A bit more on the distinction between the Wilpons and the McCourts

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In that last post about the difference between the McCourt situation and the Wilpon situation, I said that there was a difference between Wilpon’s ownership interest in SNY and the Dodgers’ ownership of broadcast rights.  That distinction led to a couple of similar reader comments. Like this one:

The situations are identical, just different structures. The major asset of SNY is the rights to Mets games, right? McCourt has Dodgers rights He could create a network and sell the broadcast rights to for $bazillion
He could then sell the network which is his personal asset to pay off his divorce. And that is OK where selling the rights to Fox is not?  SNY is just a shell for the rights that is packaged as an operating company.  No difference at all.

It’s actually even more stark than my reader says.  The Mets — as a team — likely get pennies on the dollar of what their broadcast rights would be worth on the open market because Wilpon is on both sides of the deal with SNY.   By underpaying for Mets rights, SNY is worth more and the money it keeps — as opposed to the money the Mets would have received — is not subject to revenue sharing with the other 29 clubs.  This has been going on for years, by the way. Ted Turner used to do with the Braves and TBS, albeit for some different reasons.

All of that said, I don’t disagree with my reader’s analysis. The point I was trying to make in the last post — and in hindsight utterly failed to make — is not that there is a fundamental difference between broadcast rights and regional sports network ownership interest. It’s that Bud Selig does and will continue to treat such things differently — and thus he will likely treat McCourt and Wilpon differently — even if doing so is disingenuous.

Why?  Because if he acknowledges that straight broadcast rights and the revenues of team-owned cable networks are essentially the same, the economic structure of baseball unravels.  Because it’s not really a structure. It’s an uneasy peace between big market, high revenue teams and the small ones.

That peace is predicated, in part, on the big clubs and the little clubs being allowed their respective excesses.  The big clubs can house their money in enterprises that are not subject to revenue sharing. Think the Red Sox investing in NASCAR teams and, more traditionally, big teams operating RSNs.  For their part, the small clubs are allowed to pocket revenue sharing money rather than invest it in their teams. At least within reason, as Jeff Loria and the Marlins found out last year.  Each type of team chafes at what the other is allowed to get away with, but they mostly keep their powder dry because everyone is getting rich.

Practically speaking, if the Wilpons are forbidden from using SNY money to settle their Madoff problems on a theory that doing so would harm the Mets, the fiction that this money is non-baseball-related is exposed and the Pirates and Royals of the world will demand that they be given a share of the RSN money the big teams are making.

Likewise, if Frank McCourt is allowed to use straight broadcast rights money to pay off his wife, the Pirates and other small teams — who are smaller than the Dodgers but, like the Dodgers, don’t have an RSN —  will feel free to pocket their own rights money and put even less into their teams than they already do, which will be a bridge too far for both the big clubs and the fan bases of the small teams (pocket the gate receipts and the concessions, Mr. Loria, but too many people are watching when you pocket the TV money).

If all of this sounds borderline corrupt to you — if it sounds like, hey, at some point someone should have filed a lawsuit over it — don’t worry! You’re not crazy!  Someone probably should have long ago.  But they didn’t.  Why? Because there are only like three owners in all of baseball who weren’t admitted to the very cozy ownership club before Selig took over. The price of their entry to the club: fealty to Selig and the highly anti-competitive arrangement described above.  Indeed, every year there are a half dozen things that happen that, if baseball teams were run as independent businesses who felt free to vindicate their rights through legal action, would lead to lawsuits.

But the lawsuits never come because no one is willing.  Big city teams are given monopolies over huge media markets so that they can build media empires. Small market owners are given the keys to small teams that, while not as lucrative on a cash flow basis, are almost certain to appreciate nicely and — with a few high profile exceptions like media revenues — they’re allowed to treat as their own private piggy bank.  It’s not ideal and it’s not fair, but it ain’t a bad bargain.

At least if you own a baseball team.

The Braves are not just a baseball team. They’re a real estate company too.

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I’ve taken the Braves to task quite a bit in this space lately. This post and then, later, this post got a lot of attention, both from Braves fans who agree and nod their head and those who disagree and think I’m an overly cynical bad fan or whatever.

I don’t think I’m a bad fan or that I’m cynical. I just look at the facts on the ground and draw conclusions from them. The overarching fact that seems to matter here — separate and apart from any individual move or non-move the Braves front office makes — is that the Braves, as an organization, have interests other than winning baseball games and those interests, in turn, cannot help but impact the Braves’ approach to winning baseball games.

Interests like real estate. As the Cobb Business Journal reported yesterday, the Braves are involved in a complex bond transaction, the details of which bore me, but the upshot of which is that the Braves are building office towers:

The Development Authority of Cobb County signed off on a necessary step for the Braves to get the loan on Tuesday . . . Jonathan Smith, deputy general counsel for the Braves, said at Tuesday’s meeting that the project will span about four acres owned by the Braves. About half the land is being leased by Thyssenkrupp for the R&D tower, which the German conglomerate will own.

The other half will house the office building, which the Braves are building and will own, according to Smith. Half the office building is being leased to Thyssenkrupp, Smith said, and the other half is being leased to other companies, though no tenants have been announced yet.

This is all part of the Battery complex which surrounds SunTrust Park and in which the Braves — through a vehicle called Braves Development Company — have a substantial interest. When you appreciate the magnitude of that development and the sort of revenue the Braves are realizing from it now and will realize in the future, it’s hard not to conclude that the Braves did not get SunTrust Park built for them simply or even primarily to become a more competitive baseball team. They got it built for them so that they can become a real estate development company that happens to have a baseball team as one of its many components.

And don’t think that that the relationship between the development and the ball club is some weak and attenuated thing. Check out the Braves’ org chart, as set forth on MLB.com, with my highlight added:

Whatever the legal relationship is between Braves Development Company and the baseball team, both entities answer to Terry McGuirk, apparently on equal footing based on the titles of the people who run them. As such, when McGuirk says, as he did last week, that he “couldn’t be more optimistic” about the Atlanta Braves, it makes one wonder if he means the baseball team or the overall venture, only one part of which is concerned with baseball. Indeed, one of his answers to the question about why all the increased revenues aren’t being plowed into the team was “it costs a lot to build this edifice.” That answer was likely more literal than most people understood.

Sure, the Braves want to win — I truly believe them when they say they want to — but achieving that desire is far less critical to the Braves, financially speaking, than it would be if they did not have office towers to build, own and lease out with favorable tax treatment and other governmental assistance. The hit from missing the playoffs, for example, is a drop in the bucket compared to what it might’ve been back when they played in Turner Field or Fulton County Stadium. At the same time, money that is realized by the Braves, their real estate ventures, or both, can be used in any number of ways. Maybe the baseball team is the priority sometimes. Maybe it’s not.

Observing that does not make one cynical. The Braves are a baseball team with real estate interests. Or maybe they’re a real estate company with baseball interests. The proper way to characterize that depends on a lot of stuff about their financials and their priorities the Braves are likely unwilling to share with us, but it’s a simple fact that they have priorities that have little if anything to do with baseball. It’s fair game, then, to question the organization’s priorities when scrutinizing the baseball decisions they make.