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10 October 2008

The post-Fremont strategy

Georob writes:
As awful as this sounds, this may be a good time to revisit the subject of contraction and why it could or could not happen.

I know you and others have stood by the theory that the only reason it was brought up last time was as a premptive threat leading up to renewing the players association contract.

People forget though that at time we were still getting over the high tech bust as well as 9/11; and that the economic future looked very shaky.

So as the dow tanks yet again this morning, I ask the question: What about now? If the Fremont project is put on hold for an extended period, the A's won't stay in Oakland beyond 2012, and it makes no sense to move out of the Bay Area, what's left to do?

Perhaps this is where San Jose finally comes into play, but I'm sorry Tony; the Giants will still want to be compensated for it. And in this economic climate, who's gonna come up with the money to do it?

Sorry, but we need to discuss contraction.
Let's separate this into the two core issues. First, is contraction possible or likely? Second, what is the A's next move should the Fremont plan fail?

Contraction
I've maintained a pretty consistent stance regarding contraction over the years. The current economic downturn won't change that. Over the last decade, the commissioner has timed talk of contraction to gain concessions - either from cities deciding whether or not to publicly finance ballparks, or from the players union during CBA negotiations. Of all MLB teams, only three remain in outdated or suboptimal facilities: Tampa Bay, Oakland, and Florida. Florida had the bulk of their legal obstacles removed in their quest for a ballpark at the Orange Bowl site, so they can be removed. Tampa Bay ownership's waterfront ballpark plan was shelved in June, and though they may want to take advantage of the team's success to piggyback a new deal, a fast-track situation such as the proposed plan isn't likely. That leaves the A's, and we know what that situation is.

In retail or the service industry, talk about closing locations comes up because they underperform as individual entities. That doesn't really apply here thanks to revenue sharing and the fact that teams rarely if ever lose money. MLB made $5 billion last year. I don't think they're struggling in the least.


Contraction doesn't work with a single team. Two would be required, thanks to MLB's constant, serial scheduling format. Realignment would also happen, bringing two NL teams into the AL (Colorado/Arizona and one Central/East team), a prospect either target team's owner would surely fight hard. Then there's the issue of buying out both teams. Team valuations aren't likely to drop much if at all, compared to the stock market and real estate. Why? Because the valuations are based on long-term deals such as stadium and suite leases, naming rights and sponsorship agreements, broadcasting deals, and of course, fans attending games. These factors tend to be locked in for years at a time, and while fans tend to be transient for the lower revenue teams, those teams aren't going to become insolvent just because they lose a half-million fans from one year to the next. Let's say that despite these issues, MLB decides to contract anyway. The combined price for the two teams will approach $700 million, because they couldn't be contracted until after the current CBA expires after the 2011 season. That translates to $28 million per team. Perhaps new Giants managing partner Bill Neukom might be interested in paying $28 million to get rid of the A's, but would any other owner? I doubt it. Even if you drop the Rays and A's from the current revenue structure, other teams' shares and net payout/receipts don't budge more than $1 million (assuming the basic terms of the CBA are carried over), creating little financial incentive to perform the contractions. And would MLB be able to make up for the loss of revenue in affected parts of the country? That's hard to say. The Giants certainly won't change from being a $200 million revenue team to a $300+ million revenue team due to the factors described previously.

It's for these reasons that I can't see contraction happening anytime in the next decade.

Move, or contract and expand
The simpler prospect would be to move either or both franchises. Coincidentally, Forbes published a new article two days ago titled, "The 10 Sports Franchises Most Likely to Move." Surprisingly, the A's aren't on the list. The article appears to be a bit behind in its assessments of teams, especially the Marlins' situation. That said, the list isn't surprising at all - other than the prospect of the Phoenix Coyotes possibly moving back to their original home, Winnipeg (Go Jets!). Moving a team is now a competitive situation. As alluring as Las Vegas once was, it has suffered significantly from the real estate crisis and probably can't support more than one major league team. No one there is talking MLB, preferring to focus on either the NBA or NHL (hockey is more likely). An arena is planned for east of the strip, the principals being sports giant AEG and a consortium including financiers and blockbuster movie producer Jerry Bruckheimer. Other cities such as Portland and San Antonio may not be in financial dire straits, but the current credit market makes even publicly financed venues much more difficult than they were a decade ago. Sacramento is as bad off as Las Vegas, and there's already one team there struggling to get a new venue.

I suppose there is a chance of MLB doing the same sort of "sale" that was done with the Expos when they were moved to DC. MLB and the owners effectively contracted the team, then expanded anew, extracting a franchise fee from new owner Ted Lerner. It's a akin to a publicly traded company initiating a stock buyback program, then issuing new stock down the road. That was made more complicated due to the "musical chairs" method of shifting ownership groups among teams, and that's one among several reasons why I don't think MLB could pull it off again. Despite the fact that the move process IMHO was rigged in favor of DC, all sorts of machinations had to take place for it to occur. There's no large market out there that would elicit such large offers should either the A's or Rays be contracted and moved like the Expos. Having both available would drive down their potential post-contraction sales prices since they would be competing with each other for the same bidding pool of prospective owners. If the remaining MLB team owners' primary motivation is to make money from the purchase and sale of one or more teams, there's no guarantee of it now or in the immediate future.

Stay put
Wolff angered many Oakland partisans by claiming on multiple occasions that the A's won't stay in Oakland. Still, I wouldn't put it past them to stay, especially if the economic mess remains for years to come. The reckoning will come in 2011, when the Raiders have to decide what to do next. It won't be possible to house both in different stadiums within the Coliseum site due to the expense and upheaval required. Oakland and the Coliseum Authority will have to choose who to deal with. Take away your green-and-gold colored glasses, and it's hard to say which team they should choose. Should the A's have difficulty getting a stadium deal done outside of Oakland, they can continue their lease through 2013, stifling the Raiders' ability to transform the Coliseum - if that's what they want to do in the first place. The political and economic realities of getting something done in Oakland remain, though it's possible that the next mayor may be more sports-friendly.

San Jose
That leaves the elephant-in-the-room option, the South Bay. I've said for a while that if Fremont falls through, the A's will look there before they look anywhere else, including out-of-state. That's where the A's biggest corporate support will come from, that's where Lew Wolff has such deep roots in the community. San Jose has the certified EIR, transit links, the land for the ballpark, and available adjacent land to be developed for other purposes.

However, there's a question of how a ballpark would be financed. A lifestyle center shopping village couldn't be built there. Housing could but it would be of limited height. Lastly, there's the issue of territorial rights. There's no reason to believe Neukom won't be as recalcitrant as Peter Magowan.

Look at it from a different perspective. Which option, of the ones I've described, sounds easiest? Contracting teams is incredibly expensive and doesn't show any tangible financial benefit for the remaining teams. Moving, or contracting and expanding, is a difficult proposition for the governing parties and also doesn't move the needle appreciably. Staying put is still at best an interim step until the permanent move is made, wherever that is. Territorial rights negotiations may be the least difficult proposition because of its fundamentals: it's done only within the confines of MLB, doesn't require changes to the basic tenets of t-rights, precludes an owner from suing, doesn't require another team such as the Rays to accomplish, and has real prospects for better revenues coming from the A's. I continue to think that much of this still goes back to Selig, who wants to cement his legacy by having new or renovated venues and unprecedented "prosperity" in place for all 30 teams before he leaves office. Should Fremont fail, one of these options appears to be far easier to accomplish than the rest.

18 comments:

Tony D. said...

Nice post R.M. (based on what Rob wrote). "Territorial rights negotiations may be the least difficult proposition because of its fundamentals:..." Can I kiss you Rhamesis!? (LOL) Of course, my wife wouldn't appreciate that. But seriously, the A's and G's currently co-exist 11 miles apart; in Fremont they would roughly be 30 miles apart...why not co-exist with the A's even further down the road in downtown San Jose for some compensation. And where would the compensation come from in these troubled financial times Rob? Perhaps R.M.'s revenue sharing idea from a few months back, or the A's staying on CSNBA after 2010; thus helping the "Giants asset value" over the long haul. As for financing the stadium: A's/Cisco build ballpark in exchange for Lew Wolff getting development rights to Diridon/Arena, soon to be a premier site with high-speed rail and possible BART. Cisco's new world HQ's at Diridon/Arena? Selling off area's of Cisco Field to other tech company's: Adobe party terrace, EBay club seating, etc. My thinking is obviously way out there, but again, I don't think San Jose is dead just yet. To be fair, Fremont isn't dead either, despite the current economic crisis.

Zonis said...

If Fremont Fails, I think San Jose is the best bet. Wolff would have to pressure Sielig to help, and perhaps the A's could even go so far as to launch a public relations campaign to essentially slander the Giants-The Haas Famnily and the A's extended their hands out lent the Giants the South Bay territorial Rights when they threatened to leave for Tampa Bay to keep them in the Bay Area, but the Giants refuse to do the same for the A's.

Georob said...

Okay, back to what we DO know:
Each and every time either Bud Selig or Lew Wolff has made a public statement it's been the same: "Santa Clara County is not an option"

And whether I'm pro-San Jose or anti-SJ, I think we can agree that if there's one person on the planet that can get the A's there, it's Lew Wolff; but he hasn't been able to do it. And all the civic, corporate, and $$$ support that Tony brags on hasn't seemed to influence MLB either.

Bottom line: I feel that Selig has and always will try to protect the Giants. And frankly, I feel that the only reason he's encouraging the A's to build in Fremont is that there's probably nowhere else to go. He's looked at Vegas, Portland, and San Antonio; but in this era of corporate season ticket holders, they don't stack up.

Which brings me back to contraction and a question I've pondered long before all this current news: What would happen if corporations started cutting back on buying luxury suites? Could it happen? If that stream of revenue no longer became as reliable as it has been, doesn't that become, as they say; a "game changer?"

The question that needs to be asked(and maybe ML knows the answer) is to what degree is MLB dependent on corporate money as opposed to other revenue sources? And what would happen should that business model change? Furthermore, at what point would MLB say that 30 teams is no longer feasible under that model? Hence, contraction.

Now, I haven't bought into the gloom and doom that many commentators are into. But if we're looking ahead to even small chsnges in how our financial markets are run(especially if we get a new Congress and President wanting to shake things up), doesn't that trickle down to other corporate revenue sources?

I could go on and on, but let me get back to San Jose. I believe(and always have, Tony) that San Jose still has a decent shot at getting the A's. But I really think that Wolff's next step will be to look outside the Bay Area. It's what he has said in the past, and I think we need to take him at his word.

I also think that Oakland is no longer finished, as so many properties that were deemed out of the running because they were slated for housing may now be available.

But I have to think that if the A's were truly destined for San Jose, that something would have been put together a long time ago. Therefore, I think San Jose is going to have to wait through a lot of relocation/contraction threats in the coming years. Only after all that will Selig(or his successor) go to the Giants and cut a deal.

Anonymous said...

San Jose ain't gonna happen ... opening up territories is not something that Selig is open to because it's precedent setting and other teams don't want this.

The option if/when the fremont plan fails is simple. Put your tail between your legs and go scampering back to oakland.

Anonymous said...

hey, thought the fremont thing was going to happen by hook or by crook??!!??

interesting that "post fremont" discussions are now a very real concept, even at this site.

:-)

Anonymous said...

San Jose isn't entirely out of the question.

Peter Angelos was considered to be a powerful team owner, but his protests and appeals were eventually overruled by his fellows (28-1 vote according to Wikipedia), as they carved a chunk out of the Orioles territory, and awarded it to the "Nationals" for their new home.

It set a current day precedent that if the majority of owners see some benefit to MLB, or their wallets, they will approve a team's move into another team's territory.

Rather than let the team leave the lucrative Bay Area market, the owners might let the A's move to San Jose.

This would only be after all else had failed, however, and they probably would prefer that the A's revisit Oakland stadium/village possibilities if Fremont doesn't work out.

Anonymous said...

Baltimore was an entirely different scenario ... they did not have firm territorial rights to the area as do the Giants to the south bay.

Jack

FC said...

Anon 9:55

I think a lot of posters on this board probably would have choose San Jose over Fremont from the start. The San Jose discussion simply quieted down after Wolff made it clear that Fremont was his target.

I have to believe Wolff already knows what he will do should the Fremont project fail. In fact, I wouldn't be surprised if he's had discussions about those plans with Selig/MLB. Though he has publicly threatened to leave California should Fremont fail, I think he'll give San Jose another shot.

Kind of makes you wonder who he's going to be pulling for in the Fremont elections.

Anonymous said...

Angelos' rights were considered strong enough that MLB compensated him with a 90% interest in the Mid-Atlantic Sports Network, and also 75 million dollars for a 10% share in it.

I never said that the situation was identical to the G's territorial rights in San Jose, and obviously it isn't. I'm just saying that after hearing so much that MLB would never take business territory away from the Orioles, they did.

The G's sided with Angelos for a while because of the A's situation, but eventually even they changed their mind, as it was seen as being in the best interests of MLB.

If the G's were paid enough, or given some sort of major perk, they might decide to go along with an A's move to San Jose. They also might not.

It might not ever come to this, and if it did, it would likely be the last Bay Area option pursued (and only because the market is so lucrative). The Fremont deal could very well work out. Otherwise, maybe Mr. Wolff might back down about Oakland...

Anonymous said...

he'll opt for oakland once the fremont plans fails ...

-diamond lil

Tony D. said...

Rob,
Just this year, Lew Wolff was quoted as stating that T-Rights were up to the commish and not the Giants. Mr. Wolff also stated during August's AN interview that MLB wants the A's to stay in the Bay and that they may consider opening up their territories if need be. Gee, open up the A's territory east into San Joaquin Co. or north into Solano Co.? I think that one's a no brainer. Also, any deal with the Giants would probably make Santa Clara County a shared-territory in the likes of the other two-team markets; no breaking precedence there anon 9:08!

Anonymous said...

Let's not foregt that Lew Wolff's investors took that Fremont/Pacific Commons piece of land off Cisco's hands ( the latter gleeful /thankful for land they would never be able to use but purchased at the height of the dot-com era ) for $150 million and spent another $30-60 million dollars buying up many other adjacent properties . They stand to lose $100 million if they tried to dump all that land NOW or even the near future !

Anonymous said...

who cares if wolff loses money on this land deal? join the club, bro!

nice logic, pal!

Tony D. said...

Anon 1:16,
You forget that Lew Wolff is a real estate magnate! Whether Cisco Field gets built at Pac Commons or not, Mr. Wolff won't unload this investment any time soon: it's now part of his real estate portfolio. That's what big time real estate developers do; hold on to large tracts of land for future commercial development, housing, shopping centers...even ballparks.

Anonymous said...

Problem is Fremont has always opposed home development at Pacific Commons ( west of 880 ) due cost of public services like fire and police . Others have tried that with homes-only proposals with the Cisco land when it was obvious Cisco would never build the 3 million sq ft of office space they thought they needed there and in Coyote Valley in the boom years of the late 90s . Fremont would only allow homes if sales tax revenues from proposed ballpark and retail balances the books- i.e., a massive mixed-use development that is what LW's group has proposed .
As it stands , the former Cisco land is zoned for office space only and is a white elephant for such at this time and LW and his investors would never have bought it for such use as they have no interest in land banking such a huge pc of property for the next 25 years before it could pay offif at all , when you see all the huge empty office parks in Newrark,south Fremont,Milpitas,McCarthy Ranch. They are developers/builders first and foremost .

For for those who say they should just suck it up and lose $100 million on this failed land Pacific Commons land deal AND pay the Giants $100 for SJ rights AND try to get public financing in this new debt era for a San Jose ballpark .. DREAM ON !!

Anonymous said...

Anon 1:16 does not have all the facts straight. Lew's deal with Cisco was to take over Cisco's OPTION to purchase that land from ProLogis. Cisco didn't need to sell that option to Lew. They could simply have walked away from it. But they made a shrewd decision to exchange the option for naming rights in the new stadium. Lew's risk is in the investment in the surrounding properties he's purchased and the deposit he made with the city.

As for SJ (or downtown Oakland for that matter), I'd love to see it happen if Pacific Commons doesn't pan out.

Anonymous said...

LW bought the Cisco land for $150 Million, ProLogis's asking price was $175 M. That relieved Cisco of the onerous 30 year land lease they signed in the late 90s . In addition/gratitude Cisco will pay the A's $4 million a year for naming rights . They also bought the 28 acre lot directly north from Prologis . They bought a large shopping center on Boscell for 6 cap , with a remaining 8 year land option to buy from ProLogis . Remaining older peripheral pre -Pacific Commons properties were privately owned - not ProLogis.

BTW, all the Pacific Commons big-box businesses are on land that's leased with option to buy. The only two true Pacific Commons businesses Catellus /ProLogis actually sold land to outright were Vantek and the pediatric group in 2003.

Jeffrey said...

Homes west of 880? What about Ardenwood? That is Fremont.

Looking at A satellite photo If you follow 880 from the Fremont/Union City border down the Western side through Newark, it is a sea of houses until you get to Stevenson and Newpark Mall.

I think it is naive to think that there won't one day be houses south of Auto Mall Parkway regardless of Cisco Field coming to fruition.

I personally feel that a mixed use community, like Cisco Field/Village is a best case scenario, as people who work in the surrounding area can live closer to work, shop close to home, etc. A worst case scenario is either 100% housing or 100% shopping or 100% Office space.

As far as the A's "crawling" back to Oakland. Don't hold your breath... None of the challenges with making something happen in Oakland have been alleviated.