Nationals Baseball: The MASN excuse

Wednesday, February 03, 2016

The MASN excuse

 Svrluga's column

The Lerners aren't cheap.

Subjectively this is easily proven. During the lean years we worried for a while that they would run this team solely to maximize profit, but the past few years have shown those worries to be misguided. The Lerners have spent more as the team has turned into a contender. They even spent enough to close in on a Top 5 payroll in 2015. Their payroll will likely be lower in 2016 but fears that they would revert all the way back to a 130 million or so "topped out" base were also unfounded. It appears they will find a happy middle, spend around 145 million and be close to, if not in, the Top 10 payrolls.

The Lerners spend this much while not having a great TV deal in comparison with other teams, meaning that a higher percentage of their revenues are put toward the team on the field.

So the MASN deal is understandable. There is a relationship between revenue and payroll. The team is already likely on the high end of that in comparison with other teams. If payroll has to go higher, then the revenue must go up just to maintain that relationship. That is expected to happen, one way or another, in the next couple of years as the MASN deal is re-jiggered. Whether the Nats get what the MLB promised them (come on, you know that is how it went down) or what is decided by the industry standard method, it will be more money. Putting off contracts until this money is expected to come in is the only way to make this work.

The Lerners are cheap

Objectively though things are different. Most outside team valuations confirm that almost all major league teams turn a profit. Washington is one of those that seemingly do. That could be even underselling what teams make. It isn't clear how much of the ancillary income is included in here. The MLBAM cut? Nearby parking owned by owners that isn't technically part of the club? Increased sale prices for land the owners bought up nearby the tax-payer financed stadium? Plus revenue doesn't consider the greatest money maker in the long run - the increased value of the team when sold.

Sports are one place where telling someone what to do with their money is understandable, even expected. You know when you buy into the business that the people that care about the product aren't just the few employed but millions of others who all wish for the same thing. Success for their team, namely championships. You are supposed to be running a team to win a title, not to compete regularly, and certainly not to make money for yourself.

So the MASN deal is just the extension of an sports owner doing what an owner does. Trying to maintain a steady (and fairly large) profit stream from their professional sports team. The Lerners could spend more and make less but they are not interested in that in the long haul. They have reached the point they are comfortable with. Now it's about maintaining payroll, about not spending more in order to ensure that money is made on this venture, potential wins are a secondary concern.

I've been pretty consistent on where I stand. The industry is cheap. MLB specifically but sports in general. The owners make a ton, they spend less than that and for what amounts to a toy for them but a lifeblood for millions of others that seems wrong. You should always press the owners to spend more because they can and they aren't. Payrolls aren't hard and fast limits against making or losing money, but arbitrary limits against making a whatever amount they wish to make. If an owner doesn't want to spend nearly all his profits on the team, he shouldn't be an owner.

Of course that's not how most fans think. We go by the standard operating procedures that we've seen done for as long as we've followed sports. Think of how we give managers an out for using their #4 best relief pitcher in a crucial spot in the 6th. That's just how everyone does it. We can't blame Joe Manager! We give owners the same sort of out for not spending. Everyone tries to make a bunch on sports. We can't blame Joseph Owner III!

Except we can, and we should.  MASN isn't a reason. It's an excuse to keep up a facade. You can spend. You don't want to. Be honest at the very least. It's not like fans won't keep coming. We always do.


Rob Evans said...

I hear ya Harp, but I still think that Angelos is the devil!

Chaz R said...

All great points, Harper. Totally agree, except I would think any and all profits be put back into the team towards gaining wins. The owners' profit from any ancillary income around the team and ballpark, and the real payday for them is when they sell the franchise. That's what I would do, but of course, it's not my money! :-P

Harper said...

There's probably some truth to the idea that the type of people that would pour all the profits back into a winning team aren't the type of people that would have the money to buy a team in the first place

Jay said...

I think Mike Illitch has the most true idea of what the owner of a sports franchise is. He runs the Tigers in a way to try and win a championship for Detroit. He has stated before that he takes this job very seriously. The Lerners have already made their fortune. They weren't asked by the people of the DC area to buy the Nats. It is something they chose to do. And essentially did it for ego at it's most root cause. To try and cry off now because it is too expensive? Then sell.

I agree that this year was always about cutting back some on payroll. I am hopeful that the MASN thing will be resolved, but from everything I have read it is still likely to be a few more years. Does that mean the Nats don't keep Bryce? No major free agents for the next 3-4 years? What happened to the grand plan we were supposed to swallow when the Nats were losing a hundred games a year? We were going to build it right through the farm system. Only problem is - the Nats have forgotten to keep anyone from that farm system. Zimmernmann, Desmond, Storen all gone. Strasburg, Ramos likely to be gone next year. Extension for Rendon or Bryce - nope. I agree with Harper. DC is not Tampa Bay or Milwaukee. If the Nats want to be a destination for free agents and players - something they have said in the past and this offseason - then act like one.

Thank you Harper for articulating what I have tried to say in the past about sports franchise spending. And I agree with Rob Evans on Angelos. That guy has single handedly ruined the Orioles and now he's trying to ruin the Nats too. Don't think for a second that he won't drag this out for as long as possible. He's just getting started. If the Lerners are waiting on the MASN thing to settle then good luck.

Anonymous said...

Know-it-all fans on the Internet: "Spend more money, you cheap, penny-pinching SOBs. We want win, and we want to win right now"

Can't win owner and GM: "We're thrilled to announced we've just signed Jayson Werth to a deal for seven years and 123 million dollars."

Know-it-all fans on the Internet: "What are you, insane?! Do you have any idea how horrible the back end of that deal is going to be???"

SM said...

I was going to say that you're talking Commie talk, waving the red flag of revolution. Or even worse (from a baseball owner's perspective): talking like the late Marvin Miller.

But in an era when enacting minimum wage legislation, or even abiding by one of the tenets of classical capitalism--namely, pumping a significant portion of profits back into the business--is regarded as either opening the gates to Bolshevism or pathetically naive or both, your assessment of team ownership is dismayingly accurate.

If the Lerners are really so short of revenue, they could always try to issue an IPO and trade the Washington Nationals as a public company. I'd love to see the reaction to that suggestion at an annual owners meeting.

Harper said...

Anon - unfortunately you can't analyze based on personal wishes, it has to be on reasonable expectations of how things play out. If we could analyze on wishesvirtually every signing that improves team today would be great because there is nothing stopping the next one.

That discrepancy does set up a weird subtext though.
"We signed Jayson Werth"
"That's great!... if you mean that in 4 years when he begins to age you won't let the 20+ million he's owed affect either his playing time or the roster building but because I know you will let the 20+ million he's owed effect his playing time and the roster building I have to analyze in a way that thinks the signing is more suspect!" That gets wordy so we generally leave off the opening but if you like assume it is there on every FA deal.

Gr8day4Bsbll said...

Your last point is the most important one, Harper -- fans WILL come; we always DO. I've said this repeatedly in the past, and it's a true adage for ALL sports teams (and rock bands, and movie stars, and other entertainment franchises) -- no matter what, the dedicated fans will ALWAYS be there. And to some extent, that's the issue, because the owners (or the aging rockers, or the worn-out movie stars) KNOW that, which disincentivizes them from spending more to put a championship product on the field -- no matter how the franchise performs, the dedicated fans will continue to come out there and spend money. So while I wish the Lerners would have spent more in this offseason to land more of the FAs we were pursuing, I can't blame them for not doing so -- and I look in the mirror at one of the causes, because of COURSE I'll be there on opening day and throughout the season, just as I always am, no matter what...

John C. said...

There are few things in life easier than spending Other People's Money (OPM).

Even putting aside the costs of servicing debt, it's easy to tell owners to run their business at a loss because "hey, the valuations keep going up and you'll make it all back when you sell!" Well, that works as long as the market keeps going up. For an owner who squints as they look downrange, they may see that the industry's revenues as the world transitions away from cable networks to [something else] are uncertain at best and decide not to bank on the gravy train riding forever.

Yes, the Lerners are wealthy. That doesn't make it attractive to tell people that they have a duty to give money to a public enterprise. Compared to most people in the world, the average American is unbelievably wealthy. Yet I can tell you that most people, when approached by a well meaning person or persons about the charitable things the people could be doing with their wealth, tend to react with some variation of "get stuffed." It's easy to condemn the Lerners for doing what amounts to the same thing on a larger scale. But we should at least acknowledge the hypocrisy.

Bjd1207 said...

So my thoughts on this drift in two different directions, so I'm going to try and pull it apart and see if anything I say makes sense:

First is the argument that owners (the Lerners specifically) are not re-investing all of their profits into the club, and that they SHOULD be doing so because owning sports franchises is a different animal than typical business ventures. I'm not necessarily sold on this, but I don't have nearly the knowledge of the Nats finances or business savvy in general to refute it. In a word, I'm willing to grant that owners may be nefarious.

But setting that argument aside, is the MASN dispute really explained by the fact that the Lerners are nefarious(in the sense of the word above)? Let's assume for a second that there is some benevolent owner who reinvests 100% of their profits back into the club. Wouldn't withholding something on the order of $30B in yearly revenue significantly impact that clubs financial situation? It would similarly impact owners who only invest 50% of their profits, 20% of their profits, or 1% of their profits, it's just a matter of degree at that point. The only club that it wouldn't impact would be the owner who reinvests NONE of the profits back into the club, and I'm sure those are almost as rare as our benevolent owner.

So while we can sit here and bemoan the state of sports ownership in general, I think the MASN case is much more cut and dry. Withholding that revenue HAS to be impacting the teams finances, even if its only a much smaller impact to on-field payroll

Flapjack said...

One hates to give the Nats' ownership too much credit for nonlinear thinking, but it's pretty obvious the club has used its consecutive wiffs on big free agent signings this off season to make a point about the shoddy MASN deal. In the years since it was agreed to, cable has transformed baseball's revenue model -- and, by extension, its salary structure. The legal case for relief has been strengthened.

Operationally, Rizzo managed to goose the Mets into a questionable long term deal with a player the fancy stats say might already be in decline. Winning now is important, but there's a case to be made for being competitive while rebuilding (see:STL). Bad long term deals work against that approach (see: Phil.)

Besides, about this time last year MLB players had ranked Bryce the most over-rated player in baseball. Last year's injury-go-round made us forget how good Rendon is. There is upside on this team as it is.

John C. said...

Flapjack, I concur with your larger point that the "free agent whiffs" in the offseason are being cited by the team as examples of how the MASN mess is affecting their operations. But (and I think you agree with me on this) it's not an "after the fact" excuse or justification; the structuring of the offers (the significant deferrals and structural adjustments that make the offers worth much less than the nominal ticket price) is clearly impacted by something, and the cash flow pressure created by the lowballing of the RSN revenue can't be dismissed as a cause.

OTOH, I don't think the Cespedes contract is all that onerous for the Mets. There's an adage that in baseball "there's no such thing as a one year overpay" - and the contract is really a one year, $27.5M contract. And even at its worst it is a three year deal. With the Granderson contract coming off the books after 2017 and Cespedes no later than 2018 the Mets will be in pretty strong shape to work on an extension for whichever of their pitchers manages to stay healthy & effective the next couple of seasons.

Section 220 said...

This lays it all out for me:

It's arbitrary, but I think there's a rough justice to the idea that at least 50 percent of revenues ought to go to, you know, the players we pay to see. So, I agree with Harper's broader point - it's not just that the Lerners are cheap, it's that owners are cheap.

Bjd1207 said...

@John C. - Yea I think you nailed it, at least as far as I see it. No matter what the fact remains that revenue has been withheld from the Nationals organization. The contract offers just add evidence to the claim

Froggy said...

Although I don't have a good feeling about the Angelos and the way the whole MASN thing has played out, I don't think this is necessarily the long pole in the tent defining whether or not the Lerner's are 'cheap'. I'm with Gr8day4Bsbll and think that fans will always come out because there will always be a market for entertainment and the overall it's 'bigger than one team' baseball experience.

Curious how many folks have really looked into how the Nats organization is run on different levels and if what they saw would influence their view of the perceived (or not) frugality of the Lerner's et al. I recently went to the season plan holder Select-a-Seat event at Nats park and was quite impressed with the level of professionalism and detail that went into making the whole process a good experience. Even though I was in one of the early groups to participate and unable to move seats (turns out our seats are in a sold-out section and were better than anything available), I was still left with a sense of satisfaction that the staff was putting 100% effort into trying to make everyone as happy as possible. (was that a run-on sentence?)

Also, the way the organization has appeared to have almost completely re-tooled itself from a managerial, and medical analytics (injury prevention), perspective and appear to be investing in longer term customer loyalty and satisfaction experience leaves me with a good-er feeling of sticking with it for the long haul.

So, yeah we didn't get any of the marquis names available on the free agent market this year. And yeah, the Angelos are E'ffing the Nats via the way their army of lawyers are dragging this whole MASN royalties payment thing out. And even though I acknowledge that this must have some sort of tangible effect on contract structure for talent acquisitions, (cash flow?), and possible why the Nats haven't (yet) nailed down a couple shortfalls (catcher, 4th OF), I am not in the camp that thinks the owners are cheap.

I realize my comment is a rather rambling, oblique way of approaching the over all subject of perception of cheapness on the ownership's part, but even I don't feel they are hanging their hats on the MASN deal and going all Marge Schott on us, I do think they are being pretty transparent in how it has affected their strategy to a degree.

Harper said...

Jay - He is the most committed in terms of spending. And no one thinks he or the team is in dire straits. The message to the Lerner is less "CHEEP" than "You spend well in comparison, but every team should spend more including you"

I'm not sure keeping from the farm was ever the plan. Keeping is expensive but more importantly often not in best interests because it's based in part on loyalty rather than needs. As long as the Nats supplement strongly with FAs building from within and judiciously keeping is a fine plan.

SM - The players should run the league and split all moneys equally amongst them. Everyone does their part! I believe it was Karl "Tuffy" Rhodes who said it best "The baseball gods are dead!"

Gr8 - Yes, the unwavering support that most franchises have allows teams to spend at a level that is basically roughly agreed upon by all franchises. And it takes more than one team to upset balance. You need to crowd out the non-spenders to force them to spend more and inclusion of more playoff spots has undermined that.

John C - The future is uncertain but the average MLB payroll promised even 3 years down the road is dramatically smaller than the payrolls for the current year. There is very little possibility of a team being blindsided by a change in business so dramatic that it causes them to lose money.

There is also a difference between telling the Lerners how to spend their baseball earnings in baseball, a group they joined freely, and telling them how to spend their money in general. It is not the same as telling a person on the street to be more charitable,.

BJD - Well in your example it matters if the ownership wants to keep the investment stable. If they raise and lower it changes to the cable contract would matter less until they run into the 100% barrier. MASN matters but the big question for me is MASN effecting the payroll because of a strict business philosophy, or are they allowing it to effect the payroll to influence the MASN decision?

Sec 220 - what ends up happening is the increase in revenues is so great that the player compensation as a number increases but it's percentage of the share decreases. It's a bit insidious because people in general don't care about shares they care about absolutes. The MLBPA has to play hardball because the public isn't going to force the owners to act on their behald because their salaries "only" increased 20% while the owners made 50% more

Bjd1207 said...

Two thoughts unrelated to the thread topic:

@Froggy - I second your experience of Select-a-Seat day. My Dad and I missed the email that gave the specific time assignments for the section (their first email just said 8:00-4:00 for the event) and so we showed up like 2 hours before our scheduled section. The staff was extremely generous and understanding, and allowed us in with the next group that was selecting. Moved up about 6 rows in our section, and got out of there in time to enjoy the afternoon at the auto show. My entire experience with Nationals staff/customer service has been similar for the 4+ years I've been a ticket holder.

@Harper - A humble request. The reports on Giolito just keep getting better and better. The latest BP Nationals top-10 literally uses the term "Top-of-the-rotation demigod." Can you write a piece in the near future to bring me back down to earth?

Harper said...

That's tough. But I'm up to the challenge. However it's going to be a pretty nice Earth. Spinning dominant in A-ball as a 19 year old, Good in AA as a 20 year old into something negative is pretty impossible

Rob Evans said...

I'm looking forward to this!

blovy8 said...

I blew off the Select-A-Seat event because despite the idiots who sit behind me, I have a pretty good spot. But that supposed event is kind of a smoke screen, because you really should always be able to do what they propose - an upgrade into freely available seats. You'll notice they waited this long to do it so as to get as many new season ticket holders as possible who will be taking our all-star ducats before we can see them.

blovy8 said...

Harper, you had something in a post a few months back about Giolito not being all that as a prospect because of his underwhelming AA numbers. I defy you to show me your response to Keith Law (patent pending_, Baseball America, etc. showing your disdain for their method!

Froggy said...
This comment has been removed by the author.
Froggy said...

Blovy8 - I understand your position completely re Select a seat. To be fair, my ticket rep called me before the event to say there weren't any better seats available but I went anyway. I should have listened to her...but at least I got our Werth bobbleheads, so there's that.

Harper said...

Oooh blovy8 - I dont remember that. I even looked through old posts. The closest I came to being "negative" is saying that the most likely scenario for Giolito is a 170 IP season with sort of #3 type in 2017, meaning the overalp between great Giolito and great Bryce could be limited. I might be underselling Giolito there a little but I still said he'd be great - just maybe not in year one. Is that "not being all that"? Maybe if everyone else is saying "Demi-god"

Anonymous said...

The best case for non-"Demi-god" is the one that Harper makes: even if he is a Demi-god, there's decent reason to believe he won't be a demi-god in 2016.

Zips has him projected at worse than league average ERA and FIP numbers in 2016:

I think this reflects the fact that he didn't DOMINATE AA. His numbers in AA were good, and they were amazing considering his age. This all suggests he's done nothing to knock himself off the demi-god path, but being on that path and pitching like a demi-god in the majors right now are two different things.

It's definitely an apples-to-oranges comparison, but Strasburg owned AA/AAA in 2010 (sub 2.00 FIP and ERAs). He was 21 at the time (about to turn 22 in July), which is what Giolito will be this year (also turning 22 in July).

blovy8 said...

Well I do believe you began to question the scouting powers that be as to his being necessarily a top of the rotation pitcher in that same post. But I'm mostly yanking your chain. Before that it was more about him getting injured, but let's face it, half the current roster is more likely to be hurt than he is. I guess that really doesn't prove anything either actually.

blovy8 said...

I wonder how small a deal Desmond is going to accept at this point. Someone's going to get a bargain now. I really don't see him as a guy who will wait until the pick onus is off him to play just to get a better deal. But man, that would really screw the Nats.

Chris Jackson said...
This comment has been removed by the author.
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