Grantland Front Page Article - Jonah Keri on Orioles, revenue factors, and the Quest for Greatness

[weams]

To be clear, we don't know very much about what the criteria for the re-set are. You are saying that the rights are to be re-set to market rates, but I don't think we know that is the criterion. The Orioles have said there is a specific formula that governs how the reset is determined.

http://www.bizjournals.com/washington/news/2012/06/25/mlb-television-formula-at-issue-in.html?page=all

So, that is the guts of the dispute, and without seeing the MASN contract, it's hard to evaluate who is correct. The wording of the contract is pretty critical here.

I do think it would be fairly difficult to defend 200 million as the market rate for the assigned market.

[Can_of_corn]

I do think it would be fairly difficult to defend 200 million as the market rate for the assigned market.

I think the 100 million number is probably every bit as skewed as the 30 million number, maybe a bit more.

I would expect the middle ground to probably be the fair figure.

[hoosiers]

We can quibble about the definition of "day-to-day decisions," but this is someone very clearly taking an active role in the personnel acquisitions of the franchise.

I guess I can only tell you that the people who worked for him say he did not meddle, but if you want to interpret their stories as if he were a meddler, go ahead.

That said, I am not sure what your expectations of ownership involvement in dealing the team's best player (Bedard) or signing a long term commitment (Vlad), but my expectations are that there would be some involvement from a large, large majority of major league owners.

[Frobby]

I believe the reference was to Vlad in 2004 when he signed with Anaheim. 6/82, iirc. He was 29 at the time.

The O's started off by offering him 5/$65 mm, which was ridiculously low. The market was tight that winter and we wouldn't move off that number and basically dared hm to go find a higher offer, which took him about a month to do while we just sat there. For reference, Jim Thome had signed a deal for 7/$93.5 the previous winter, and he was entering his age 32 season at the time.

My read of Beattie's quote is that he was the one who wasn't willing to go higher for Vlad, not Angelos. But it's not crystal clear. In any event, I have sided with management many times when they refused to beat offers made by other teams, but this was one where I really thought they blew it badly. Vlad was the perfect fit at the time. They should have gotten him done quickly and not screwed around.

[Stotle]

I guess I can only tell you that the people who worked for him say he did not meddle, but if you want to interpret their stories as if he were a meddler, go ahead.

That said, I am not sure what your expectations of ownership involvement in dealing the team's best player (Bedard) or signing a long term commitment (Vlad), but my expectations are that there would be some involvement from a large, large majority of major league owners.

W/R/T Bedard, it's even larger than just trading the team's best player. It's taking the position that you are not going to aggressively pursue the playoffs, and instead enter into a rebuild of to-be-determined length. For an owner, that's asking him to take a hit it the wallet via gate, advertising, etc. so that you can ultimately build a better and more profitable product at some point in the future. That's HUGE, and an owner absolutely should study the proposed plan, and the guy that's going to be spearheading the effort.

I don't know what the expectation is out there -- owners have money so they shouldn't care how the team operates? A GM should unilaterally be permitted to determine what the team spends, when the team rebuilds, etc.?

[hoosiers]

W/R/T Bedard, it's even larger than just trading the team's best player. It's taking the position that you are not going to aggressively pursue the playoffs, and instead enter into a rebuild of to-be-determined length. For an owner, that's asking him to take a hit it the wallet via gate, advertising, etc. so that you can ultimately build a better and more profitable product at some point in the future. That's HUGE, and an owner absolutely should study the proposed plan, and the guy that's going to be spearheading the effort.

I don't know what the expectation is out there -- owners have money so they shouldn't care how the team operates? A GM should unilaterally be permitted to determine what the team spends, when the team rebuilds, etc.?

No kidding. So after working for PA for multiple years and making numerous important decisions together, the GM has a regret or two of a recommendation not followed by the owner - cue the "oh the horrors", "only in Baltimore", "that guys a meddler even if they say he's not a meddler" crowd.

[TonySoprano]

The Orioles owners have a majority ownership in the TV rights to two major league baseball teams.

Except that those two "medium" markets would still be, individually, among the largest in the country. And regardless...until the markets are actually divided, the O's still dominate a huge swath of the mid-Atlantic.

From the article

In 2013, the O's spent just a few million more on payroll than the Milwaukee Brewers, who play in the league's smallest geographic market, and just $10 million more than the Kansas City Royals, who ranked second to last in total revenue last year.

Here are the numbers since MASN $M

TM	2014	2013	2012	2011	2010	2009	2008MIL	$95.40	$91.00	$97.65	$85.50	$81.11	$80.18	$80.94BAL	$82.80	$91.79	$81.43	$85.30	$81.61	$67.10	$67.20

[hoosiers]

To be clear, we don't know very much about what the criteria for the re-set are. You are saying that the rights are to be re-set to market rates, but I don't think we know that is the criterion. The Orioles have said there is a specific formula that governs how the reset is determined.So, that is the guts of the dispute, and without seeing the MASN contract, it's hard to evaluate who is correct. The wording of the contract is pretty critical here.

You are absolutely right that we do not know the details of the contract and what formula was to be specified to be used to pay the teams and what the Lerners knew or understood or were told. Maybe the Lerners knew and believed they could carry on as they are doing now to get it changed.

The formulas used by the BoSox/NESN, Yankees/YES and the Jays are used to artificially lower local TV rights in order to lower the sharing of local TV revenue. Otherwise, NESN and YES would pay market rates to their clubs and have to share, presumably and my opinion, tens of millions of dollars that they are avoiding sharing now. Because ownership of both the RSNs and the teams is the same (or was when the RSNs were created), this simply allows the owners to recognize their profits in the pocket that does not share local TV revenue. The parties knew what they were signing up for and certainly asked the questions ahead of time. (Note that it is odd to hear that MLB is paying $ to the Nats if everyone knew what they signed up for - PA being told the formula that was to be used and the Lerners being told "yes, there is a re-set to market rates every five years".)

Of course, PA would want the same treatment ..... and perhaps the Lerners would too ..... if MASN were managed properly.

It is pretty apparent that MASN is leaving tens of millions of dollars (perhaps much more) in subscriber fees. That is the biggest issue here - MASN is not properly managed. If it were, perhaps the Lerners would have a much lesser beef with the issue.

[KurtCDavidson]

I don't know what the expectation is out there -- owners have money so they shouldn't care how the team operates? A GM should unilaterally be permitted to determine what the team spends, when the team rebuilds, etc.?

You know the Bedard and the Vlad issues were not the most troubling to me. To me, the fact that Angelos will push for specific January signings is more troubling. In terms of what to expect between an owner and GM, I would assume (1) a realistic budget to achieve agreed upon goals and (2) a fundamental agreement on organizational direction and philosophy. If Angelos is willing to increase the budget to sign someone he wants in January, then the GM was not given a fair budget to work with at the start of the offseason.

[TonySoprano]

I just wish they had gone to San Juan. Or Vegas. Like they were supposed to.

They were supposed to? Neither was ready for MLB and MLB's San Juan experiment proved that.

Let me try this another way. Washington allowed Baltimore into its market in 1954. Moreover, they allowed Baltimore in the same league. Baltimore shouldn't have returned the favor, at a price, in 2005?

Times have changed. It's not like the Old Days, when we can do anything we want. A refusal is not the act of a friend. If Don Corleone had all the judges, and the politicians in New York, then he must share them, or let us others use them. He must let us draw the water from the well. Certainly he can present a bill for such services; after all... we are not Communists.

[Flosman]

As far as the Lerners are concerned, the "conditions" included a local TV deal that offered a re-set to market rates. That is what they signed off on. Not a deal that is $70M below market.

Separately, these great big new local TV deals that other franchises are getting are being purchased/sold by RSNs/Comcast/etc at rates that I can only assume will provide those RSNs with a profit. PA chose to enter into the RSN business. It should have been run at a profit of at least $25M-$50M MORE than what MASN is already making right now. MASN SHOULD have created enormous profits to handle a payroll $25M-$50M more for the Orioles ALONE than what they receive currently. The Grantland article says the management of MASN might be described as "inept".

Again, the Orioles owners have a majority interest in the TV rights to two major league teams. They have created a RSN asset worth approx. half a billion dollars. It is utterly preposterous - through their "inept" management of MASN and greed as owners - for them to be "cautious" about any adverse decision regarding the Nats receiving market rates for their local TV rights. If the Nats received market rates on local TV rights, the RSN carrying them should profit accordingly.

PA should sell MASN. Take his portion of the half a billion and stick it in the bank. As part of the sale, the Nats should get market-based TV rights and should hand $10-$15M of that $ annually to the Orioles and that amount should be matched by MLB. Each franchise otherwise goes its separate ways and the Os get $20M-$30M more in revenue than their TV rights would otherwise generate.

Hooisers the rights are nowhere near 70 million undervalued. That is crazy talk. The deal currently providing the Nats just north of 56 million in value. 34 million in the direct fee. 22 million in distributible income of which they agreed to get 8 million of and the O's get the balance as compensation for the Nats entering the O's market. The 56 million is a FMV number. It is much more than Philly, and about the same as both Chicago teams. The Nats are trying to get more, no problem with that it is their job to do that. I think in this round it will be bumped up a little, 3-5 million. Remember the recent higher deals are antecedent to the reset date and are not relevant to the current round. When the next 5 year period ends there is going to be a significant increase in the fee component. If Philly gets a big deal then the Rights fee is going to increase in a big way, IMO.

I pray that PA stands firm with holding this deal together. It is the only hope of the Baltimore Orioles getting good to great local TV revenue. If the two clubs rights get separated then no matter what you would like to think the O's over time get screwed. The Nats geographically have an advantage of being unbound south of their location. Richmond and VA beach are worth a bunch in TV rights alone. More than the amount you flippantly say the Nats should pay to compensate the O's. This does not even consider the day that say Fairfax county decides that it is Nats country and drops the O's as an offering. PA and his team were incredibly smart in how they set this up. They protected the O's. Sure they need to get more for their product.

The O's and Nats need to take the Charlotte market. They should offer the cable providers a deal to get the channel on the network down there. Establish a following and give them some MLB. The carriage fees will go up if both teams field good teams.

I understand the point of view that something has to change, but it is not the MASN deal. I also do not think the MASN deal is in anyway holding the O's back in spending. I think it is the estate planning of the Angelos family that is doing that. I suspect that the O's have revenues that could justify additional spending. I think our ownership hates long term deals. I think they are value driven to a fault. I also think the club was not run well for a long time and it has taken time to correct that. I think great progress has been made since the AM hiring. The question currently is how are they going to continue making progress. In other words how do you handle the Chris Davis situation. But these are baseball decisions on who the players are that the O's are willing to pay for. The GMs keep saying their is money lets not support an idea that will lead to a day where there is not money to spend if they want to. I say this because to separate the O's and Nats TV deal is to create a situation where that is exactly what happens IMO.

[Stotle]

You know the Bedard and the Vlad issues were not the most troubling to me. To me, the fact that Angelos will push for specific January signings is more troubling. In terms of what to expect between an owner and GM, I would assume (1) a realistic budget to achieve agreed upon goals and (2) a fundamental agreement on organizational direction and philosophy. If Angelos is willing to increase the budget to sign someone he wants in January, then the GM was not given a fair budget to work with at the start of the offseason.

That's not true. If the GM decides he wants money beyond the budget, he can ask the owner. If the owner decides he'd be willing to spend a little more if it meant bringing in a particular player, he can tell the GM.

Essentially, "This is a guy I like and will pay this. If you like the other guy and want the money, sell me on why." A huge part of being a general manager (and actually most positions dealing with player personnel decisions, including scouting) is being a good salesperson. It is expected at every level you should be able to sell people on your suggestions. The only people in an organization that don't answer to anyone is ownership (though ownership groups answer to each other).

[KurtCDavidson]

If the owner decides he'd be willing to spend a little more if it meant bringing in a particular player, he can tell the GM.

Which fits my definition of "meddling," but perhaps not yours.

There are many reasons the Marlins will win three World Series before we win one. I think any sane person would have to agree that Angelos is part of the problem. Now, is he a BIG part of the problem or an insignificantly SMALL part of the problem? Who knows, but some of this is on him.

[Stotle]

Which fits my definition of "meddling," but perhaps not yours.

There are many reasons the Marlins will win three World Series before we win one. I think any sane person would have to agree that Angelos is part of the problem. Now, is he a BIG part of the problem or an insignificantly SMALL part of the problem? Who knows, but some of this is on him.

It's more pre-approval than "meddling". If I authorize a financial adviser to pursue certain investments with a cap on spending, I'm not "meddling" if I suggest an additional investment beyond the prescribed budget. And I'm not out of line if I ask him to explain why an additional investment might be worth it to me.

[El Gordo]

I agree that the Orioles could spend money. So could the Marlins, and the Rays. So could the Royals and the Astros. I think the Orioles should spend more money. I think the should have a 130 million dollar payroll. But I know that is not the case. If the Nationals dispute were resolved, maybe the vast wealth that Peter realized would get him to spend more on the team.

In light of the MASN debacle and it's attendant uncertain revenue streams for the future, could they afford to give a player a 7/20 M ? Maybe they could this year, but what about that commitment in 2018-20?