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Written by Pete Toms   
Monday, 21 December 2009 11:53

Last Week in Baseball by Pete Toms

The overwhelmingly important question for MLB entering 2009 was how deeply they would be impacted by the recession. One year later and everybody associated with MLB must be content with the results. League wide attendance declined approximately 6.5%, in line with Commissioner Selig’s pre season forecast. Both the Yankees and Mets opened new parks with significantly reduced capacities, contributing to the decline. More notable might be that 22 of 30 franchises reported diminished attendance over 2008. Late in the calendar year there were indications that the overall health of the industry is strong. MLB President & COO Bob DuPuy and Commissioner Selig publicly stated that league wide revenues were virtually unchanged from 2008 (approx $6.5 billion) Fitch Ratings issued a very positive report on the state of MLB and soon thereafter it was reported that the league was close to successfully negotiating a new “credit facility” (aka loan pool) after failing to do so at the same point in the 2008 calendar. (That may say more about the credit markets than MLB but nonetheless the lenders see the industry as stable) TV ratings in 2009 were a mixed bag. Fox and ESPN drew smaller regular season audiences while TBS’s ratings were stable. A lacklustre (absence of playoff races) regular season contributed to the decline in national ratings. RSN ratings for MLB were interpreted as solid, although being tied directly to team performance, they are more difficult to assess on a league wide basis. While it is true that TV audiences for all sports are up drastically, in large part due to the recession, the 2009 MLB postseason still has to judged a huge hit. Audience numbers were driven by many thrilling games played by franchises located in large media markets. The postseason reasserted that the New York Yankees are one of the country’s most powerful brands and that NYC is the baseball capital of the world. MLB Network launched January 1 in a record 50 million households and received widespread praise for their programming. MLB.com continued to be the gold standard for league websites. Their “out of market” MLB.TV package remains enormously successful and they added a very popular iPhone app, “At Bat”, to their offerings this year.

For a more detailed analysis of seven issues during 2009 on the business side of MLB, such as player compensation, competitive imbalance, MLB Network, and more, select Read More

1. PLAYER COMPENSATION

2009 saw a lot of grumbling around this subject. MLB players are earning a lower percentage of league revenues than earlier this decade. As recently as 2003 the percentage of industry revenues being paid to players was in the low 60’s range, while in recent years that figure has dropped to the low 50’s range. These estimates are the subject of much debate and interpretation. MLB argues that when player development costs are included, the figure rises to the high 50’s. At the same time, veteran players are meeting diminished demand for their services in the free agent market (shorter contracts, less money and more minor league deals).  Some high profile veterans openly complained this year about the escalating signing bonuses being awarded “unproven” rookies, arguing that less money for draftees would equate to more dollars for veterans. (Again, there is much debate around that notion). Many believe that veteran players will never again be valued as highly as they were. Those same people argue that the use of “objective analysis” in evaluating talent in MLB has led to a permanent devaluation of veteran players. Some also believe that the ability of veteran players to maintain their level of performance during the latter stages of their careers is diminished in the “post steroid” era. There is speculation that veteran unrest over declining compensation could even lead to the MLBPA abandoning their steadfast philosophical opposition to a “salary cap”.

2. COMPETITIVE IMBALANCE

Again, much grumbling around this subject in 2009. Many fans believe (rightly or wrongly) that the Yankees bought the 2009 World Series championship (the Yankees 09 payroll was less than their 08 payroll). The teams that did qualify for the 2009 post season were, for the most part, “large revenue” franchises. Only a year earlier, the participation of the Tampa Bay Rays in the World Series combined with the participation of the Milwaukee Brewers in the playoffs, had MLB trumpeting their league’s unrivalled “competitive balance”. A Seton Hall Sports Poll conducted during the World Series concluded that there is a widespread perception amongst fans that “large market” franchises have a competitive advantage over “small market” franchises. Pirates President Frank Coonelly, Brewers owner Mark Attanasio and Astros owner Drayton McLane all publicly expressed support this year for increased revenue sharing. MLB no longer releases the team by team breakdown of revenue sharing payments but Bud Selig told Bob Costas that $440 - $450 million will be redistributed this year. In a seemingly odd pairing of allies, Red Sox owner John Henry and player agent Scott Boras both (at separate times) expressed dissatisfaction with how revenue sharing “payees” were investing (or not) their receipts. Newly appointed MLBPA Executive Director Michael Weiner also made public comments surrounding the misuse of revenue sharing receipts. This issue is certainly not new to MLB but it is consistently one of the most debated and contentious.

3. MLB NETWORK

MLB was the last of the “big 4” to launch their own cable channel. January 1, 2009 saw MLB Network (MLBN) debut in 50 million homes. (A record number for a new channel) Tim Brosnan, MLB Executive VP, Business, was much lauded for his strategy of offering equity in the channel to cable and sat providers. MLB also offered their MLBN partners the out of market “Extra Innings” package. The combination of equity and EI allowed MLBN to not only launch in a record number of homes but also on the cable operators more deeply penetrated “basic tiers”. By comparison, the six year old NFL Network has fought with big cable since their channel launched over carriage on “sports tiers” and only this year reached the same level of distribution that MLBN did in year one. MLBN could be in an additional 15 million homes next year if they are successful in striking deals with AT&T and Dish Network. The programming on MLBN was a critical success. The addition of Bob Costas lent the channel much journalistic credibility which was further bolstered by the recent addition of Peter Gammons. MLBN has plans to increase the number of live games broadcast in 2010. Longer term, the role of MLBN and all the league owned channels remains to be seen. Some question if league owned channels (particularly in broadcasting live games) are cannibalizing existing national TV and RSN revenues. Some also point out that these channels are still relatively minor players in comparison to ESPN (in 99 million homes) and the “over the air” networks (available in all 116 million homes). Others argue that league owned channels are a necessary hedge in this era of uncertainty over the future of TV. Broadcast networks are floundering (plummeting ad revenues and audiences), hopeful that charging cable operators for “retransmission fees” for local signals will allow them to compete with the “dual revenue” (sub fees and ads) model of cable channels. These same people believe that if “over the air” is unable to compete with ESPN for sports programming, the league owned channels are necessary to prevent a de facto WWL monopoly of televised sports. All of professional sports is hopeful that NBCU and Comcast will endeavour to make sports channel VERSUS a legitimate rival to ESPN.

4. MICHAEL WEINER REPLACES DONALD FEHR

The expiration of the current MLB CBA in December 2011 will mark 16 consecutive years of labour peace in the industry. The next CBA will be negotiated with a new Executive Director of the MLBPA, Michael Weiner. In the latter part of 2009 Mr. Weiner succeeded Donald Fehr, who had led the PA since 1985. Mr. Weiner’s appointment is likely positive news for all of us hopeful of a continuation of uninterrupted labour peace in MLB. Although Mr. Weiner is the new ED of the PA, he is anything but new to labour relations in MLB. Mr. Weiner went to work for the PA in 1988 and was one of their principal negotiators during the last 2 rounds of collective bargaining. Mr. Weiner has a long and reportedly strong working relationship with Commissioner Selig and Rob Manfred, MLB’s Executive Vice President, Labor Relations & Human Resources. Labour peace is usually maintained more easily when an industry is thriving, which MLB appears to be. In addition, the principals on both sides who negotiated the current CBA (with little rancour and well before the deadline) remain in place (Mr. Fehr will almost certainly still play an important role). However, Mr. Weiner will need to address a constituency of veteran players who believe that escalating “rookie compensation” needs to be addressed in light of the diminished demand for free agents. Mr. Weiner is also faced with a number of player agents pressuring the PA to file a collusion grievance(s) over management’s approach to the free agent market the past two off seasons.

5. POSSIBLE COLLUSION

The subject of collusion in MLB is typically associated with the mid 1980’s, the nadir of labour relations in the industry. The MLPBA filed three grievances over collusion in the free agent market during that era and won each one. The players were awarded hundreds of millions of dollars in damages. But the issue of “collusion” in MLB is not solely a relic of that fractious era. In fact, the issue of “collusion” has been a recurring point of contention between the two sides during this decade. Although arbitration was avoided, the owners agreed to pay the MLBPA $12 million during the last round of CBA negotiations over collusion in the 2002-03 off season free agent market. There remain unresolved allegations by the PA of collusion in the free agent market of the past two off seasons. The absence of offers to free agent Barry Bonds during the 07-08 off season resulted in a preliminary finding of collusion by the PA. The two sides have attempted to negotiate a settlement and thus far have only agreed to extend the deadline for filing a grievance until after the completion of Bonds criminal trial. The two sides reached a “standstill” agreement over allegations of collusion in the 08-09 off season free agent market. Again, the deadline for filing a grievance was extended, in this case to the end of this off season. The contracts awarded free agents this off-season will certainly be much scrutinized by player agents and the PA. While owners concerns about the recession during last off season could plausibly explain the depressed free agent market, the players side knows this off season that league wide revenues were stable in 2009. And if a collusion grievance(s) is filed, can an arbitrator be persuaded by the management side that the diminished demand for veterans is due to the use of “objective analysis”? Both sides deserve great credit for achieving the labour peace of the past fourteen years. However, history informs us that if there is one issue that can destroy labour relations in MLB, it is “collusion”.

6. FIXING THE DRAFT

Commissioner Selig’s attempts to control the escalating dollars being spent by clubs in the amateur draft via “recommended slots” have been largely ineffective. In 2009, Commissioner Selig made no secret of MLB’s plans to negotiate “mandatory slotting” in the next CBA. MLB would also like to expand the boundaries of the draft, with a particular eye toward the Dominican Republic. Just as the money being spent in the amateur draft has been escalating, so to has the money being awarded to international free agents (again, primarily in the DR). Cynics point out that while MLB campaigns for the expansion of the draft to the DR as a remedy to the corrupt “buscone” player development system (rampant steroid use, signing bonus kickbacks, misrepresentation of player identities and ages), they have condoned this system for years and have only denounced it since signing bonuses escalated. In fairness to MLB, reforming the draft is probably about more than the money being awarded the most coveted amateur players. Some have pointed out that the amount of money clubs spend in the draft and on international free agents is a relatively insignificant percentage of their overall spending. There is a consensus amongst management, media and fans that the draft does not often enough serve its intended purpose of distributing the best amateurs to the worst teams. In other words, it is time to remove the “signability” factor from the draft via “mandatory slotting”. There is also a growing consensus that allowing the trading of draft picks will better clubs ability to maximize the value of their pick. Many “small revenue” franchises see reforming the draft as key to improving their capability to compete with “large revenue” franchises. While the philosophical debate over reforming the draft appears to be concluded, the particulars of implementing the changes are far from decided. MLBPA Executive Director Michael Weiner has expressed his opposition to “mandatory slotting”. Can the DR be persuaded to allow MLB to implement the draft in their country? If yes, will MLB also dictate that Dominican players be 18 years of age before they are eligible for the draft? (Currently they can be, and are, signed as free agents at 16 years of age) Should MLB be wary that expanding the draft to the DR will eventually reduce the number of players produced there? Many argue that the introduction of the draft to Puerto Rico directly resulted in that country producing a diminished number of players.  Will the number of rounds in the draft be decreased? Will “mandatory slots” result in fewer high school players being drafted, making college baseball more competitive? Will MLB regret debilitating the “buscone system”? Many argue that the “buscone system“ is a highly efficient player development model.

7. DIGITAL RIGHTS

Who should control the rights to streaming in-market games has been a hotly debated issue within MLB for the past handful of seasons. MLB awarded the digital rights to live games to MLBAM at the beginning of the decade in an effort to “centralize/share” more industry revenue. The BAM out of market MLB.TV offering has been a tremendous success but “in market” games have not been offered over the web to protect the value of local TV rights. During the decade, an increasing number of clubs, particularly those with their own RSN (Yankees - YES / Red Sox - NESN), lobbied for control over their local digital rights. Last year saw a deal fall apart that would have seen Cubs and White Sox games streamed over the CSN Chicago (Comcast) website. 2009 saw MLB bring in-market streaming of games to New York (Yankees only) and San Diego. MLB President & COO Bob DuPuy stated that the foresees that a “majority” of clubs will have similar deals in place during 2010. The model is structured that BAM receives half of the revenue from the in-market game streaming with the other half shared amongst the team, its RSN and the local cable provider. In order to purchase a subscription for in-market streaming, a fan must be a subscriber to the local cable provider that carries the RSN which broadcasts the games. The in-market streaming initiatives were introduced mid-season, making any conclusion about their potential popularity incomplete. The Yankees in-market streaming offering attracted 6,000 subscribers, the Padres less. Some believe that RSNs will be pressuring MLB to remove MLBAM from the in-market streaming equation. In response to the proliferation in 2009 of local ESPN.coms, RSNs owned by Fox and Comcast, plus NESN, are all increasing investments in their web offerings. Live games are the most valued programming and competition for access to that programming will remain fierce in 2010.

Thanks for reading this year, and a safe, healthy and happy 2010.

LWIB will return January 4.


Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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