Thursday, December 28, 2006

What a year for MLB and Bud Selig

When all the dollars are finally counted from the 2006 season, Major League Baseball revenues will have exceeded $5.2 billion. The year that was, 2006, was an amazing year for Bud Selig and Major League Baseball. Through the last fifteen years Selig has been among the most criticized executives in sports history. In a classic case of what have you done for me lately the past year marked a remarkable tour-de-force for Selig. The World Baseball Classic was a stunning success, Major League Baseball set an attendance record, the league finalized major television agreements, and most importantly a new collective bargaining was successfully negotiated without the threat of a strike or a lockout. The major blemish in what was a near perfect year for Selig – the complete failure of the Selig appointed Senator George Mitchell performance-enhancing drug committee.

Not many baseball media pundits (present company included) gave the World Baseball Classic much of a chance to succeed. The World Baseball Classic was an unqualified success story on every level.

"Anything you do for the first time is not going to be perfect," Commissioner Bud Selig said on Monday March 20 just before the Japanese vanquished the Cubans, 10-6, at PETCO Park to win the first championship. "But by any stretch of the imagination, this tournament exceeded my expectations in a myriad of ways. Absolutely."

Attendance at the seven venues didn't reach the pre-tournament expectations of 800,000, but 737,112 tickets sold was pretty close, considering the fact that the Asian bracket, played in the 55,000-seat Tokyo Dome, didn't reach the 80 percent capacity that was originally projected. Games between China and Chinese Taipei, and Korea against the aforementioned teams did not turn out to be strong draws.

For the record, the final game attendance for Japan vs. Cuba was 42,696, and without the presence of Team USA, which was eliminated from the tournament by Mexico at the end of the second round, all three games in San Diego -- for the semifinals and finals -- sold out, totaling 126,603.

During the next eighteen months, the format, the rules, the officiating, the timing and the logistics of the tournament will be picked apart with a fine-tooth comb. But one thing is certain: It will be back in 2009 and every four years after that, Selig said definitively, echoing sentiments shared by the tournament's supervisors, Paul Archey of Major League Baseball and Gene Orza of the MLB Players Association.

The WBC served as the perfect entrée for the 2006 season. The success nearly every country enjoyed on the field showcased the real global potential for baseball. And with the International Olympic Committee pulling baseball from the 2012 London Games, Major League Baseball sent a decisive message to IOC about how big baseball is in the global village. continued to be the Internet related business that dreams are made of in 2006. Major League Baseball remains the industry leaders when it comes to streaming their games on the Internet. 2006 is the fifth consecutive season MLB has offered live video streaming of their games at, a program that began with the 2002 season. Arguably,’s biggest success to date was the streaming of the NCAA men’s basketball tournament in March.

At least for Major League Baseball, has evolved from an interesting concept, to a loss leader, to a profitable venture. A March Wall Street Journal report on the dollars and cents of the said about 15% of the site's total revenue of $195 million last year came from managing Web sites and other partnerships like the one with CBS. An additional $68 million came from subscriptions to watch live video content on, including the 2,400 baseball games it streamed during the 2005 season. The rest of its revenue comes from ticket sales and advertising. How good has MLB interactive become at what they do, good enough that they’ve been able to market their services to other sports leagues, properties and events.

Under the leadership of Bob Bowman, MLB’s interactive division has already signed up 25 clients, including CBS, Major League Soccer and the World Championship Sports Network. Entertainers Jimmy Buffett and LL Cool J have hired to promote albums and concerts by streaming video of interviews and live performances.

"They are one of the few operating in this space," says Larry Kramer, president of digital media for CBS. "And the important thing was they were in the off-season, so we knew they could also dedicate the time."

It’s easy to understand why Major League Baseball works as well as it does on the Internet. Teams play 162 games; displaced fans want to be able to follow their team on a nightly basis, irregardless of where they are.

"I really needed some way to see Yankees games," says Robert Auld, a transportation analyst with Henry Schein Inc., a New York medical-supply distributor. "I'm on the road a lot and I take my laptop with me just about everywhere I go. And with a hectic schedule, I figured my best option was subscribing to baseball's video service."

On July 12, Major League Baseball finalized its national broadcast agreements. MLB took advantage of the All-Star break to make several important business announcements, headlined by a new seven year television agreement with Fox and Turner worth an estimated $3 billion. Were the new television agreements good or bad for the baseball industry? And it’s well worth remembering where MLB was a little over a decade ago with their network television partners.

The television agreement further shows sports and television are heading to a cable universe. Fox has committed to televising the World Series, one of the two League Championship series and the “opportunity” to increase its Saturday Game of the Week from 18 to 26 games. According to USA Today’s Michael Hiestand, MLB will see an increase of 19 percent in its national television rights fees. In an era of ‘supposed’ physical restraint on the part of network television executives, sports rights fees show no sign of decreasing. Hiestand suggested all told MLB new agreements (Fox, ESPN and TBS) will see MLB enjoy nearly $670 million a year in national television rights fees. With the rights to the remaining LCS yet to be negotiated each MLB franchise stands to receive a little more then $22.3 million annually from the sports national television agreements. When you factor in local television agreements (different in each market particularly in bigger markets Boston and New York, and smaller markets Milwaukee and Kansas City) baseball’s 30 team owners are a happy group today.

There remains a tremendous challenge that baseball continues to face, the battle of the have and the have not’s. Major market franchise (the Yankees, Red Sox, Los Angeles and the Chicago franchises to name a handful) easily generate between $50 and $100 million each in local rights fees. Smaller market teams (Milwaukee, Kansas City, Pittsburgh, both Florida teams to name another handful) likely can expect less then half of what major market teams generate. Selig as commissioner needs to address the tremendous financial disparity. One suggestion might be for Selig to play “Robin Hood” taking from the rich and giving to the poor.

Baseball which currently shares 24 percent of their revenues would be a very different sport if the smaller clubs forced the bigger teams to receive a smaller share of the national television pie. Imagine if Major League Baseball’s national television dollars weren’t divided up in equal shares, but by how much local television revenues teams do or don’t generate? It becomes another method for baseball revenue sharing. It’s an inexact science, but at the end of the day the Yankees get to keep all of the money they generate in the New York market. At the same time by dramatically changing how its national television money is distributed MLB can force the smaller market franchises to use their additional national TV revenues on their payroll by creating a salary floor (a minimum team payroll), the first step towards a salary cap for Major League Baseball.

Major League Baseball established a new single-season overall attendance record for the third consecutive year in 2006, passing last year's record total of 74,926,174. In addition, Major League Baseball will surpass the 75,000,000 mark for the first time in history, as it was announced.

"Major League Baseball is more popular today than it has ever been in its long history," said Baseball Commissioner Allan H. (Bud) Selig. "Setting a new attendance record for a third consecutive year is a remarkable accomplishment. The record signifies the great passion that fans all over the country have for our great game."

Major League Baseball has now set its single-season record in each of the last three years. In 2004, the 30 Clubs drew 73,022,969 fans. In 2005, that mark was eclipsed as 74,926,174 fans attended. The streak of three straight record-breaking years is the longest since the mark was broken five consecutive years from 1985 through 1989 (46,824,379 in 1985; 47,506,203 in 1986; 52,011,506 in 1987; 52,998,904 in 1988; and 55,173,096 in 1989).

On Tuesday, October 25 before Game three of the 2006 World Series, Major League Baseball and the MLB Players Association announced a new five-year collective bargaining agreement. While there wasn’t a strike or a lockout when the 2002 agreement was negotiated, the players where poised to call a strike on August 31.

The ‘guts’ of the five-year agreement is remarkably similar to the four-year accord that was set to expire on December 19, 2006. It would appear, MLB have moved on from what would have been the most contentious issue they would have ever attempted to force on the players – a salary cap. Teams will be free to spend whatever they wish, and teams that exceed certain thresholds will be taxed – call it the Robin Hood Clause, taking from the rich and giving to the poor. The formula remains – the top 13 revenue generating MLB franchises contribute to a fund that benefits the bottom 17 revenue generating franchises.

The CBA ‘primer’ provided by Major League Baseball, hints at some small but important changes with the new CBA. Revenue sharing and a luxury tax make perfect sense, as long as the teams taking are spending. The Florida Marlins received close to $56 million this year, when the Marlins revenues from revenue sharing and baseball’s national television deal are combined. The Marlins remained competitive for most of the 2006 season, on a team payroll of less than $15 million. Under Jeffrey Loria’s ownership the Marlins have consistently traded away their established players for prized minor league players from other teams. In theory that system makes sense if you trade for the right players, and then sign those players to long-term contracts. That was the philopshy the Cleveland Indians won the 1997 American League pennant with, they had seven years of winning baseball, and filled Jacobs Field for a major league record 455 consecutive game sellout streak. The Marlins haven’t showed they’re prepared to follow that mind-set. Loria seems content to build a team, and then dismantle that franchise as soon as some of his better young players become eligible for salary arbitration, certainly once they qualify for free agency after their sixth season. It’s a mindset that flies in the face of the rationale behind the “Robin Hood Affect”.

The Associated Press reported the average salary shot up Major League Baseball salary increased 9 percent this year to $2,699,292, according to final figures released last week by the Major League Baseball Players Association. The increase was the highest since a 12.8 percent rise in 2001 and makes it likely the $3 million mark will be broken next year or in 2008.

"The increase in the average salary is a reflection of the growth in overall industry revenues, and that while the sport still has significant economic challenges, the increased average is a reflection of the level of the talent on the field," said Bob DuPuy, baseball's chief operating officer.

And the 2006 off season has resembled sailors coming ashore with plenty of money on their hands – MLB owners have acted like drunken sailors. From the beginning of the free agent period after the World Series, teams had spent more than $872 million signing players, with the Cubs responsible for nearly $300 million of that total. And that doesn’t include the $110 million the Boston Red Sox have invested in Daisuke Matsuzaka and the tens of millions of dollars the Yankees are spending on Kei Igawa, and the Tampa Bay Devil Rays contract with infielder Akinori Iwamura. When the free agent frenzy spending spree is completed more than $1 billion will have been contractually committed by MLB teams to a handful of players.

Last Thursday, MLB announced the Yankees were sent a $26 million luxury tax by the commissioner's office, raising New York's total to $97.75 million over the last four years.
Boston, which missed the playoffs, was the only other team over the tax threshold and will pay $497,549.

New York hasn't won the World Series since 2000, and was knocked out in the first round of the playoffs for the second straight year. The Yankees paid tax in all four seasons of the just-expired collective-bargaining agreement: $11.8 million in 2003, $26 million in 2004 and $34 million for last year.

The one major blemish for Selig and Major League Baseball was the ill-conceived investigation into the use of performance-enhancing drugs by Major League Baseball players. The rationale for the probe was the fallout from the New York Times bestseller “Game of Shadows” which examined the Bay Area Laboratory Cooperative (BALCO) federal investigation into the use of steroids and other performance-enhancing drugs by Barry Bonds (the primary focus of the book). On March 30, Selig appointed former U.S. Senator George Mitchell to lead the investigation.

On December 1, Mitchell admitted he had failed at the task he was asked to manage by Selig.

"When I began, I was, of course, aware that I do not have the power to compel testimony or the production of documents," Mitchell said in a statement on December 1. "From the outset I believed that the absence of such power would significantly increase the amount of time necessary to complete the investigation, and it has."

While club officials have testified, Mitchell can't order any of the unionized players to cooperate. No player is known to have testified.

"My investigative staff has conducted hundreds of interviews and received thousands of documents; however, much more work will be necessary," Mitchell said. "Cooperation has been good from many of those from whom we have sought testimony and documents, but has been less than good from some others. This will not affect the result of the investigation, but it has increased the length of time it will take me to complete the investigation."

On Tuesday, January 9 the issue of steroids and performance-enhancing drugs dominate the 2007 Baseball Hall of Fame inductees’ announcement. Cal Ripken and Tony Gwynn are certain to be honored the first time they are on the ballot, but the focus in a few short weeks will be on Mark McGwire also on the ballot for the first time. McGwire ended his career with 583 home runs, which was then fifth-most in history (that total since surpassed by both Sammy Sosa and Barry Bonds).

McGwire will finally understand the full affect of his testimony during the March 2005 Congressional Steroid Hearings. McGwire ruined a reputation he took a lifetime to build by not admitting he ever used steroids (as Jose Canseco has suggested McGwire had done in the book he had written). McGwire not only refused to acknowledge (or refute them) the allegations Canseco made about him, he broke down and cried at the hearing. Because McGwire is eligible for induction into the Baseball Hall of Fame in January, this will be one of the most anticipated Hall of Fame voting results in baseball history.

And if that isn’t enough for Selig to deal with, Barry Bonds who already holds the single season home run record with the 73 home runs he hit during the 2001 season will be the center of attention throughout the 2007 MLB season. With 734 home runs, Bonds is 22 home runs away from surpassing Hank Aaron’s 755 career home run record.

The biggest name from MLB’s steroid era is set to become the all-time home run king, the focus of the 2007 Baseball Hall of Fame class will focus on the steroid era and not on the players selected by the Baseball Writers Association of America for induction. Bud Selig earned the spoils from a great 2006 season, 2007 will challenge Selig’s leadership and belief in the game once again.

For Sports Business News this is Howard Bloom

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