Wednesday, March 13, 2013

A's No-Win Corporate Support Position

The A's and the Giants operate in the same market. Say that sentence out loud if you need to, because you would not know this when you look at payroll or how the teams are covered in the media.

The Giants are -- at the very least -- a middle-market team, if not a big-market team. The A's seemingly define "small-market."

The U.S. Census department places San Francisco and Oakland in the San Francisco Bay Area Combined Statistical Area (CSA). This CSA comprises 11 counties and greater than seven million people.

The A's and the Giants play in one big market.

For the Giants, the entire region is unabashedly their domain. They have a team merchandise store in Walnut Creek and recently paraded their World Series trophy in Hayward, both cities squarely in the A's "territory."

The A's meanwhile have twisted themselves into a pretzel in terms of where in the Bay Area they can embrace.

The A's dream -- however quixotic it may sometimes seem -- is to move to San Jose and tap into the rich corporate base of Silicon Valley. The team already has an agreement in place with Cisco for naming rights to a South Bay A's stadium. A's owner and public face Lew Wolff no doubt dreams of a stadium peppered with names like Apple, Adobe, Google, HP and Sandisk and suites filled with executives of these companies.

However, for the foreseeable future the A's are firmly in Oakland -- where one of their primary arguments for needing/wanting to shuttle down 880 is that there simply isn't a robust level of corporate support.

Enter the Catch 22

The A's are in a no-win situation.

If they aggressively court and land South Bay companies while in Oakland, they give fodder to the argument that this is a regional economy and the stadium's location does not necessarily create a direct correlation to corporate support. Consider that Cisco has agreed to be the naming sponsor for a South Bay stadium, but has no sponsorship agreement (at least that is readily apparent) with the club at present.

On the other hand, Oakland's most visible corporate titans -- The Clorox Company and Kaiser Permanente -- either do not sponsor the team at all, or have bare-bones agreements. This is not to say that the A's haven't engaged East Bay companies. For instance, the team has a long-standing relationship with San Ramon-based Chevron.

Kaiser Permanente is likely a casualty of the team's agreement with Fremont-based Washington Hospital Healthcare System. (This was predicated, one would assume, by the thought that A's were moving to Fremont.)

The Clorox situation is particularly puzzling. However, today there is about a zero percent chance that Oakland's sole Fortune 500 company (Kaiser Permanente is private and ineligible for the list) will become a major sponsor as its CEO is the point person for a group of local investors that surfaced last may pressing the team to commit to the city or sell, and then seemingly faded into obscurity.

The team's delicate dance is best embodied by the cash commitments the advocacy group "Let's Go Oakland" has in the bank from the Oakland and greater East Bay business community. Clorox CEO Don Knauss referenced this last May in an interview with KQED-FM:

Two-and-a-half years ago, some 45 companies in the East Bay committed to being corporate sponsors and put over a million dollars in escrow as sort of a down payment on sponsorships -- things like marketing programs, seat licenses, luxury suite commitments. Anything to demonstrate to the current ownership that we as the business community were very committed to keeping the A's here.

The A's seemingly are hand-strung from being aggressive in pursuing East Bay sponsors both because they won't commit to staying in the community, and because they are afraid that if more local companies did sponsor them public perception might shift -- MLB and A's fans might sense that the company does have adequate support and it would only be bolstered by a new park in the city.

A No-Win Situation

Here is how it breaks down:
  • Cisco is committed to sponsoring the A's in the South Bay to the tune of $4 million annually for 30 years, but isn't spending on the team until the move happens.
  • Clorox and 44 other companies are committed to sponsoring the A's only if they commit to staying in Oakland.
What the Fans See

The A's promotional schedule versus the Giants is an interesting contrast when looking at local companies who are sponsoring giveaways:

The Giants pull in tech titans Box, Stubhub (owned by Ebay) and Zynga in addition to longstanding pillars of San Francisco -- Genentech, PG&E and Visa.

The only tech firm sponsoring A's promotions is NetSuite.

The Giants have six S.F.-based sponsors. The A's sole Oakland-based promotional sponsor is the Tribune Tavern -- a restaurant in the Tribune building. Established and emerging Oakland companies Clorox, Kaiser Permanente, Pandora, and Sungevity are all nowhere to be found.

Promotions are one of the most visible ways that the public sees corporate support.

The message the A's send to the public is that they have virtually no connection to the city of Oakland's business community. 

Wednesday, March 6, 2013

Do the A's Really Want to Go to San Jose?

Let's start with a basic assumption: the A's ownership for all the deficiencies they are routinely accused of (being a poor community partner in Oakland, making no real effort to stay in Oakland and routinely "rebuilding" at the expense of the fans who have grown to appreciate players) actually wants to win.

What owners wouldn't? But, at what cost? How high of a priority is making money?

Another assumption: The A's would like a new ballpark.

Of course. However, do they want a fancy stadium at the expense of turning a profit year-after-year?

As hundreds upon hundreds of words have been devoted this off season to the non-story of the A's maybe, possibly, getting some sort of sign that they might get to move down 880 to San Jose, let's explore some utterly pure speculation: The A's ownership knows that San Jose is an impossibility and isn't really interested in building a new ballpark anywhere.

Solidly In the Black

The A's are consistently profitable according to Forbes annual "Business of Baseball" series. In 2011, it is estimated that they took in 14.6 million in profit. Bear in mind, the team finished 74-88 and dead last in terms of attendance. Not a bad profit for a product that was -- at absolute best -- middling. If the numbers are to be trusted (an open question given the dearth of official information), the team was more profitable than numerous big market teams including the Yankees, Phillies and Angels. If you are compare to teams with payrolls closer to the A's, they made more money than the Orioles and the (then) Florida Marlins. Looking at data going farther back, the A's, while not the most profitable, have consistently made money for the current ownership group.

It should be noted that team part-owner and full-time mouthpiece Lew Wolff has refuted that the team is as profitable as reported by Forbes. Here is what he said in January of last year:

"We made $370,000, and that's after revenue sharing, not before," said Wolff, who confirmed last year's revenue-sharing check was $32 million. "I have to admit, without revenue sharing, we'd have a huge loss, and we don't want revenue sharing. We'd like not to be a receiver if we could."

What we don't know is if the $370,000 profit is before or after the owners took their slices.

Still, profitability a central focus for the A's.

Sure, We'll Build a Ballpark

 Wolff, and billionaire majority-owner and true silent partner John Fisher have said they have financing in place for a $400 to $500 million new ballpark in downtown San Jose. The A's are seeking to follow the model of the Giants who built the first privately financed ballpark.

The thing about the Giants stadium is that, while objectively a very nice venue, it has shackled the team to hefty yearly payments of $18 million to retire construction debt. This debt, coupled with high player salaries has led the team to pursue ancillary development.

Here is Giants president and CEO Larry Baer in April 2012 after the team announced plans to develop the Mission Rock area adjacent to AT&T Park:

We've been very open about the fact that for the Giants, we need to create revenue....We've got a fixed number of seats ... and players aren't getting any cheaper.

The Giants aren't alone in seeking ancillary development to help finance their organization. The St Louis Cardinals just broke ground on their $650 million ballpark village concept. The A's themselves sought to pursue this concept in 2007 when the idea of moving to Fremont was still alive.

Before we continue, consider.

1) Lew Wolff is a real estate mogul.
2) A privately financed stadium provides no guarantee of profitability and requires enormous up-front outlays.

When the A's focus shifted to downtown San Jose, talk of ancillary development was roundly denied by Wolff. While his companies own office towers and hotels in the downtown area, there would seem to be no physical opportunity to build a major project next to, or even near, the proposed ballpark.

In April, Wolff was quoted in the San Jose Mercury News as saying:

We have no ancillary real estate we're looking at in San Jose.

Does Anyone Really Believe This?

An organization admittedly utterly dependent on revenue sharing (which will unavailable once the new ballpark goes up), and who seemingly has zero tolerance for being unprofitable will finance and assume debt obligations for a massively expensive, privately financed ballpark on top of likely having to pay the Giants compensation (cash or revenue guarantees) for the right to move to San Jose.

It makes zero sense.

Doomsday is Coming

As previously detailed thanks to the last year's Collective Bargaining Agreement,  the $32 million plus welfare checks may very well come to an abrupt halt.

So, the A's should want to speed away to San Jose, right?

Maybe not. If they can convince the league to continue giving them a carve-out for revenue sharing -- despite being in an objectively "large" market -- than why not stay in Oakland at the Coliseum provided the city and county don't put the screws to them too much during the upcoming lease negotiations?

The A's owners can continue to put the San Jose show on while any number of checkboxes remain to be addressed -- needed land, a San Jose ballot initiative, territorial rights from the Giants and -- possibly -- financing given no ancillary development.

It is one thing to say something, but quite another to actually do it. (Their still-unexecuted land option with San Jose for the smattering of parcels assembled by the city's defunct redevelopment agency is about the only concrete movement the team has taken.)

Wolff and Fisher may very well be content to sit in Oakland, collecting huge revenue checks and waiting for a suitor to make an offer to sell the team that blows them away or for a city to lure the team away with incentives and the promise of a fancy stadium.

This ownership group may very well be fooling us all by being outwardly hell bent on moving south, while internally they know that staying put means a guaranteed profit.

If we are going to devote numerous columns to non-news that could be encapsulated by a tweet, "MLB may have given A's criteria for move to San Jose," we should at least take time to consider that Wolff's and Fisher's motives may not be what they seem.