“In any ordinary industry, the Oakland A’s would have long since acquired most other baseball teams, and built an empire. But this was baseball, so they could only embarrass other, richer teams on the field, and leave it at that.”
─Michael Lewis, in Moneyball, 2003
The most fascinating, and least understood, story in sports business is the Oakland A’s quest to move 45 miles south. There are perplexing questions for us A’s fans, but few answers. Why are the Giants being such pricks about the South Bay “territorial” rights? Why is Bud Selig being such a dithering imbecile about resolving the conflict between the A’s and the Giants?
Not that long ago, the Giants themselves labored before sparse crowds in an unloved park. Indeed, they were well on their way out the door to Tampa Bay when a new ownership group and, of all things, the Oakland Athletics rescued them from the mirage of the “other” Bay Area in Florida. (Think about it, the A’s almost had Northern California entirely to themselves!) Now, it is the plucky, celebrated A’s who need help and the prosperous Giants who stand in the way. Where is the justice? Where is the damn gratitude?
We romantics who follow the A’s have always been drawn to the underdog nature of the team. But the business dispute over San Jose is as compelling as any game on the field. In fact, describing it as a “dispute” is a misnomer. The Giants have turned it into a war of attrition. It is their only choice, and they have plenty of resources to win that kind of a war─a bigger bankroll, time, the status quo of Major League Baseball, and many allies, including one Allan Huber “Bud” Selig.
Years ago, I ran a small concert production company that found itself engaged in a turf war with a larger, more powerful producer. My company lost the war. That experience, though, has given me a different perspective on the Athletics’ struggles.
Do the A’s have the smarts and the gumption to prevail in this fight? Maybe. When matters end up in court, there’s no telling what will happen, as the NFL learned from Al Davis. A couple of things are apparent, though. First, there is no win-win resolution here. MLB cannot solve this problem by simply bribing the Giants. The Giants are not interested a bribe, nor do they need one. They must win.
The second thing is this: Wars of attrition are messy, with many casualties. One big casualty may well be baseball’s cozy, monopolistic way of doing business. It would be fitting if the A’s were the ones responsible for ending baseball’s privileged status.
With so much at stake, isn’t it curious MLB hasn’t resolved this stalemate? The Nationals/Orioles dilemma was resolved, as were other thorny problems. The Giants’ claim that the South Bay is vital to their sponsorship and ticket sales is demonstrably false. In 2017, the Giants will own outright a huge profit generator, Phone Booth Park, so where are the worries? Preventing the A’s from moving is clearly illegal restraint of trade. (Of course, MLB is exempted from the consequences of that practice.) The Commissioner certainly has the power to decide, in the best interests of baseball, yet Selig refuses to do so. Indeed, his politicized maneuvering has permitted the Giants to engage in this nasty business of attrition. This is really Selig’s war.
There is a lot of b.s. composting around the issue and it obscures a fundamental rub: The Giants and the A’s are trying to solve two distinctly different business problems.
Two Business Models
Major League Baseball incorporates two business models. The first is the traditional “baseball team” paradigm which the A’s follow. Running a baseball team is very much like producing a concert. When you operate a baseball team (or promote a concert), you get the talent, you get a place for them to perform, you sell the tickets and, after the game, you count your money and hope you made a profit. Pretty simple...in theory.
Unfortunately, financial results fluctuate hellaciously in the baseball team model. Each major area of cost represents a risk ─ the talent, the facility, the advertising (which deals with competition and the marketplace), and the management. A dumpy and out-of-date park is an impediment to the product image. That makes advertising more expensive and less effective. And, at the end of the day, your management has little to do but tabulate losses. (Indeed, your management may be responsible for accelerating those losses, as the McCourts did in Los Angeles.) And, once you start losing money, it’s hard to stop.
By far, the biggest area of risk is talent. In the concert business, if you sign the wrong act (or the right act at the wrong price), you are toast, no matter how cleverly you advertise or how efficiently you manage. The same principle applies in the baseball team model. To succeed, you must constantly innovate to find talent, and then operate on a strict price-to-performance basis. That is what “Moneyball” is all about. The A’s and the Rays are masters in this area, though even they still must be subsidized by MLB’s revenue sharing.
Let’s face it, though, you can only innovate so much. You run out of ideas and luck long before the competition runs out of the ability to steal your ideas. Ultimately, no one, not even Lew Wolff, likes the baseball team model. You are always up to your ass in alligators, so forget about draining the swamp, or the wetlands of Fremont, as the case may be.
The business problem the A’s are trying to solve by moving to San Jose is simple. Lew Wolff and John Fisher want to eliminate the stadium as a short-term risk factor. They’re good in the other areas. The product is attractive (at least, lately). The management is excellent. The sales and marketing, given the state of the East Bay market, is as good as can be expected. Indeed, having a stadium where lots of affluent people actually live would make the A’s business operation more profitable, and more stable. The A’s would finally be able to get off the MLB dole. Isn’t that a good thing?
For the Giants, the answer is, no, absolutely not. If the A’s acquire San Jose, the Giants will never solve their business problem.
The Giant Empire
So, what is their problem? Let’s just say, it is different because they are working on a different business model. Years ago, they successfully conquered the ordinary risks of running a baseball team and have become, justifiably, an enormously powerful enterprise. The organization is so successful, in fact, it is no longer satisfied with the baseball team business model. The Giants aspire to something much grander.
The second business model supported by MLB is the “media empire” paradigm. It is a whole different animal than a mere baseball team. This is the world of the Yankees, the Red Sox, the Dodgers, the Rangers, the Angels, and the Cubs. The Giants are set on playing in the “media empire” game, the really big leagues.
Who can blame them? Though there are problems, the advantages of operating a media empire are compelling. For one thing, media empires generate a lot more revenue than do mere baseball teams. Supported by their media dominance, the Giants could achieve near-monopoly pricing power over sponsorship and the live gate. They could create their own media network and develop revenue streams from teams in sports other than baseball. Most importantly, they could achieve genuine long-term financial stability by minimizing the cost and performance risk of the talent.
The Yankees, for instance, have a 2013 payroll of $228 million, according to Baseball Prospectus/Cot’s Contracts. If you’re running a baseball team, that is a tremendous cost for talent. If you are running a media empire, however, that is a bargain for primetime programming. That $228 million cast of stars produces tons of content each year. One hundred ninety-four games a year (25 spring training games, 162 regular season games, plus an average of 7 playoff games per year times 4 hours per game) equals 776 hours of programming for the YES network. A $228 million payroll divided by 776 hours is $293,814 per hour of programming.
That’s sounds like a lot until you compare it to primetime TV programming. “Friends,” at the peak of its popularity, was paying its six stars $1 million each per half-hour episode, for 26 episodes per season. Six stars times $1 million times 26 half-hour episodes, divided by 13 hours of programming equals $12 million per hour of programming! In other words, the producers of “Friends” were paying 40 times what the Yankees are paying for programming talent. In a certain ironic way, the Yankees play the programming racket the way the A’s play the “Moneyball” game.
Price-cost ratios like that also minimize the risk of talent performance year-to-year. The Yankees this year are missing Jeter, ARod, Granderson, and Teixera, and the enterprise keeps humming right along. In contrast, look how long it took the A’s to recover from the Eric Chavez contract.
The Giants love those numbers. You know who also loves those numbers? Bud Selig, Scott Boras, and the players’ union. (The last thing they want is somebody like Billy Beane setting compensation standards in baseball.) The Giants need the corporate South Bay, not for ticket sales, but as fuel for the media empire they are building. If the A’s move south and cut them off, the Giants will have to settle for running a baseball team again, with all the familiar problems. The Giants have become too powerful to settle for that.
For Whom Is Selig Rooting?
I suspect Bud Selig also wants a single media empire in the SF Bay area, America’s 6th largest TV market, because it would generate far more revenue for MLB than two competing baseball teams. But he is stuck! The A’s, the irrepressible island of misfits, are screwing up the Grand Plan.
If it were any team other than the A’s, this fight would have been over a long time ago. The tiny A’s are a surprising opponent, and they are not without means. They have a reputation that is hard to brush off. In the price-to-performance game, the A’s have dominated since the advent of free agency. They own the underdog soul of MLB. Michael Lewis didn’t write about the Giants, and Brad Pitt didn’t play Brian Sabean.
The Athletics also have an ally in Chuck Reed, the Mayor of San Jose and a lawyer who has successfully outflanked the public service unions in an overwhelmingly Democrat town. Every owner who doesn’t run a media empire is probably allied with the A’s. And there is justice. Baseball is the only sports business that can foster a network of media monopolies because of its anachronistic anti-trust exemption. I’ll bet there a lot of judges who would love to preside over a court test of MLB’s entitled status.
What a fascinating fight─the powerful, ambitious Giants vs. the Island of Misfit Toys, the West Bay Trust Fund Babies vs. East Bay Grease! Selig never dreamed it would come to this. He is probably tormented by the thought of baseball losing its monopoly status on his watch. So he has allowed the Giants to engage in the business of attrition. He is buying time as a means of keeping the status quo while appearing to be working on a solution.
In time, Selig knows Chuck Reed will retire and be succeeded by someone more reasonable, at least from MLB’s perspective. In time, he probably hopes Lew Wolff will just sell out for a big profit rather than accept his life sentence in Oakland. Bud Selig probably thinks, given enough time, he can escape the responsibility for and the consequences of this mess.
Think again, Bud.