All-Star Signs the “Worst Contract Ever” by a MLB Player

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Atlanta Braves second baseman Ozzie Albies recently agreed to what ESPN’s Jeff Passan said league “executives, players, analytics people, development side and scouts” are calling the “worst contract ever” signed by a MLB player – a 7 year, $35 million agreement with two additional club options at $7 million/season (includes a $4 million buyout on the 1st option year). The deal will take the power-hitting second baseman past his 30th birthday, limiting the potential value of his next contract; no position player, over the age of 30, signed a contract worth more than $60 million this past offseason. An all-star at the age of 21, Albies was scheduled to make just +/- $1.1 million over the next 2 seasons before becoming arbitration eligible following the 2020 season.

Howie Long-Short: Albies certainly appears to have signed a deal below his projected value. He’s notably young to have agreed to a pact of that length and the few prospects his age that have inked contracts that take them through their 20s, have signed for far more money (see: teammate Ronald Acuña Jr.). Joel Maxcy, a sports economist at Drexel University’s Center for Sport Management, suggested that Albies may have been “somewhat ignorant of the process – it almost seems as if this was the team’s first offer it was so low” – and given some poor advice from his agent (SportsMeter) because he could have just “signed through the arbitration years and then tested free-agency.”

Sure, Albies could have incurred a career threatening injury or end up washing out as a player (before cashing in), but those prospects seem far-fetched. Maxcy says, “one thing about baseball players is they are remarkably consistent over time – there’s really no reason to expect a tremendous decline in performance. And he’s not a pitcher. It’s not likely that a 2nd baseman is going to experience a career threatening injury.”

FanGraphs projections indicated that Albies could be leaving as much as $200 million on the table over the life of the deal, but a lot would have to go right for the player to realize all that money. More conservatively, the figure is somewhere between $35 million and $85 million. Maxcy said that the $35 million deal signed is likely “50% of what he could have gotten. It could have been much more than that. It could have been $100 million or $120 million for a deal of that length.” You can be sure agents competing with SportsMeter for players will be using this deal against them for years to come.

$35 million (perhaps as much as $45 million) may not be market value, but for a player who has earned just +/- $1 million in his career to date (signed for $350K at 16, made +/- $550K last season) it likely seems like a fortune; “humans in general tend to be risk adverse. If offered a sure thing – when the potential to blow it remains – most people will take it.” While that explains why Albies wanted the security of a long-term agreement, it doesn’t answer why he failed to sign for a higher AAV considering the deal’s length; Carlos Correa (another one of the players Baseball-Reference cited as a comp.) settled for $5 million in his 1st year of arbitration and will receive increases the next 2 seasons, while retaining his right to hit free agency. Had Albies simply played out his arbitration years, he would have received “$5 million in the first year, $7 million in the second and $10 million in the third – and likely more than that.”

It’s possible that Albies saw the writing on the wall with the “free agent market seemingly favoring teams more and more and took the money offered”, but it seems highly unlikely this is “the new normal.” You can make the case that Bryce Harper signing for a lower AAV than A-Rod circa 2007 “indicates that the market is not where it once was, but the discount Albies took is beyond the new economics of baseball.” Of course, moving forward, every arbitration eligible prospect – particularly 2nd baseman – will be compared to Albies, so this deal may end up representing the beginning of a “newer normal.” If that’s the case, we’ll see a strike following the ’21 season.

The Braves (BATRA) have now locked-up their middle-infield through arbitration and their prime years for below market value; Albies close friend and teammate Ronald Acuña Jr. also signed a “team-friendly” deal (8 years, $100 million). That’s good news for BATRA shareholders who are now guaranteed to have some star power and cost certainty for the better part of the next decade. Shares are up +4% (to $28.45) since Acuña’s deal was announced on April 2nd.

Fan Marino: To give you an idea of the type of talent Albies has, the 22-year-old posted a 3.8 bWAR (Wins above Replacement) in his first full season in the majors. That won’t mean much to many of you, but for some perspective, Joe Morgan (HOF ’90), Ron Santo (HOF ’12) and Bill Mazeroski (HOF ’01) were among the players Baseball-Reference identified as being “most similar” to Albies through the age of 21.

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F1 Seeks to Maximize Sponsorship Opportunities, Offering Brands Unique Experiential Activities at Track

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Under the Bernie Ecclestone regime, TV rights and race hosting fees were F1’s primary sources of revenue; but FWONA, under Liberty Media, has focused on expanding its appeal to maximize revenue-generating sponsorship opportunities. Efforts to draw in the female fan (men are currently 50% more likely to watch F1 than women) and the launch of an esports program, are designed to build on already attractive fan demographics. 83% of F1 fans shop online each month, 50% buy products from brands they see marketed during the race, the average F1 fans spends 2 hours/day on the internet and 43% of all internet users are F1 fans. FWONA recognizes it’s going to take time for brands to overcome “their perception of what F1 is”, but, for those who consider the opportunity; they’ll find the company has combined a fan centric approach with a “yes, why not?” attitude. The result has been a series of unique experiential activities at the track (i.e. Heineken pool party at the Monza Grand Prix) and an “authentic integration” of sponsors into the sport.

Howie Long-Short: Liberty Media Corporation, controlled by Chairman John Malone, is comprised of assets including the F1 racing circuit (FWONA, FWONK), satellite radio provider SiriusXM (LSXMA, LSXMB, LSXMK) and the Atlanta Braves (BATRA, BATRK). The company reported Q3 earnings increased 37% YOY (to $168 million). Liberty Sirius XM (+$183 million) and Liberty Braves (+$22 million) drove the growth, while the Formula One Group lost $37 million.

Fan Marino: FWONA has announced plans to revamp how merchandise is sold at the racetrack; creating a “superstore tent”, operated by Fanatics, as opposed to individual team tents. F1 Commercial Chief Sean Bratches has said “all race supporters support the plan”, but that isn’t the case with all teams; Ferrari, which has sold more merchandise than any other F1 team in history, believes it will “lose revenue with the new structure”. They believe impatient fans won’t want the trouble of seeking out the product they wish to purchase. They may be right, NASCAR attempted a similar model in ’15; it was rejected by fans (i.e. sales were down) and the racing series returned to the old scheme for the ’17 season. Red Bull and Mercedes are on board with Bratches plan.

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MLB Grows Gross Revenue for 15th Straight Season, Hits $10 Billion For 1st Time

Major League Baseball increased gross revenue for the 15th straight season in 2017, topping $10 billion for the first time (up from +/- $9.5 billion in ‘15). The growth can be attributed to an increase in sponsorship revenues (+12%), sale of league’s majority stake in BAMTech (to DIS for $2.58 billion) and growing revenues from TV and digital media. Despite the positive financial report, the league reported that total attendance declined for the fifth time in six seasons, dropping below 73 million for the first time since 2002.

Howie Long-Short: The Atlanta Braves are one of two teams (Toronto Blue Jays is the other) that are publicly traded. The Braves Group (BATRA) includes the team, five MiLB teams, SunTrust stadium and other real estate assets (including MiLB ballparks and mixed-use real estate adjacent to SunTrust park). The wholly-owned subsidiary Liberty Media reported Q3 ’17 revenue grew 70% YOY (to $185 million), with ticket sales, concessions, corporate sales, suites and premium seat fees all increasing in the first year at the new ballpark. Owners want new buildings, because new buildings drive bottom line revenue.

Fan Marino: You can invest in the Miami Marlins; if you have $150 million (and can stomach some short-term losses). The team sent out a “teaser” soliciting high net-worth individuals, highlighting the investment opportunity and group’s plans to turn a profit. The deck references stadium naming rights, the organization’s plans to fill open dates on the stadium calendar (with concerts etc.) and an upcoming lucrative new RSN contract (currently the least valuable in baseball, expires after 2020 season) as viable new revenue streams. Bruce Sherman’s group bought the team back in September for $1.2 billion; considered a premium based on the team’s existing financial situation (expected to lose $60 million this season).

MLB Sets Record For Revenues In 2017, Increasing More Than $500 Million Since 2015

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LIBERTY BRAVES REPORTS 34% INCREASE IN REVENUE; CASHING IN ON NEW STADIUM

Atlanta’s new Suntrust Park has provided a fresh scene for Braves fans, but also a huge increase in revenue for the franchise. Liberty Media (BATRA), reported a $45 million (or 34%) increase over the same period last year, attributing the growth to improved performance on the field and updated amenities at the new stadium. Operating profit before depreciation and amortization was $27 million for Q2, up from $12 million from last year, however after depreciation and amortization the team showed a $3 million loss. Liberty cited an increase in property and equipment, to support the development of mixed-use real estate around the ballpark, as the cause for the rise in depreciation and amortization expenses.

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Braves’ revenue jumps 34% in new stadium, Liberty Media says

Howie Long-Short: Professional sports team owners demand a new stadium every 25-30 years for exactly this reason. New buildings offer new amenities. New amenities bring new revenue.

Fan Marino: Turner Field (the old stadium) opened with the ’96 Olympics. It’s absolutely remarkable the franchise was able to squeeze the city for a new ballpark after 20 years.