Wednesday, April 25, 2007

From the top to the bottom – the MLB outhouse franchises

The last few days HB’s Insider has taken a deeper look at the MLB franchises at the top of Forbes Magazines 2007 Major League Baseball franchise valuation report. For all the right reasons the top five on Forbes list include the New York Yankees, New York Mets, Boston Red Sox, Los Angeles Dodgers and Chicago Cubs. With the exception of the Cubs (who last made the playoffs in 2003) the other four franchise valuation leaders are contenders most years. What about the teams at the other end of Forbes list, the five bottom feeders. Bringing up the rear both literally and figuratively on the Forbes list: the Milwaukee Brewers, Kansas City Royals, Pittsburgh Pirates, Tampa Bay Devil Rays and last and certainly least the Florida Marlins.

At number 26 on Forbes list, the Milwaukee Brewers. The Brewers are owned by Mark Attanasio, who bought them in 2005 for $223 million from Bud Selig’s family. It was the passion and dedication of Selig that led to Major League Baseball returning to Milwaukee in 1970 when the Seattle Pilots moved to Milwaukee after their one and only season in Seattle. Owning the Brewers before he became commissioner on a full time basis in 1998 (his daughter Wendy became the de facto owner of the team) gave Selig an understanding of what it was like to own and operate a small market MLB franchise. That didn’t help the Brewers either on or off the field, but has proven to be a key in making Selig an effective commissioner in the last five years.

That said a new owner was exactly what the Brewers needed and it made even more sense for Selig and his family too no longer be associated from the day-to-day operations of the Brewers. As Forbes pointed out: things have been looking up for the Brew Crew since California banker Mark Attanasio purchased the team in 2005 from baseball commissioner Bud Selig. Attendance was up for a third straight year last year despite a 7% ticket price hike. Attanasio has been putting the increased revenue towards payroll which has doubled since 2004. The team has struggled to sell-out luxury suite inventory, so it combined five suites this winter into a 9,000 square foot area called Club on the Club. The all-inclusive party area will hold 240 people and cost up to $99 per person. Another party area got a new name last year when Mercedes-Benz signed a three-deal to sponsor the picnic area at Miller Park.

The Milwaukee Brewers opened Miller Park in 2001. Miller Park has a capacity of 43,000. The Brewers hosted the MLB All-Star Game in 2002. In Miller Park’s inaugural season the Brewers sold 2,811,041 tickets, averaged 34,704 fans per game and played to 81.7 percent of Miller Park’s capacity. The honeymoon was over quickly for the Brewers and fans buying tickets to Brewers games to experience what it was like to attend a game at Miller Park.

Despite hosting baseball’s mid-summer classic in 2002, the Brewers experienced one of the biggest single season attendance drops in Major League Baseball history in 2002. The Brewers sold 1,969,153 tickets, averaged 24,310 fans per game and experienced an average attendance drop of nearly 25 percent -- playing to 57.2 percent of Miller Park’s capacity. The Brewers were a terrible team on the field in the years preceding their move to Miller Park and haven’t won more than 81 games (they finished at 81-81 in 2005), since the 1992 season. Brewers’ fans have been forced to endure 14 consecutive seasons of losing baseball. Brewers’ fans are proof sports fans won’t get fooled again.

The Brewers 2006 attendance -- 2,335,643 fans, an average of 28,835 fans per game, playing to 68.0 percent of capacity. The Brewers increase in attendance – not the teams’ on field presence, appears to have more to do with new ownership than anything else. Attanasio has worked at curing the Brewers image. It remains to be seen if he’ll be successful, but Attanasio already knows unless he delivers a competitive product he’ll have serious issues selling tickets. Bottom line, the Brewers are where they are in part because of Selig, but it’s a safe assumption if it wasn’t for Bud Selig Milwaukee might still be looking for a MLB franchise to call their own.

At the start of the 1990s, the Kansas City Royals had been hit with a double-whammy when General Manager John Schuerholz departed in 1990 and team owner Ewing Kauffman died in 1993. With a current value of $282 million the Royals are 27th on the Forbes 2007 MLB financial valuation list. Seven years ago Forbes believed the Royals had a value of $122 million.

Kauffman's death left the franchise without permanent ownership until Wal-Mart executive David Glass purchased the team for $96 million in 2000. Partly because of the resulting lack of leadership, after the 1994 season the Royals decided to reduce payroll by trading pitcher David Cone (again) and outfielder Brian McRae, and then continued their salary dump in the 1995 season. In fact, the team payroll was sliced from $40.5 million in 1994 to $18.5 million in 1996.

As attendance slid and the average MLB salary continued to rise, the Royals found it difficult to retain their remaining stars, and the club traded players such as Kevin Appier, Johnny Damon and Jermaine Dye for prospects rather than pay higher salaries or lose them to free agency. Making matters worse, most of the younger players that the Royals received in exchange for these All-Stars proved of little value, setting the stage for an extended downward spiral. Indeed, the Royals set a franchise low with a .398 winning percentage (64-97 record) in 1999, and lost 97 games again in 2001. The records would have been even worse without the rapid development of center fielder Carlos Beltrán (Rookie of the Year in 1999) and first baseman Mike Sweeney. The Royals have lost at least 100 games each of the last three seasons.

The teams’ ineptitude on the field has had a dramatic impact on the franchises ability to sell tickets and market the team. The once proud Royals have serious issues both on and off the field. The Royals have been consistent in being near the bottom in the standings and attendance for the last five seasons. In 2006 the Royals sold 1,372,684 tickets, averaging 17,158 fans per game or 42.1 percent capacity.

The Royals have finished fifth in the AL Central the last three years, third in 2003 and fourth in 2002. The Royals had a winning record in 2003 (83-79), but have had a losing record every other season since 1993. In the last ten seasons, the Royals have averaged 66 wins each year. That’s a decade of pathetic baseball, embarrassing baseball. Since Glass bought the Royals in 1996 the teams’ attendance has dropped by 18 percent while the teams’ value has increased by an average of 17 percent annually.

The Forbes report was very critical of Glass and his stewardship of the Brew Crew. According to Forbes: Glass has profited from rich handouts under the league's revenue-sharing program, imposed in 1997. Each year teams contributed 34% of their revenue from ticket sales, parking, concessions and local broadcast rights (minus stadium expenses) to a pot that then is redistributed to the weakest teams. In 2006, $326 million was paid out to the losers.

Thus the Royals' annual collections from this socialistic setup have doubled since 2002, to $32 million last season (of a total $123 million in team revenue that year). But the team's player costs inched up only 6% to an estimated $65 million in that same period. Thus the losing Royals have turned an annual profit of close to $10 million a year (earnings before interest, taxes, depreciation and amortization).

"I feel pretty critical about the way Glass has managed the team," says Andrew Zimbalist, an economist who has consulted Major League Baseball on its system of sharing the wealth. "He looked at a welfare system in baseball and took advantage of it."

The glass being half full report from Forbes concerning the Royals: in April, 2006 Jackson County voters barely approved an overhaul for the Truman Sports Complex, which houses Kauffman Stadium (Royals) and Arrowhead Stadium (Chiefs). The proceeds for the $575 million renovation will come from a three-eights cent sales tax increase to raise $425 million, $50 million in tax credits from the state, $75 million from the Chiefs and $25 million from the Royals. Although no definitive deadline has been set for the completion of the upgrades, we have bumped up the value of the Royals to reflect the approval of the financing.

During the 2006 off-season, Glass appeared to be opening up his wallet. The Royals outbid the Cubs and Blue Jays for free agent pitcher Gil Meche, signing him to five-year, $55 million contract. Reliever Octavio Dotel also inked a one-year, $5 million contract. The Royals have signed various new players, adding bulk to their bullpen and hitting, and under general manager Dayton Moore the Royals were arguably the most aggressive team in the off-season.

Among one of Dayton Moore's first acts as General Manager was instating a new motto for the team: "True. Blue. Tradition." The Royals plan on a slogan that will bank on new general manager Dayton Moore’s ability to restore the Royals’ once-rich history. The Royals also ditched their black and sleeveless jerseys, instead reviving their "old" jerseys from years past. Kansas City enters the 2007 season looking to rebound from four out of five seasons ending with 100 losses. The good news, the Royals have only once place to move and that’s forward.

After hosting the 2006 MLB All-Star Game Pittsburgh Pirates fans have little if anything to get excited about when it comes to their Pirates. Long gone are the days of Willie Stargell and the “We are Family” team that won the 1979 World Series. Forbes determined the current value for the Pirates to be $274 million.

The good news as Forbes reported: the Pirates have a new person in the captain's chair this year with Bob Nutting's approval as controlling owner of the franchise. The Nutting family was an investor in the group led by Kevin McClatchy that purchased the team in 1996. The family gradually bought out minority stakes and built its interest to more than 50%. McClatchy will retain his role as CEO to the dismay of fans who lament 14 straight losing seasons by this once proud franchise. The Pirates are among a group small market teams that have seen their revenue sharing payments increase without a corresponding rise in player costs drawing the wrath of their big market brethren.

The Pittsburgh Pirates moved into PNC Park at the start of the 2001 season. The Pirates enjoyed their first year in their new ballpark, selling 2,428,661, an average of 30,742 fans per game or 80.1 percent of PNC Park’s capacity. Strikingly similar to the attendance problems the Brewers had in their second year at Miller Park, the Pirates, in 2002 sold 1,784,988 tickets, an average of 22,594 fans or 58.9 percent capacity of their stadium’s capacity. The Pirates share one more important distinction with the Brewers. The last time the Pirates had a winning record, 1992. The Pirates won 96 games that year. In 1993 the Pirates won 75 games. Since then they have offered their fans nothing more than losing records for 14 consecutive seasons. Coincidently the last year the Pirates had a winning record and made the playoffs – 1992 – the last year Barry Bonds played in a Pirates uniform.

A report in last week’s Pittsburgh Post Gazette doesn’t help the Pirates efforts. The Post Gazette reported the Milwaukee Brewers (26th on the list) are set to spend $20 million more than the Pirates on their team payroll this year. What drew the attention of the Post Gazette; the Brewers, based in the National League's smallest market and a region two-thirds the size of Pittsburgh's seem on the surface more committed to winning than the Pirates do.

Each is based in one of Major League Baseball's six smallest markets, with the Pittsburgh metropolitan area home to 2.2 million and Milwaukee's home to 1.5 million. Each has played in a new, taxpayer-built stadium since 2001. Each receives a comparable revenue-sharing check from MLB, the Pirates getting $25 million last year and the Brewers $23 million. Each has a local broadcasting deal in the range of $10 million.

It shouldn’t come as a surprise to anyone finishing 29th on the Forbes list the Tampa Bay Devil Rays with a financial valuation of $267 million and the ultimate bottom feeder MLB franchise the Florida Marlins dead last at a value of $244 million.

Major League Baseball continues to fail miserably in Florida. The Tampa Bay Devil Rays finished 29th in MLB attendance, their brothers to the south, the Florida Marlins dead last in 2006. In the last six MLB seasons, the Marlins and Devil Rays finished in the bottom five each year, and would have held the two lowest attendance totals in five of the last six seasons, if not for the dreadful Montreal Expos holding that distinction in their last four seasons in Montreal (2001 through 2004).

Both franchises sold less than 40 percent of their available ticket inventory last year. The Devil Rays decade of terrible baseball (the D-Rays have the worst record in baseball over the ten years they’ve been a “major league” team), managed to sell 1,369,031 tickets last year, averaging 16,901 fans per game or 38.6 percent of capacity. The Marlins who ‘managed’ to sell out their last game of the season in 2006 against Philadelphia, pushing their 2006 season total to 1,165,120, averaging 14,384 fans per game, or 38.8 percent.

Ownership issues aside for both franchises, the Marlins and D-Rays play in two of the worst baseball faculties ever conceived. The D-Rays are stuck with the terrible Tropicana Field and the Marlins have little if any political support for their new stadium plans. Dolphins Stadium is a football, not a baseball facility.

The Tampa Bay Devil Rays are owned by Stuart Sternberg, who bought them in 2004 for $200 million from Vince Namoli. Namoli was arguably the worst owner in baseball during his reign of terror. Namoli was responsible for bringing MLB to the Tampa area, but was an unmitigated disaster as an owner. Just before the start of the 2005 season (Namoli’s last) The St. Petersburg Times offered a laundry list of mistakes Namoli had made as the D-Rays owner, including but in no way limited too:

Major League Baseball put the new owners (the D-Rays were granted a franchise the same year the Arizona Diamondbacks joined the National League) in a financial hole before the team ever took the field, raising the expansion fee to an unprecedented $130-million and forcing them to forfeit millions in national TV revenue at a time when the overall costs of competing were soaring. The financial wherewithal of the Tampa Bay ownership group was immediately challenged, and has been a persistent concern.

Just how often have those who own professional sports franchises taken a greedy approach when it comes to establishing the parameters for expansion. Tough enough of a challenge to pay a $130 million franchise fee, next to impossible when MLB decided to ‘penalize’ the D-Rays by denying the franchise MLB national TV revenues. When Bob McNair paid the National Football League a $700 million expansion fee for the Houston Texans he was immediately eligible for the league’s lucrative network TV deal.

While the Rays stocked their inaugural roster with veteran players, they fielded too many rookies in key management positions. The owner, Naimoli, had never owned a sports team; the general manager, Chuck LaMar, had never been a general manager; the manager, Larry Rothschild, had never managed. Of the six department-leading vice presidents on the 1998 staff, only one had done his same job before.

It’s almost amusing to note the Devil Rays followed a pattern similar to the NHL’s Tampa Bay Lightening. Then Lightening General Manager Phil Esposito believed the only way he could build awareness for hockey in Florida was with established players. Baseball is a known and established product in Florida. The D-Rays paid a price for making bad decisions,

The promising Tampa Bay baseball market turned out to be something of a mirage. Projections for massive fan support turned out to be overly optimistic, as the Rays have ranked at or near the bottom of the league in attendance the past six seasons. They struggle to cross the regional barriers that define the area and to connect with transient fans that preferred to stick with their successful "home" team. In a recent Times survey, less than 30 percent of Tampa Bay area baseball fans named the Devil Rays their favorite team.

The sad sack Devil Rays Forbes pointed out: took several steps forward during the first year under Stuart Sternberg's watch. The team spent $10 million to spruce up dreary Tropicana Field, including $2 million for an upscale club. The Rays, who have the best young outfield in the major leagues, also invested heavily on player development and have stockpiled some of the best talent in the minors. Business picked up, as the team also inked a lucrative sponsorship deal with Anheuser-Busch and attendance rose 22%. One area that didn't improve was on the field where the team lost 101 games in 2006, the most in baseball. The D-Rays have finished in last place in eight of the nine years the team's been in existence racking up at least 90 losses each year.

If SBN believed Vince Namoli was the worst owner in MLB in 2005, SBN’s 2006 labeling of Florida Marlins owner Jeffrey Loria as a ‘franchise killer’ makes Loria among the most despised figures in sports today. In a recent ESPN poll more than 80,000 sports fans (not exactly an objective group) believed Loria was the worst owner in all of sports. That was determined from a list of 118 different major sports league owners. One common characteristic each of the MLB teams share among the five least valued teams, all five either have or have had recent ownership issues with their team that clearly have affected each teams ability to generate revenues in their individual markets.

Loria first gutted the Montreal Expos roster of any major league talent, cutting the teams’ payroll, making the team nothing more then a glorified Triple-A baseball franchise playing Major League Baseball. MLB may have been dying on the vine when Loria arrived in Montreal in 1998 but Jeffrey Loria managed to kill whatever was left of the Expos in very short order.

The Marlins somehow won the 2003 World Series, with Loria and and his son-in-law David Samson running the franchise. Loria and Samson as they did in Montreal, cut all of the players who brought Miami its second World Series title in 2003, slashing the teams’ payroll to $15 million last year.

The mark of Jeffrey Loria’s ownership style -- the Marlins received more then $30 million in MLB revenue sharing this year, with little if any of that money being directed back into the Marlins on-field product. With the Marlins contending for a playoff spot last year, the team did nothing at the July 31 MLB trade deadline to improve their playoff position. What message did Jeffrey Loria send to South Florida’s business community when he stood ideally by and did nothing to enhance his business? Did that help or hurt the image of the Marlins?

Last year the Marlins joined “Loria’s Attendance Hall of Shame”. The Marlins finished dead last in MLB attendance by only managing to fill 38.1% of Dolphins Stadium. When Marlins starter Anibal Sanchez pitched the first no-hitter in the Majors since Randy Johnson threw a perfect game on May 18, 2004 in September, the announced attendance was a shade over 12,000. Various media reports pegged the actual crowd at around 5,000. Throughout the three seasons Loria ran the Montreal Expos (1999 through 2001) the Expos were at the bottom of Major League Baseball attendance – Loria’s MLB business history repeating itself.

Sentiments about Loria aside as Forbes alluded too: the Marlins, are second-class tenants in a stadium owned by Miami Dolphins owner Wayne Huizenga, are getting closer to building a new ballpark of their own. The team, city and county have committed to paying $460 million of the $490 million estimated cost to build a retractable-roof stadium. Supporters of the stadium are asking the state to pay an additional $60 million over 30 years to finance the remainder. If owner Jeffrey Loria gets his new digs the value of the team should increase by at least $40 million the first season. The current Marlins lease at Dolphins Stadium ends after the 2010 season. Expect a new stadium deal to get done by the end of this year or expect Loria to seriously begin planning to move his Marlins elsewhere.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: Forbes Magazine’s 2007 Business of Baseball report.

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