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.