Well, this is a thorny topic (and a good one). There have always been a number of clubs that would like to get out from being wholly controlled under MLB Advanced Media. But, it was a brilliant master-stroke by Selig and the owners to collectively agree to get everyone under one umbrella, and since, MLBAM has become an incredible cash cow for the league. You're likely to continue to see some clubs getting games streamed in-market (Yankees and Padres are two clubs that have reached deals to make that happen where BAM hosts the backend). But, it hasn't been as successful as I think the league anticipated. In terms of revenues, well... centralized revenues (sharing the pie equally) has been beneficial to the whole of the league. Getting the digital pie split into something that would be local revenue would seem messy and screw with some of the league's economic parity.

Maury Brown: Thanks for a great chat. Really great questions, and I wish I could do this all day (one day, I'm going to)!! Look for something from me on relocation and expansion in MLB this Monday. It's a tough matter that's bigger than just the Rays and A's. Thanks again, and best to the rest of your week!! Maury