05 January 2007

Take the money and run

Have you noticed how most of the free agent contracts inked this offseason have been five years or less? Player age is certainly a factor, but equally important is the fact that the new CBA runs five years, through the end of the 2011 season. Although it's unlikely that the MLB's current business model will collapse, there's no telling if certain issues such as a salary cap could rear their head. No owner wants bad contracts grandfathered into the next CBA, so the Soriano and Zito signings are the exception.

As far as that business model goes, let's just say that no one's complaining. Take a look at the table below, which shows various types broadcast and internet revenue.

Every team can count on $30+ million every season without selling a single ticket or TV ad. That's good money. This doesn't even include revenue derived from Latin American TV contracts or other internet feedsharing agreements. The Extra Innings satellite/cable package pays out
$2 million per year to each team as well.

So if you're the Giants, and you rake in upwards of $100 million in gate and concessions revenue, putting together a $95-100 million payroll doesn't sound all that bad even with the mortgage on the ballpark. According to Forbes, the Giants' 2005 revenues were $171 million. We don't have their books in front of us, but by using all of these bits of information and putting them together, we can come to one simple conclusion: The Giants can't cry poor because of the cost of the ballpark. They proved their financial health by heavily outbidding the Mets and Rangers for Barry Zito, and by showing their willingness to outbid the Astros for Carlos Lee.

Signing Zito is also a significant not-so-stealthy PR move. Zito was already a darling among local media, and the 7 or 8-year deal means that as long as he isn't traded (he has a no-trade clause), he'll still be there when the A's new ballpark opens. In the meantime, many A's fans will have watched Zito continue to pitch on the other side of the bay - either in person or on KTVU/FSNBA - which means more revenue for los Gigantes. If you're the A's, all you can do is hope the development process speeds up, because when Cisco Field opens up, the playing field in the Bay Area will be pretty close to even.


Transic said...

I still say the Giants grossly overpaid for Zito, just as the Rangers grossly overpaid for A-Rod and then had to ship him to the Yankees years later.

Starting pitching these days don't last more than six innings. One could say that more money is chasing worse talent but that's anecdotal evidence.

Tony said...

Here's a thought: If the A's hadn't announced a Fremont move, maybe the Giants wouldn't have signed Zito.

We can debate how big or small it will be, but we can all agree that the A's being in Silicon Valley WILL have an effect on the Giants revenues from South Bay fans and businesses.

Add to that the small but vocal group of "Oakland Only" fans that might very well have switched to the Giants eventually and you have a very real opportunity to start "snatching away" A's fans well in advance of a Fremont move.

We'll never know what would have happened had the Giants signed Giambi or Tejada, but we're going to find out with Zito. And with his popularity, a lot of fair-weather A's fans may well be at ATT Park this season along with the OAFC crowd.

Not a bad first pre-emptive strike against Cisco Field if you ask me. Well worth the extra contract year that other clubs were unwilling to give Zito.

Anonymous said...

I agree with Tony 7:51 that the G-Men signing Zito may snatch away some A's fans to AT&T. At Zito's press conference on Wednesday he was even encouraging the idea, "come on over when the A's are out of town" crap. So let's see...the Giants aren't as poor as we've been led to believe, Zito fills seats, snatches even more A's fans, and helps in getting the 6,800 club seats sold. The question becomes...will an A's move to Fremont REALLY have an affect on the Giants revenues? Doesn't appear so! Why even have territorial rights to San Jose? Relocating the A's to downtown San Jose could have brought even MORE East Bay A's fans into the Giants fold. Maybe the rights were really intended to get the A's out of the Bay Area.

Kevin said...

I think we are all giving Zito a little too much credit. I'll admit, I am/was a Zito fan. But to follow him over the bridge to SF is a bit much. If he in fact did have such a loyal following in the East Bay, why didn't the A's draw 30-35K everytime he pitched at home?

I don't think the casual A's fan will pay upwards of $75.00 just to see Zito pitch much less dropping a few thousand to purchase upper reserve season tickets.

Zito is a good pitcher. His signing grabbed a lot of the local media attention because of the size of the contract along with the fact that the Giants and their fans were desperate to sign one of this years top FAs.

Five years is a long time. In the end I don't think the Zito signing will have much of an effect on things.

As an aside, funny how Zito's FA signing is being looked upon in a much more favorable light than Giambi's.

Anonymous said...

How does the Giants increased payroll affect their payments to MLB via the luxury tax/revenue sharing? I imagine they would now contribute more cash to the pot.

The Cactus Leaguer said...

Speaking of grossly overpaid, I am absolutely stunned by those MLBAM numbers. Almost $100m/year between ESPN and MLB.TV/radio. Does anyone know how much of that represents subscription revenue versus advertising revenue? What were those revenues like five years ago? (I assume close to zero)

Marine Layer said...

I don't expect a large number of A's fans to become Giants fans because Zito signed with the Giants. But if the Giants get a thousand more households watching televised games in which Zito pitches, or a few hundred more people showing up in China Basin, it's a win for them.

As far as the Giants payroll, they're not going to be anywhere near the luxury tax trigger, which will be $148 million next season. Revenue sharing is a function of revenue and not payroll, so that won't be directly affected.

MLB started up in 2000 and had a small profit by its second year, but those content-sharing deals didn't happen until a little further down the road.

Anonymous said...

I've heard the Giants get a break in their contributions to the revenue sharing pool because they privately financed the SF ballpark, and that this break ends in this true? And I imagine Lew Wolff will get the same break for a privately financed Fremont ballpark.

Marine Layer said...

I doubt they get such a break. That would run counter to the usual way that the pro sports leagues discourage private financing. Private financing carries more inherent risk to the team and higher interest. If it were encouraged, you'd see more instances of it. As of now, no current ballpark project other than Cisco Field is being done with significant private financing. The Giants are getting the "stadium operating expenses" deduction all teams get, but it's hard to say how much that really is.