28 August 2008

Inelastic demand

In Part II of the AN/Wolff interview, out popped the most curious exchange (emphasis mine):

Blez: I’m going to get to the tarp and the Coliseum a little later, but how do you sell a team that is in rebuilding mode to a market that at times can be ambivalent? The Coliseum wasn’t even selling out when the A’s were the class of the AL a few seasons back. Does it take a World Series victory or even two to motivate these fans again? Or is this just a dead market?

Wolff: I do think that the proximity between us and the Giants hurts. They’ve actually moved closer to us. The six years prior to the year 2000, the Giants outdrew us by around a half a million on average per year. In 2000 they opened the new ballpark and the attendance has jumped and pretty much has stayed there. The difference is now about a million and a half although I haven’t checked it this year. That (the new venue) has something to do with it. Maybe not 100 percent. Secondly, Barry Bonds was a big attraction there and we didn’t have Barry Bonds. The other side of it is the demographic. Both the Giants and ourselves have a lot of water in front of us so there isn’t anyone else living there. A couple of other owners tease us that we may be the only inelastic demand team in baseball. That means that if you won the World Series, the next year would you have two and half or three million out there? In other words, our band of attendance has been approximately 1.7-2.1 million, win or lose that’s where we’ve been.
The comments thread had a nice exchange regarding inelastic demand. What does inelastic demand mean? Simply put, it's a lack of demand change for a product relative to price change. The formula for demand elasticity looks like this:

When the value (absolute value) of this coefficient is between 0 and 1, demand is considered inelastic. You're probably wondering what how the A's demand has looked recently. To that end I compiled a table showing the FCI average ticket price and annual attendance (2008 attendance projected):

You can see that from 2001 forward, the demand ratio (coefficient) has been less than 1 or less, hence inelastic. This is despite a 102% hike in ticket prices in that timeframe. The rich teams have unique market positions. The Yanks, Mets, Red Sox, and Cubs are effectively monopolies. That's how they can continuously raise ticket prices with zero effect on demand. They are the antithesis of the A's. As long as the A's are in the Bay Area, they will always be in a competitive position, not a monopoly position.

So why has this happened? We've gone over most of the reasons in great detail. The Coliseum is long-in-the-tooth, disaffection from long-time fans, the Giants moving closer and poaching casual fans, on-field performance, susbtitute entertainment options, etc. ad infinitum. Is it a reason to abandon the market? Of course not. This market is plenty big enough for six or seven major sports franchises as long as they have good venues and are located properly. In light of this, I don't expect the current business model at the Coliseum to change much in the remaining years of the lease - no untarping the third deck, no cheaper beer or concessions, no ticket price freezes. There's little impact to project from such moves, and thus little reason to make any moves.

Parsing the AN interview: Television

Let's get started.

First, on the television situation. The possible move to Comcast SportsNet West is definitely positive, but not without its downsides. The main issues here are the number of games and on which tier CSNW will be carried in the Bay Area. To illustrate the first issue, I've dragged out the table from the May post on RSN's:

The obvious inequity is that CSNW is carried on the extended basic tier in the Central Valley, while it's on the digital channel 400 in the Bay Area. It really comes down to the number of televisions that can view the channel. Not every household uses the digital converter box offered by Comcast, and for those that do, not every television will be mated to a box. So if you want to watch a game while working on a car in the garage (where there's likely no box), you won't catch the game. Or if you're a kid that wants to watch the game in his/her room but your parents don't feel you need a box, you'll have to watch elsewhere in the house. For some it will be inconvenient. For some it won't.

Then there's the matter of CSNW being on 400. 400 has always been a placeholder as there's little content to put onto the channel at this point other than second-tier college sports. However, there's a unique feature to 400 that many aren't aware of: it's not encrypted. That means even though it's digital, a converter box isn't needed as long as you have a digital TV. The rate of adoption isn't high and there's a level of frustration regarding digital TV tuners, but at least for now the box isn't needed for a digital TV. That said, once the A's are on CSNW could easily become encrypted. The bottom line is that CSNW could be encrypted or not, or it could be moved around the channel lineup.

With the MLB Network launching next year, one fewer channel slot will be available on the analog tier. The Hallmark Channel is typically one of the first to get bumped to digital. In your area this may have already occurred. There are also a number of shopping-oriented channels. QVC is considered untouchable. Jewelry Television, which is typically on Comcast systems on a leased basis, is probably the next candidate. This channel is usually on channel 410 (CSNBA+) when a game isn't being broadcast. Complicating matters are a number of community access stations on a given city's analog tier, which could vary from city to city. Comcast could even end up competing against itself, as it has equity stakes in several other channels, such as Versus and The Golf Channel. (If you want to get an idea how inconsistent the systems are in the channel lineups, go to this Comcast form and put in some valid addresses around the Bay Area. You might be surprised.)

In the end, I think Comcast will figure out a way to put CSNW on the analog tier. They might have to put it high up, say in the upper-70's along with Versus and Golf. It's not in the "sports pocket" with the ESPN's and CSNBA, but at least it would be available. The motivating factor is Comcast's stake. They want to make as much from the network as possible, and that would be an order of magnitude more difficult to do from a digital-only slot.

Two other factors have real impact. A switch like this usually carries with it a massive schedule change. The Giants inked a deal with NBC 11 to broadcast 20 games, whereas 140 went to CSNBA. It's likely a similar split would happen with the A's on CSNW. They might even go to the extreme like the Florida Marlins, eschewing over-the-air broadcasts completely. High definition also will become paramount in the coming years. KICU doesn't do HD broadcasts. I'm pretty sure the other affiliates don't either. Blame that on either the A's or the affliates, it's still pretty costly. By moving over to CSNW, broadcasting expenses become more of a sunk cost as the partners become more interested in promoting the brand. There will be some figuring of what digital space is available to carry CSNW-HD, but that's only an issue in the Bay Area and can be easily accomplished with compression techniques and additional channel movement from analog to digital.

Behind the scenes, there will be an issue of talent and staffing. CSNBA hired a bunch more people and embarked on building a local studio. Would personnel and facilities be shared among the teams despite the split?

Who loses? Well, if this were five years ago, I'd say over-the-air-only viewers. Unfortunately for them, the digital switch is already going to make their experience difficult. Many people in the Bay Area will come out of the switch getting only 6-8 channels, and KICU probably won't be one of them.

5:16 p.m.: A couple more thoughts. There shouldn't be more than a handful of scheduling conflicts each year between the A's and the Kings because the MLB and NBA regular seasons only overlap during the first two weeks of April. That translates to 6-7 possible date conflicts per year. Those games could be easily accommodated by either team's affiliate networks. Also, weekday afternoon games should be available once the deal goes through. I'm guessing that the existing broadcast deal with CSNBA, which runs through the end of the decade, would be torn up and replaced by a long term deal. The Giants supposedly were paid $100 million over 25 years in addition to their equity stake in the channel.

Later today, I'll talk about the ballpark situation.

27 August 2008

Wolff/AN Part III - Funding matter debunked?

Part III is the meaty part of the interview, with a lot more insight into the process than had been previously available anywhere. Read it.

One of the items covered is a question about the credit crunch and whether or not it affects financing of the ballpark:

Blez: I've read where people have said that this project is becoming a bit more of a nightmare because of the downturn in the real estate market. Because so much of this project was dependent on the real estate built around it, and I know that you were planning on having commercial and residential around it to fund things. Is that an accurate statement to make?

Wolff: No, for a couple of reasons. We are not foolish enough to go into any long-term project with only one option in terms of how we finance it. Somebody thinks we are, then they're wrong. So the housing element was critical and interesting, and we don't know that if by the time we get going again that it won't be booming again. We've got some other options which I'd prefer not to discuss but they're logical business options. And we have our own resources. So we're not without capital if we need to do something. Listen 3,000 townhomes don't sell in 20 minutes even in a good market. So it's a matter of how you flow funds. The best part about us is that we can say if it takes an extra five years to sell these homes, we'll bridge it now and you can take us out when that happens. You know, things like that.

I can't tell you how happy I am to be wrong on this point. It's something that I opined about many moons ago, followed by the mainstream press picking it up. It's easy to get caught up in looking at the market as a problem since frequent doom-and-gloom coverage makes it convenient to do so.

There's plenty of additional grist in the interview, whether you want to talk about the A's leaving, territorial rights, why it didn't work in Oakland, etc. Comment away.

Fantastic work, Blez.

26 August 2008

Part 2 of Wolff-AN Interview

Wolff addressed the generally underreported fact that in building AT&T Park, the Giants moved closer to the A's and into a more accessible location.

Blez: I’m going to get to the tarp and the Coliseum a little later, but how do you sell a team that is in rebuilding mode to a market that at times can be ambivalent? The Coliseum wasn’t even selling out when the A’s were the class of the AL a few seasons back. Does it take a World Series victory or even two to motivate these fans again? Or is this just a dead market?

Wolff: I do think that the proximity between us and the Giants hurts. They’ve actually moved closer to us. The six years prior to the year 2000, the Giants outdrew us by around a half a million on average per year. In 2000 they opened the new ballpark and the attendance has jumped and pretty much has stayed there. The difference is now about a million and a half although I haven’t checked it this year. That (the new venue) has something to do with it. Maybe not 100 percent.
There's more in the interview. It's pretty clear that the Giants have been successfully siphoning away A's fans from all over the Bay Area since their new digs opened. They've also made it possible for say, a Giant fan who moved from SF to the East Bay, to maintain his allegiance without making it difficult to attend games. Had the Giants stayed at the 'Stick, that fan may have either stayed home more often or chosen the A's as a local alternative. Now there's less reason to do so.

Now the A's are looking to an area that's less accessible for most of the Bay Area. I'm still curious as to what the transportation and parking will look like, given that they still feel that 15-20% of the fanbase will arrive via ways other than driving.

25 August 2008

Wolff interview on AN, possible new TV deal?

Blez posted the first part of a lengthy interview with Lew Wolff on AN today. Check it out. Nothing on the baseball village itself. Wolff said the team is working on an improved TV deal that could be done in the next six months.

p.s. Thanks for the rep, Blez!

p.p.s. Thanks to Zonis for finding the Bizjournal article about the A's talks with Comcast. The A's may be looking moving to Comcast Sportsnet West, which is currently home to the Kings. In doing so, the A's could pick up an equity share of the channel, just as the Giants have with CSN Bay Area. If the idea has some vague familiarity to frequent readers of this blog, it should since I wrote about it in May. The circumstances are slightly different, but they're still quite favorable to the A's.

p.p.p.s. I'm not an architect, though I play one on TV.

16 August 2008

Mayor Dellums sounds like a nice man

I am not an Oakland resident. I also don't claim to have any real inside knowledge of Oakland politics, so I'll leave criticism of the Dellums mayoral tenure to other corners of the interwebs. That said, Dellums' comments regarding his hope to keep the A's in Oakland read like typical rhetoric from someone who has spent way too long in Washington.
"With a deal that is as big as the deal is in Fremont, anything could go wrong," Dellums said, adding, "I want to continue to keep the door open so that we can keep the A's. The best-case scenario would be that they stay in Oakland. I would like to try to help them stay in Oakland."
That's a lot of well, nothing. Not that I blame him. Every city is playing the waiting game as the EIR and financial markets shake themselves out. Dellums is keen to keep some visibility on Oakland even if his comments are entirely non-committal.

What's not being told is that by the time the Fremont plan enters its crucial stage, Dellums will be entering big-time lame duck territory. I can only imagine what that would mean, given the cruise control nature of his first nearly two years at the helm.

The council hasn't exactly stepped up either, not even Ignacio de la Fuente. Given Oakland's difficult state, is any kind of stadium talk - whether A's or Raiders - the local political third rail?

05 August 2008

A new twist in Miami

From the 11th hour department:

The owner of the now-defunct Miami Arena, Glenn Straub, has proposed a land swap in which he would exchange his downtown Arena site for the Orange Bowl site in Little Havana. The Marlins would then build a ballpark on the Arena site and Straub could start planning for other development. The land exchange would not be a straight swap due to the sizes and relative values of the parcels. To kick up the intrigue, Straub has said he and his partners would build the ballpark and finance it themselves. There is a question as to who would own the stadium in the end, probably the city.

According to both MLB COO/President Bob DuPuy, such a solution would be impractical for numerous reasons:
"It is our view that the careful negotiations for the stadium were the product of literally years of work, among Baseball, Dade County and the City of Miami," DuPuy said. "We looked very hard at that [arena] site when we were looking at downtown sites. More land would have to be acquired. The general obligation bond of $50 million wouldn't be available, so even if the costs were exactly the same, we'd be short $50 million.

"There's difficulty there with utility buildings and power lines that would have to be relocated. There's a railroad line cutting through there that would also have to be relocated. And finally, the community is committed to developing Little Havana and the Orange Bowl site, and we want to be part of that development."

While it's true that additional land would have to be acquired, it's not a significant amount. An active railroad right-of-way runs through the block and sits immediately to the south of the arena. It would have to be rerouted around the resized ballpark site. A street that runs through the site would also have to be rerouted as well.

The big advantage of the site is that unlike the Orange Bowl, the site is right next to Miami's Metrorail service, which is like a limited version of BART. Since not much is known about the financial scope of this, it's impossible to say if it passes the smell test. Still, should Norman Braman's lawsuit against the city/county result in striking down the OB plan (via referendum), this is certainly a Plan B worth considering.