Cry Me A River Build A Bridge And Get Over It

This time of year you hear and read much wailing and gnashing of teeth about greedy players, greedier agents, and the greatest den of scum and villainy behind it all — the MLBPA. Pedro Martinez left Red Sox Nation heartbroken. Carlos Beltran, who made such nice noises about Houston, bolted the state of Texas and joined Martinez in Flushing. Roger Clemens held the Astros for ransom and settled for a paltry $18 million. Players line up like pigs at a trough to wear the Yankee pinstripes and cash checks signed by George Steinbrenner. Alex Rodriguez will go into the Hall of Fame on the first ballot and even if he hits 800 homers, the stat he’ll be most remembered for is 252 (million dollars).

Spare me.

If you read the mainstream media, you’d get the impression that the players and their agents do little more than behave like pigs trying to find truffles, sniffing around looking for top dollar regardless of where it leads them and being willing to lie, connive, misrepresent, extort and manipulate their way to riches caring little of who is hurt along the way. You’d guess that if Jesus Christ were to join mankind again, Scott Boras would make bloody sure that he’d get more than a lousy 30 pieces of silver for him. Oh the poor owners — shackled to a system where they’re forced to pay tens, and even hundreds of millions of dollars to greedy players who just want more, more, more.

Please.

I might be able to shed a tear for the poor blighters if I could grate a large onion and stick the pulp up my nose and rub it into my eyes — but even that’s a stretch.

Here’s something for you to think about: All we hear from Bud Selig is how baseball needs fixing — more revenue sharing, lower payrolls, and giving teams “faith and hope.” Yes, it’s a bit of a problem that the New York Yankees spend more on the luxury tax than the Tampa Bay Devil Rays do on their entire payroll, but look at this from another vantage point: Selig — despite the pap he feeds to the media — enjoys having this inequity and indeed uses it to fill his pockets and those of his cronies. The commissioner’s business plan for MLB was summed up by “Dire Straits” when they sang about ’money for nothing.’ Baseball’s inequity is the goose that laid the golden egg for MLB and make no mistake about it, the Yankees payroll fills Selig with more glee than consternation.

It might help balance your view of baseball’s silly season if you understand what Selig (and other owners) are truly saying in the media. Here’s a helpful guide:

What Bud and the owners say: “The Yankees and Red Sox payrolls make it impossible for other teams to compete.”
What they mean: “We need more free money.”

What Bud and the owners say: “Our small markets need faith and hope.”
What they mean: “We need more free money.”

What Bud and the owners say: “A new stadium is vital to make [insert team name] a viable franchise.”
What they mean: “We need more free money.”

What Bud and the owners say: “Salaries are out of control.”
What they mean: “We need more free money.”

What Bud and the owners say: “Competitive balance is something we‘re striving to achieve.”
What they mean: “We need more free money.”

What Bud and the owners say: “We lost several million dollars this year.”
What they mean: “We need more free money.”

Despite publicly girding his loins with sackcloth (I never felt sorry for sackcloth until just now) and placing ashes on his head, competitive balance isn’t the problem it’s been made out to be. Since the strike, the contraction candidate Florida Marlins have won two World Series and the Anaheim Angels won one. The contraction candidate Minnesota Twins just three-peated in the AL Central, the Oakland A’s just missed their fifth straight post season appearance, the one-time pitiable Cleveland Indians (remember the Major League movies) won six division titles and two pennants, the one-time equally pathetic Seattle Mariners won three division titles and qualified for the playoffs once via the wild card. The Yankees, the team you’ll recall that wins the World Series every year before they start the season, haven’t won since 2000.

So when Bud and the owners are saying: “Baseball needs to become more competitive.” What they’re really saying is? Class?

“We need more free money.”

Now you’re getting it.

Let’s look a little closer shall we? For a small market to “be competitive” what does our fair commissioner say is required?

Stadium Scams

A new stadium!

However, since the poor owner is eating Fancy Feast with his fingers while living in a beat up cardboard box under a bridge, he cannot afford to build one himself. So, off he goes, hat in hand to the local politicos and says: “Help, I‘m going broke, the players are too greedy, the Yankees and Mets are buying all the best players, and I really, really, really want to win a World Series for our fair region because I really, really, really love it here and would like nothing better than to deliver a winner for the good folks here. If it‘s not too much trouble, could you take some money out of the school budget, healthcare, infrastructure, libraries and social assistance and slip me a few hundred million? That way I can increase payroll and stop trading our best players to the Yankees. Best of all, I‘ve hired a friend who has crunched the numbers and if you do this, your city will become El Dorado.”

“Oh yeah, if you don’t cough up the dough, I’m out of this loser borough.”

Well, community after community did just that and gosh darn it, look at the turnaround in the so-called “small market” teams since the strike:

  • The Reds moved into the Great American Ballpark and are 69-93 and 78-84 and still look to keep their payroll low.

  • The Brewers moved into Miller Park and are 68-94, 56-106, 68-94, and 67-94 and have featured among the lowest payrolls in MLB.
  • The Pirates moved into PNC Park and are 62-100, 72-89, 75-87, and 72-89 and traded their two highest salaried players in recent seasons (Jason Kendall and Brian Giles).
  • The Tigers moved into Comerica Park and are 79-83, 66-96, 52-109, 43-119, and 72-90 and announced a payroll freeze their first year in the new park.

Granted Cleveland, Baltimore, Texas, Houston, Seattle and Atlanta have enjoyed success, but bear in mind however that the Indians, Astros, Mariners and Braves already had assembled solid rosters before their parks opened and Baltimore didn’t reach the post season until five years passed from the opening of Camden Yards. Conversely, as we mentioned earlier the teams that have been competitive (Twins, Angels, A‘s, Marlins) are — excluding Anaheim — clubs that can’t “compete” because of playing in ‘economically obsolete’ facilities.

Since many teams with new stadiums are struggling on the field and teams with older facilities are doing well, we can safely assume that a “competitive club” from Selig’s standpoint means a new stadium, a .500 record, a 20% drop in attendance, and all the club seats and luxury boxes are leased. New stadiums aren’t about “being competitive” — good management will accomplish that — it’s about free money, corporate welfare, and higher profits from gorging oneself into a stupor (which explains a lot) at the public teat.

Just remember this: a new publicly financed stadium doesn’t mean a better team, it means neglected schools, reduced public services, and budget shortfalls … all so your local billionaire leech can make $10 million mistakes as opposed to million dollar mistakes. If you put a pig in a tux, all you’ve got is a pig in a tux. You give extra money to a bumbling front office, and you’ve got richer idiots.

Tax, Lies and Red Tape

So … your poor impoverished team owner took another bath this year. Tens of millions in losses. Well, I’m gonna don my pointed hat (the one with stars and moons, not the one with “dunce” written on it) and show you how to make a $50 million profit drown in a sea of red ink:

BEHOLD!

Did you know you can buy a major league team for half price? That’s right. When a team is purchased, the buyer can claim 50% of the purchase price as residing in player contracts and can be amortized over the first five years of team ownership. In short, when the Red Sox were purchased for $700 million, $350 million of that will be depreciated over five years. This means that John Henry and Co. can make a book entry of $70 million a year in the loss column in years 1-5.

Obviously no real money has been lost but the amortization is counted as a loss. Adding to the fun is the team’s ability to write off the out-of-pocket costs of replacing the players — two bites out the same apple. To use a quick example: Suppose you bought an expensive piece of machinery for your business. Would you like to be able both to write off the purchase price of the machinery and amortize it too?

Club owners can — and do.

So, let’s give the Red Sox the hypothetical $50 million profit (which is obviously high, but it serves as an example of how much profit can potentially be hidden) and loose the accountants on it:

$50 million profit
-$70 million depreciation
—————————————-
-$20 million

Oh we’re just getting warmed up. We can make that loss even bigger: the owner(s) draw a salary of course. Let’s pay the owner $2 million a year — his salary is considered an expense the same as the players‘ salaries:

-$20 million
-$2 million (salary)
—————————————-
-$22 million

We can lower this total still further several ways: one of Henry and Co.’s other holdings can “loan” money to the Red Sox at a high interest rate and the interest the Red Sox “pay” to Henry’s other companies counts as a loss. The Red Sox and NESN are owned by the same group. So, how much do you suppose NESN pays the Red Sox for TV rights? Especially when you consider that the money that flows from NESN to the Red Sox will be counted under revenues which are part of the determination of how much revenue sharing they’ll pay?

It’s in the Red Sox interest to be paid as little as possible by NESN since (1) it lowers their total revenues which lowers the amount of revenue sharing they’ll have to pay and (2) it lowers their profits (or increases the red ink) on the books which looks good when you have poor mouth municipalities into building you a new stadium or try and get the MLBPA to accept salary restrictions lest you “go broke.” Any team that is owned by a corporation that also broadcasts its games take advantage of this.

Suffice it say, we can push that $22 million loss a lot lower (higher?). However, we’ll use that $22 million total for our next trick: Suppose Henry and Co. are in a 33% tax bracket. They can use that $22 million pre tax loss to reduce their total taxable income from other sources by $6.6 million (33% X $22 million). In summation, the Red Sox owner(s) are $58.6 million better off ($50 million profit plus $2 million salary plus $6.6 million tax break) and at the same time, can claim the team “lost” $22 million!

By the way — I’ve only scratched the surface of how they can hide profits.

Revenue Sharing And the Collective Bargaining Agreement

After the CBA was ratified, it was defined as a “subsidy for the incompetent.”

Here’s what has happened since:

  • The Royals still reek. However David Glass is better compensated for being forced to watch them do so.

  • The Devil Rays are still the AL East’s official punching bag, but Vince Naimoli is making more per punch.
  • MLB’s richest owner (Carl Pohlad) is wealthier and won’t have to do anything to earn it. If he were a literal leech, he’d probably look like Jabba the Hutt by now.
  • Teams in some of the largest markets in MLB (White Sox, Phillies) have been handsomely rewarded for their failure to take advantage of it.
  • For being among the cheapest owners in baseball, Carl Lindner received a new, publicly financed ATM in the shape of a new ballpark and is drawing larger welfare checks from teams that actually invest in their product.

Best of all, none of these yahoos invested a thin single dime to receive this largesse. However, owners that invested in their clubs wisely, developed their market, found new revenue streams, put a good club on the field, and reaped the rewards are financially penalized for doing so. Why on earth is one of the richest men in America (Carl Pohlad) being paid baseball welfare by people who aren’t nearly as wealthy?

The irony is that it’s the best on both sides who’ll pay under revenue sharing. The best owners will pay more and the best players will be paid less. One of the reasons salaries have gone down is that superstar players are now officially worth less in the open market.

Before more comprehensive revenue sharing was brought in, the Yankees signed Derek Jeter to an approximately $18 million/year contract because they believed his impact on the marginal revenue product (MRP) will be higher than that. For the sake of argument, let’s assume it’s $20 million (meaning Jeter’s contract would generate $2 million in profits for the Yankees annually — this point is key so it’s in bold, so remember this point). Since it wouldn’t matter a whit to FOX/ESPN whether Jeter stayed in New York or went to the Dodgers/Braves/Mets/Cubs it would have zero impact on the national TV revenues paid by FOX/ESPN.

In short, the Yanks were looking how Jeter would impact on local revenues. So, under the current scheme (50% local revenue shared), if Jeter is worth $20 million to the Bombers local revenue, then $10 million of that is thrown into the revenue sharing pot. That being the case, the Yankees are paying Jeter $18 million to generate [in effect] $10 million in local revenue (the share the Yankees can keep after revenue sharing). Now it’s a doggone cinch that there’s no way anybody would invest $18 million/year to get back $10 million. So the only way the Yankees could profit [to the tune of the aforementioned $2 million] by retaining Jeter is to offer him $8 million/year.

Now let’s factor in the proposed luxury tax: For the sake of easy math, suppose Jeter’s $8 million contract puts the Yanks $8 million over the 50% luxury tax threshold. That means they’d have to pay $4 million in taxes to cover the Jeter contract. That being the case, Jeter’s contract is worth $4 million less to the Yankees because of the tax. So Jeter’s contract will only impact on the Yankees local revenue to the tune of $6 million. Therefore, if the Yankees wanted to earn $2 million in annual profits off the Jeter contract, they should — in our Brave New World — only offer Jeter a contract that would average $4 million a year (rather than $18 million).

So that money comes out of the hard working Derek Jeter’s (a guy who puts fannies in the seats) pocket and is given to the baseball-incompetent Carl Lindners, the subsidy-happy lying billionaire Carl Pohlads and Mike Ilitchs of baseball (whom nobody would pay a thin dime watch work).

Unmasking The Real Culprit

Picture if you will, what Bud Selig would call his perfect baseball world: 100% of baseball revenues are put into a pot and divided evenly 30 ways and a hard salary cap is in place. Perfect, right?

Guess again.

In this “utopia” could you go to your local government and say: “I need a new public financed stadium to compete or I‘m going to go broke”? Why do you need a new stadium? You have the exact same revenues as the Yankees and they can’t outspend you. Wherever you play your situation would remain unchanged relative to the other teams in the league. Could you with a straight face go to your city, municipality, state and say: “I need a new public financed stadium to compete or I‘m going to go broke and if you don‘t build it I‘m leaving”? Where would you go? You’d be no better or worse off than where you were [at the moment].

A degree of perceived competitive imbalance/perceived economic losses is important to Selig (why do you think that he‘s to the word “aberration” that Ford Frick was to word “asterisk”?) in that it gives him leverage to extract public money for his stadium scams. It allows him to go to the media and say small markets can’t compete, He can claim market size disadvantages, he can claim payroll disadvantages etc and beg the MLBPA for more concessions. Absent these “imbalances” he has no claim to need public assistance or salary restrictions. Remember baseball’s hammer: the antitrust exemption. There’s only one game in town — major league baseball. If Bud Selig had his alleged utopia, then any market that could support a team could have one. Your revenues are guaranteed and your player expenses can’t go past a certain point.

Baseball doesn’t want that however; by having fewer teams than cities that could support them, they have another tool in their “We need more free money” belt. Now he can make the threat “[insert team name] needs a new public financed stadium to compete or [insert team name] will go broke and if you don‘t build it [insert team name] is leaving.” The name of the game is no longer fan support but corporate welfare. Why didn’t Washington get a major league team during the multiple rounds of expansion since 1977? D.C. didn’t put enough subsidies on the table. Now that they’re willing to cough up 100% of stadium costs and assign the lion’s share of stadium revenues to the team, now Washington is “ready” to become “major league” again. When the deal fell almost fell through Washington “ceased” to be “ready” for major league baseball.

During the off season, don’t feel sorry for the owners. They don’t deserve your sympathy, they deserve your scorn. When you read their pathetic bleats that they issue through their toadies in the media, just remember that all they‘re saying is: “We need more free money.”

The players give us thrill, chills, and excitement, the owners give us gut-wrenching nausea — who do you want to spend your money on?

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