Forget Salary Cap, Baseball Needs a Profit Cap

Scott Boras set off a firestorm – like only Scott Boras – when he issued a doctrine about team spending and use of revenue sharing funding. It’s not a new debate, but more pertinent given the timing, at the start of a free agent period when teams may start to reign in payroll, thus cutting into Mr. Boras’ commission checks.

That aside, Jayson Stark wrote an interesting editorial outlining the facts and calling for a salary basement as a resolution, pointing the problem at the lower spending teams, similar to Boras. They both are right, but understanding the problem is one thing, solving it a completely separate story.

The Yankees, Red Sox, Mets, and Cubs are not the problem here. They play in big markets, maximize revenue to the best of their ability, then reinvest in the product on the field. They also play by the rules, paying a substantial tax on their earnings, similar to the US government taxing the rich more than they tax the poor (or at least that is how its supposed to work). Most people agree it’s the Pirates, Royals, Marlins, et al, who cash the “stimulus” checks, but stash the money in savings that hurt the baseball economy.

Ending revenue sharing is not the answer. Smaller market teams need some of the big market revenue to stay in the game. Its not feasible to think a team in Pittsburgh will earn the same local media revenue, sell as much merchandise, or get the same level of sponsorship as any team in a market with a substantially larger population and healthier economy. It’s just not possible. So some sharing is necessary.

As an aside, the fact the Florida is considered small market is a joke. Look at Miami-Dade County in terms of size, spending power, per capita income, television market, and almost any other statistic relative to Milwaukee, Pittsburgh, Cleveland, and others, and explain how Miami is small market. The Marlins problem is management, and the fact that the city will not support a baseball team, and that responsibility falls to MLB to fix or change.

Back on topic. The deeper problem is not that team salaries are low relative to the amount collected from revenue sharing, its that these teams are among the most profitable in baseball. MLB VP of Labor Relations Rob Manfred is correct that player development and team operations is a major expense that the public does not consider when looking at the face value numbers, but those expenses should still go into the P&L, so how do these teams end with a profit?

Salary minimum’s are tough since teams do not to rebuild, may flush money into player development (i.e. future investments), or it could force teams to make poor spending decisions because they are forced to spend. An alternative method is a profit minimum. First, teams need to submit to more transparency with the league office (not necessarily the public). Use projected revenue numbers for the season, including MLB central fund contributions, and do not allocate any revenue sharing money until a small market team exceeds that forecasted number – whether its on player development, team payroll, or organization spending. At that time, teams eligible for revenue sharing can only collect when they have incur an expense. For example, Pittsburgh needs to sign a free agent, then it will receive the revenue sharing money to cover that players salary. Each team can continue to draw from this revolving credit line up to the amount they would receive under the current system.

Anything above that amount, the owners need to fund, similar to today. If they don’t exhaust the funds, then the money goes back into the central fund for redistribution to all teams – NOT into the owners pocket. Sports ownership is not a profitable business annually, owners know that coming in, the big profit comes when you sell a team whose value appreciates.

It’s not perfect, but another idea to put on the table. In the end, the only way to truly satisfy the public and the ancillary stakeholders is with full transparency, which I would not hold my breath waiting for. In this scenario, at least it takes the profit out of the hands of the owners and forces some transparency.

Advertisements

YES Network Marketing Follies for Live In-Market Streaming Package

“Watch the Yankees when you’re locked out of your house?” I know that’s not the first thought when I’m locked out, it’s a distant second, with everything else behind gaining entry! Yet, that is how YES Network is pushing their product to the market place.

When the Yankees, YES, and MLBAM announced the first live in-market streaming deal in July with a price tag of $39.95 for the rest of the season or $19.95 per month, it immediately raised the question of who would pay for this and what would they gain. MLBAM and cable nets are absolutely right in that they should charge for it out of the gate, and prevent the issues every other media business that moved online with free content now faces. However, subscribers have to be Cablevision (and now Verizon) customers with both Internet and cable service. My question, and one YES should consider as they market the product, is one would someone already paying for network at home, pay a significant fee to watch games online all season?

The marketing plan does not communicate a value proposition to its audience, a reason why they should pay additional for this service. Further, it’s creative leaves much to be desired, and I don’t think I’ve seen any distribution outside YES and its website (though I’m not a Cablevision or Verizon customer). MLBAM offers a tremendous online game package with great features and high quality feeds, YES should be touting what you don’t get with a regular cable subscription at home. Talk about the live stats on the side, the fantasy player tracker, the ability to call up highlights on-demand, social media integration to discuss the game with fans, and even PIP if they are MLB.tv subscribers.

Next, consider when customers will use this service. According to YES, its at the beach or when you’re locked out. Maybe I’ve been locked in a cave, but I’m not seeing many laptops in those situations (leave mobile out for now), nor do I feel the Yankees game is top of mind in either situation. The ads do mention work, which is likely the number one place, but what about in the house when your wife/parents are watching something else, or at school, or stuck traveling – or you want to track stats and interact during the game. Build out realistic scenarios, then develop creative that presents them in a more humorous way – similar to how the NCAA tournament employs the boss button. A key missing ingredient in the marketing is that I never see someone watching the games on their laptop in any realistic situation. All YES shows are generic Yankee highlights, if you watch it without sound it’s not completely evident what the product is.

One problem could be that YES is marketing a product that does not yet exist – single PPV games. Without any added value, customers will always opt for TV over online, making a full season or even monthly package less realistic. Then the marketing campaign touts one-off scenarios when the product is useful (beach, etc.), yet you can’t buy a single game for say $2.99.

Two other points on YES product roll-out. First, I mentioned the poor distribution earlier, but placement on their website is abysmal. I actually looked at the site for a good minute or two and thought it was not on the homepage, until I finally found it at the top, with the same colors as the background and no distinguishing creative. Not going to attract fans who are not looking for it. Second, the team should offer fans a chance to sample it, say one game free for all eligible subscribers, or put a time constraint. Get people to experience it, try it, live it – and win them over that way. Make completing a survey a stipulation for the free access, and leverage that data for next year’s product.

Under the current conditions, I don’t see how this product is generating much subscription revenue at this point. Though, it does have promise if executed correctly.

ESPN Live Twitter-Type Coverage Good Thought, But Not There Yet

After a week of many negative Twitter stories, it was great to see ESPN experiment with its use in real-time, live game coverage, which can be a sweet-spot value proposition for the microblogging tool. ESPN employed Baseball Writer’s Jayson Stark, Rob Neyer, and Amy Nelson, now legendary Bill Simmons, the Stats and Info group, and an MLB Editor to tweet live during the game, though Nelson was the only one at Yankee Stadium.

ESPN provided a live chat type interface on their website that housed all the tweets from the aforementioned participants, and occasionally a user question – though none were good and we have no idea how they selected those questions. All tweets alos went out through Twitter under the individuals name, so you had to be following all of them to see the whole thing unfold, which I was not until last night, but now I am, so one goal of ESPN accomplished.

It felt very much like an experiment. My ESPN portal showed me the countdown screen more than the actual content, and my comments fell into the black hole. It was difficult to use in that it constantly froze and restarted. Lost me quick. On Twitter, my feed was a mess, and keep in mind that Twitter does not automatically refresh. Further, just because ESPN is hosting an event, the rest of the world does not stop Tweeting, so ESPN tweets intertwined with other users I follow, making it difficult to follow. Twitter really needs a filtering option, above and beyond search. In this instance, search was difficult because the tweeters were not consistently tagging any of the tweets. I would have liked to filter everyone out but them and a few other local reporters to create my Yanks-Red Sox feed, or have the option to filter all of them out of my feed so I could monitor the rest of my universe without the constant commentary flooding my screen.

While ESPN’s tool was anti-user, in that it prevented user comments, it successfully controlled the flooding effect of a message board or live chat, making it a tolerable experience. The next step is to let users pick who they want to follow, not force everyone on them, to stabilize the platform, and decide how to handle user interaction, which has to be incorporated, but carefully – as in not with the fire hose approach. Further, mirroring all the comments in Twitter may not be the best answer. Yes, it opens up all followers to the comments, but they can easily do that my tweeting to go to the website for live game action. This is where a team/network/league can add value by understanding its customer base. What did ESPN gain from the experiment last night? Some ad dollars I assume. But they left most of the traffic stay on Twitter, did not push users to register or provide any information, and failed to incorporate sponsorship or involve advertising in the live feed. Sports fans are engaged, a small hurdle of registration or advertising will not stop prevent them from engaging in live conversation during a Yankees-Red Sox game. Doing it for the sake of doing it will not hold the answer, they need to recognize value.

Plus, if Bill Simmons is involved, ESPN needs to put a die hard Yankee fan to match wits and trade barbs. It would add entertainment value.

Will Customers Say ‘YES’ to Double-Charging for Streaming

YES Network officially launched its partnership with Cablevision to stream Yankee games in New York Wednesday, the first local market live streaming deal in the major professional sports that rely on local TV revenue. A day later, the network had the perfect bargaining chip – a mid-week afternoon game. Now fans can catch every minute of the Bronx Bombers, even at work.

A few aspects of the deal boggle my mind. Start with the combination of exclusivity and price point. Only customers of Cablevision’s cable and Internet product are eligible to sign up, thus some form of authentication is in place to manage access. I’m all for charging for online content, however if Cablevision and YES implement an authentication system, doesn’t that assure that all the users already pay for YES Network on cable? The point of charging for online content is to avoid giving it out free, not to double-charge customers that follow the rules.

Given the operational cost of live streaming and the anticipated demand networks and teams project, a small fee is justified, but nailing customers for $50 for the season while still charging them for YES on their cable bill will not help gain traction for the service.

On to the second key point, content distribution. Streaming video will most benefit users who can’t access the network on TV, so why cut exclusive deals for people who already receive the network. YES should focus on those who currently have no access to YES, thus presumably have higher demand for the live stream. This may be less pertinent in the NY market, since YES is widely distributed, but look at San Diego, the next market to roll out the service. Cox has withheld Padre broadcasts from AT&T IPTV subscribers, so a significant audience that demands baseball has no access – the perfect place for live streaming. Yet, the team is dealing exclusively with Cox, who already broadcasts the games.

I understand the politics surrounding these decisions, yet it still perverse action by the teams and leagues as they attempt to usher in a new revenue stream. Given the choice of HD on a nice TV or streaming video on a little computer screen, which by the way inhibits multi-tasking, the choice is clear. However, given the choice of nothing or live streaming, sports fans will shell out.

The current price point appears to high to gain traction among cable subscribers that already have access at home. Is it really worth $50 to sneak a peek at the handful of weekday games the next 3 months? And listening to the YES marketing pitch, someone should advice them that most people don’t go to the beach and plan to watch Yankee games on the Internet. Maybe they should rethink that campaign.

If they have an authentication mechanism in place, baseball should consider different price points for current cable subscribers and non-subscribers, plus add the option to purchase individual games, in addition to the rest of the season or 30 days to encourage incremental purchases. Right now, I envision single game options would increase revenue more than lost revenue from potential 30-day purchasers trading down.

Cowboys Prove Ticket Demand Still Exists – At the Right Price

…and that price is different in every city for every team at every stadium. The Cowboys are the team in Dallas. Though the Mavs sell out and the Stars usually do well, the Cowboys headline that city. Jones built a palace, charged the highest prices around – $16-150k per PSL as reported by SBJ – and he is still on the brink of selling out the Stadium, coming off a disappointing season no less. Jones knew the market and did an excellent job of extracting maximum value.

On the other hand, look at the NY market. The Yankees, Mets, Jets, and Giants have all failed to an extent, mispricing tickets and leaving revenue on the table. If you view ticket pricing and ticket plans as a negotiation with your fans, as with any good negotiation you need to wait for the best opportunity to come with your best offer. Its arguable that both NY baseball teams came to fans with an offer to benefit the teams at a time when neither had any leverage in the situation.

First, the economy clearly hurt, but that’s out of the teams control, though they could have reacted better by making changes on the fly and won some equity with fans. Second and somewhat overlooked, they are all entering the market at the same time. Part of the allure of new stadiums is the differentiation factor. The NY sports market essentially offset each other on this factor by opening stadiums and selling PSLs all within a few months span – that’s four fan bases, with a lot of overlap smacked upside the head at the worst possible time. Another point, which is minute in this instance is that outside of the Giants none is coming off a recent championship or even a playoff season, and no player has arrived that can move the needle on ticket sales since A-Rod. Since all four teams do spend in free agency and have star players the argument holds less weight, but it’s another point to keep in mind.

The point here is that the lack of differentiation in the NY market for new facilities and the current situation gave the fans leverage in the ticket pricing “negotiation”. This leverage drove down demand, however the teams priced tickets at the point where demand may have been if their stadium was the only new one and they were the only game in town – similar to the Cowboys. It’s not that today’s sports market can’t yield these prices, its that teams can’t operate in a bubble, they need to become more keenly aware of the external environment and remain flexible.

This applies to smaller market teams, who may not receive criticism for high prices, but still play to half empty stadiums. Think bigger than just your team. Management is smart enough to do this and always talks about, yet it often does not show up in practice.

A More Effective Ticket Promotion Than Giveaways

Research shows that not even new ballparks can sell tickets after a year or two if team’s don’t perform. Winning sells tickets, which makes the marketing and ticket sales jobs at the Pirates, Royals, Reds, and other perennial non-playoff contenders, among the most difficult in sports. Filling up Yankee Stadium in its final season with a World Series contender on the field is one thing, drawing 40,000 for a mid-August game at PNC Park when the Pirates are 15 games out of first is another story.

Earlier this season I read an article that Pittsburgh had scheduled over 70 promotion nights this season. ALmost every night for the enitre season the Pirates gave something away. Sports Business Journal reports that 111 cap days are scheduled across all MLB teams this season, 95 shirt giveaways, and 94 bobblehead nights at the stadium. Checking the attendance, we find no outliers in the winning is the only predictor for ticket sales theory, so are these giveaways worth it?

The short answer, no. At least not this many. If teams giveaway items a few times a week it devalues the effect of a promotional night, a simple supply and demand concept – saturate the market with product and demand will decrease because consumers can get the product whenever they want. Translate, more promotional nights removes the fan urgency to attend Cap Day or Bat Night because any time they show up its likely to be fill in the blank night. Besides the over saturation, the more giveaways, the more likely the giveaways become cheaper and less valuable to the fans. SBJ references “Jar Gripper Night” at Yankee Stadium, sure to have the throngs running.

While teams have become creative and thoughtful, using gas and concession promotions to provide value for the customer, more teams should institute frequent buyer programs. Baseball games might not compare to selling coffee, but ticket departments can take that get 10th coffee free concept and apply it to games. If implemented successfully, the concept will bring more repeat customers, and build loyalty that one-time promotions fail to do.

Each buyer create an account online with the team, which they use to make purchases. Each ticket purchase credits their account with points. When the account reaches a certain point value fans can redeem the points for tickets. Teams can apply the usual game and seat location restrictions, but the program works like a frequent flyer program. Throw in an added-twist, assign different point values to different games. Coming to a game against the the Mariners is worth more points than a Yankees or Red Sox game since those teams will draw big crowds anyway. Build in the incentives to see the lesser teams by giving the customer value.

Taken a step further, following the frequent flyer model, allow fans to redeem points for other non-ticket prizes. One idea is to hold an after-season camp for kids and a dinner with the players for fans of all ages. Assign point values to each prize. Sell any remaining tickets after the season.

On the concession side, values meals are the current trend. For teams with a digital or wireless POP system, where users have accounts, give discounts out after purchases. Credit the account with coupons for each game they reach a pre-set spending level.

Finally, cut back the promotional giveaways. Revert to the days when Bat Day was special. Fans don’t need to open their own Bobblehead museums, one a year, or a small series of at most three, is sufficient. Use the giveaways to appeal more to the kids, while creating value that adults and families can appreciate. Better value will lead to repeat customers. As teams move to fully digital systems, it opens the door for more cross-promotions with sponsors, such as gas vendors and retail outlets, because its easier to track than handing out paper vouchers.

Joba Fist Pump

David Delucci doesn’t like it. Frank Thomas could care less. Yankee fans say its pure emotion, Yankee haters claim its bush league. One thing seems clear, the Joba Fist Up is here to stay.

After a key strikeout of Dellucci in Thursday’s game to end the eighth inning, Chamberlain gave an emphatic fist up, yell, and half pirouette. Two nights earlier Dellucci deposited a Chamberlain fastball into the right field seats to beat the Yanks. He felt the mound histrionics on Thursday were retaliatory, and blatant showmanship.

Many agree, arguing, a mid-May Thursday afternoon game, with a 3-run lead does not warrant that type of emotion. Those same people that lit up talk radio and print media after the game, were talking about how important this game was for the Yankees, following two straight losses, with the up and down Mussina on the mound, before heading to a weekend series where the legendary Kei Igawa would take the mound. Somehow the game went from important to a ho-hum when someone showed emotion, and played like it was important.

The fact I’m even writing about this is almost comical. How many pitchers, especially often eccentric relief pitchers, put on a mound display after clutch strikeouts. Papelbon and Franky Rodriguez to name a few of the more prominent. Tom Gordon points to the sky after he completes an inning, does that get under anyone’s skin? Ugueth Urbina used to put on a complete show, worthy of judges and a Dancing With The Stars appearance. Is Manny Ramirez still watching the last home run he hit, or is it finally time to break into his walk around the bases – calling it a trot is a slap in the face to leisurely runners across the world.

Why pick on Chamberlain? Because he’s a Yankee – markedly, easy targets – or because he’s not Mariano Rivera, the stoic, emotionless robot on the field that he’s most compared to. Joba’s not calling out people in the media, he’s not pointing directly at other players, or staring them down, his antics are not directed at other players. Fact is, the media and fans have built up the phenomenon that is Joba Chamberlain and the 21-year-old is feeding the hysteria.

Maybe ten or twenty years ago dancing off the mound is unacceptable, not anymore. I prefer old-fashioned baseball, but if you want to start cleaning up showmanship, Joba is at the end of a long line of culprits still awaiting criticism.  By the way, did Manny start running yet?