Friday, December 17, 2004

What Lind Cropp is ignoring or ignorant of

The Comments from the post about bluffing created a great exchange that seems to be cut off in that post, so I've copied it here for everyone's benefit:

At 9:11 AM, TMK67 said...
deMause's Field of Schemes blog is must-reading for those who are following the DC stadium issue. But he is wrong on this "bluff" argument.It is entirely rational for MLB to destroy the value of the Nats franchise to "prove their point". The question is not "What location is best for this franchise?", it is, "What deal is best for the 29 franchises that own the Nats?" deMause fails to take into account that the principle of "free stadiums are expected" is worth a lot to every team.It is simple math--even if the sale value of the Nats in DC with a pritvately-funded stadium is far greater than the sale value of the "Nats" in Vegas/Portland with a publicly-funded stadium, the 29 owners are better off taking the Vegas/Portland deal. A $100 million diminishment in the value of the Nats costs each owner less than $4 million--the cost of a mediocre middle infielder for one year. They will gladly take that loss in order to be able to lord the Portland/Vegas free stadium over their respective cities.
At 9:54 AM, dexys_midnight said...
very well thought out TMK
At 10:06 AM, El Gran Color Naranja said...
He's wrong on the "bluff", but not for the reasons you state. Both Norfolk and Portland had near full funding proposals on the table in the months before DC. Vegas politicians had regularly been more receptive. But MLB always wanted the DC area. It makes the team the most profitable for sale. I don't think they cared, however, if it was DC proper or NoVA.Why do I say that he's wrong on the bluff? Because if they accept this deal, then it becomes the new deal to base all future deals on. That would devalue the franchises looking for new ballparks. And the owners are crazy enough about protecting their huge investments to play the team in MLB's New York office lobby if it'll save their teams a few million dollars potentially.
At 1:32 PM, TMK67 said...
El Gran,You and I are basically making the same point. A free stadium in a smaller market is more valuable to the 29 owners than a stadium they have to pay partly for in DC, regardless of the fact that the team in DC, even with a "privately-funded" stadium will no doubt sell for more than a Portland/Vegas team. The owners would prefer to crater the value of their investment in the Nats simply to avoid the loss in value of their own franchises that would result if they caved in to the DC Council, as you point out. Such a cave-in would so adversely impact their future bargaining position with their own cities that I bet that many owners (especially Reinsdorf) would be willing to write off the entire value of the Nats to maintain this principle. A complete write-off would only be about $300 million, or a little over $10 million/owner, a pittance.DC and MLB are in what economists call a multi-stage game. Failing to recognize that you are in one and assuming your opponent will make a decision based on the individual rationality of each stage is an enormous mistake. Linda Cropp is making this mistake.
At 6:09 PM, El Gran Color Naranja said...
Yes we are. It's not the profit from the sale that's important to MLB, it's the terms. A baseball franchise is a long-term investment. I can be led to believe that some teams do lose money hand over fist since the rise in value of a franchise more than offsets these losses and makes ownership a profitable venture. A free or highly subsidized stadium whenever one needs such (say every 20-30 years or so) adds much to the potential sale value. But this begs the question, why would they spurn such deals from smaller cities to before this? Could it be a "let's try one more time" thing? I just don't buy it. I believe that having a team in DC has a certain cache that MLB is willing to sacrifice more to get, even if it means only a limited increase in gain for the owners individually. Much like cities decide to sacrifice the money you lose on a stadium deal for the "intangible" benefits a team brings, I think MLB would do the same for the "intangible" benefits for DC. But 50%? The more I think about it, the less likely it seems.

At 9:15 PM, DM said:
As I see it, MLB has conceded on several points in this deal that lower the price of the Expos franchise: (1) 18 % of the financing is rent paid by the new owner;(2) tax on concessions that ultimately hit the bottom line of the new owners;(3) payments/guarantees to Angelos;(4) site of the new stadium would benefit D.C. more than the new owners.Sure, this ain't McGowan in SF, but these are real considerations that must be acknowledged. It is also more than MLB gave to Cleveland, Baltimore and Texas. That is why I think it is a hard but fair deal for the city. Combine that with the fact that DC is in competition with other cities, and it's probably the best you could expect.


At 9:01 PM, Anonymous Anonymous said...

Whether or not it is rational to destroy the value of the Natspos franchise depends on (1) the losses incurred by moving the team to Outer Slobbovia, and (2) the losses that would be incurred in reducing the value of future payments by other cities towards building stadia.

I don't think anyone denies that (1) could be significant. The demographics of the DC area are clearly head and shoulders above any other possibility. Portland is out -- the incoming mayor specifically campaigned against the idea of a new tax-funded stadium. (OK, only a moron counts on politicians keeping their campaign promises, but let's leave that for the meantime). The players' union will not accept Monterrey. The team could play in Las Vegas until a new stadium is built, but the current stadium only holds 9300 people.

(2) could also be significant. However, MLB is well aware that they are planning to enter a city where the owners used their own money to pay for arenas for the football team, the hockey team, and the basketball team. And the pro soccer team is seeking to build their own stadium, as well. Maybe, just maybe, the exortionists are realizing there is a limit to what they can get.

With the owners, it may not be a question of what is rational at all. It may be a question of how stupid or spiteful they can be.

- Gadi

At 10:42 PM, Blogger tmk67 said...


I actually don't think that (1) is that significant. The owners could probably sell a DC-team with the original stadium deal for $350-$450 million. Without the stadium deal and the team in Vegas or Portland (e.g., a sub-ideal city), the team is still worth $200 million, in an absolute worst-case scenario. More money than any of us are likely to see, but only $3-9 million for each of the 29 owners. A pittance given the principle at stake for them.


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