View From The Bleachers

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Wednesday

11

April 2012

27

COMMENTS

The Dodgers and Baseball's New Economy

Written by , Posted in General

Two weeks ago I got a text message late in the evening from one of my friends, a life-long Dodger fan.  In fact, he’s a former season ticket holder.  But in recent years I’ve gone to more games at Dodger Stadium than he has, as he got fed up with Frank McCourt’s off-the-field corruption and and on-the-field cheapness.

His message was short but jubilant.  “McCourt agrees to sell Dodgers to Magic Johnson for 2 billion!”

My response was equally short, but far less celebratory.  “Someone ought to tackle Magic.  He could be overpaying by double.”

But as the news spread the following morning, it was clear that most Dodger fans weren’t concerned about the exorbitant price tag for their team–they were just elated to be free of Frank McCourt*.  It was as if Dodger fans everywhere joined hands in a rousing chorus of “Ding Dong The Witch is Dead,” not concerned that it took a $2 billion dollar mansion to squash their villain.

*Even though they’re not really free from him.  McCourt retains an interest in the massive parking lot that surrounds Dodger Stadium, and has some say in any further development in Chavez Ravine.  For McCourt, it always comes down to parking lots.

And while the ownership changeover has encouraged many disenfranchised Dodger fans to once again “THINK BLUE,” I wonder how and how soon that insane price tag will start to effect them.  Every fan hopes their owner will be like Mark Cuban–so wealthy that he’s able to reinvest all the money his team brings in (and more) back into the team**.  Unfortunately, there aren’t many owners like Mark Cuban (at least in that regard).  Sooner or later, even billionaires grow restless and want to see a better return on their investment.  Dodger fans should brace themselves now for soaring ticket and concession prices, and any other creative ways Magic and Co. can recoup their money***.

**That’s the primary reason so many Cubs fans were eager for Cuban to buy the team from the Tribune Co., and why they’re hoping the Ricketts family will follow Cuban’s model.

***Optimistic Dodger fans point to the $3 billion TV deal the Angels signed this offseason as a sign that these new owners have already (hypothetically) made back their money.  However, that’s a relatively small return for a deal that would tie up the lucrative TV rights for at least a decade.  Today the real money to be made is in starting your own network for your team, like the Yankees with the YES network or the Red Sox with NESN (when the Cubs’ TV deals run out in a couple years, look for them to launch their own network, too).  The problem is, starting up a Dodgers network could cost anywhere between $600-$800 million more, which only increases the likelihood that the massive financial weight lands on the shoulders of Dodger fans.

And while it will be interesting to see how the sale of the Dodgers impacts and changes the organization, both on the field and in the stands, I think the far more pertinent storyline is the ripple effect the sale has had throughout the league.

No one has ever spent that kind of money on an American sports team before–not even close.  The Cubs sale established the previous MLB record at $845 million.  Even in the more popular and lucrative NFL, the Jacksonville Jaguars changed hands last November for only about $750-$800 million.  In fact, you have to go to the Wild West of European soccer to find apt comparisons, and even then the numbers aren’t close.

Those unfathomably deep pockets have shifted the economy of baseball.  Within a week, San Francisco extended Matt Cain for five years for more than $112 million–the richest contract ever for a right-handed pitcher.  Cain was set to be the prize of the upcoming free agent market.  But with the Dodgers new owners and their unprecedented checkbook, the Giants weren’t willing to risk losing Cain to an organization that is seemingly unconcerned about overspending.

Days later the Reds went a step further with Joey Votto, locking him up into his 40’s with a ten year, $225 million extension.  What made Votto’s deal a surprise was that he was two whole years out from free agency–meaning there was no urgency for the team to get a deal done.  Despite that, they gave the one-time MVP a deal only slightly less valuable than the one Albert Pujols just signed with the Angels, and more valuable than Prince Fielder’s contract with the Tigers.

But the Reds weren’t done there.  Just yesterday they gave Brandon Phillips a six year extension for more than $72 million.  In less than a week, Cincinnati has spent more than $300 million on the right side of their infield.

And while Phillips and Votto are both premier players in the league, I’m not sure either would be considered elite.  Cain is, but he’s not even the ace on his own team.  All three of them would have demanded high prices in free agency, but what we’ve seen over the last few weeks is teams paying big to buy out that free agency.  That’s happened before, but never at the record prices the Giants and Reds paid out.

I believe they were willing to pay so much to keep their players because of the Dodgers new owners, who have proven the will massively overspend to get what they want.  Even the famously deep-pocketed Steinbrenners wouldn’t overpay by a billion dollars–Magic Johnson and Co. have set fire to money in a way that (potentially) scares the rest of the league.  We won’t know the full ramifications until free agency hits again after the season, but expect the MLB market to be less of the meritocracy it once was, and more of a free-wheeling auction, where value is primarily determined by what a team is willing to pay.  And when that team is the Dodgers, all bets are off.

So what’s my point in all of this?  Why should this matter to the Cubs or their fans, who probably won’t look to make a splash in the free agent market for at least a few more years?

Simple.  Right around the time the contract extension pinata exploded over Cain, Votto, and Phillip’s heads, Matt Garza’s value and his price tag shot up.  Teams who hinted at trading for him in the offseason will be that much more anxious to lock him up before he hits the market, and potentially willing to pay more to the Cubs to obtain him.  At the same time, he moved into the second position behind Zack Greinke as the premier, soon-to-be free agent pitchers (third position if the Phillies let Cole Hamels slip through their fingers).  Garza wanted $12.5 million from the Cubs in arbitration.  Expect his asking price to skyrocket when it comes to a long term deal.  If it looked iffy for the Cubs to extend his deal before, it looks downright improbable now.  (Update: upon review, Garza has one more year of arbitration, so while it slows down the clock on everything I said above, it doesn’t change the end result.)

Yesterday as I was pulling together some information for this post, I sent a question to Jonah Keri on Twitter****.  I asked him at what point does Garza become more valuable as trade bait than as a building block for the Cubs?  He said either decision was defensible.  I wrote back that Cain’s deal probably drove up Garza’s price tag, and asked him which righty he’d rather spend big on: Garza or Greinke.  He said Greinke.

****Keri is really great about answering fans on Twitter, so don’t hesitate to send a question his way (@jonahkeri).

While it’s too soon to say for sure if the Cubs will spend big on a pitcher this offseason, expect them to get the best possible value out of the players they currently have.  In Garza’ case in this new baseball economy, I think that means they trade him.

  • Seymour Butts

    Nice work.
    Can we get an article about how the new bargainig agreement will affect next years draft? It may be time to look forward to it.

    • Way too soon to be thinking about the draft Seymour.  We need to start discussing matters at hand, like September call-ups.  

  • flyslinger2

    Magic couldn’t keep a Starbucks franchise solvent 10 minutes from my house and right in the middle of a major burb of DC and he had tons of backers. This is a failure from the get go. Too much money for the club in this dismal economy. Has anyone noticed the number of empty seats already at games?

    • My barista told me Rambis botched the DC gig.  

  • Doc Raker

    How did McCourt get $2B AND keep the parking lot? I heard the Dodgers and Lakers are going to do a joint network together. The network will feature ‘LA’s Most Wanted’ in where the most heinous Dodger and Laker fans that are on the FBI’s most wanted list will be featured. Word has it they have plenty of episodes already in the can.

  • Doc Raker

    Professional sports owners make their money in the sale of the franchise. The franchises don’t make much money in their operation but historically the owners do well when they sell, as McCourt did all to well.

  • Doc Raker

    Professional sports owners make their money in the sale of the franchise. The franchises don’t make much money in their operation but historically the owners do well when they sell, as McCourt did all to well.

  • BLPCB

    I don’t think any sports franchise is even worth $2 billion. They waaaay overpaid. I could see a billion for the Dodgers, but $2 billion. No way. Not even if deep-pocketed AEG bought them. I remember when the Cubs were up for sale, and the front-runner (and Selig crony) John Canning was eliminated for a low bid, he was like I only bid 800M because when you add in a half billion for repairs, anything more, you won’t get a return. I think this sale could actually cripple the Dodgers, because instead of using the big TV contract on payroll, they’re going to have to use it to pay off the purchase of the team. And the 3-quarter billion dollars in team debt that McCourt racked up, is he responsible for those payments, or are the new owners responsible for it?

    • flyslinger2

      Depends on how the debt is negotiated. That is possibly why it was $2B.

  • Doc Raker

    Word is McCourt will clear $500M after taxes and the divorce and retain ownership of the parking lot. Not bad for buying the team with very little cash himself. I don’t understand why the new owners would allow a third party to own the parking lot, it could lead to some contentious business dealings. “Parking is now $40 per game” says McCourt. “Wait a minute” says Magic, “no one will come to our games if you charge $40 to park.” How will those negotiations go?

    • flyslinger2

       With the price of gas going up and the current regime poised to make us
      buy VOLTs, just like they are ramming healthcare down our throats, no one
      will be driving.  All parking lots will be vast wastelands, full of tumble weeds and shanty villages for the homeless.

      The soon to be former Mrs. McCort will also get $500M?  Assuming normal court proceedings for divorce.  Nice payday for suffering through a horrible marriage.

      • Seymour Butts

        Why the health insurance mandate is not straight forward is the fact that hospitals can not, by law, refuse to treat patients who can’t pay. If there were an option to not seek care if you want to skip insurance, it would be more straight forward. Unreimbursed care is literally killing hospitals. Only people like McCourt can cover the bills without insurance. 

      • It would be a lot more straightforward if people realized health insurance works just like any other insurance. The healthy offset the ill. Just like good drivers offset those who have accidents. You’re not allowed to wait to have a car accident before you buy auto insurance, why should you be allowed to wait til you’re sick before buying health insurance?

      • flyslinger2

         I’m a self-employed business owner.  I have, for years, provided my own health insurance.  When Mrs. Fly and I  were younger we choose not to by health insurance and paid cash for all of our services.  All doctors and hospitals charge differently for cash customers then they do insurance.  Ask them!  3 of my 5 children we paid cash for all pre-natal and hospital costs when they were birthed.  Cash.  What is sorely lacking is the educational factor that there are as many different types of health care coverage packages as there are grains of sand on the beach.  The average American has been brainwashed that they will have insurance when they get a job.  That somehow it is the employers responsibility to provide that.  It is a benefit, not a right.  Unfortunately, the government do-gooders have stuck their noses into private enterprise yet again to mandate something that is an economic commodity and not a guarantee.

        People can choose NOT to buy car insurance and they suffer the consequences of their actions.  The same principal should be applied to health care, but its not.  We have a large population of society, mostly the elderly, who were not trained to provide for themselves.  The government has trained them into expecting some form of healthcare, government provided through our tax dollars, if nothing else is available.  A safety net provided to the unprepared by those that are hardworking.  You and I are paying for others healthcare through our taxes.  Think about that for a minute. All of my children have already met with their insurance representative to be covered in all aspects of their lives, including their health care.

      • Seymour Butts

        Those such as yourself, who are responsible enough to pay their medical bills are a tiny minority. Cuts, scrapes and colds do have manageable bills. Heart attacks do not. Significant motor vehicle accidents do not. Being a victim of a knifing shooting or bludgeoning carries an enormously high incidence of being uninsured, and those are usually very expensive hospitalizations.
        The libertarian in me says it should be an individuals choice to carry insurance. But the physician/business owner in me says it should be like auto insurance. No insurance, no drive. No health insurance, don’t seek the care (unless you have cash in hand).
        I have far too many patients (fortunately a small minority) who thank me one day for literally saving their life, and the next completely ignore a bill that is their real opportunity to say thanks.

      • flyslinger2

         Agree 100%.  That’s why I use McDonalds as my example: 1. Live like you may have to work at McDonalds even though you may make 100 times that in a salary. 2. You get exactly what you pay for and you DONT get a thing unless you pay in advance.  3. It is a la carte-you have choices, choose wisely, but you must choose if you don’t want to go hungry. 

        Those three babies I paid for, both the doctor and the hospital let us pay over time, zero interest, and we paid every cent happily! 

      • Seymour Butts

        Would that the rest of the world lived that way.
        But they don’t so ….

      • BLPCB

        Barry doesn’t know anything. He was a community organizer. Community organizer is code for career politician. But there are some things in Obamacare I like, namely being able to stay on my parents coverage till I’m 26.

        However, I can make an argument, if you pay for someone’s life saving heart surgery, you prolong their life long enough that they are able to continue working and pay it back through the taxes their salary will create. I can see refusing treatment to someone freeloading on welfare and food stamps, because I’ve seen the abuses here at Disney and in Memphis. I’ve been trying to avoid shopping at Wal-Mart as much as I can because of it. Last week, it was nuts at 11PM on Saturday, the cashier was like the first week of the month is always like this. I knew exactly what he meant.

      • Seymour Butts

        In that example the patient is “paying back” the government. The surgeon and hospital who did, and underwrote, the endeavor get squat out of that deal.

      • BLPCB

        Well then the government should be paying the hospitals

      • Seymour Butts

        And thus we complete our exercise in circular reasoning.

      • BLPCB

        America spends more per person on health care than any other country in the world, yet our system is one of the worst

      • AC0000000

        Well then the government should be paying the hospitals

      • Seymour Butts

        And thus we complete our exercise in circular reasoning.

      • Seymour Butts

        Why the health insurance mandate is not straight forward is the fact that hospitals can not, by law, refuse to treat patients who can’t pay. If there were an option to not seek care if you want to skip insurance, it would be more straight forward. Unreimbursed care is literally killing hospitals. Only people like McCourt can cover the bills without insurance. 

    • BLPCB

      He owns half the lots, and he doesn’t get anything from it. His ex gets 130M

    • AC0000000

      He owns half the lots, and he doesn’t get anything from it. His ex gets 130M