Monday, April 09, 2007

Bud Selig, good or bad for Major League Baseball?

Last week several media outlets reported that Bud Selig had been paid $14.5 million in the 12 months ending Oct. 31. The source of the information was from Major League Baseball’s tax returns. A similar source managed to obtain the National Hockey League’s tax returns and learnt NHL commissioner Gary Bettman had been paid $2.2 million during the similar period. While it is generally believed David Stern earns between $8 million and $10 million and rookie NFL commissioner Roger Goodell earns between $3 million and $5 million annually those are educated guesses. Selig’s and Bettman’s salaries are known, and the question that can be asked is Bud Selig making too much money as MLB Commissioner? And has Bud been good for MLB?

The numbers speak for themselves. When Selig became acting commissioner in 1992 MLB’s overall revenues stood at $1.2 billion, but have times changed in recent years. It was $5.2 billion last year, is projected to be at least $5.6 billion this year and is expected to reach $6 billion in 2008.

Some of the success (maybe most of it) was Bud Selig being in the right place at the right time. MLB interactive has been an overwhelming success, MLB will launch their own 24-hour network in 2009 in at least 40 million homes, MLB has long term television contracts and for the first time in decades has long-term labor peace with the MLB Players Association.

MLB.com continued to be the Internet related business that dreams are made of in 2006. Major League Baseball remains the industry leader when it comes to streaming their games on the Internet. 2006 was the fifth consecutive season MLB had offered live video streaming of their games at MLB.com, a program that began with the 2002 season. Arguably, MLB.com’s biggest success to date was the streaming of the NCAA men’s basketball tournament in March.

At least for Major League Baseball, MLB.com 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 MLB.com 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 MLB.com, 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 MLB.com 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 the 2005 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 were 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, hinted 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 philosophy 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 Major League Baseball salary increased 9 percent in 2006 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.

And for the players as the Associated Press reported Opening Day salaries (not the even of season statistic used in the above) clearly indicate the rich are getting richer, at least when it comes to MLB salaries. An influx of injured players kept baseball's average salary from breaking the $3 million barrier on Opening Day. The average was a record $2.94 million, up 2.7 percent from last year's opening average of $2.87 million. Although many large contracts were signed during the off-season, many were backloaded.

There were 32 more players on the disabled list this year than at the start of last season. That meant the addition of nearly three dozen extra players -- nearly all earning close to the minimum. Baseball's average broke the $1 million barrier in 1992 and the $2 million mark in 2001.

"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.

Friday, the USA Today named Selig the most influential person associated with MLB, a subjective list prepared by writers and others directly associated with the USA Today. That aside, Selig has evolved from a used car salesman whose passion and determination served as the catalyst towards MLB returning to Milwaukee in 1971 to a leader who last year was generally recognized as the most important person in all of sports in 2006.

One of the keys to Selig’s success, a well earned reputation as someone whose prepared to listen to others, and that includes owners, players and even the media, “"a lot of people every day — owners, reporters, baseball executives — about a lot of subjects, but in the end the biggest influence on me frankly is me. I really agonize over things, but once I make up my mind, I'll do it."

"He's the greatest commissioner of all time," Mets Chairman Fred Wilpon, who finished 16th on our list, says of Selig in the USA Today report. "His influence is very, very strong because he's been insightful about what we need. He's been resourceful and convincing."

"It's much like Abraham Lincoln's cabinet," says Red Sox chairman Tom Werner, reiterating Selig's love for history according to the USA Today. "He brought people into the cabinet who really didn't like each other at a time of crisis. He was able to achieve a lot. Bud's great talent is bringing together people who have very different agendas and points of view and create a consensus."

Hal Bodley the USA Today’s baseball writer (and a man destined for the Baseball Hall of Fame in the not too distant future) asked Selig what he believed was his biggest influence on the sport to date.

“When I took over in 1992, and remember I had been part of this as Brewers owner, what struck me was that the sport was stuck in neutral. Pro football went by us like a jet. We were resistant to change. The sport needed fixing at many levels. I don't think even I understood how broken it was. So I guess what I'm most proud of is that we made enormous change.

“I remember saying to the owners, "We're going to have to stop ripping each other, ripping the players association, ripping commissioners." It was bad. On the economic side, we were back in what I called the Polo Grounds, Ebbets Field days. The economic system was out of whack. I think this sport was resistant to change and that somebody who tried to change it was going to take a lot of abuse. I regard my ability to change and get people to go along with it my biggest influence.”

One of the last images sports fans and in particular baseball fans of Bud Selig is Selig shrugging his shoulders after being forced to called the 2002 MLB All-Star Game after the teams’ were tied 7-7 after 12 innings and the managers Joe Torre (New York Yankees), AL; Bob Brenly (Arizona Diamondbacks), NL had run out of pitchers. However, the sign of a leader isn’t how you react to the obvious (Selig had to call the game) but in how you ensure that doesn’t happen again. Selig enacted a rule forcing each league to add a pitcher to their respective all-star teams and added home field advantage in the World Series would be awarded to the winning league.

The biggest challenge Selig will face during the 2007 season will be Barry Bonds approaching Hank Aaron’s career home run mark. It remains to be seen when (and if) Bonds will establish a new career home record, but there is little if anything Selig will be able to do about the approaching “perfect media storm”. MLB didn’t a policy against performance-enhancing drugs until 2004 and Bonds hasn’t been caught with a positive test since. Legally Selig doesn’t have any real options in dealing with Bonds, ethically it’s a no win battle for Selig and MLB. Barry Bonds is a hornet’s nest; one Selig is going to be forced to deal with sooner or later.

“As for steroids, prior to 2002, we didn't have a policy, no agreement with the union. I don't know what more I could have done. We got a program, tightened it once, and tightened it twice. Where are we now? We have the toughest testing program in American professional sports.

“I've thought a lot about that. (Managers, general managers and scouts are) as enraged as I am about the comments that we all turned our heads, should have known (there was a steroids problem). I don't honestly know what we could have done differently.

"I even went back and talked to a lot of my players. I knew everything about them. None of them ever called. When the andro (stenedione) thing broke with Mark McGwire (in 1998), I was stunned. I walked into my pharmacy the next Sunday morning where I've been going for 30-40 years.

The guy said, "Right over there, Commissioner," as he pointed to andro on the shelf. I said, "How do you know what I'm here for?" He said, "I can read the papers." Selig told the USA Today

Those sentiments aside if Barry Bonds is looking for any respect from Bud Selig he can forget about that happening, if you simply read between the lines as to how Selig reacted to Bodley’s question about who Selig believes is the greatest home run hitter of all time.

“There's no secret about my relationship with Hank Aaron. … We've been friends for 50 years, really good friends. Every era is different, but by my standards he's the greatest home run hitter.”

Look at some of the commissioners before Bud Selig (since 1969): Bowie Kuhn, Peter Ueberroth, A. Bartlett Giamatti and Fay Vincent. With the exception of Giamatti, none of the men who have led MLB since 1969 share Selig’s passion and love for the game. Selig may not have been a very good “acting” commissioner when he replaced Vincent in 1992 (the cancellation of the 1994 World Series will forever remain a terrible black mark in baseball history) but Selig is someone whose learnt from his mistakes. Selig a big fan of history has learnt from his own history as MLB commissioner.

Every business trend clearly suggests in no uncertain terms MLB is in the best financial shape it’s ever been and yes much of that is due to Selig’s leadership. It’s easy to suggest Selig was in the right place at the right time but that would only be partially true. Under his leadership and decisions MLB was able to take advantage of the opportunities it was presented with. That would have never taken place when Kuhn, Ueberroth and Vincent where in charge (and Giamatti can’t be judged on one-year’s work as commissioner).

In 2007 a business with solid growth and nothing but positive economic indicators pays their CEO as much money as they need to retain that person. So yes, Bud Selig has been great for MLB and yes Bud Selig deserves to be paid $14.5 million a year.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: USA Today and the Associated Press

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