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18 October 2007

Your Athletics Crystal Ball

We've discussed at great length the where and how of the ballpark project. I've also covered "why" from the perspective of deficiencies at the Coliseum. The main point, which I haven't covered in significant depth, is money. Ownership stands to make a boatloads of cash from this deal while taking on a good deal of risk in the process. The purpose of this post is to provide a basic understanding how much more money they could make over the current situation. Take a look at the tables and when you're ready drop a comment.
Disclaimer: Most of the numbers discussed here are based on various media-reported estimates of revenues and costs. They should not be considered anything resembling a thorough accounting of the A's operations. Estimates take into account rules described in the current CBA.
In an effort to further this discussion, I've taken the time to dissect the revenue sharing model, A's-style. But first some explanations:
  • Concessions numbers don't match ticket sales because concessions sales are based on turnstile count, which runs at about 80% of ticket sales (you can't sell concessions to no-shows).
  • Parking sales numbers are based on 8,000 spaces sold per game over 82 games. This may be generous given actual parking lot usage at the Coliseum.
  • Non-game events include tours and other activities outside of game days.
  • In-stadium advertising, sponsorships, and broadcast revenues are placeholders for the purpose of fleshing out the model. So are the items listed in "Actual Stadium Expenses."
  • It is not assumed that the new stadium will immediately benefit the A's in terms of more lucrative local broadcasting deals.
  • Revenue sharing contribution is defined as 31% of Net Local Revenue. All teams pay in this percentage, plus luxury tax if applicable.
  • "Recovered debt service from dev rights sales" is the "refund" the A's will get from selling development rights to ~310 housing units per year. It's this amount that is intended to finance the ballpark debt. That boils down to a $300 million loan, financed at $31 million per year over 15 years. The final loan structure is likely to vary greatly from this.
  • "Revenue Sharing Receipt" is the share of the revenue sharing pool the A's get.
  • "Central Revenue" is national and international revenue taken in by MLB. This includes national broadcast contracts from FOX, ESPN, and TBS, plus merchandising sources.
And now for the details. Below is the A's current revenue/expense model:

A combination of low operations costs and revenue sharing make the A's a reasonably profitable franchise. That $140 million figure looks tantalizingly large, but don't be mislead. Lew Wolff has held close to a "guideline" that dictates teams should spend no more than 55% of revenue on payroll, as is done throughout pro sports. Using the 55% rule the A's payroll should be around $83 million, which is pretty close to this season's actual payroll. Before we move on, remember the amount of the "Revenue sharing contribution."

(estimates not adjusted for inflation)
In this model, A's revenue has risen $25 million. Yet the "Revenue sharing contribution" is almost the same as in the current model. How can this be? The "Actual Stadium Expenses" table totals a whopping $52 million, thanks to stadium debt service and operating costs, which are all deductible from the amount used to determine the contribution. Consider it similar to your annual 1040 form's "Adjusted Gross Income." The A's would service the stadium debt with sales of housing development rights, not stadium income. That would allow the A's to reclaim all of that debt service and put it towards the team - or ownership partners. Notice that even in this instance the A's would be receiving some form of revenue sharing receipt. This is because the A's new revenue streams from the stadium would still place them slightly below the league-wide revenue average, squarely in mid-market territory. This number is smaller because it's expected that most if not all teams that still are developing ballparks will have theirs open around the same time Cisco Field opens. New stadia for the Yanks, Mets, and ongoing improvements to Dodger Stadium and Fenway Park allow the big market teams to take the same deductions, limiting the amounts they pay into revenue sharing.

Apply the 55% rule to the future revenue model and the payroll grows to $97 million. Is that enough to remain competitive? In spurts. A fantastic diary posted by Taj Adib at Athletics Nation goes in depth on future iterations of the A's. $97 million isn't enough for anyone to turn into Brian Cashman. It is enough to invest in more than one franchise-type player while maintaining a young, cheap core of players. The franchise-player investments have inherently high risk, and if those players come through with career years while your young core stays healthy and produces, you might end up like this year's Rockies or Indians. Gamble and lose, and you get this year's Orioles or Rangers. 6 or 7-year deals are not easy to trade if a player seriously underperforms, so GM's won't have frequent chances to roll the dice. What we could see in the future might be shorter and more frequent rebuilding cycles for the mid-market teams. What we don't want to see is a situation like the NBA, where GM's are forced to trade bad contracts instead of trading players based on exchanges of talent. (It's an ugly system, though for a number-cruncher like me it's strangely fascinating.) Thanks to the number of roster spots per team, MLB's salary/trade model is somewhere between the dog-eat-dog tendencies of the NFL and the egregious excesses of the NBA. And that's a good thing.

25 comments:

anon-a-mouse said...

Intereting analysis, ML. You must be a number cruncher to have the patience and inclination to put this together. I have a question though. You deduct the amount the A's contribute to revenue sharing, then add back in only the difference between that and the amount of revenue sharing they receive (their share less their contribution). Doesn't that mean you are deducting the amount they pay-in twice? You handled it the same way in both calculations so the comparison is still valid, but I was curious if I was reading this correctly. Thanks.

Marine Layer said...

Thanks for catching that. I've adjusted the numbers accordingly.

FC said...

ML,

Thanks for the analysis. Just a few comments/observations:

In your Future Model, you use $27.00 when calculating revenue from ticket sales. I think that figure is rather low. I checked out the current pricing at the Coliseum (http://oakland.athletics.mlb.com/oak/ballpark/seating_chart.jsp). Right now, $27.00 will only get you a Plaza Infield ticket. A better seat will cost anywhere from $28.00-$36.00. I have to believe that between now and 2011 there are going to be annual ticket increases. Also note that these prices are "season ticketholder" prices, not single game prices.

Are your projections for ticket sales and suite sales based on an average over say 10 years? If you take your total attendance figure of 2.35 million, and divide it by 81 you get 29K. That's below the ballpark's seating capacity of 32K. Also, the A's website shows the number of proposed suites at 66 mini and 41 regular.

Also, any thoughts on how much additional revenue is received for playoff appearances?

Marine Layer said...

I used what could be viewed as very conservative estimates with the A's stadium-based revenues. Numbers such as ticket sales come from ERA's report. While there's a good chance the A's will sell out for the first year or two after Cisco Field opens, I wanted to reflect performance sometime down the road. If the team's revenue streams look better, more power to them.

Did the number of mini suites really grow that much? Wow, that must mean they've been more successful at selling those than I thought.

Playoff revenues aren't a constant so I can't factor them in.

FC said...

ML,

I have often wondered just how much of the cost of the ballpark will be covered by proceeds received through the sale of the development rights. Given a price tag of $450m, does this mean the remaining $150m will come straight out of the A's pocket?

Sorry if the answer is obvious, I'm really not a bean counter.

Marine Layer said...

$150 million would come from naming rights, pouring rights, advance sponsorship deals, and other sources including the team itself. Technically the team isn't supposed to hoard revenue sharing receipts for later use in building a venue but I wouldn't be surprised if they established a rainy day fund.

Anonymous said...

a's are net recipients of revenue sharing, not net payers - numbers don't make sense.

Marine Layer said...

Net is the key word. All teams pay 31% of their local revenues (minus deductions) into the revenue sharing pool. That pool is split equally among the 30 teams. If a team's local revenues are lower than average they will end up a net recipient. If a team's local revenues are higher than average they will be a net payer. And if you're the Yanks, you pay luxury tax on top of that.

Anonymous said...

All this effort to do the exact same thing they could do at the Coliseum.

From 12 million in stadium debt to 55 million? Also, you're comparing current attendance numbers at the Coliseum (which have been driven down by Wolff's policies of relocating the team and closing the third deck) to overly optimistic numbers for a ballpark with terrible public access in an area which does not excite the majority of Oakland A's fans. Wolff must be out of his mind to spend so much money for NOTHING.

Marine Layer said...

They won't be $55 million in debt. In fact they won't have any real debt because the housing sales pay for the ballpark. Plus they end up at least $24 million ahead and get the commish and the big market owners off their backs. It definitely is not nothing.

A's fan said...

Baseball Prospectus (cross-posted from AN) seems to suggest we won't be getting much in the short term:

---

What They Should Do: Strong Sell. Sorry, but there’s not enough here to reach the playoffs in a league where it could require 95 wins to do so....

So I blow things completely up, bear the consequences of a 100-loss season, and turn in my Get Out of Jail Free card when Crisco Field opens in 2011, or perhaps the year before.

---

And in the long term, we'll get to listen to the rest of the country referring to the A's stadium/condo/mall thing as "Crisco Field."

Yipee.

Anonymous said...

INTERESTING SPECULATIONS. QUESTIONS THAT MIGHT HELP. ARE THERE ANY BOND ISSUES THAT THE PROJECT REQUIRES? IF NOT, WHAT DIFFERENCE DOES IT MAKE IF THE A'S USE DEVELOPMENT PROFITS TO BUILD THE BALLPARK?

Anonymous said...

Crisco Field ... fat in the can!!!

Jeffrey said...

Anon 3:38

First: The majority of Oakland A's fans aren't excited about the new stadium? Where is the scientific poll that says that?

I am very excited, as are most A's fans I know. I guess if you only talk to that OAFC you would have that perception.

Second: Attendance has actually been stabilized by the closure of the third deck. Despite the dramatic differences in results, the team drew roughly the same amount of fans to the ball yard this season.

The move to Fremont was also announced this offseason, I think a team that went from a division winner to one game form last place but managed to draw only 55 thousand less fans is evidence that both the third deck closure and the announced move did not hurt the A's bottom line.

Marine Layer said...

I'd be lying if I said I hadn't considered "Crisco Field" myself. How I love SportsCenter.

The one item I can point to right away that would require a bond issue is a transit solution. Since we don't yet know what that will be it's difficult to speculate how large the bond issue would be. Fremont has already designated the area as a redevelopment zone with TIF funding sources so there's a clear path to pay for it.

anon-a-mouse said...

Yes, let's not move into a beautiful new state-of-the-art stadium because some nitwit with a juvenile's sense of humor might make a stupid, completely unfunny joke about the park's name. Newsflash: it's only funny when your twist on the name is somehow relevant to something; what the hell does crisco have to do with the A's? I'm sure the Giants rue the day they built their new stadium because some people think it's funny to call it Phone Company Park. That's not really funny either, but at least it is relevant.

The level of discourse of the anti-new stadium crusade should tell you something about the importance of losing them as fans. In other words, the A's (and the rest of us by association) are better off without them. Just witness every one of their comments in this thread. I hope they enjoy their new team. But I do feel sorry for that team's fanbase, as its ranks are about to get much dumber.

a's fan said...

>some nitwit

Baseball Prospectus?

Hey, they said it, so if you want to bust chops, take it up with them.

Personally, I was a little more disturbed with their reading of our tea leaves. Does that concern you at all? Do you plan on going into baseball hibernation for the next 3 - 5 years? Are you rooting for Boston until then?

For chrissakes, we've put up with Chokeland and such for years. So from now on, everytime someone rips you a wedgie, now you are gonna cry "OAFC!!!"?

Yeah, right - Baseball Prospectus is OAFC. And acccording to the Minister of Humor/Relevance/Intelligence, they are also unfunny, irrelevant, and dumb.

Jeffrey said...

Not to split hairs, but I didn't say anything about Baseball Prospectus. And the fella posting as anon a mouse didn't say anything about OAFC.

The reason I say OAFC quite a bit, is because these same posts, such a one talking about the third deck closure resulting in a significant amount of fans coming to games are very close to the same as posts I have read at OAFC.

It is pretty funny to me that the draw at the gate is pretty close to the same for a division championship season and a bottom of the division season, yet someone argues that the third deck closure drove tons of fans away this season. I don't see it, that's all.

Crisco Field, as if. I really could care less what they call the stadium. As long as it doesn't look like a giant toilet on Google earth anymore I will be fine.

As far as direction of the team, i hope the A's do trade away some marquee players. Dan Haren for instance could bring a haul of Major League ready talent. I am all for bringing that in if it results in having another run like 2000 through 2006.

anon-a-mouse said...

Yes, the person who called it Crisco is a nitwit, and I never said or implied it was you. I don't care if they're from Baseball Prospectus or Mensa. That's a lame joke, but that wasn't the point of my post. You said: "And in the long term, we'll get to listen to the rest of the country referring to the A's stadium/condo/mall thing as "Crisco Field.""

My point was that not moving to a new stadium out of concern for this is beyond reason. Yes, I know you didn't actually say let's not move. I was just extending from your point saying that we shouldn't concern ourselves with that because getting a new stadium is much more important.

Nothing in my post criticized you specifically (unless you're part of the anti-new stadium brigade) . Also, I didn't mention the OAFC, so I don't know where that came from. Next time read more carefully before taking offense or responding to things that aren't there. Your contributions might be valued if you demonstrate the ability to read clearly.

Anonymous said...

well at least crisco field sounds better than sesspool park ... or traffic town ... or lew's lame village ... or fremont follies ... or suburbia slumville ...

Jeffrey said...

or Las Vegas, or Sacramento, or Portland, or...

a's fan said...

>Your contributions might be valued if....

So you single-handedly determine "value" as well? Dude, who died and appointed you God?

If you are as omnipotent as you claim, tomorrow's winning lottery numbers, please?

Here, succinctly, is a genuine concern: over the next 5 years, pre-new stadium, will the Oakland A's continue to deliver value, both as as a competitive sports franchise on the field, and as a "baseball experience" in the stands?

That concern is evident in the clip from Baseball Prospectus, via their assessment of the current team and a flippant remark about a new field's proposed name.

That concern is, perhaps, also reflected in Marine Layer's figures at the top of the thread. Is this a franchise economically positioned to beat the RSox and Yanks? Of 2008 or 2012? On the field, at least?

Whatever. All this stadium talk is kind of petty. Prayers to our friends in Southern California, you know?

anon-a-mouse said...

I deem what is of value to me, yes. I only speak for myself. The word you are searching for is omniscient, the ability which would allow me to know future lottery numbers. Omnipotent means all powerful, and I never claimed to be such. What is your problem with imagining words that aren't there?

The A's have not been able to compete financially with the Yankees or Boston for a very long time now, yet have been able to compete on the field just fine. This is due primarily to Beane's ability to find and retain undervalued players. I believe (perhaps it's more hope) that he will continue to be successful in this. I see a lot of people bemoan the state of our farm system. But it's only a bit barren at the moment because so much of it is contributing to the major league team, which is afterall the purpose of the farm system. We might hit a lull sometime in the short term, but I don't believe the sky is falling on the A's.

a's fan said...

You started out real nice - right, if we all could just remember that each of our stated opinions are solely our own.

Argh, then you had to go blow it, man.

Dude, I know what "omnipotent" means, and I chose that word specifically, as it reminds me of "impotent," and you keep shooting blanks.

Let me choose my own words, please - would that be okay with you? If I need someone to correct me, I'll call my mom.

No sense of wordplay, you have. I'm crossing off English Scholar off your list of magical powers.

Betcha gotta have the last word.

anon-a-mouse said...

Not really. But no one buys your lame attempt at back pedalling. Nice try though. Hint for the future: it's best just to let it go or admit your mistake. This just makes you look more pathetic.