Baseball’s recession is officially over. In case you weren’t paying attention when Bud Selig announced that the sport raked in $7 billion in 2010 (an over 15% spike during an economic downturn), the Nationals sent a friendly reminder by inking Jayson Werth’s to a mega-$126mn, seven-year deal.
Although many in the baseball world were left scratching their heads after the Nationals’ announcement, there really shouldn’t be any mystery. After a flattish period in 2008-2009 marked by “fiscal restraint”, baseball has resumed its exponential revenue growth, which should usher in an offseason of big money deals. By the spring, contracts to Adrian Gonzalez, Carl Crawford and Cliff Lee should join Jayson Werth’s and Troy Tulowitzki’s as being among the most lucrative in the game’s history.
The first big sign that the market would be more robust this year occurred when Adam Dunn signed with the White Sox. Only two years earlier, the slugging first baseman/outfielder was forced to accept a two-year/$20 million deal at the age of 29. This year, however, he was rewarded with a four-year/$56 million deal (to likely be a DH no less). Also, in addition to throwing money at the big names, major league owners awash in cash have once again begun to extend their generosity to lesser players. Lance Berkman ($8 million), Rod Barajas $3.25 million and Juan Uribe ($21 million/three years) are just three examples of contracts that probably wouldn’t have been offered over the last two off seasons.
The return of bigger contracts isn’t a bad thing, although it will likely be portrayed as such. What it reveals is that the sport is not only financially healthy today, but the internal projections for future growth are robust. However, is this a case of the rich getting richer and a widening gulf between baseballs haves and have nots?
The Adrian Gonzalez trade to Boston has already been naively portrayed as “exhibit A” for why baseball needs an economic overhaul (i.e., a salary cap). And, you can’t blame people for feeling that way after listening to Padres GM Jed Hoyer talk about how the team couldn’t afford to re-sign him after the 2011 season. But, is that statement true?
According to Forbes, the San Diego Padres ranked fifth in baseball with $32.1 million in 2009 operating profit, despite having revenue near the bottom of the sport. I guess it helps to have a new ballpark built with 57% public financing? No one asked Hoyer why a team with such an impressive EBITDA couldn’t afford a player like Gonzalez, but too many in the media seem to accept it as a given that “smaller markets” can’t afford high priced free agents. If asked, he undoubtedly would have had a creative answer, but the bottom line is the Padres are more interested in their bottom line than place in the standings.
Ironically, during his press conference, Hoyer talked about hope for increased attendance and a new lucrative cable deal, both of which might help the team expand its payroll in the future. It was a curious statement because when it comes to making money, you usually have to spend it first. After all, can the Padres really expect more fans in the seats if the team flounders in the NL West? Also, wouldn’t it have more leverage negotiating a cable deal while the team is playing well? Maybe Hoyer thinks the team can still be competitive, but without Gonzalez, it’s hard to see how the already offense-starved Padres are going to score any runs at all. After surprising the baseball world with a 90 win season in 2010, the Padres now seem poised for an immediate return to the cellar. If that happens, why should San Diego care about the Padres?
Since 2002, the Padres’ franchise value has increased 132%, while its revenue has increased 87%, according to Forbes. Meanwhile, its payroll rose only 5%, which helps explain how the team went from an $8 million EBITDA loss to over $32 million in operating profit last year. How much more successful (both on the field and in the board room) could the team have been if it invested more of its growth into players? We’ll never know, but the bigger question is whether the Padres are going to treat the current decade in the same manner as it did the last one? Unfortunately for fans in San Diego, it seems as if that might be the case. If so, their outrage shouldn’t be directed at the economics of the sport, but instead toward an ownership group reaping its benefits.