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Mariners blog

Daily coverage of the Mariners during the season and all year long.

December 20, 2011 at 10:42 AM

Mariners look to be positioning themselves perfectly…for a sale

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The non-dealing season continued for the Mariners last night with news they did not land Japanese pitching sensation Yu Darvish in the posting process. Not surprising, since GM Jack Zduriencik said at the winter meetings his priority was to land a veteran starter to help his young rotation and Darvish coming over untested from another country hardly qualified to fit that role.
Now, it’s possible the Mariners offered a low bid on Darvish with hopes other teams might try to get off cheaper as well. No idea, but it doesn’t matter now. So, for now, we continue the Prince Fielder wait as well as for the team to announce other signings like George Sherrill, which, if you saw my tweet yesterday, won’t happen for a bit because the routine physicals needed to wrap these deals up usually don’t get done until after the holiday period.
Anyhow, continuing on our recent theme of looking at the Mariners, their value and what they can actually afford to spend, it’s looking more and more like the team is positioning itself to be sold within the next few years.
First, consider the yearly balance sheets, which see the team spending just enough to make a small profit, or else keep operating losses tiny enough so that the cash surpluses of the past decade can easily absorb it. That helps you maintain your franchise value and in the case of the Mariners — who have a small amount of debt relative to other big league teams — will allow it to grow.
The Mariners are now a team growing in franchise value without even having to put a winning product on the field, or fill their state-of-the-art ballpark with fans. Attendance is falling, the team has lost 196 games in two years, but two appraisals done off insider-financial information for the Chris Larson divorce case put the Mariners at $551 million on the lower end and $750 million on the high end.
In real life, when a company wants to be sold, it goes through rounds of “trimming the fat” to make itself a lean, mean fighting machine. Long-term, money-sucking investments are avoided in order to keep that clean ledger. Want to completely overhaul your computer system on a whim? Well, best use the old one that still works. Spend some cash on a paint job or hiding the holes in the roof. But keep the costs to a minimum.
Looking at the M’s, the only significant long-term expense on their books beyond this coming season is Felix Hernandez — under contract through 2014 at roughly $68 million owed. That’s it. Chone Figgins might seem bad, but in a business sense, he’s gone after 2013. His $9 million annually might seem awful for a utility player but it won’t be enough to seriously hamper any franchise sale. Same with Franklin Gutierrez, with $13 million in guaranteed money owed through 2013.
Sign Ichiro to another $90-million contract extension, then it would be more than a blip on the radar, but that isn’t happening.
So, if you were looking at the Mariners as a regular business, you’d see a team that has gone through its “fat trimming” stage and is in the process of shedding any lingering long-term deals and looks mighty attractive from a payroll perspective going forward. Not only that, but the team has also been able to disguise much of this routine step-by-step march towards a possible sale by doing it under the name of “cost effective” management that plays so well with certain baseball fans today.
Some fans love to see a GM squeeze every last bit of dollar value and WAR out of any backup infielder or middle relief pitcher. So, when their teams slash payroll and cite “cutting the deadwood” of millionaire ballplayers as a reason, it gets applauded whereas in the corporate world, trimming budgets and boosting value by dumping salaried workers and making others do more for less pay is often greeted with horror.
In the end, if the cost-cutting isn’t winning your baseball team any championships, it’s all pretty much the same result. A leaner business with a GM that scores high on the popularity scale with the cost-effective crowd.
Now, we come to Fielder. Where does he fit in all this? Because let’s face it, any guy making $150 million or more is going to get noticed in a sale.
Well, the M’s could go two ways on this. They could avoid Fielder altogether and hope to maintain franchise value in other ways by seeking lower cost players and hoping a return to .500 ball will improve short-term fan interest.
Or, they could do what the Angels just did. The Angels signed Albert Pujols to a 10-year, $254-million deal because they plan to use him as the marketing centerpiece to a new $3-billion television package.
And television, folks, is the final reason the Mariners now appear to be perfectly positioned for a sale. One item that kept getting discussed in the Larson divorce case when it came to Mariners franchise value was the whole regional sports network (RSN) phenomenon that is changing MLB’s money landscape.
RSN refers to a TV network that caters to local sports programming. We see it in Seattle with ROOT Sports, which is the re-branded name of the Fox family of affiliates owned by DirecTV Sports Networks. The Mariners last season began a 10-year, $450-million deal with ROOT that was negotiated in 2007.
Compared to recent deals for the Angels, Rangers and Astros, the Mariners deal is rather ho-hum. But it won’t be for long. An out-clause in the deal allows the Mariners to opt out in 2015 and boy, will they ever be poised to cash in big on that.


The higher rights fees paid to the Rangers, Astros and Angels will help, for sure. But the whole RSN thing is about more than just one-upping competitors. It’s about leverage and the value that owning your own RSN can bring.
The Astros teamed up with the Houston Rockets and with Comcast SportsNet to form their own regional network. The Rangers threatened to do just that with Comcast and were able to leverage their $1.6-billion deal with Fox that same way.
Forming your own RSN — or gaining ownership points in an existing one — is a license to print money. First, you gain access to lucrative cable subscriber fees and can sell off parcels of your programming to networks in other regions of the country that might want to carry your games.
RSN revenues for a baseball team can also be hidden within the broadcast business wing of the RSN and kept away from MLB’s revenue sharing grab. Teams that own an RSN can merely charge themselves a nominal rights fee while hiding the real revenue take within their network budget and avoid paying it into revenue sharing.
Larson’s own lawyer made this point in court last week while arguing that the $750 million appraisal of the Mariners was too high. He claimed that comparing the Mariners to the Astros, as the appraiser did, was wrong because the M’s do not have an ownership stake in their RSN the way Houston does.
Not yet, anyway.
Come 2015, all bets are off.
There is nothing stopping the Mariners from looking to partner up with, say, the Portland Trail Blazers and Comcast SportsNet Northwest on an RSN that would feature Mariners and NBA games as their main live programming. Nothing that would stop the Mariners from using a threat to do just that in order to leverage a massive new deal from ROOT Sports.
This is the landscape that Dallas-based appraiser Don Erickson — who appraised the M’s at $750 million — was refering to when he testified in court that the Mariners had a multi-state following of fans that extended to Hawaii and Alaska, not to mention Canada and Asia. If there are enough Mariners fans outside your immediate network’s territory, you can sell off rights to other networks and charge them to carry your games.
What would non-Comcast subscribers do if the Mariners formed an RSN with that network and prevented games from being broadcast nightly to folks with DirecTV? Well, in theory, those Mariners fans would pay more in subscriber fees to get their network to carry the Comcast feed. A whole lot more. And Comcast has not been shy in the past about jacking up the rates it would charge to outside networks for the privilege.
Now, not every team wants to form its own TV network. Some would rather do what the Rangers did and leverage up the rights fees it charges Fox Sports Southwest to carry its games. Included in that restructured deal was a $180-million up-front payment. Nice cash to throw around in the name of keeping your pennant-winning team a pennant-winner.
So, either way, the M’s are poised for a huge cash windfall in a few years. And the groundwork for that will be starting real soon if it hasn’t already. You don’t just up and form your own TV network overnight. It can take years to figure it all out and the cost-analysis has to be done well ahead of time to see whether it would be worth more than simply demanding a higher rights fee.
So, where does Fielder fit in?
If the Mariners want, he can be their Pujols to a new RSN deal in a few years, whether it’s with ROOT, Comcast, or as a part or full owner of its own new network under another name. Fielder would be the star the whole package would be marketed around, just like Ichiro was in 2007 when the new ROOT deal was finalized.
Think it’s a coincidence the M’s wrapped up their TV deal and Ichiro’s contract right about the same time in 2007? Nope. Same reason you still see Ichiro heavily marketed on ROOT Sports no matter how low his numbers drop. He was a major part of their business strategy.
The question now isn’t whether the Mariners are well-positioned financially as they move forward. They are positioned to make a proverbial killing in a few years, with little to hamper them in the short term. The only thing that would really hurt them is if they went on a major cost-slashing binge, guaranteed themselves several more 90+-loss seasons and killed off any interest in their product.
Falling TV ratings won’t help drive up the team’s TV value. But you don’t need championships to keep TV ratings up. You just need to be interesting and the Mariners know that.
The only question now is whether this current ownership will be the one steering the franchise through its upcoming windfall, or whether a new one comes aboard.
Looking at things realistically, the team has nearly 86 percent of its ownership focused on two individuals who have lost some big money in recent years. Hiroshi Yamauchi is still a billionaire, but when Forbes estimates you’ve dropped from $7.8-billion to $4.6-billion in net worth since 2008, that’s a cause for concern. Especially if reports are true he subsequently lost $300 million on falling stock in one day last July.
Yamauchi has never appeared to be Mariners-crazed to begin with. Word on the street has always been that he would ultimately cede control to Larson — Seattle’s version of the Great Local Hope. Indeed, Larson does have first right of refusal on Yamauchi’s 55 percent stake.
But right now, it’s questionable whether Larson would be able to hold on to his own 30.6 percent stake after a divorce. In other words, he isn’t buying Yamauchi out, no matter what the court rules.
So, really, it makes more sense to me that Larson and other owners would rather cash out on the fully-appraised value of this club and allow a new owner to steer the club into its future phase. Larson could use the payout to settle debts and get on with his life and Yamauchi, 84, would have realized his goal of repaying Seattle for its support of Nintendo by “saving” the club and passing it on to a new generation of stewardship.
Would a local group buy the team? Given the financial picture lining up — a lifetime more rosy than what existed prior to the team’s last sale in 1992 — I think that’s quite a realistic possibility.
Whatever happens, the fact remains: if you wanted to sell a baseball team in the next couple of years, you could do far worse than following the current Mariners business blueprint. In fact, outside of actually winning something, you’d pretty much do exactly what they’ve done from a business perspective.

Comments | Topics: Chone Figgins

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