Saturday, November 29, 2008

The Economy, Baseball, and the Bucs

It's no secret that the economy is in the tank, and that has an effect on everything from politics to baseball. What's it mean to baseball in general and the Pirates in particular?

Baseball, as part of the entertainment industry, is considered by many to be doing business in a recession-proof sector. It generated $6.5B in 2008, a record season for raking in the loot. Both New York teams will open the year in brand-spanking-new stadiums.

Scott Boras and other agents don't foresee Armegeddon, at least this year, largely because baseball had a record year for revenues, is in the middle of its TV contract, and drew nearly 79M fans through the turnstiles last season.

But Players Union chief Don Fehr frankly told Hal Bodley of's "Baseball Perspectives" that "we don't know how the economic problems will affect baseball. Historically, the sports industries have been resistant to most economic downturns, but we're in an atmosphere right now I haven't seen in my lifetime. We have to do our best and the future will take care of itself."

Bud Selig was worried enough that he brought in financial guru Paul Volker to talk to the suits assembled at Dana Point for the early November baseball meetings about the state of the economy. (He served on Selig's blue-ribbon economic study committee in the early 1990s.) While the exact text wasn't released, doom and gloom seemed to be his general theme.

The teams that are less well-heeled than the heavy hitters are already entrenching. The Pittsburgh Pirates announced that they have put a freeze on season-ticket prices with an interest-free payment plan.

Arizona Diamondbacks CEO Jeff Moorad says his club has lost a corporate sponsorship, and he axed 31 staffers. The San Diego Padres GM Kevin Towers said they're ready to cut payroll to $40 million. If Toronto can't resign AJ Burnett, they plan to stick his $24M savings in the bank instead of adding it to the payroll. Ticket prices across the league are being held at 2008 prices or raised gently. Free agents across the land are cooling their heels, waiting for offers.

Any team that's hoping to break ground on a new ballyard or add some major renovations to the old park can give up the ghost for the time being, too. Not only may attendance fall league-wide, but the income from business sponsorships, give-aways, and advertising is predicted to nose-dive.

It may even bite the big boys. The Cubs sale, rumored to be set at $1.3B, may find soft credit markets throwing up unpassable roadblocks, and the team may end up off the market. The Mets deal for naming rights of their new Citi Field may be out the window if the taxpayers end up owning a hunk of Citibank. And the Yankees tripled the corporate boxes in their new digs. The luxury suites could be a tough sale if business decides to cut back on advertising and entertainment spending, its traditional response to recession.

Baseball's saving grace is that it's still America's most affordable sport. It's ticket prices increased 10 percent last season to $25.43 while the NFL's average ducat was $72.20, according to the Team Marketing Report. The NBA's average was $48.83 and the NHL's $48.72.

And if attendance flags - 2008 was the first year in the past five that the MLB fan count didn't increase - owners may be able to recoup some of the loss by regional media deals, whose viewership should rise as stadium attendance drops. The caveat there is whether the ad rates can be sustained in today's business economy.

How that affects the free agent market is yet to be seen. The popular view is that the top flight of FAs will be, as expected, buried in cash. Teams like the Yankees, Cubs, Mets, Red Sox, and Angels have huge, gate-spinning fan bases and lucrative regional contracts to air their games. They're better built to withstand economic downturns, and a deep recession could widen the gulf between the have and have-not teams in baseball.

The kings of the hill also have enormous expenses, so on-the-field product is generally essential to their continued success, especially in New York. As a matter of necessity, they will pay whatever it takes to attract star power to their teams. So CC, AJ, Derek, Tex, Manny, and Rafael will get their payday, although they may find their deals a little shorter and more incentive-based than they anticipated.

But the second tier of players are poised to take a hit. Those $12-15M contracts over 4 years will be scaled back considerably, one would assume, for the good but not great talents up for bid. But we'll see about that - Ryan Dempster getting 4 years/$52M could just be a Cub anomaly, or an omen of things to come.

How will all of this play out in Pittsburgh? First, it explains their stance on free agency. The Pirate suits are waiting out the market, expecting some reasonable value for players that in past years may have been beyond their budget. There's some risk involved in that philosophy, because as the prices drop, the competition should increase, but given the climate, a well-calculated one.

Next, it makes houscleaning a priority. There are only four Pirates signed for next year so far, and two of them, Jack Splat and Freddy Sanchez, have contracts they'd like to move. The other pair are Matt Capps, who's signed for next year, and Ian Snell, who is guaranteed until 2010 and optioned until 2012.

Four guys in arbitration are due hefty raises - Adam LaRoche, Nate McLouth, Ryan Doumit and Paul Maholm - and we'd expect to see the Bucs try to sign them through their arbitration years, if possible. That would give the team a degree of cost certainy for the future, plus make the players easier to move, if that's the direction they plan to take.

And there's a good reason why. Frank Coonelly spoke at Penn State a few days ago, and told the Smeal Business School audience that "We have a payroll that is not locked into long, multi-year contracts, so we have what is understood to be payroll flexibility. So we can make moves that will allow us to weather the storm."

They can control expenses, to a degree. But their biggest challenge will be keeping a steady revenue stream flowing into their coffers. Their average 2008 gate of 20,113 was the lowest per game count since 1998 in TRS, and with the product looking less than stellar and corporate support iffy, the suits will be up late trying to figure out how to get fannies in the seats.

They've already frozen season ticket costs, and it would behoove them to extend that to single game tickets, too.

So that's the Pittsburgh challenge - how to generate corporate and community interest in a team that's been blown up, so that it can afford to build for the future in an economy that's flat lined. We think it'll take more than the Zambelli Brothers to right the ship.

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