Tuesday, August 28, 2012

Money Comes In. Excuses Go Out.


I wish I had a great story for why I haven’t written in over two weeks, and I could make one up, but that would take some time and I’ve been gone for too long already. I was going to try to catch up with a bit of everything, but I sort of got going on topic #1, and figured I’d let this stand on its own.

Earlier today, it was announced that ESPN had signed a new eight-year rights contract with Major League Baseball. The contract gives ESPN the same things they already had – the rights to broadcast Sunday Night Baseball, games on Mondays and Wednesdays and occasional special days – but it gives MLB a lot more of what they were already getting. ESPN will be paying MLB $700 million a year, twice what they paid ($350 million a year) in the current contract, which expires at the end of next season. Do the math, and that’s nearly $12 million per team in extra cash per year.

And that’s just for ESPN’s current contract, which doesn’t even include any playoff games (though I believe the new contract includes one of the Coin Flip Games between the two wild-card teams). The contracts for Fox and TBS are also up for negotiation, and NBC Sports is desperate to make a splash to add some actual game content to the fledgling network. Add it up, and there’s good reason to think that in 2014, every team in baseball will be earning $30 million a year above and beyond what they’re already making – just from their national TV contract. This is margin-free cash – same product, same expenses, vastly increased revenue.

Which is to say, if anyone claims that the Royals can’t afford a payroll of at least $80 million going forward, you have my permission to clock them in the nose. Sports revenue is rocketing upwards as advertisers realize how precious DVR-proof programming is, and even though the Royals are locked into their local TV contract for years to come (great planning, guys!), they’re going to be raking in the cash in the next 18 months.

I have largely stayed on the sidelines in the whole Is-David-Glass-The-Antichrist? debate that has festered over the last few years, and has metastasized to the point where a grassroots organization of fans spent thousands of dollars on an ad in the Kansas City Star asking Glass to sell the team (and are now raising money to run a banner ad over Arrowhead Stadium at the Chiefs’ home opener). I’ve stayed out of this debate because, whatever sins the Glass family committed early in their tenure, they found religion when Dayton Moore was hired.

If they’ve limited Moore’s ability to spend money on amateur talent, I don’t know about it. If they’ve meddled significantly in baseball decision-making, I’m not aware of it. They haven’t gone all Mike Illitch in free agency, but they authorized big contracts to Jose Guillen and Gil Meche, and it’s not their fault that Moore elected to use their money on Jose Guillen and Gil Meche. (More precisely, it’s not their fault that Moore presided over the decision to throw Meche’s arm to the wolves.)

But over the past year, I’ve grown increasingly uneasy over where the Royals’ payroll is going (or not going). I don’t blame the Glasses for cutting the payroll to around $36 million last year; for one thing, it was only that low because Meche decided to walk away from around $12 million. Last season was the beginning of a flowering youth movement, and when half the guys on the active roster are making minimum wage, it’s understandable that you might have a payroll that’s one-fifth that of the New York Yankees. But ever since Moore made comments last summer hinting that the Royals might be limited to a payroll no higher than $65 million – less than what they paid to a team going nowhere in 2009 and 2010 – I’ve waited for evidence that Moore merely misspoke, and that the payroll will be allowed to grow to accommodate the needs of a developing contender.

Frankly, I’m being charitable by saying the Royals can afford an $80 million payroll. If they could afford a payroll between $70 and $75 million in 2009 and 2010 without losing money – and if they had lost money, trust me, we’d have heard about it – their breakeven number by 2014 has to be at least $90 million, and probably around $100 million. Remember, not only are the Royals’ share of national revenues going up by somewhere around $30 million, but their player development costs have dropped by almost $10 million. That’s not their fault – that’s a provision of the new CBA, which limited the Royals to around $9 million in amateur spending this year ($6.1 million in the draft, $2.9 million in international signings). Last year, the Royals spent close to $19 million - $14 million on four players alone (Bubba Starling, Bryan Brickhouse, Elier Hernandez, and Adalberto Mondesi).

So let’s see – revenues are going up by $30 million, and amateur player acquisition costs have dropped by almost $10 million. That’s $40 million in additional money to spend on free agents even if the Royals don’t sell one extra ticket. If the Royals start winning, attendance is sure to pick up. The Royals drew 2.48 million fans in 1989 – they drew 1.72 million fans last year. The Royals might be the only team in baseball that hasn’t set an attendance record in the last two decades – Americans generally have more disposable income and spare time today than they did 20 years ago, so if the Royals could average 30,000 fans a game in 1989 (for a team that won 92 games but was only on the fringes of the pennant race) they should draw at least that many fans if they put together a consistent winner in the next few years.

So $80 million, $90 million, even $100 million – these are CONSERVATIVE estimates of what the Glass family can afford to spend on the Royals’ payroll. That is, of course, assuming that the Glass family is willing to make winning a higher priority than profit-taking. No one’s asking them to lose money on the Royals. No one’s begrudging them the $30 million-plus they made on the Royals with a bottom-of-the-barrel payroll last season. But I don’t think it’s unreasonable to ask that, just this once, they satisfy themselves with a hugely profitable year, as opposed to an obscenely profitable year, and spend most (not even all!) of their new-found windfall on the team’s roster.

Keep in mind, salaries around the game are escalating along with revenues. It’s not a coincidence that the Dodgers were willing to take on a pair of bad contracts in Carl Crawford and Josh Beckett just for the privilege of also paying over $20 million a year to Adrian Gonzalez. (The Dodgers have a $181 million payroll – FOR NEXT SEASON. And that’s for only 17 players, several of whom won’t be on the roster. They’re almost certain to get to $200 million.) As my colleague Jonah Keri wrote, the Gonzalez trade is a terrible one from the Dodgers’ perspective – UNLESS they’ve already decided that payroll doesn’t matter. Major League Baseball is swimming in cash, and every team – I mean EVERY SINGLE TEAM – is in the black. EVERY SINGLE TEAM can afford to spend more money on player salaries, and they’re going to prove it over the next several off-seasons.

But if salaries just keep pace with revenues, at least in the short term, the Royals should fare well. That’s because most of their roster is cost-controlled for the next few years, either because they’re already under contract or because they’re not arbitration-eligible. Look at the lineup: Salvador Perez, Alcides Escobar, Billy Butler, and Alex Gordon all have their salaries determined through at least 2015. Johnny Giavotella and Wil Myers won’t be arbitration eligible until 2016. That leaves Lorenzo Cain, Eric Hosmer, and Mike Moustakas, all of whom will be first-time arbitration eligible in either 2014 or 2015. They’ll get raises, but none of them are seeing more than $5 million a year any time soon.

So yes, the Royals’ current payroll obligations will slowly rise – but not at nearly the rate that their revenues will. Other teams that are less flush with young talent and more beholden to the free agent market may be forced to raise their payrolls dramatically to keep pace. But the Royals, with so much of their roster cost-controlled, can use the money saved there to bid aggressively on a few key pieces to the puzzle.

I’ve avoided criticism of the Glass family since I started this website, because I have never felt it was deserved. But if they don’t spend money – significant money – this off-season, the gloves come off. They don’t have to jump the payroll into the nine-figure range in one off-season; there are only so many free agents worth spending money on in the first place. But the argument that the Royals can’t afford to sign quality starting pitchers on the open market has officially expired. If the Glass family continues to use the old arguments, my support for them in the owner’s box will expire as well.

22 comments:

chrisc said...

Rany,
If every team is getting a bump, then its not really a benefit to the Royals that makes them more competitive in the free agent market for premium positions like SP. I suppose you may be arguing that the incremental $'s help justify more activity. However, I worry the market prices just increase and the Royals are not any more competitive in free agency.

BobDD said...

Well if that is to be so chrisc, then it just accentuates the results of the chosen strategy - the mix of signings, draftees, free agents and roster construction. So far GMDM's strategy results appear to be quite mixed. I see this as a GMDM issure more than Glass.

prophet said...

Even leaving aside the issue of whether the rising tide will lift all boats or sink some, the main issue is at whom the Royals will choose to throw money.

If they pay Jose Guillen II $60 million, that's worse than leaving the money in their pocket; they can then point to the increased payroll and justify no further action. If, on the other hand, they take on Beckett's contract in exchange for Ethier or something, that's a horse of distinctly different color.

DM's track record here is poor.

GeorgeM said...

As I understand it, a good thing about the ESPN deal is that it lifts the local blackouts for ESPN broadcasts, which slightly devalues the local television deals of all the teams. So, even though all teams get an equal share of the national TV pie, this deal does move everyone a little closer to income parity, because the teams with the biggest local TV deals may not be able to command as much money without the blackout restrictions.

Of course, if they would lift the blackout restrictions for mlb.tv, that would make a much bigger difference and reduce even more of the income disparity.

Rany said...

That's a good point, GeorgeM. I doubt that it will have THAT much effect on local TV deals, but to the extent that it does, it will hurt the other 29 teams much more than the Royals.

kcghost said...

I don't begrudge any owner from making a profit on his business. Sports is an odd deal in that you have two goals: make money and win. And while all teams can make money not all teams can win.

You would like to see the Royals use their surplus income to bring in some genuine talent, particularly pitching. You would like them to recognize that if we can make money at a certain level of spending and there comes a year when we don't need to spend that much (like last year) that they would roll that difference over to a year when spending it makes good sense.

The Professor said...

It's all a question of who adapts first. In the context of everyone getting a bump in revenue, all players salaries should rise. Signing your good young players to long term contracts before salaries start to jump is a necessity now, and the Royals are actually ahead of the game in this regard. Whether that's design or happy accident, who cares?

Exodor said...

I understand that the top-line free agents have little interest in playing on a losing team that's not on a coast - but it would be nice if the Royals at least made an offer.

If Greinke rejects the Royals offer this offseason then fine - but TRY to sign a player of his caliber.

ChaimMKeller said...

Let's also not forget that the Royals probably got some extra cash due to the All-Star Game this year. The Royals coffers should be pretty well overflowing.

Struggling to Cope said...

Rany,

You continue to provide the best Royals analysis on the web (and otherwise) and it isn't close.

I think a column that needs to be written is the Royals plan for this offseason as well as a prospectus for the next 5 years that projects current player development as well as prospect development. Obviously there would need to be a huge number of assumptions, but what does Eric Hosmer project to be WAR-wise in 2015? How about Bubba Starling? What pieces do the Royals need to add to become a 40-WAR team in 2014?

On second thought, maybe I just need to write it.

Chris said...

Rany, in regards to the Royals tv contract the scraps they receive compared to other teams really hurts them. Getting $20 million a year for 12 years right now is horrible. And that brings up a bigger question, why do teams, or conferences for that matter, agree to these long tv contracts? About halfway into these contracts they become albatrosses for the sports organizations involved. It's great for the tv networks. If the Royals had a shorter contract then they could be increasing the money coming in to then, hopefully, spend it on payroll.

One thing I'll have to disagree with you on though. The Royals ARE partially to blame for their payroll development costs going down. From what I heard, the Royals were one of the teams fighting for the cap to be included into the new CBA.

Great work as always!

Eric Reuter said...
This comment has been removed by the author.
anonymous said...

Does signing greinke "fix" the starting rotation immediately?

Home Run Tony Cogan said...

Rany, you hit the nail on the head...based on what they have done in the recent past, I am cautiously optimistic that they will spend some significant dollars and/or prospects to improve the starting rotation. As you pointed out, the team had a payroll north of $70 million for bad teams and they did go out and sign some big free-agents (just the wrong ones, at least in Guillen's case)...They have also been among the biggest spenders in the draft and Latin America during Moore's tenure.

Despite the fact that the team has been a loser for so long (and cheap for many of those years), the team has not been in this position for a long time - a relatively low payroll coupled with a real core of young stars. Up to this point, the team has never truly been in a position to "go for it", but now I think that everyone (including ownership and the front office) can see that it is time to do so...I am going to give them the benefit of the doubt and predict that, at a minimum, they make one truly significant move this offseason (and maybe two)...if they don't, then I think we can say beyond a shadow of a doubt that the team is more interested in profits than winning, and they would deserve all of the vitriol and enmity that will be directed towards them.

PS, don't wait so long to post, you're the best!

Home Run Tony Cogan said...

Rany, you hit the nail on the head...based on what they have done in the recent past, I am cautiously optimistic that they will spend some significant dollars and/or prospects to improve the starting rotation. As you pointed out, the team had a payroll north of $70 million for bad teams and they did go out and sign some big free-agents (just the wrong ones, at least in Guillen's case)...They have also been among the biggest spenders in the draft and Latin America during Moore's tenure.

Despite the fact that the team has been a loser for so long (and cheap for many of those years), the team has not been in this position for a long time - a relatively low payroll coupled with a real core of young stars. Up to this point, the team has never truly been in a position to "go for it", but now I think that everyone (including ownership and the front office) can see that it is time to do so...I am going to give them the benefit of the doubt and predict that, at a minimum, they make one truly significant move this offseason (and maybe two)...if they don't, then I think we can say beyond a shadow of a doubt that the team is more interested in profits than winning, and they would deserve all of the vitriol and enmity that will be directed towards them.

PS, don't wait so long to post, you're the best!

Bart said...

Basically, we're talking about throwing BIG money at Zack, Kyle Lohse, Edwin Jackson, Brandon McCarthy, Jake Peavy, Anibal Sanchez or James Shields. If we sign at least two of those guys, we're a playoff contender.

Mark said...

We've already wasted more than a month of what should have been Wil Myers' development at the big league level, and now it seems he's to stay in Omaha in order to hold a roster spot for someone else who needs to be protected. Francouer is toast (yeah, it rhymes with Yost) and the unwillingness to eat some salary to move him makes me less optimistic that we can win a bidding war for Sanchez or Greinke.

Prediction: we trade for Mike Minor and overpay.

clashfan said...

The Royals don't even have to sign a *huge* name, but making a run at two or three of the second-tier group (roughly described by Bart above) would go a long ways toward establishing credibility. If they land a couple--or even one--of those guys, it helps the rotation immediately.

Getting a new manager might be in order as well, but that's a story for another day.

Mark said...

MLBTR cites a NY Post writer who suggests the Mets should reload their system with prospects by trading three players, including Jonathon Niese. He's under team control for six more years and is only 25. He'd be an improvement, and probably could be had for two B's and a C.

Jayboid said...

In 2012 the vast majority of owners in our main sports don't own to make money.

This is my problem with the Glass family. Big problem, the perception I take is an old man playing in a pile of ill gotten money. 20-30 million per year is chickenfeed, the real money was the slick purchase of the team. Some say he netted 200 million plus.


They claim to be sportsman, but, they look like ducks, walk like money loving ducks, while doing some serious quaking too.

The actions are of a family whom would claim left behind coins under the seats at the K.

Dan: "Hey Dad, got the Sat. games lost change count you asked for, 128.27."

David: "Good son, now take it to Dillons and cash out send me the money order"

Raiding the tax payers of Jackson County in slick schemes for a million here and a hundred thousand there even more so shows this family as interested in one thing.

Rany you hit on the profits to be made if the team goes into a sept. with a chance for the playoffs. No doubt sellouts in Aug. and Sept. Let alone the windfall of the playoffs.

I feel everyone underestimates the profits to be made in KC fielding a playoff team. Love or hate the Yanks, but a perfect example of looking at the big picture. The Yanks would be just another team if they had fielded the Baltimore team over the past 10 years. No half billion buck YES Network, no 300 buck tickets.

Glass family sportsman? A gamble, a sporting gamble on making this good team a playoff contender the essential key in even larger payoffs. A playoff team no doubt adding to the price of the team if he ever does sell. A good team now will still allow for the reaping of large profits.

Steve N said...

When I see "Comment deleted
This comment has been removed by the author." Does that mean Rany or the poster?

Tampa Mike said...

The Royals have to spend some money and get some pitchers this off season. I think that was a huge miss for this year and they were counting on too many minor leaguers making the transition to the majors. The base of young talent has been established and they have to support that now to make a winner.

What I don't want is them spending money for the sake of spending money to appease the fans i.e. Jose Guillen.