October 1, 2013 at 10:26 AM
Mariners have more than doubled franchise value while losing big
The Mariners have ended a fourth consecutive losing season minus one manager and with a general manager on the shortest of leashes. They face attendance declines next season and an uncertain future with an aging CEO in Howard Lincoln and president in Chuck Armstrong. An uncertain ownership future too in the wake of the death of Hiroshi Yamauchi.
But they continue to rack up huge wins in the mighty pocketbook, having more than doubled franchise value since the 2008 stock market meltdown despite putting some of the worst teams in franchise history on the field. At the start of the 2009 season, Forbes assessed the Mariners at a value of $426 million — well down from a year earlier with a 101-loss season at a $117 million payroll helping cause that.
Over the years that followed, the Mariners kept cutting payroll, allowed long-term contracts to expire and systematically reduced their debt load across the board. Today, they have the least amount of debt of any big league franchise and their value — conservatively — sits around the $1-billion mark. I’ve heard some analysts privately say the team is closer to $1.3 billion — a tripling in value since April 2009 and the start of the Jack Zduriencik rebuilding plan regime — but we’ll stick to conservative stuff for today and the “more than doubled” estimate.
And we don’t need to go to Forbes for that. The San Diego Padres last year sold for $800 million, pumped up by a new 20-year, $1.4-billion regional sports network (RSN) deal. That’s not a Forbes estimate, that’s a real life sale and real life always trumps estimates when it comes to pegging what a team is worth.
At the divorce trial two years ago of Mariners minority owner Chris Larson, franchise valuation experts were called in to testify as to what his stake in the team might be worth. Estimates varied but the experts from both sides and a judge agreed the Mariners were worth considerably more than the Padres, relative to market size and their territorial reach.
So, if the Padres today are worth $800 million, it stands to reason the Mariners are worth considerably more. Especially since the Mariners just completed their own new RSN deal in which they assumed a majority ownership stake. Owning your own RSN — under the right market conditions — can prove more lucrative than selling your rights to somebody else.
One reason is that MLB rules make it easy for teams owning an RSN to hide money from MLB revenue sharing coffers. MLB comes up with a fixed amount it feels local TV rights are worth and the teams owning RSNs have to pay that. But there can be tens of millions — or hundreds of millions — in additional revenue taken in that gets sheltered on the “TV” and not the “baseball” side of the equation by MLB clubs.
Now, it’s not just as easy as sitting down, writing a check and buying your own RSN. It takes years of planning, co-operation and the right setup for your market. And the Mariners, by their own admission, spent years planning their own acquisition of a majority stake in ROOT Sports starting around 2010.
In the interim, they’ve fielded teams that lost 101 games in 2010, 95 games in 2011, 87 games in 2012 and 91 games this past season. The Opening Day payroll for those teams — according to Cot’s Baseball Contracts database — went from $98.9 million in 2009 down to $91.1 million in 2010, $94.6 million in 2011, $84.9 million in 2012 and $84.2 million this year.
Now, $84 million might sound like a great payroll. But when you consider $8.5 million of it went to a guy no longer here in Chone Figgins and $7.3 million to another in Franklin Gutierrez who barely saw the field, you’re looking at a sub-$70-million team in reality. Lop off another $20 million for Felix Hernandez and $6 million for Hisashi Iwakuma and you’re pretty much rounding out the remaining 21 guys on the team for $40 million.
So, while the Mariners were planning their RSN acquisition, they weren’t exactly breaking open the vault in terms of spending to plug some of their gaping holes. We saw that this year in the team’s attempt to skimp on the remaining three spots in the starting rotation. Saw as well how they avoided getting in on the below-market signings of both Nick Swisher and Michael Bourn. Now, I realize the offensive totals of both players were off their career norms in 2013. But Bourn playing 130 games in center for the Mariners could have provided far better outfield defense than not having Gutierrez around, while Swisher playing right field and part-time at first base would have again been prefereable to what Michael Morse delivered from an overall perspective.
Plus, you’d have had two veteran players vested in the team’s future beyond this year.
But the Mariners are avoiding those types of players. Part of it has to do with not wanting to lose a first-round compensatory pick for signing either. But part of it also follows a pattern that pre-dates those new draft compensation rules. The Mariners since 2010 have avoided signing any free agents beyond short-term deals, thus avoiding getting stuck with any “bad” contracts for mid-level players that might lessen franchise value.
True, they made a play for Josh Hamilton. But he’s a marquee player — albeit one who struggled this year — who is on a different level than the Swisher and Bourn types. Like Felix Hernandez, Hamilton is the type of guy whose face you use to front your TV broadcasts. He’s a franchise face whose value transcends numbers on the field. Sure, you need him to perform to do that. But usually, when you give big money to a player like that, you expect him to perform. That’s why the Mariners would do it.
But this team’s modus operandi while forming its RSN has been to limit any risk, reduce long-term debt and maintain franchise value.
Sounds like a great plan and it is, if you’re running a family budget. As a baseball product, the Mariners have been a disaster. They have saved money, yes, and positioned themselves well for the future. But at a cost of the past four years being sacrificed with a terrible team, lost fans and the reality that this squad is unlikely to contend before 2015 at the earliest.
Still, they are well-positioned going forward if they choose to take advantage of it.
Unlike the RSN owned by the Houston Astros — partners with Comcast SportsNet, affiliates of which which have sought bankruptcy protection there – the Mariners are running a satellite-based distribution network. Comcast runs on a cable delivery system and as such has very limited reach within the city limits of Houston and must negotiate a bunch of outside carriage deals with other networks. The Mariners’ ROOT RSN enjoys a more unfettered access locally and across a multi-state platform.
As such, the Mariners are unlikely to encounter many of the hurdles facing the Astros.
As for payroll, it’s true that franchise value going up won’t put immediate cash in the team’s coffers, especially with attendance having dropped big in recent years. The Mariners last year hiked prices on the majority of season ticket packages to make up some of the difference, but this year have frozen most costs associated with that.
Still, with the contacts of Figgins, Gutierrez, Joe Saunders and others now joining the dropping a year ago of Ichiro’s $18 million annual deal, the Mariners should have plenty of wiggle room to add better players if they so choose. Another way to raise added cash needed for payroll is a capital call on owners, something the Mariners have avoided since the 1990s.
After all, those owners are now worth more thanks to their involvement with the team than they were a few short years ago. A financially-troubled Larson tried to sell off a 10 percent stake to fellow owner John Stanton in 2009 to pay off a bank loan. A valuation of that share came back at only $34 million — partly because it was a minority stake.
A judge in Larson’s divorce case ruled that a 10 percent discount in a minority stake was fair for the purposes of assessing value. So, today, assuming a $1 billion franchise value, Larson’s 10 percent piece being offered up would get — even with a minority stake discount applied — what? Maybe $90 million?
Those who keep asking me why the Mariners have yet to see an ownership change, there’s your answer. By not selling to Stanton in 2009 and waiting four more losing seasons, Larson may have gained himself more than $50 million in additional returns on that single 10 percent piece he once offered Stanton alone. And Larson owns 30.6 percent of the Mariners. You do the math. Not bad for a guy dealing with a divorce and serious financial troubles just two years ago.
Patience for Mariners owners has indeed had its virtues. Waiting a few additional years for this major RSN piece to be completed should indeed pay off handsomely. Even if, for fans of the team, that patience reservoir began running dry a long, long time ago. You see, they’ve yet to see any real payoff. That’s always someplace down the road.