Tuesday, February 24, 2015

A's Revenue Sharing Funds Could Dry Up After 2016

It seems so long ago, but Major League Baseball's current Collective Bargaining Agreement (CBA) is inching closer to its expiration at the end of the 2016 season. For most fans, this governing document is the inside-baseball of baseball and something that is hardly given a second thought, let alone a first one -- especially in an era of labor peace. However, as discussed here, the CBA contains an expiring provision that greatly impacts the assumedly Coliseum-dwelling Athletics:

The 2012 agreement sunset revenue sharing for "Big Market" clubs, carving out a notable exception for the Athletics. It's worth noting that this was necessary as the Bay Area is objectively not a "Small Market." Those who drafted the CBA were optimistic that the A's would have a new home by 2016. By all indications, the team may be either in the limbo it is in now with the Raiders, or counting down the days until it must vacate the Coliseum for a Raiders-centered "Coliseum City." The third option, that the A's are developers of "Coliseum City" is possible, but seemingly the least likely given ownerships public stance. And a fourth, a move to San Jose, seems highly improbable based on today's outlook.

One other outcome is that the players involved vis-a-vis ownership could shift. However, you don't name a training facility after yourself (as Lew Wolff did) if you are thinking about cashing out.

The Athletics received $32M in revenue sharing in 2011(the latest year data is available) and 2014 team revenue per the annual Forbes "Business of Baseball" report was $187M. This means that fully 17 percent of the club's revenue -- on a very good year attendance-wise -- is tied to funds that may evaporate come the start of the 2017 season.

Looked at another way, Forbes pegged the team's operating profit at $27.4M in 2014, meaning the loss of revenue sharing -- assuming a similar payroll -- would make the team a money-loser at the tune of -$4.6M. As Wolff and Co. have noted that they are only interested in running a profitable ballclub, one can safely assume that payroll would be capped much lower in a world without revenue sharing.

It's a sad state of affairs when a team sitting in the Metropolitan Statistic Area with the highest median household income needs its own personal welfare provision in a billion dollar league. However, that's what you get for a decade plus of studying without action.

Assuming the "A's Stadium Exemption" isn't inserted into the next CBA, the Athletics payroll will likely have a shorter ceiling and may create a non-virtuous revenue cycle:

less money = fewer quality players = more trading, more rebuilding, shorter competitive windows = decreased attendance = less money.

The simple answer is to put the Athletics on a solid path to a new stadium.

Friday, February 20, 2015

Rooting for the LA Raiders

Editor's Preface: I understand the title of this post is inflammatory to Raiders fans. It is my preference that Oakland retain both teams. However, given the current fact set available, this seems unlikely. When faced with the loss of a franchise, as a baseball fan writing on a baseball blog I choose the A's. Here's hoping there's more than we know.

The Raiders are playing chess with Oakland and Alameda County and the A's seem to be waiting their turn at a different table.

Acknowledging the rich history and passionate fans of the Raiders, they have long had a very impulsive family at the helm in the Davises. Al Davis made some very smart decisions and some poor ones -- bound to happen in a long career. The jury is out on his son Mark, but the news that the team had invested real dollars on land in Carson is a bold move.

One of the main sticking points, according to recent reports, is the current debt owed on the Coliseum -- incurred by the city and county with their "renovation" in advance of the Raiders returning in 1995 -- and control of the Coliseum's land and its surrounding parcels.

Floyd Kephart, the city's point person for "Coliseum City" has been grumbling in the past few days that it's Alameda County that is being uncooperative. From the San Francisco Business Times:

"You can't solve for the unknown when the knowns are holding the unknown answers."

How deliciously Rumsfeld-ian.

The avatar-less horse-investor took to Twitter to stress his point:
So, Are the Raiders Serious?

It's trite, but there is credence to adage, "Put your money where your mouth is." It's also clear that the media-imbalance in the NFL is not going to last. There will be a franchise in Los Angeles in the next five years, probably two. There is simply too much money to be made and financing post Great Recession is far easier than it has been in years.

Consider these advantages of Carson/LA:

1. Shared construction cost with Chargers.
2. No responsibility for old Coliseum debt.
3. Mitigates loss of SoCal portion of fanbase.
4. Bigger population pool to draw from.

Again from the San Francisco Business Times. This is reporter Ron Leuty:

Something must happen with the city-county joint ownership of Coliseum land. Something must happen with the $106 million in debt left from the Coliseum redo that wooed the Raiders back to Oakland from Los Angeles 20 years ago. Kephart says those payments are coming out of the city's and county's general funds to the tune of $20 million-plus per year.

All About the Benjamins (Financing)

As much as it pained pro-Oakland Athletics fans, ownership supposedly had private financing secured for a San Jose stadium. Whether the same lenders would support an Oakland stadium years later is unknown.

The Raiders can't reasonably expect cash-strapped Oakland or Alameda County to contribute any public funds to stadium construction beyond minimal infrastructure improvement, and yet they do.

A July 2013 article detailing stadium plans noted the financing, at that stage, looked like this:

$300M - Raiders (Some reports indicate the team has $400M available.)
$200M - NFL
$300M - Presumably from Public Funds

And, in a face-palm moment City Councilman and now Vice Mayor Larry Reid took the bait:

Councilman Larry Reid acknowledged that public money would be needed to help cover stadium construction costs and wouldn't rule out supporting it.

Like 'em or loathe 'em, but the Athletics owners have always prided themselves on not planning to use public money for a private facility.

It's conceivable that the Raiders, whose ownership is not as wealthy as the Athletics (mainly thanks to the weight of Gap scion and billionaire John Fisher), is seeking both public funds for a stadium and partial debt forgiveness for the current Coliseum. If so, it is as bold as drafting a "burner" with bad hands based on a quick 40.

It's even more brash, but they likely also want full control and full revenue from any new facility. In this case, the city and county can help pay for a fancy house they don't even have the keys to.

Back to the San Francisco Business Times:

Kephart said Thursday (February 19) that New City (Kephart's development group) and the Raiders are "90 percent" in agreement on a new stadium in Oakland. The sticking point, he said, are "the unknowns" — the land, the debt — that requires the county's input.

And so, a hat-tip might be in order to Scott Haggerty, president of the Alameda County Board of Supervisors who remarked in the Oakland Tribune:

I don't know why people are insinuating that we are not at the table. Just because you are asking questions doesn't mean you are not at the table.

Millions of questions need to be asked before the city and county lay down again and allow the Raiders to fatten themselves on taxpayer dollars.

Bulldoze the A's

Where does all this leave the Athletics?

Well, for starters A's ownership has no interest in working with Kephart and partnering on development of the Coliseum and its surroundings -- meaning they aren't even at the table. The A's enter when the Raiders exit negotiations, and quite possibly the Bay Area.

Kephart is currently financially motivated to close the deal with the Raiders. Remember, this is a San Diego businessman who chairs a financial advisory board and has no emotional ties to any of the teams involved. It's all about the money.

If the Raiders commit, what's next? As has been hinted at in the past, it could be a wrecking ball for the Coliseum in the near future and a much more expansive search for a new home.

An Abusive Relationship

Faced with the prospect of forking over more money to a regional "asset" that actually loses money, Oakland and Alameda County should take a stance that protects taxpayers and actually forces the team to be a net-positive fiscally.

The Raiders extremely generous previous lease illustrated the depths to which the "die-hards" in power cow-towed to the team. From a 2011 New York Times article whose thrust was that a lockout would actually have been positive for the city and county:

...the Raiders pay just $525,000 a year in rent — a fraction of what the nearby San Francisco 49ers pay to play at Candlestick Park — and leave all stadium maintenance and game-day operating costs to the Coliseum public authority.

All in all, it’s a great deal for the Raiders; for Oakland, not so much. The stadium authority does collect some revenue through concession sales and parking receipts, but not nearly enough to cover its costs.

The bottom line is that the Coliseum authority loses money hosting Raiders games. Ms. McClain (then-interim director of the Oakland-Alameda County Coliseum Authority said the board spends about $5 million a year setting up for the team. A big part of that is for reconfiguring the Coliseum for football and baseball during the late-summer months when the A’s and the Raiders share the field.

 All of that is in addition to the $20 million a year that the city is still paying on the bond debt associated with the 1996 stadium expansion.

The team is currently holding out on signing a new lease.

For Oakland and Alameda County, the "prestige" of the Raiders also came with the privilege of paying $34.2M to owner Al Davis in 2003 after he sued, citing misrepresentation of projected attendance figures.

Here's how the team's attorney reacted to the verdict:

"Do we think that there's adequate compensation for damages? No,'' the Raiders' lawyer, Roger Dreyer, told The Associated Press. ''We're disappointed with the verdict. We're disappointed with the numbers.''

Al Davis wanted a billion dollars to compensate him for leaving Los Angeles.

We're the Pawns

A's fans and Raiders fans are pawns in this chess game, easily replaceable. This really is a battle between rich kids -- teams, developers -- playing with fancy toys we happen to be emotionally connected to.

If only it were as simple as nine innings and four quarters.

Friday, February 13, 2015

Giants Continue War on A's With Proposed Little Giants Stadium

Mark Purdy's recent Mercury News column detailing the San Jose Giants interest in building a ballpark in San Jose pointed to another potential nail in the coffin of the idea of the A's moving to San Jose. When a major league team to move to a territory where a minor league team operates, the MLB team is forced to pay compensation to the displaced team.

One option, which has never been seriously pursued is to allow both franchises to exist. Purdy noted that the Athletics, if granted approval to move to San Jose, might go this route:

Lew Wolff, the A's co-owner, has said several times that he would not force the San Jose Giants to leave town and allow them to continue operations, so he presumably would not object to a new fairgrounds stadium.

The reality is that Wolff and the rest of the Athletics ownership group have not really given a new little Giants ballpark much thought as they likely have realized that their very practical, if emotionally gutting (to some), move down 880 is dead. However, in the mode of "only the paranoid survive" the big Giants are continuing to keep their boot firmly on the Athletics neck.

Purdy noted that the big Giants are majority owners of the little Giants, a shrewd move made several years back by the franchise. The big Giants have two main goals: 1) make a move to San Jose, if possible, as expensive as possible; and 2) squeeze the Athletics fan base down as much as possible. Both goals make sense and both erode the Athletics ability to be relevant.

By ensuring, through investment, that the little Giants are in San Jose, the big Giants add an obstacle for the Athletics to overcome. There is a great documentary on Netflix called The Battered Bastards of Baseball about the Portland Mavericks, the last unaffiliated minor league team. The film concludes by covering litigation between the Mavericks and the Pacific Coast League who displaced the team in 1978 with a AAA franchise and were forced to pay more than $200,000 as compensation when the Mavericks owner took the matter to arbitration. San Jose is a rich city and the big Giants know this fact. They are poised for a mega-payout if the Athletics sought to displace the little Giants. By owning the team, they have also ensured that its affiliation won't flip -- like the River Cats recently did.

It's About Class

The other defensive move the big Giants have done is ensuring that only low-level baseball is played in San Jose, meaning that a AAA club could not swoop in and set up shop -- potentially draining fans away from AT&T. Class A is OK baseball, but the skill level -- while far above the average fan -- pales in comparison to AA or AAA and is lightyears from the majors. The level of baseball in San Jose on par with that being played in Rancho Cucamonga; Jupiter, Fla. and Salem, Mass.

The top 10 largest cities in the U.S., by population combined have 11 MLB teams, one AA team (San Antonio) and one Class A franchise -- San Jose.

The top 20 largest cities in the U.S., again by population, have a combined:

  • 13 MLB Teams
  • 6 AAA Teams
  • 2 AA Teams
  • 1 A Team -- San Jose.

Building a Castle and a Moat

Building a minor league ballpark in San Jose is a masterstroke for the big Giants. It's one thing to have a class A team vacate an older municipal facility. It's quite another to be able to specify real monetary damages should the Athletics or MLB force the minor league club to leave.

The little Giants new home will also ensure that San Jose, should the Athletics be allowed to move, won't be able to simply not renew the team's lease -- forcing a move and saving the Athletics a relocation fee.

In addition, the new stadium serves two PR purposes: 1) it shows the franchise and the Giants in general are committed to San Jose; and 2) it is a fork in the eye of the Athletics, showing that ballparks can be built.

The Giants are in a unique position, with arguably the strongest brand in the Bay Area. Three championships in five years is impressive, no matter how ardent an Athletics fan you might be. On the other hand, three straight first round exits is depressing, no matter how much of an Athletics homer you are.

It's this popularity that led the River Cats to seek a change in affiliation to the Giants, taking the great Johnny Doskow away from Athletics fans.

The Giants have literally sandwiched the Athletics in all directions, if you want to count the Giants Dugout store in Pleasanton. (Admittedly a stretch.)

Running Out of Time and Space

The Athletics are in a more precarious position that most realize or want to admit.

A simple if/then matrix:

IF Oakland agrees to allow the Raiders to serve as principal developer of the current Coliseum Complex.


(1) The Athletics are squeezed out of building ancillary revenue streams (ballpark village -- mixed use development) and are left with almost zero options in Oakland, assuming environmental liabilities and overall feasibility of Howard Terminal continue to render that site unusable.

(2) The Athletics are blocked from San Jose by: a) baseball's ironclad antitrust agreement and overall intractability of the commissioner's office; b) the prohibitively costly nature of such a move (payment for territorial rights, compensation for little G's and little G's stadium); and c) conflict on the timetable between a move to San Jose (including passing a city-required ballot referendum) and construction of a football stadium in Oakland (which, the Raiders have noted, likely necessitates the demolition of the Coliseum sooner rather than later).

(3) The Athletics could -- theoretically -- move to Sacramento. But, now with the club affiliated (although not owned/controlled by the Giants) they would need to "draft" the territory and pay compensation. However, the team would have to buy and develop land from scratch. Raley Field is arguably the best location, but the team would likely need to use it as a "temporary" home -- leaving it with less-than-desirable tracts like the spectral 1/8-built stadium next to the old ARCO arena.

(4) The Athletics could leave town for a period of years while a stadium is built, not exactly a great way to maintain and build a fanbase.

(5) The Athletics could pay the Giants to play at AT&T. This would only happen at the commissioner's behest.

(5) Some weird temporary stadium in Concord or floating at sea could house the team.

IF Oakland has the Athletics serve as principal developer of the Current Coliseum Complex.


(1) The Raiders move to LA, Concord or into Levi's Stadium.


And here is an updated list of things that won't be happening:

(1) Sudden renewed interest by Athletics ownership in Howard Terminal, especially with Signature Development Group poised to gain all ancillary benefits of the team's move.

(2) San Jose's antitrust lawsuit being granted certiorari by the U.S. Supreme Court.

(3) The Athletics and Raiders joining together to build "Coliseum City." Logistical hurdles (again stadium demo) combined with limited land to divvy up (thank Alameda County for exacerbating the problem with its recent purchases) mean that both teams, with historically inconsistent attendance, would be shackled to only marginally improved revenue streams.

(4) Magical money men coming in from abroad or otherwise to build two stadiums. A) The money is probably not there. B) Both Wolff/Fisher and Davis want the money from running a stadium, not to be tenants.

The Giants are Killing the Athletics

If Oakland chooses silver-and-black over green-and-gold, don't blame the Raiders. Blame the Giants. If, for those so feverishly (and admirably) pro-Oakland, you can view the situation objectively, the Athletics greatest chance of moving into a new ballpark and stopping this endless loop of stadium dialogue was a move to San Jose. Emotionally, it might be tough, but consider that this is a team whose last new stadium was Shibe Park on Philadelphia.

The Giants have done a masterful job of ensuring the Athletics moving truck has nowhere to go -- north or south. They have helped set up this "High Noon" dynamic with Athletics fans and Raiders fans -- those who think this through, anyway -- drawn into a deadly duel. The likelihood of the City of Oakland retaining two professional teams with new stadiums is slim. The owners don't want to work together and the city and county are tapped out and still paying off the "renovation" of the current Coliseum.

While the media market and population all indicate the Bay Area can support two MLB teams, the reality is that they both need to have places to play.

Zero hour is here and with San Jose barricaded off, it's Coliseum or bust.

And, bust may very well be relocation.