Second-Tier Troubles in the Majors
Baseball is having a dream season.
The
New York Yankees
are once again Ruthian and the home run race has been nothing short of brilliant.
The problem with baseball, however, is that no matter how many games the Yankees win and no matter how many home runs
St. Louis Cardinals
slugger
Mark McGwire
swats, the small-city ball clubs will remain in the same sorry state they've been mired in for years.
One would think that small-market clubs would see their franchise values rise in conjunction with the escalating amounts people are willing to pay for other teams.
News Corp.
(NWS) - Get News Corporation Report
IPO this past June, clubs such as the
Pittsburgh Pirates
and the
Florida Marlins
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are putting their plans on hold.
"The Indians may have killed the IPO market for everybody," says Bill Rhoda, of the Minneapolis-based sports consulting firm
CSL International
, which has been consulting with the Minnesota Twins about a possible IPO. Indians' stock was trading at 6 7/8 Friday, down about 54% from its 15-a-share offering price. Indians CEO
Richard Jacobs
was the lone beneficiary of his club's IPO, raking in $54 million, according to
Securities and Exchange Commission
documents.
While the popular Indians ball club -- it has had straight three years of sellout crowds -- actually earned $22 million last year, the Twins are expected to lose $12 million this year, according to Rhoda of CSL. Fortunately, potential owners-to-be are not interested in cash flow, says Steve Carr, managing director with the accounting giant
PricewaterhouseCoopers
in Chicago. Instead, they're interested in resell value.
If a recent championship-caliber team like the Twins can't generate any ownership interest, then what is going to happen to the Pirates and the many other teams that are perennial also-rans? Unlike in football, local baseball television revenues are separate from the national rights package held by
Fox Sports
, a part of
Rupert Murdoch's
News Corp. Each team receives $10 million annually from that contract.
"The disparity in team ownership comes when the Yankees get $50 million in local television rights revenues and the Minnesota Twins only get $5 million," says CSL's Rhoda. In the
National Football League
, each team receives $70 million a year from its seven-year, $17.6 billion contract.
Baseball owners recently instituted a luxury tax on teams with steep payrolls in a bid to share some of the wealth. This year, five teams with payrolls above $59.9 million had to shell out money, but that isn't going to help the
Montreal Expos
, who try to compete with a team payroll of $9 million. The
Baltimore Orioles
will pay the most ($2.2 million) in luxury taxes this year, according to
Federal Filings
.
So is a more equitable revenue-sharing of local TV revenues the answer? It may help, but it doesn't seem like owners such as Yankee owner George Steinbrenner would ever agree to a more equitable system.
In baseball today, the rich are truly getting richer. The exception in this case is that instead of second-tier teams getting poorer, they are simply going to have to pull up stakes and move away. And even 100 home runs from McGwire this year won't change the lopsided economics of America's pastime.
Lerner Snags the Browns
It's official. The NFL and
Goldman Sachs
decided in their infinite wisdom to bestow on Al Lerner the new Cleveland Browns franchise for $530 million, besting an offer of $500 million by
Cablevision's
(CVC)
Larry
and
Charles Dolan
.
To put things into perspective, that's more than twice what Texas auto magnate
Red McCombs
had to pay for the
Minnesota Vikings
earlier this year, but only a little more than half of the $1.03 billion Murdoch will now pay for one of soccer's best known clubs,
Manchester United
, in a deal announced Wednesday. As mentioned above, Murdoch's
Fox Group
, a division of News Corp., also bought the Dodgers earlier this year.
Lerner has long been considered the
front-runner in this highly competitive managed bidding process run by Goldman Sachs. Not only will the result set a new standard for sports franchises in the future, but it will make the Browns the 31st franchise in the league.
That could pose some problems for the NFL, however. Next year when the Browns begin play, every team will be forced to take a bye week, even during the last few weeks of the season, since there are now 31 teams. This awkward number of teams means the NFL will be adding a 32nd franchise sooner rather than later. adds PricewaterhouseCooper's Carr. So who's going to be next?
Interestingly, it's two other cities that have lost franchises -- Houston and Los Angeles -- that are in the running, says Carr, whose firm was involved in the Browns deal.
Interestingly, neither Los Angeles, nor the NFL, seem to miss having a football franchise in the second-largest television market. "Houston may very well be the front-runner for the next franchise," says Bill Miller of the sports research firm
Team Marketing Report
.
Let the bidding begin.
