http://www.bayarea.com/mld/cctimes/6887814.htm


How A's, Giants play very different baseball
By Rick Jurgens
CONTRA COSTA TIMES



The playoff-bound Oakland A's and San Francisco Giants have achieved onfield success despite dramatically different attitudes toward the year-end balances in their checking accounts.

The two teams' contrasting business strategies resemble "Wal-Mart versus Nordstrom," said Andy Dolich, a former A's executive.

The A's, owned by real estate developers Steve Schott and Ken Hofmann, pinch pennies, share a 37-year-old stadium with a nomadic football team and replace expensive star players with bargain-basement minor leaguers and big league castoffs.

The Giants, owned by former Safeway chief executive Peter Magowan and partners, own a $340 million showpiece stadium alongside San Francisco Bay and have paid top dollar to ensure that superstar slugger Barry Bonds and a suitable supporting cast keep playing in it.

Both formulas seem to be working. The A's are heading to the playoffs for the fourth straight year, and the Giants, who lost in the World Series last year, for the third time in four years.

The presence of two pennant-contending teams has fueled a local baseball boom that has boosted combined attendance to a record 5.4 million. Combined revenue this year could approach $260 million, according to information provided by officials of the two teams.

That shows the Bay Area can support two baseball teams, said Dolich, who oversaw A's marketing when the team set its all-time attendance record. "The size of the market is big enough, the quality of the teams is high enough (and) the diversity of the fan base (of the) A's (and) Giants is solid enough for both teams to be successful."

In 2003, the Giants are attracting more fans and revenue, but the cost-conscious A's do a little better on the bottom line, according to information collected from interviews with team executives and publicly available data. The Giants, with regular season attendance near 3.2 million and an average ticket priced at $21.63, expect to post nearly $160 million in local revenue, while the A's have seen more than 2.2 million fans pass through their turnstiles and expect to ring up about $100 million. A's tickets average $15.65 each, according to Team Marketing Report magazine.

On the spending side, the Giants will lay out about $100 million to pay players and keep current on the mortgage on Pacific Bell Park. That's twice the roughly $50 million the A's will spend on payroll and rent at the Oakland Coliseum. The bottom line? After accounting for other operating costs, the Giants project a loss of less than $10 million, while the A's expect to break even.

Those sound like so-so results for a baseball boom, but there's more to the story. The pot of gold at the end of a typical baseball owner's rainbow is a chance to cash out his or her investment for a substantial gain. By that measure, both franchises appear strong. Recent estimates value the Giants at nearly quadruple the $100 million the Magowan group paid for the franchise in 1992, and the A's at nearly double the roughly $80 million that Schott and Hofmann paid in 1995.

Baseball is more than a business. Its mystique includes verdant playing fields, graceful outfielders, towering home runs and the ever-popular peanuts and Cracker Jack, spiced with the thrill and uncertainty of tense competition.

Fans and owners share the thrill of victory, but owners provide the upfront money. "People have this perception that our business isn't a business," Lucinda Treat, chief legal officer for the Boston Red Sox, said at a recent Stanford University conference on sports law. "At the end of the day, we're still a business with a bottom line."

But not just any business. Fans often view their team as a "quasi-public utility," Larry Baer, the Giants' chief operating officer, said at Stanford.

In a way, the fans are right. A 1922 Supreme Court ruling exempted baseball from antitrust laws. That exemption, as it has evolved, allows the teams to operate a cartel known as Major League Baseball that shares revenue, limits player salaries, divides up market and restricts team relocation rights. "Sports leagues do not function as free markets," the cartel's Blue Ribbon Panel on Baseball Economics observed in a 2000 report. Instead, the sport relies on "cooperation for the sake of producing satisfactory competitiveness."

Unlike public utilities, regulators don't scrutinize baseball teams' spending and revenue. Compared with the stream of game scores, win-loss records and batting and earned-run averages generated by the game, the business of baseball is a numbers desert. That's because most teams are privately owned and not subject to the disclosure requirements of publicly traded companies. Financial reports, when issued, employ a reverse-Enron strategy that minimizes revenues and profits. The goal, it appears, is to influence public sentiment regarding stadium subsidies, player salary demands and proposals to tamper with the sport's antitrust exemption.

At Stanford, Magowan painted a typically bleak picture of baseball finances. Thirty teams rang up combined losses of $700 million in 2002, and had $3 billion in debt on their books along with a $5 billion tab for deferred compensation. Such "losses and debt magnitudes are not sustainable," he warned.

Bankers and economists voice skepticism about baseball's posted losses. "I think that teams do a lot better than they say they do," Andrew Zimbalist, a Smith College economics professor, said in an interview.

And in the overall scheme of things, baseball deficits aren't a big economic worry, according to Roger Noll, a Stanford economics professor. Baseball's "financial significance is extremely small compared to the public interest it generates," he said at the Stanford sports law event. Noll observed that while baseball attracts viewers to local TV news and readers to newspapers, the Macy's department store in the Stanford Shopping Center does more business, employs more people and plays a bigger role in the economy than either local team.

But baseball owners know how to make their finances matter to fans: link them to dreams of onfield glory. "The correlation between spending and winning is very strong," Magowan said at the Stanford conference.

Except, as "Moneyball," the current best-seller by Berkeley author Michael Lewis, points out, for the A's. Oakland has won consistently despite spending less than most other major-league teams.

Low spending reflects low revenue, team President Michael Crowley said in an interview: "Our goal always here is to manage to break even, to try to put the most competitive team you can on the field without losing any money."

Budget discipline came first when, after the 2001 season, the A's allowed the revenue-rich New York Yankees to lure away 2000 American League Most Valuable Player Jason Giambi. More gut-wrenching choices lie ahead. Shortstop Miguel Tejada, the 2002 MVP, will be eligible for free agency after this season; star third baseman Eric Chavez can walk next year; and three ace pitchers could follow: Tim Hudson in 2005 and Barry Zito and Mark Mulder in 2006. "It's our intention to get these guys signed at a reasonable number," Crowley said.

Deciding what's reasonable involves "evaluating (players) you have, it's evaluating (players) out there in the market, trying to meld them all together to give yourself the best possible opportunity to win," Crowley said.

Baseball limits the bargaining power of players with fewer than six years at the major league level. "Youth, that's a cheaper alternative," he said. "When Steve (Schott) and Ken (Hofmann) purchased the team, they put a lot of emphasis on that minor league system, because that's the way you're going to compete with the resources that we have."

The A's blame their limited resources on the Coliseum, where they have a lease that runs through 2007. Noll agrees. "Only because of their superior management are they surviving where they are now," he said at Stanford.

Efforts to get a new publicly funded stadium are on hold because of the economic slowdown, Crowley said. Meanwhile, the team will do the best it can, but "we can't stay here 20 years," he added.

Dolich, the former A's marketer, thinks the team "doth protest too much" about the Coliseum." A new publicly funded stadium will probably never be built here, so the A's should "stop complaining and enjoy the great product that you have in the Coliseum," he said.

The Giants don't share the A's aversion to deficits. "We have a very different business model," said Baer, who is also a Giants partner. "We're like a biotech company. We invested in building a new product: championship baseball played in a new ballpark in downtown San Francisco."

After four ballot-box losses on bids for public money for a stadium, the team built its own park. That saddled it with an annual mortgage bill of $18 million, but, so far, the gamble has paid off. The Giants' move to Pac Bell from windy Candlestick Point took them from "locational **** to locational heaven," said Noll.

Baer said the Giants are "building a brand." As proof of progress, he pointed to the team's base of 28,000 season-ticket holders. That's the best in baseball, substantially ahead of runner-up Seattle's 23,000, he said. "Our view is that with the appreciation of the value of the franchise, (we are successful) if we are operating slightly below break even," he added.

The Giants ran in the red in the late 1990s to ensure that they would field a strong team when Pac Bell Bark opened in 2000, Baer said. The team went to the playoffs that year, Bonds broke baseball's most prestigious record by hitting 73 home runs in 2001 and the team made it to the World Series in 2002. "There's been a lot of good luck there, too," Zimbalist noted dryly.

Both local ownership groups appear to be positioned for a profitable cash-out. The Giants, bought for $100 million a decade ago, were recently appraised at $382 million by Forbes magazine. "We think that's probably close," based on recent sales of minority stakes in the team, Baer said.

Forbes valued the A's at $172 million, substantially more than the $94 million, including deferred compensation, that the Schott group says it paid in 1995. Others familiar with the deal estimate the actual price tag as low as $72 million, excluding deferred compensation.

To some, the current A's owners are sitting pretty. "They bought (the team) for a song, and it's worth tons more than they paid for it," said Dolich, who was part of a group that offered $122 million in a 1999 deal that was vetoed by Major League Baseball.

Still, as many a former dot-com millionaire can testify, paper profits aren't real. Zimbalist, the sports economist, said he sees evidence that baseball franchise "appreciation has slowed or turned around" recently. The World Series champion Anaheim Angels, valued by Forbes at $225 million, sold for $185 million this year.

But for now, business is good, and worries about stadium issues, operating losses and franchise sales fade into the background, displaced by dreams of another Bay Bridge World Series.

_____________________________________

And now a home venue for the Expos