How the Marlins Did and Didn’t Mess Up
In a few hours, the Yankees will hold a press conference here in Orlando to officially welcome Giancarlo Stanton to their organization. They landed the reigning NL MVP just 24 hours after he vetoed trades to the Giants and Cardinals and said New York was one of just four destinations he would approve a trade to. Left with minimal leverage, Derek Jeter and Michael Hill engineered a trade with Jeter’s old club, sending Stanton to the Bronx for Starlin Castro and a couple of low-level prospects.
The reaction to the decision has been almost universally negative. The Marlins’ new ownership group began their tenure by behaving much like the old one, dumping their best player to cut payroll. Instead of hope and change, it looks like more of the same in south Florida.
But while Jeter has made a number of apparent missteps since taking over as the head of the organization, and made some mistakes with the Stanton negotiations specifically, I think it’s also worth pointing out that, on a pure baseball level, the Marlins seemed to come out okay here.
The outrage about the fact that this was viewed as a necessary move is entirely justified. It is unquestionably embarrassing for Major League Baseball that Jeffrey Loria was allowed to run the team in such a ridiculous way that the new ownership group had to assume $400 million worth of debt, the service of which is going to eat up such a significant amount of their cashflow that they couldn’t afford to keep a great player making $25 million per year.
In reality, Stanton’s current salary is well under market value for an elite player, and if the Marlins can’t even afford players at this level, it’s unclear how they’ll ever compete. Great players are now routinely pushing $20 million in their final few arbitration years, so if the Marlins can only field guys with 0-5 years of service, or guys who aren’t good enough to command big money in arbitration, putting a competitive team on the field just isn’t practical.
The damage a few terrible owners have done to baseball in Miami is a disaster for MLB. This should be one of the best baseball markets in the country, but the market was strip-mined for personal profit by a swindler. That the league allowed Loria to wildly enrich himself while leveraging the franchise because he couldn’t actually run a baseball team should be embarrassing for everyone involved.
But while the Marlins shouldn’t be in this position, that doesn’t change the fact that these are the ashes that Loria left. And if we just look at what the Marlins got for Stanton, given their lack of leverage, I don’t think the deal was actually all that bad for the franchise.
While it’s easy to look at Stanton for Castro and A-ball guys as a ridiculous heist for New York, this is yet another reminder that teams aren’t just trading players, but they’re trading contracts. And Stanton’s contract, with an opt-out after 2020 — or $295 million in committed salary if he doesn’t use it — isn’t all that attractive of an asset. There’s a reason Stanton cleared waivers back in August, and why every team negotiating with the Marlins wanted Miami to keep part of his post opt-out money on their books.
And while the Marlins mostly took Castro back in the deal to help the Yankees luxury tax calculation, he’s not an underwater contract, and they could move his remaining 2/$22M if they decide to keep dumping salary further. Once Stanton vetoed trades to STL and SF, I thought the Marlins might have to pay Stanton’s deal down into the $225M to $250M range, but they got the Yankees to pick up $265M of the contract without sticking them with any dead money coming back.
And while the two prospects they got in return aren’t close to the Majors, both look pretty interesting. Eric’s write-up is pretty encouraging for the few remaining Marlins fans who might want some long-term hope.
Jorge Guzman, specifically, looks like a Top 100 prospect, as a guy who throws 100 mph and put up video game numbers in the minors last year. As a 50 FV guy with plenty of upside if he keeps developing, we’d estimate that Guzman is probably worth something like $20 million in value by himself. Devers is too far away to put a ton of value on, but he’s probably worth at least a few million.
In other words, the two prospects the Marlins got are probably worth close to the amount of Stanton’s contract that the Marlins kept on the books. If they can move Castro without paying down his deal — which they should be able to do — then the deal won’t be all that different from if they just let Stanton go on waivers, except they were willing to use some cash to buy upside prospects, which is exactly what rebuilding teams should be doing.
Given that Stanton killed trades with the two most aggressive bidders and used his no-trade to limit the market to just four buyers, none of whom really needed Stanton, this is a pretty decent outcome for Jeter and his staff. If the organization had any credibility to say that the savings would be reinvested into acquiring other talented players, I think it’s possible the Marlins might actually come out ahead here, moving present value for future value at a time when they can’t really capitalize on present value.
But, of course, the Marlins aren’t going to reinvest the savings. And that’s the lousy part. Instead of this being a rational decision based on the ability to acquire more value by spreading the money around instead of concentrating it one high-risk asset, the reality is that the Stanton money will go towards paying down the debt accrued by Loria because he and his son-in-law ran the team like drunken sailors.
But for how easy it has been to make fun of the Marlins over the years, I think we should acknowledge that their two salary-dump trades so far haven’t been terrible baseball trades. Dee Gordon was moved for some legitimate prospects, and Stanton brought back at least one guy who could turn into something special. The Marlins are dumping salary, but these moves haven’t been just straight salary dumps.
And if they can make a few more decent trades, perhaps getting STL to overpay for Marcell Ozuna, the Marlins could potentially come out of this all okay. It’s not fun that they have to do this, and MLB should take steps to not let owners mismanage teams like Loria did, but the Stanton deal looks like a decent enough trade that I don’t think piling on Jeter and the current ownership group is entirely justified.
Dave is the Managing Editor of FanGraphs.
It’s a little unclear to me why the massive debts couldn’t have been dealt with as part of the sale. The team sold for $1.2B. Why couldn’t the other 29 owners have stipulated that the debts would have to be paid off from the proceeds of the sale rather than inherited by the new owners?
The alternative, having a long-term financially-crippled franchise in a top 10 market, is going to be a disaster for everyone.
[Edit: See Dave below]
Because Jeter and his friends weren’t willing to wait for a better run franchise to go up for sale. And the other owners are probably not interested in hamstringing their own ability to get an extra hundred million dollars for their own sale down the line.
The $1.2B figure includes the assumed debt. They only paid $800M in cash for the team.
Hello Dave and all. So Jeter’s group bought the team for $1.2B but only paid $800M and assumed $400 in debt? Was the team worth $1.2B? I’d guess nobody knows. But how long will it take for them to make a profit? Will they compete when they reach profitability? I understand that dumping salary helps them in this endeavor but…….
I’d guess I’m more than a little mad/jealous that a guy like Loria can get away with this. Didn’t he do the same thing in Montreal? Will we ever see him again? I hope not.
Profitability is a yearly consideration, and, if they cut expenses enough, they will likely be profitable next year. For context, in 2016, Forbes estimated their operating profit was -$2.2mn, but that’s before interest, taxes, depreciation and amortization, so their loss was likely much greater. If the Marlins can cut payroll significantly (and/or increase revenue), they could turn profit immediately.
What the Marlins need to do is get to a point where their operating profit is comfortably in the black. At that point, they can be more aggressive financially.
Thanks for the reply William.
Answers get me to more questions. If the M’s lost ~2.2M just last year, how the heck did Loria build up $400M in debt? Has he owned the team for that long?
I’d guess short term profitability is the major concern but long term profits are also a concern.
Last I guess is, if they only lost ~2M last year, why doesn’t dumping these two salaries get them to where they want to be in the short term? If they’re there, don’t they start working on their long term goals?
It’s all confusing to me. Happy to be in a big market with what seems to be good owners.
Go Cubs! Ha!
I’d guess the $400mn is combination of debt from Loria’s original purchase of the team, plus some expense related to the new ballpark (most was publicly financed, but there could have been some investment) and finally borrowing to cover other operations over the years. It’s also possible that Loria started borrowing to cover costs over the last few years because his deal with Miami included a 5% payback to the city if he sold the team. By using debt instead of cash flow to pay for operations, that 5% would be worth less without impacting the enterprise value. That would explain why debt nearly doubled since the $200 million reported in 2012, and it’s exactly the kind of thing Loria would do.
The $2mn loss is only operating profit (i.e., losses related to the operations of the team, not external costs like taxes, interest on debt and other accounting measures). It’s been reported that the Marlins net loss in 2017 could be $70 million.
Baseball is not about profit , never has been, its about franchise valuation inflation (like dividends not a concern to many in buying stock). Case in point Red Sox bought for 600 million in 2002 and today is worth 2.7 billion). RSN ownership is another area for profit as these , unlike baseball, are profit centers
@Paul22 – part of the reason that the Red Sox are worth $2.7 billion today is because, per Forbes estimates, they generated $79 million in operating income (before interest and taxes) in 2016. That’s a pretty high multiple, but it also reflects that it’s a franchise with strong recurring revenue, income upside over time, and some premium for the “collectible” value of owning a pro sports team. Think of a pro sports team as being a combination of normal business value (based on income) plus some premium that’s akin to what someone will pay for an expensive piece of art.
As for RSN ownership, that is a source of value/income for some teams, but the Marlins don’t have any ownership of their RSN.
@williamnyy – that Forbes loss number is from spring 2017 looking back at an estimate for the prior year. The best estimate is that operating loss number got a lot worse in 2017 and would also look worse for 2018 and the next few years without cutting payroll.
The Marlins’ 2016 25-man Opening Day payroll was $74 million, per Cot’s. It went up to $115 million in 2017 and was going to be bit over $130 million in 2018 before they started cutting. Loria put all sorts of backloading into contracts – not just Stanton’s contract – and I’m not even sure that Cot’s picks up all of it. With Chen, for example, I’ve seen some reports that the last 3 years of his deal are 3/$60 rather than the 3/$52 reported by Cot’s because payment of Chen’s $8 million signing bonus was deferred into 2018.
As for the revenue side, the norm is for team revenue to grow at least somewhat every year. But the Marlins, per Forbes, were starting with estimated revenue of $206 million in 2016, and I’d be surprised if that’s growing at anything more than mid-single digits per year, and maybe even less than that. Attendance fell from 1.71 million in 2016 to 1.58 million in 2017, even with Stanton putting up his 59 HR season on a team that was below .500 but far from terrible (77 wins).
TLDR: go through the math on payroll, including backloading of contracts by Loria, and it’s easy to see that estimated 2.2 million loss in 2016 growing to more like $40 to $60 million losses per year in 2017 and 2018 (unless 2018 payroll was cut).
the answer is yes, the Marlins were worth $1.2bn — at least two groups got to that price range (Jorge Mas was the other).
to put what happened into more ordinary terms, Loria bought a property for $160mm in 2002. as it appreciated in value, he took out a HELOC against it of ~$400mm. that was not a problem, as the property appreciated to $1.2bn in value. Loria sold for that price, extinguished the $400mm in debt, and pocketed $800mm.
the Jeter/Sherman group effectively bought the property for $1.2bn, but took on a $400mm “mortgage” to finance the deal (putting in $800mm in “cash”).
note that the transfer of $400mm in team debts from Loria to Jeter/Sherman is identical in effect to Loria paying off his HELOC and Jeter/Sherman taking out a new “mortgage”.
Loria bought the Expos for 50 M$ (in multiple steps). He sold them to MLB for 120 M$, and sent the money to John W Henry to buy the Marlins. MLB also financed the 38M$ more it took to buy the Marlins in 2002. 25% of the cost (10% of the present debt) is right there at the start.
The bigger issue to me, that no one really talks about, is that this group was awarded the franchise when they did not seem to be the most financially secure. The fact they are still trying to get additional investors doesn’t look good. It seems politics played a big role but MLB would be better off just going with the most financially secure bidder.
I don’t think that’s a fair characterization. The group has pledged funds to cover significant losses over the next few years (without having to incur debt), so it’s not like they have no cash at hand. The bottom line is no ownership group was going to buy the team with the intention of continuing to lose $50-plus every season.
“Stanton money will go towards paying down the debt accrued by Loria because he and his son-in-law ran the team like drunken sailors.”
This is an egregious pile of dog feces eaten and excreted from the anus of a weasel.
Jeffrey Loria – like his predecessor – LOOTED the Miami market obviously with the full approval of his fellow 29 Made Guy owners. This “debt” excuse only flies with psychopaths who agree with the life statement: “Who ever dies with the most toys wins”
The owner of the Phillies – the one with the Hollywood producer son who screwed his own sisters out of their inheritance and is being sued by them – has about five billion in cash assets by himself yet he and his partners took out a $180+ million loan to pay their share of Citizens Bank Park to satisfy the need for political cover. This was going to be spun like the Giants whose owner also took a loan to allegedly pay for the Giants ballpark and used that every year as an excuse for why the Giants couldn’t spend money with their sold out ballpark. Basically every MLB team has this kind of structure built into it as a ready made excuse.
You Dave Cameron understand this implicitly.
As the eleventh member of the Hollywood Ten I understand what the rules are to being an accepted member of the corporate MLB media are.
Hopefully I can get Jimmy Dore and RT interested in covering MLB so I don’t have to put up with this garbage in my baseball coverage.
“Stantonski is the money going to pay off, which increases Laurie, because he and his son management team like drunken sailors”.
There is a large mass of dog food and extract from anus.
Jeffree Loria, same as predecessor seem to have opljaikano of the University of Miami with the consent of its owner, Mr. Gui. “Long” are just excuses robbery with those idiots who agree with the statement about life: “he who never dies with the most toys wins”
The owners of Philadelphia with Hollywood productions of his son, who pulled her sister out of their inheritance, and that he attacked–has about $5 billion, but he and his partner have a loan of 180 million u.s. dollars to pay for the Act of a member of the citizens Bank in order to meet the political coverage. This will in turn as well as giants like the owner must also get to pay a huge ball accused and put into use every year as an excuse for why the Giants might not give me money. I sell money with their models. Basically, each MLB team with this structure are integrated as one of the reasons prepared.
Dave Cameron understands all this.
Is the 11th member of the Hollywood 10, understand what the rules will be received by members of the MLB media companies.
I hope to be able to Jimmy Dore and RT are bound to cover MAJOR LEAGUE BASEBALL, so you don’t have to stop as baseball.
“An excuse for why the Giants won’t give me money”
Sounds like extortion to me. That would be a FELONY FRAUD.
I doubt Dave Cameron can understand any of this.
Oh god FreeAEC plus RT, this is a truly brilliant car crash. Looking forward to it. A++ would translate to Serbian to Vietnamese to Finnish to Farsi.
Ok I haven’t contributed anything in a while so here’s Serbian to Vietnamese to Finish to Farsi
“Stantonski part of the money goes to pay off debt, Add to Laurie because he and his team of managers and son, so like a drunken sailor”.
There are plenty of dog food in Best.
Dead like its predecessor, it looks opljaikano at the University of Miami, with the consent of the owner, Mr. man. “Long” is only an excuse for robbery with idiots who agree with statements about life: “he who dies with the most toys wins”
The owner of Philadelphia in Hollywood, his son, who had pulled his sister out of their inheritance, and that he had about $ 5 million, but he and his partner had a loan of 180 million units. p. Dollars to pay for the actions of a bank employee, citizens to respond to political news. This, in turn, as giant as the owner must pay the ball of the accused and is introduced every year to the reason why the giants can pay. I From the sale of your money. In fact, every team that in these structures the combination to one of the prepared base.
Dave Cameron understood all this.
11. Member of the Hollywood 10, I understand that the rules of members of the baseball media-of the company.
I hope to be able to Jimmy case and see to it it is necessary in order to cover the ball, so you don’t need to stop, just like baseball.
Well said
“used that every year as an excuse for why the Giants couldn’t spend money with their sold out ballpark”
Umm, the Giants have been over the luxury tax for three straight seasons, look like they’ll be over again in 2018, and already have $109 million committed in 2020 for 6 players (Posey, Cueto, Melancon, Samardzija, Belt, and Crawford) who are all 29 years or older as of right now. They tried to add about $25 million to those 2020 commitments by acquiring Stanton, and it seems very possible that they’ll add to it by re-signing Bumgarner after 2019. Or, it wouldn’t shock me at all if they try to poach Kershaw from the Dodgers if/when he opts out after 2018.
You picked one of the very worst possible examples to claim that a team hasn’t shown a willingness to spend. As Dave Cameron wrote about here recently, if anything the Giants look all too eager to keep spending money trying to extend the competitive window of a team that really may not be good enough to justify that spending.
So why would the debt be the reason trading Stanton unless they couldnt afford 800 million much of which is probably borrowed money needing servicing
Which should not have been allowed. It’s no different than an ownership group taking out loans to cover one third of the purchase price, then gutting the roster to cover the debt service. What hope is there for the Miami market now? By selecting a group which is either incapable or unwilling to field a competitive roster, MLB just dropped explosives on the remains of several already burned bridges. If the roster had been gutted primarily for prospects, that would be one thing, but it’s very clear that the primary value for the new ownership group has been cutting costs because they couldn’t actually afford the supposed purchase price.
So I take it Jeter and friends don’t currently have the extra money to pay off the debt as either part of the sale price or on their own now that they own the team? Did none of the suitors have that kind of extra money? That’s pretty sad. Still, MLB should’ve insisted that whoever bought the Marlins also pay off the debt as part of the sale.
I disagree pretty strongly with Dave Cameron that the assumed debt is a big issue driving trading away Stanton. It might be why they take payroll down to $55 million instead of $75 million, but it’s not why the Opening Day payroll wasn’t going to be north of $130 million with team revenue down around the same level as the Ray’s.
Echoing williamnyy from above, no new ownership group was going to fund operating losses on the order of $50 million per year to keep this team together. It’s not a realistic expectation.
Maybe Mike Ilitch got close to that sort of spending some years in Detroit, but that was someone who had owned the team since 1992 and wanted to push for the last pieces to see the team win a World Series before he passed away. Even he didn’t do it to keep together a 77-win team with no realistic path to improving outside of a rebuild.
It’s a travesty that MLB approved the sale to a group they knew couldn’t afford to operate the team.
Even if the reality is “more complicated” than that (debt left by previous ownership), it really doesn’t change the facts about the current situation. As DC points out, if they cannot even afford to carry one elite player salary, then what was the purpose of approving this new ownership group? Seems like this is going to continue being every bit the mess that it was under Loria.
Did you notice that the name of the Cuban billionaire appears nowhere in the above article? Have you noticed that since the sale his name has been erased from all corporate MLB coverage everywhere?
We are living through the reason for why HE was not allowed to buy the Marlins.
Because then the sale price would’ve been $1.6B
The debts should be reflected in the sale price. Without debts the price paid would 400 million more. Thats how its usually done. Maybe they overpaid and are so leveraged themselves they simply cant afford to run the team. MLB didn’t do a great job in approving these paupers.
Its also possible they bought it hoping to wreck it and move elsewhere. Kind of like what John McGraw and the Giants did in Baltimore (for different readons) which ended up in the franchise being moved to NY (after taken over by the league) and eventually be named the Yankees. The AL President at the time had been pushing the Orioles to move before the wrecking and when he finally got them in NY pushed other owners to send them good players because it was important to have a good team in NY for the AL. Maybe Manfred is behind this for similar reasons. Be interesting to see if the Yankees get anymore steals from Miami
“they simply cant afford to run the team”
@Paul – owners, with very rare exceptions such as Mike Ilitch in the years before his death, don’t run teams to put in cash to cover operating losses. They have a range of expectations about how much cash flow they expect to get out of owning a team in each year, but you don’t have a realistic perspective of what any purchaser would have done with the Marlins. The Marlins were going to lose on the order of $50 million per year – maybe tens of millions more than that – to bring back what looks likely exactly the same 77-win team that’s a fringe wild card contender at best and has a terrible farm system.
You keep repeating yourself without acknowledging that there is a massive difference between selling off your best assets for top prospects and selling them off primarily for salary relief. It is beyond clear that this ownership group could not afford to purchase the Marlins outright and is cutting costs in order to pay off the debt they assumed as part of the purchase. For that reason, they absolutely never should have been allowed to take ownership by MLB.
@jd – no ownership group was going to pay to fund big annual operating losses for this Marlins team. Other people keep repeating themselves that such a mythical group exists.
Spend some time looking at Forbes revenue estimates for teams (to which I lend more credence than the operating income numbers, which may be OK but are tougher to estimate from the outside). Then see how those line up with payroll, and tell me that there’s any evidence that a plausible owner of the Marlins would support a $130 million plus opening day payroll in 2018. ( https://www.forbes.com/mlb-valuations/list/#header:revenue_sortreverse:true )
I repeat it because people are apparently either financially illiterate or illogical in failing to grasp it. The Marlins’ estimated 2016 revenue per Forbes was $206 million. That’s second to the last to the Rays, who were $205 million. The freakin’ A’s, at $216 million, had higher revenue than the Marlins. Even what we think of as normal small-market teams, such as the Reds, Brewers, and Royals, generated $25 to $40 million more revenue in 2016 than the Marlins. From 2016 to 2017, the Marlins’ attendance actually dropped, by the way.
The non-payroll costs of operating an MLB team – a front office, marketing, a minor league system, draft bonuses, etc. – vary a lot less than major league payroll. Where we see revenue differences show up most notably is the MLB payroll that a team’s revenue will support.
There is zero evidence from other MLB teams that a team with the Marlins’ revenue can do anything except lose its ass financially with a $130+ million Opening Day payroll. Other people are talking about them adding pitching – where the hell was it supposed to come from? They have a terrible farm system and a payroll that’s already too high for revenue.
As I’ve said elsewhere, debt service could be a factor if we see the Marlins take revenue down to something like $50 to $70 million rather than something like $90 million. It’s not, however, the underlying reason why there were going to be big cuts from the $130 million that was on the books for 2018 payroll before any trades.
I guess you mean besides the many other ownership groups in professional sports that have chosen to lose large amounts of money in their first few years in order to compete and theoretically improve the long-term outlook of their investment? Someone please tell the Dodgers’ ownership group that ran huge deficits over their first three years that they are mythical creatures.
http://www.latimes.com/sports/dodgers/la-sp-dodgers-debt-payroll-20161126-story.html
“For the four full seasons under Guggenheim, as the owners looked to jump-start the revitalization of the franchise, the Dodgers’ end-of-season payrolls have totaled $1.069 billion, with another $112 million in luxury taxes. That adds up to $1.181 billion, or an average of $295 million per season.
A significant portion of that expenditure — close to $100 million in 2015 alone — involved payments to players no longer on the roster. The Dodgers bit that financial bullet, they said, to accelerate the financial and roster flexibility that would allow them to lower their payroll while taking full advantage of a replenished minor league system.”
“Neither the league nor the team publicly discloses financial information. Forbes magazine estimated the Dodgers lost a total of $166 million from 2013-15, the first three full years of Guggenheim ownership — almost $100 million more than the Philadelphia Phillies, at $69 million.”
It’s always amusing when someone like you adopts this condescending tone when you’re the one fundamentally missing the point. As I said: “there is a massive difference between selling off your best assets for top prospects and selling them off primarily for salary relief.”
edit:
Oh and by the way, the Forbes list you linked does not include revenue sharing, of which the Marlins are the league’s largest recipient. Estimates have suggested that the organization receives around $50 million annually from MLB.
Nor does it include BAMTECH, nor does he acknowledge that this ownership group payed over 250 mil more then the same forbes evaluations he keeps so close to his heart, hard to argue that money isn’t coming directly out of payroll.
I stand by what I said, because the Dodgers example ignores one key part of what I said: “for this Marlins team”.
The Dodgers are the more popular (i.e., higher revenue) team in the 2nd-largest market in the country. There’s simply far more upside in doing what Guggenheim did in that market, and far more light at the end of the tunnel to the Dodgers’ plan.
Taking the second point, the clear path for the Dodgers has been simply to let contracts run-off, dip down to a still high payroll level somewhere right around the luxury tax line, and then immediately be very profitable when that happened. That’s what they’ve been doing since their 40-man ending payroll peaked at $290 million in 2015.
Taking the first, this level of spending in L.A. was also tied to them signing a massive local cable deal, the 25-year / $8.35 billion deal signed in early 2013. Taking on so many contracts in the Gonzalez deal in mid-2012 and signing Greinke almost certainly helped maximize that deal. There may also be a cable carriage play in this spending to make sure that the team is good in the short-term. The details of the Dodgers’ cable deal look murky from the outside, because SportsNet L.A. is described as 50% owned by the team but then there are also references to Time Warner Cable (now Spectrum) losing up to $100 million per year on the contract due to limited carriage. Do the Dodgers also bear some reduction in their revenue from the cable deal if low carriage leads to lower revenue for SportsNet L.A., either immediately or after some start-up period? If they don’t, I don’t see how they “own” part of SportsNet L.A. in any meaningful sense of the word. So far that carriage play hasn’t worked very well, other than Charter/Spectrum buying Time Warner Cable to at least push the carriage rate higher after the two cable systems combined.
So, summarizing:
(1) there’s simply a lot more juice and upside from bearing some sizable early losses in the L.A. market
(2) there was a clear and controllable path in L.A. to turn the losses into big annual profits just by running off contracts to get near the luxury tax line while still having a really good team
(3) the Dodgers’ roughly $50 million of annual operating losses paying for really good teams are what the Marlins lose – and maybe even less than the Marlins’ losses – just to bring back the players on 2017’s 77 win team that drew under 1.6 million people. If they had a bunch of elite prospects that could push that win expectation 6 or 8 wins higher without more payroll, maybe it’s a good gamble that a winner would grow revenue both short-term and long-term. Their farm system, however, is the except opposite of that.
(4) so what’s your suggested business plan for the Marlins, and how much are the losses in the short-term? Buying enough free agent pitchers to move the Marlins’ win expectation up to the zone of a true wild card contender costs at least another $40 to $50 million per year of salary on multi-year deals, and that’s just to add 2-3 names on the tier of Alex Cobb and Lance Lynn. So then the Marlins are almost definitely bleeding far more than the Dodgers if success on the field doesn’t follow, and probably lose more money than the Dodgers for 1-2 years even if the plan does lead to a winning playoff team.
Sure, but the Dodgers are far from the only example, they’re just the biggest example since they ran up more debt than anyone else in their first three years of ownership. You insisted that new owners don’t do that sort of thing when it’s actually pretty common in sports franchises, precisely because cutting costs after taking ownership makes a terrible impression and threatens your long-term relationship with the fanbase.
I’m not sure what you mean by this, but Los Angeles dramatically increased spending across the board under the new ownership. Their debt didn’t simply come from keeping existing contracts.
*sigh* It is absolutely not true that the Marlins were losing $50+ million annually, primarily because they were receiving ~$50 million annually from MLB to cover their admittedly poor revenue stream. I understand that you thought the Marlins were losing large amounts of money and that you thought new owners didn’t put up with that sort of thing, but you know now that both of things are incorrect, so you need to stop repeating discredited arguments. Everyone makes mistakes, the important thing is to recognize when they occur and to pivot accordingly.
If I represent Major League Baseball, I absolutely do not let the Bruce Sherman group assume control of the Marlins if they cannot handle the team’s existing debt without gutting the roster. I’m not really sure if there was any hope for developing a positive relationship with the Miami community after the previous firesales and the bad blood over public financing of the stadium, yet because of that my highest priority would be not doing anything to further alienate and antagonize them. After this, Miami is done. There is no coming back from this. The Marlins are going to remain in the bottom five for attendance and they’re going to have one of the worst media deals even when the existing ones are replaced. Heck, the previous roster teardowns at least returned top prospects. This didn’t. This was all about cutting costs at the expense of everything else. The change in ownership was a rare opportunity to convince potential fans that the Loria era was over and that they could invest not only their money but also their hopes in the future of the team. That’s all gone now.
Your claim that MLB revenue sharing payments aren’t in the Forbes revenue numbers is contradicted by Forbes’ own description of its methodology:
“Revenue is net of annual stadium debt service for which the team is responsible, as well as money teams receive, or pay, as part of the league’s local revenue-sharing system.”
https://www.forbes.com/sites/forbespr/2016/03/23/forbes-releases-19th-annual-mlb-team-valuations/#493b510a20af
“Net of” means that revenue for each team is calculated AFTER taking into account amounts either paid in revenue sharing, or received from revenue sharing.
I agree with you that everyone sometimes makes mistakes, but your claim on this point is mistaken.
That is a different link from a different year than the one you initially presented, but since they’re both from Forbes I will assume that they used the same methodology and concede the point. The problem for you is that the link also proves you definitively wrong regarding your repeated claims that the Marlins were hemorrhaging money, as the Forbes link states that the organization lost only $2.2 million in 2017. So you still have absolutely no basis for your position and are arguing something that does not appear to have any validity whatsoever.
Thank you for agreeing on that point.
As I said in a comment above, the number is for 2016 (Forbes puts out these rankings in April). Here’s the the trend of Marlins’ Opening Day payroll per Cot’s: $74 million in 2016, $115 million in 2017, and (before the trades) a bit over $130 million in 2018. Some of that is backloading of contracts and deferrals, some of it was free agent signings that haven’t worked out well like Volquez, Prado, Ziegler, and Tazawa.
Yes, revenue naturally increases some amount each year for an MLB team, but the Marlins have a relatively low revenue base and had lower attendance in 2017 than in 2016. Assume something like 5% per year revenue growth – which might be aggressive with falling attendance – and the situation for 2018 is about $40 million worse than for 2016.
And the other various operating expenses for running an MLB team – from player benefits to draft signing bonuses to salaries for scouts, instructors, and coaches to business-type expenses such as office space and marketing – also grow every year. If anything, given how cheap Loria was, a smart new ownership group may need to ramp up spending on things like amateur scouting and spending to sign international amateurs, much like the Astros did. They don’t need to pay Jeter $5 million per year, which is too much and also a terrible look for PR, but the sad fact is that Jeter’s $5 million isn’t making or breaking why the team’s financial condition looks really bad at $130 million in payroll.
You have presented a sample size of one for an ownership group willing to do this – Guggenheim Partners with the Dodgers. I have responded why I see this example as an unusual business situation, and the very article that you linked about this example refers to their spending “raising eyebrows throughout the industry”, implying that it’s well outside the norm.
Let’s look at other recent sales.
There’s no evidence that the Padres’ new owners were willing to incur operating losses after buying the team in 2012.
The Cubs’ owners, the Ricketts, bought the team in a transaction in 2009 whose very structure as a leveraged partnership required the club to generate substantial operating income – http://www.bleachernation.com/2014/03/19/the-chicago-cubs-financial-story-the-payroll-the-debt-and-the-syncing-of-baseball-and-business-plans/ . Tom Ricketts called the pre-sale payrolls “unsustainable”, and the Cubs payroll did drop below pre-sale levels after 2010-11 as contracts expired and players were traded.
There’s no evidence that the Astros incurred operating losses in their first years under new ownership after 2011, except perhaps by mistake when the new RSN of which they owned a big chunk (and which was planned prior to the sale) flopped miserably and went into bankruptcy in 2013. They famously took the major league Opening Day payroll all the way down to $26 million in 2013 as part of their rebuilding plan.
The Rangers, sold in 2010, appear to have incurred some modest operating losses a few years after the sale (in 2013/14) if we believe Forbes numbers. Those operating losses were on the order of $5 to $10 million per year and were less than operating profits generated in 2011 and 2012.
TLDR: Guggenheim Partners followed a business strategy with the Dodgers, with an attitude toward operating losses, that’s completely different than for the four other most recent sales of MLB teams. It’s an outlier, and I offered my thoughts on the business reasons why that’s the case.
As I already said: “Sure, but the Dodgers are far from the only example, they’re just the biggest example since they ran up more debt than anyone else in their first three years of ownership. You insisted that new owners don’t do that sort of thing when it’s actually pretty common in sports franchises.” For instance:
The Padres’ ownership increased their opening day payroll by $11.9 million the first season, then an additional $23 million increase the following season, then another $10.6 million increase, then yet another $12.2 million increase.
Under the new ownership, Texas increased its opening payroll by a staggering $37 million the first season and another $28.2 million the following season.
TLDR: In recent MLB ownership changes, there are more examples of what you claimed never happens than what you claimed always happens. I genuinely don’t understand why you’re still trying to argue this when I have conclusively proven that you don’t know what you’re talking about. It is not at all uncommon for new ownership groups to increase spending even if it means incurring losses, and the Marlins were not enduring massive losses in recent seasons thanks to revenue sharing.
The direction of payroll doesn’t really indicate much. The key point is whether or not the team’s revenue covers it without the team generating big operating losses.
Those increases you cite for the Padres are (I think) relative to a 2012 Opening Day payroll of $55 million. Looking at Forbes estimated numbers, it was only about 1/3 of revenue that year. Best estimate (see above) is that the Marlins were going to be at about a 60% ratio in 2018 before cuts. That probably understates the magnitude of the problem, because other costs of running an MLB team vary a lot less than MLB payroll, at least if teams are smart and employing good scouts, instructors, and analytics people, spending up to their draft slot limits on bonuses, spending on IFA’s, etc. The Padres also had a new local TV deal in 2012, and 2014 is when new national MLB TV deals kicked in with increased rights fees distributed among all teams.
The Rangers could spend because they were coming off two straight appearances in the World Series, which got their attendance up to 3+ million in 2012 and 2013. In part due to their TV contract, they’re still a solidly mid-revenue team (around $300 million estimated in 2016) even with attendance back down around 2.7 million.
*sigh* Of course it does, particularly when each of those payroll increases total more than fifty million dollars.
According to your own Forbes link, the Marlins have not been “generating big operating losses.”
Please look at the history of Forbes estimates for the Padres every year – https://www.forbes.com/teams/san-diego-padres/
Is there an estimate that the Padres lost money on an operating income basis in any year? No.
As I also explained, the revenue increases are easily explainable by TV contracts plus whatever typical annual increases most MLB teams realize. They did see some attendance pop in 2015 when they had the bizarre series of trades for players including Kimbrel, Upton, and Kemp, but it wasn’t a story of higher attendance for the most part – https://www.baseball-reference.com/teams/SDP/attend.shtml
The Padres also then tore it all down, dropped major league payroll by a lot, and pursued a rebuild (including lots of IFA spending) when it was clear that the 2015 strategy wasn’t going anywhere.
“According to your own Forbes link, the Marlins have not been ‘generating big operating losses’ ”
I already walked through the math of how Opening Day payroll for 2018, before any cuts, would have been about $60 million higher than the year (2016 season) of those financial estimates.
I have also already noted that 5% annual revenue increases for the Marlins would imply revenue increasing by only about $20 million over the same period, while also noting that attendance was in fact down in 2017 vs. 2016.
This is epitomizing why I earlier used the terms financially illiterate and illogical.
BTW, the period you’ve picked for the Padres is one during which there was an anomalously large jump in each team’s national TV revenue money due to new contracts, on the order of $25 million per year from 2013 to 2014 ( https://www.fangraphs.com/blogs/the-new-national-tv-contracts-and-2014-payrolls/ ). Maybe a bit less, say $20 million, if those 8 year contracts have annual escalators rather than flat AAV’s. If we back the old national TV money out of 2012 ($25 million, the new contract doubled it), then the Padres had about $139 million of revenue that year per Forbes estimates. Increasing that by 5% for 3 years would give us an extra $20 million of revenue. So, between the national TV contract and 5% annual revenue growth for other sources, we can pretty easily arrive at $40-$45 million more of revenue that almost covers the $50 million increase in payroll. Forbes estimates the Padres’ revenue went up $60 million over that 3-year period, so they apparently did somewhat better than that.
No, the actual reason you used that language is because you arrogantly want to pretend that you know what you’re talking about despite being repeatedly proven wrong, which is why you keep changing standards depending upon what you’re arguing. For instance, you rely on Forbes to say that the Padres were not running losses but then ignore that Forbes says that the Marlins had a net operating income of +$29 million over the last three years combined: https://www.forbes.com/teams/miami-marlins/
“but then ignore that Forbes says that the Marlins had a net operating income of +$29 million over the last three years combined: https://www.forbes.com/teams/miami-marlins/”
@jd – the 3 years combined in question are the years with 2014, 2015, and 2016 payrolls, as I already pointed out.
It’s readily apparent that’s the case if we look at the “2013” column, which shows a big increase in “player expenses”. That’s obviously the 2012 season, when the Marlins increased payroll and opened their new ballpark, before subsequent payroll cuts – http://legacy.baseballprospectus.com/compensation/cots/national-league/miami-marlins/ . That’s how Forbes (somewhat confusingly labels these columns), as the April when their report was published and not as the baseball season to which the numbers apply.
So let’s look at those Opening Day payrolls for the Marlins, per Cot’s:
2014 – $45.8 million
2015 -$69.0 million
2016 – $74.4 million
So there’s evidence, if we believe Forbes’ income estimates, that at those payroll levels the Marlins can generate a modest operating profit (about $15 million per year) or have a small operating loss of a couple million dollars.
I have already explained – at least twice – the math of how it does not at all show that Marlins revenue would support $130+ million of 2018 Opening Day payroll without big losses. My best estimate, based on assumed growth of revenue and other expenses, is operating losses on the order of $40 to $50 million.
I will walk through again, however, the estimate.
I estimate that 2018 Marlins revenue should be about $20 million higher than 2016, give or take. That’s growing a bit over $200 million of revenue at about $10 million per year (about 5%), even though 2017 attendance was lower than 2016.
Payroll is up about $60 million from 2016 to 2018 if it’s at $130+ million plus. Also assume some amount of increases in the other non-MLB payroll costs of running a major league team.
We start from basically break-even in 2016 ($2 million loss). $20 million more revenue, less $60 million more of player payroll costs, is about a $42 million loss. Add to that loss however much expenses other than player payroll also increase.
And that is why I used the terms “financially illiterate and illogical”. I’ll acknowledge that it’s not especially polite to do so, and maybe I should be less harsh and more civil.
But I’ve now laid out the financially literate math of this estimate multiple times.
And the other point, of logic, is that the comparable revenue MLB teams are the Rays and A’s, and nobody is surprised that they don’t run payrolls close to what the Marlins had committed for 2018 Opening Day payroll.
According to your own link, the Marlins ended the 2016 season having paid $123,574,388 to their 40 man roster. I do appreciate that you keep presenting links that prove your own arguments wrong, but what I can’t understand is why you continue to argue after having been proven wrong. You earlier ignored that the Marlins are by far the biggest recipients of revenue sharing, and every link thus far provided contradicts your claim that the Marlins would be running massive losses without slashing payroll. Basically, everything you have posted has been wrong but because you began your very first comment with smug condescension you can’t bring yourself to admit that you had no idea what you were talking about.
“there is a massive difference between selling off your best assets for top prospects and selling them off primarily for salary relief”
Hard disagree when the salary relief is nothing more than the player’s own contract. A commenter below makes a great point that the Stanton deal can be evaluated essentially a free agency signing.
It would be hardly be surprising for a team in the Marlins’ revenue situation to let its best player leave as a free agent rather than re-sign him to a 10 year / $265 million contract with a player opt-out after 3 years, and that’s the same as what the Marlins did here except for the terminology of “trade” vs. “free agency”.
It wasn’t a free agency signing and multiple teams were interested in Stanton’s services. Obviously his no trade clause significantly complicated matters, but a responsible ownership group interested in building a relationship with the Miami community would have been willing to eat more of the outgoing salary in order to acquire better prospects in return. If they didn’t have the money available to do that, they shouldn’t have been allowed to take ownership in the first place.
It sure looks like the equivalent of a free agent signing when every team offering to acquire Stanton was reportedly taking back less than his full contract in order to send the Marlins any return at all.
In theory, any player who is traded with a sizable contract could be paid down to net a better return, so treating Stanton differently makes little sense. Stanton – plus his contract – was in fact not really much if anything of a trade asset.
*facepalm* It isn’t the equivalent of a free agent signing because the Marlins owned Stanton’s rights. They did not have to trade him at all, and if they did decide to trade him then they (along with Stanton himself) had control over where he would end up and for what. A free agent would be able to sign with anyone and the Marlins could do nothing about it. Obviously the organization did receive some things in return despite the opt-out clause negatively impacting his trade value, and the Marlins won’t be paying any of Stanton’s salary unless he decides against opting out following the 2020 season. The point, which you know but refuse to admit, is that Miami could have received much more in return had they been willing to pay part of Stanton’s salary. They didn’t because this deal was primarily about cutting costs, not improving their organization.
“The point, which you know but refuse to admit, is that Miami could have received much more in return had they been willing to pay part of Stanton’s salary.”
I of course fully admit that. My point is that an “asset” for which I can get something by agreeing to send $100 million of money along with the “asset”, even when over time and conditional on his opt out, isn’t really much of an asset. That’s not an “asset” in any normal sense of the word. It’s something of no value to which I attach $100 million of cash in order to get back something else worth $100 million.
And by doing that they also very well could have found themselves, in the 2020’s, hindering their ability to make moves to supplement their roster, after a hopefully successful rebuild, because they’re still paying about $15 million per year of Stanton’s salary after he doesn’t opt-out. Every team has some payroll budget, whatever the level, and that’s $15 million that could be spent on something else.
“They did not have to trade him at all, and if they did decide to trade him then they (along with Stanton himself) had control over where he would end up and for what. A free agent would be able to sign with anyone and the Marlins could do nothing about it.”
That’s true in one sense, but not in the sense of how to evaluate Stanton plus his contract. If Stanton were a free agent, and told the Marlins that he would sign (or re-sign) with them for his current remaining contract, my point is that the Marlins should definitely say “no” given their situation of low revenue and a slightly below .500 near-term outlook even with Stanton. That’s how writers here analyze things all the time about whether a team signing a player makes sense for them. The fact that a poor decision was already made in the past shouldn’t really move the needle on deciding the best path forward.
The Marlins received Starlin Castro and two prospects in exchange for Stanton while contributing exactly zero to cover Stanton’s existing contract unless he does not exercise his opt-out clause. That confirms that Stanton is perceived by teams to have positive value on his current contract, so for you to pretend that was “a poor decision” simply because you want to act like he was a free agent instead of being under team control is just bizarre.
By standard surplus value math, the value of Castro plus those two prospects is pretty darn close to $30 million, or almost exactly the amount of money that they’ll conditionally eat.
As for a good decision, the revenue context of the team matters. Based on reports, the Cardinals were offering about the value of the contract ($250 million of it plus 2 50-ish FV pitchers in Alcantara and Flaherty) and the Giants were offering less than that ($230 million plus a lesser prospect package in Beede and Aramis Garcia). Plus the Yankees package, which was also around the value of the contract.
When three of the top ten revenue teams in the majors are that hesitant to take on a big contract for a star player, then it’s realistically not a good contract for a really low revenue team to try to carry.
Earlier you insisted that “Stanton – plus his contract – was in fact not really much if anything of a trade asset” because you wanted to pretend that Stanton was the equivalent of a free agent. Now you’re admitting that at least three different teams offered prospect value in exchange for that contract, undermining your own assertion. Your stubborn insistence upon acting like Stanton was a free agent instead of under Marlins control is all about you wanting to defend your initial position even though you undoubtedly realize at this point that it was completely wrong.
“Now you’re admitting that at least three different teams offered prospect value in exchange for that contract, undermining your own assertion.”
They offered prospect value in exchange for that contract if the Marlins would agree to pay part of the money due under that contract. If you’re missing that the words after that “if” are meaningful, then you have a strange view of the world that certainly isn’t how any businessperson looks at the world.
I mean, if the Yankees agree to pay almost all of the rest of Jacoby Ellsbury’s salary, I’m sure that someone would trade something to take him. But nobody talks about Ellsbury as a “trade asset”, at least not at Fangraphs.
The Marlins do not pay any of Stanton’s salary unless he declines to exercise his opt-out after 2020. Your stubborn insistence on treating Stanton as a “free agent” has nothing to do with facts, and actually flies in the face of them. It’s all about you needed to make excuses for your discredited position.
Of course the money was post opt-out.
Everyone agrees that if Stanton is good enough to opt-out then his next 3 years at 3/$77 will be seen as great value for a team in retrospect. Stanton on a 3/$77 contract would have almost certainly returned some sort of pretty prospect return. Not a Chris Sale package, but better than the actual trade package.
Stanton’s “current contract” includes the potential tail years and his right to opt-out, as well as the next three years. A team can’t separate one from the other, just like it can’t separate Stanon the player from his contract.
They had a playoff caliber lineup. Just needed some pitching. Jeter could have convinced CC to join him. Hire Girardi and add another pitcher.
I dont know how much cash is needed to keep them afloat. Accountants use fuzzy math. Depreciation and many other expenses don’t affect cash flow although they inflate losses. Anyways, with hood enough credit you borrow the money to compete, money is cheap, and you inflate revenue by winning.
Stanton was opting out in 3 yrs. A once in a generation player for most teams. They had a 3 yr window. This is either dumb or by design to force a move
I understand your point in avoiding having a club with such debt but the solution presented would have just adjusted the purchase price up the amount of the debt and the team would be looking to recoup that amount anyway.
It could be worse. They could be the Cleveland Browns.
Ask any Clevelander and we will agree.
I’ll argue that the Browns have a much clearer path to being good in the next 2-3 years than the Marlins do.
With so much of NFL revenue shared, the Browns’ finances are fine, and they can spend basically just as much as any other NFL team. They’ve stockpiled a lot of draft picks for 2018 after trading down. (Granted, that was due to passing on Carson Wentz and Deshaun Watson, but having less expected value than those guys doesn’t mean having no future value from those trades.) They have massive cap space available that they can roll over into next year.
They’ve fired Sashi Brown, so what they need is for a competent front office to turn those assets into good players to restock a roster that’s thin on talent but has a few bright spots (some good offensive linemen, some good defensive players, Josh Gordon if he avoids suspensions). The draft picks and cap space are there, however, to get good players and be a pretty good team. Not likely in 2018, but it would be hardly shocking by 2019 or 2020, especially if they can find a good QB in the 2018 draft.
Agree with most of the above. Also, I think it’s funny how some of the same people slamming the Marlins were trumpeting the Astros for building a championship by completely tearing down the team. Sure, the Marlins will likely divert more money toward off field concerns, but there’s no reason the team can’t sure up its financials while building for the future. Serving both masters will probably mean several lean years, but could the situation get worse than the three 105+ losses recently endured by the Astros?
I don’t think the Marlins vs. Astros comparison is apples to apples at all. The Astros set out a plan to tear down and rebuild using a very deliberate, sober and analytical approach. It would be nice if this is what the Marlins plan is, but given past owners’ behavior (Loria, Huizenga) and the debt overhang, it sure seems like the plan is to put an uncompetitive team on the field and pocket the profits (or pay down the debt) for the next 5 – 10 years.
Do we know the Marlins don’t have a plan? I think it makes more sense to assume a new ownership group did their due diligence and formulated a plan before investing $1.2 billion. Also, past ownership should not be held against the new group because there is no connection, other than the sale, between them. When Crane bought the Astros from Drayton McLane, they were a mess on and off the field. That’s kind of like what the Marlins are now. If you applauded the Astros process, you can’t kill the Marlins’ ownership after only two months.
I think they do have a plan, I just don’t think we’re going to like it. Jeter’s goal was to get to $55 million in opening day payroll (although I’ve also heard $75 million). With arbitration-eligible and team control players, they’re at $110 million. That means to reach their goal, they have to cut somewhere between $55 and $35 million dollars.
That means they are likely going to see if they can ditch some of Prado, Volquez, Castro, Chen, Ziegler, and Tazawa, who together comprise about $65 million next year. Although that will necessitate also trading some of Bour, Yelich, Ozuna, Realmuto, and Straily which will also cut down on salary.
It’s gonna be ugly.
I agree, but at one point, I believe the Astros got down to $25mn, lost 105+ for three straight years, and regularly recorded RSN ratings of 0.0 for their games. That’s as ugly as it gets.
Delve into the source of Astros owner Jim Crane’s wealth and things get much uglier.
Funny there are zero articles about that subject here.
Its irrelevant to this site.
Enough with the conspiracies, Philadelphia homerism (one of the worst organizations in baseball mind you) and otherwise general jackassery.
You sir, are a either a bad troll or nutjob with too much free time.
He is mentally ill. I feel sorry for this guy. Mentally ill people are no more responsible for their mental illness than cancer patients are for their illnesses. It’s sad. Fangraphs should do a better job at blocking the accounts his guy keeps setting up. He can’t help himself, but Fangraphs can help by deleting his accounts as he sets them up.
If you’re saying the Marlins won’t be the biggest laughingstock in the last 30 years of MLB teams, I’d say you’re right. But that’s a low bar to clear, and we’re not sure if Miami’s “plan” involves anything other than slashing payroll. Remember, the Astros did pay down contracts to get prospects.
Since when? The reported goal has always been $90M according to MLB Trade Rumors. Now that they’ve dumped Stanton, they only have to dump two or three more pieces. It’s still pretty sad but not as bad as you make it out to be.
I saw $90 million as a number too. But the $55 million dollar number came out in September, although they seemed to think that if they couldn’t deal Stanton they’d only get down to $80 million.
http://www.miamiherald.com/sports/spt-columns-blogs/barry-jackson/article171093362.html
Maybe they’ll decide there won’t be trades to their liking but don’t be surprised if there is a lot more to go.
@sadtrombone – realistically they should move Ozuna, Realmuto, Bour, Castro, and Straily. None of those guys have team control past 2020, and Ozuna only has team control through 2019. With a terrible farm system and lacking enough revenue to just buy every free agent out there, there’s no realistic path to contend over the next few years, so find trade partners and trade those guys for prospects no later than the 2018 trade deadline.
Yelich is a closer call, since they have him signed through 2022 and he’s only 26. That also means that he’d net a hefty prospect return, however. I actually think there’s more business/PR case for keeping him than baseball case, because ownership can point to him and say that they kept at least one player. In baseball terms, the prospect return could be better than having 3 or 4 years of Yelich’s production be for a bad team.
To me, the true test of whether ownership intends to spend money to invest in the future or simply slash payroll is whether they’ll eat money on guys like Chen, Prado, Volquez, Ziegler, and Tazawa. That can be either holding them and letting their contracts run-off, perhaps while seeing if their trade value improves to the point that they can be traded on less unfavorable terms, or sending cash along with them to pay down at least part of their contracts.
If Chen is packaged with Yelich to reduce the prospect return for Yelich, for example, then I think that we can say that payroll reduction is the overriding goal.
“Do we know the Marlins don’t have a plan?”
“What’s past is prologue. ” – William Shakespeare
Yes we know. Rob Manfred and Derek Jeter are looters wearing hoodies hauling big screens out of electronics stores in Miami. The televisions are sold off and the loot divided 30 ways among the Made Guys.
Astros were in a much different position than Marlins when they tore down. After being so close to a WS title in 2005, they kept pursuing with the same aging core. In 2009, their average player was 32! They had nothing left in the farm and the roster was .500 if everything went right. Most of their “dump” were guys that were past their primes. Bourne and Pence were the only sure things they let go, while most of the transactions involved assets like Roy Oswalt, Lance Berkman, Carlos Lee.
Maybe the loss of Fernandez was too much to overcome, but the Marlins were much closer to contending in the weak NL East than the Astros were at the time of their teardown, and with the financial obstacles they have to overcome, they will have to be very lucky on the scouting end to get out of the basement within the next five years.
I don’t know why MLB insists on having two teams in Florida. The ratings and weather sucks, there is no untapped core of potential new fans, solely reliant on other people’s money to exist… they need to figure out where to move these guys before considering expanding.
Raleigh, Charlotte, Nashville, Indy… outside shot for Austin, OKC, Portland, Montreal. Tampa is done and needs to move… Miami will be in 10 years when this rebuild results in the same apathy.
The main difference is the decision to blow it up in Miami is obviously 100% about money, whereas in Houston it was arguably the best thing to do baseball-wise.
When the Astros did their teardown, they were a bad team full of old players and with a poor farm system; a total rebuild was perhaps the only option. Miami, in contrast, was a not-terrible, not-old team last year. Add a couple SP and they could have been in the 2018 wildcard hunt.
@frangipard – how do you propose adding those couple of starting pitchers? Their farm system is one of the worst in the majors, and the worst according to some rankings. So there aren’t reinforcements or trade chips there.
The financials were bad for 2017 and were going to be horrible for 2018: a team with Ray’s-level revenue and a 25-man Opening Day payroll set to be $130 million plus in 2018. Even taking owners’ claims of losses with a grain of salt, it’s very easy to understand how that equates to something like $50 million or more of operating losses. So, is the idea to add a couple of $15 to $20 million AAV starting pitchers to that, on multi-year contracts, to push the team to the fringe of wild card contention? And then, what happens if that idea doesn’t work out and it’s once again a 75 to 80 win team drawing 1.6 to 1.7 million fans, but now losing almost $100 million per year? Or, even if it kind of works out, that a 1 and out appearance as the second wild card does very little for attendance or 2019 season ticket sales?
That sort of idea, with operating losses, backloading of contracts, and deferral of some salary, is part of how they’re in their current mess. Some of the existing debt – far from all of it, but some – is because the team’s revenue didn’t support the $115 million Opening Day payroll in 2017. It’s how they ended up with dead money on contracts like Chen, Volquez, Ziegler, and Tazawa.
I actually thought the Dee Gordon trade was a pretty good deal for the Marlins.
The Stanton trade was good in the sense that the Marlins set out to accomplish something (dump the contract) and they did. But that doesn’t mean I like it. When a team dumps the MVP just to get rid of the contract, it’s tough to swallow.
If they had just let Stanton go to free agency [i.e. no $325m extension] no-one (other than Marlins fans) would have minded, though in the end it amounts to much the same thing. In the circumstances they did pretty well for themselves.
I actually agree with you on the big picture–the Marlins set out what they accomplished to do, so they “did well for themselves” in that way.
The big difference is that a trade can be used as an avenue to improve the team, whereas letting someone walk in FA is risk avoidance. The fact that the Marlins more or less treated it as Stanton walking in FA is a portent I would not welcome if I was one of the dozen remaining Marlins fans.
Very, very well said Aaron.
And, sadtrombone, I’d say that this move by the Marlins was exactly risk avoidance, especially with the long tail of guaranteed years and so many of those years after Stanton’s opt-out. And also perhaps especially because this contract wasn’t signed by this ownership group, but something that came with the team.
I mean, Stanton’s contract was big enough that taking it on gave pause even to the two monster revenue teams (the Yankees and Dodgers), a large revenue team (the Giants), and a team that usually sits right around 10th in the league in revenue (the Cardinals). The report from Bob Nightengale is that the Cardinals were going to take on about $250 million of the contract, and that the Giants were going to take on about $230 million.
No team was willing to trade anything of value to take on Stanton’s entire remaining contract, which tells you right there that it should be thought of as looking like a free agent deal.
A lot of the reporting and fan reaction is basically a mass hysteria version of the endowment effect, where people tend to overvalue what they already have.
If you mean dumping the money, ok. But I don’t think it was an impressive prospect haul.
It’s garbage.
And the only way Starlin Castro’s contract is moveable is if it fits into some owner trying to scam his fan base. Starlin is a loser and no team trying to win would have any interest in seeing him play 2B for them even if the Marlins ate the entire contract.
Here is where you discover the true corruption of the SABER crowd and their buzzword “analytics” being used so well criminally in Philadelphia. That buzzword can be used to justify an acquisition of a replacement level loser like Starlin Castro.
This is the true utility of “analytics”, the sales pitch offered to the 30 Made Guys.
Wow I thought you were just a dumb dumb but you’re a real psychopath aren’t you?
Odd, given that Castro seemed to fit in well with the yankees when they got within a game of the world series last season.
Castro has a very real shot at a 3000 hit career and played well for the Yanks. Loser? Hardly. But Maury, you keep on riding with Jimmy Conway.
Why counter one misrepresentation of Castro with another? He actually has very little chance at 3,000 hits. And if he did make it, given his career rates, he’d be the worst guy in that club, by any meaningful measure — OPS+, OBP, WAR — and by a large margin. The lowest career OBP with 3,000 hits is .340; Castro’s at .320. The worst OPS+ is 107; Castro’s at 98. And those marks barely changed during his Yankee “renaissance.” At those levels, “3,000 hits” doesn’t mean a whole lot.
As for his chances … No one who’s walked as rarely as Castro (4.8% of PAs) has ever reached 3,000 hits; the high is 2,715. And Castro hasn’t reached even 160 hits in the last 4 years; he’s 42nd in total hits in that span. The Bill James “favorite toy” method puts him at 12% to reach 3,000.
Anyway, hit totals through age 27 just don’t mean much. Castro’s 1,280 hits looks great at a glance — 38th all-time, and there are 31 guys with 3,000. But of the 37 guys who had MORE hits than Castro by this age, only 6 reached 3,000.
Starlin Castro scares the hell out of me. He’s been pretty productive but if I am looking for help at 2nd base I am not interested in taking on his contract for his likely 1-WAR-per-year production.
This is a very poor interpretation of what he said. Saying “Castro has a very real shot at a 3000 hit career and played well for the Yanks” is nothing like saying he is likely to reach 3000 hits or that he is likely a HOF player. It is like saying that he has a 12% chance to reach 3000 hits, though. Plus, I don’t think he ever used the word “renaissance”.
Aren’t you making my point, Joey? The 3,000-hit reference is meaningless, conveying no useful information about Castro’s value. It is, in fact, misleading, since “3,000 hits” has the connotation of a very good hitter, whereas Castro is merely average — which was my thrust.
P.S. “Renaissance” was my own term, put in quotes merely to reference common public opinion.
It’s obvious you have zero respect for the site’s authors or the FanGraphs community. So why don’t you take your sick, twisted worldview and get the fuck out?
JimmieFoXX, if you can’t cite facts, and just spit innuendo, STFU.
This is the exact kind of comment that illustrates why we need a moderating system here at FanGraphs: 1) It hates on the site authors for no legitimate reason; 2) It creates or contributes to a toxic environment in the comments; 3) It turns off any new readers.
Powers that Be: Can we either have people whose job is to delete these kinds of comments or a system whereby comments with a certain number of downvotes are hidden or deleted?
How much of the $400M assumed debt was put into consideration at time of sale? Did Sherman’s group flatly state to the approving bodies at MLB that those payments would force him to strip the big club immediately? If so why would MLB approve this group when the bidding was reported to be competitive?
Yeah, I have a hard time seeing how Sherman & co’s bid was appealing, or even the best out there.
There’s also some serious discrepancies as to how much money Sherman & Co have fronted for the team. The Forbes article linked in the article states Sherman contributed “close to $400 million” for a 46% stake. But $400m for a 46% stake means the team cost $870m not $1.2bil. We also know Jeter contributed $25m for a 4% stake. By that ratio only $625m was spent. Furthermore, the ownership team only constitutes 84.5% of ownership. Who owns the other 15.5%? Michael Dell? Or was the gap never filled after
Add to this, up until a few weeks ago the Marlins were still seeking $250m in additional investments.
Loria might have been a bad owner, but in their rush to get rid of Loria, MLB just sold the team to a group of guys who will have to run the Marlins on such a shoe string budget that they will forever be an on-the-field disaster. This is Frank McCourt all over again, and the MLB has no one to blame but themselves.
I’d like to see an actual lawyer address this. There are certainly limits to what the other 29 owners can tell the 1 owner to do and not do regarding his own investment. My guess is you legally run up against those limits pretty darn quick.
“There are certainly limits to what the other 29 owners can tell the 1 owner to do”
No sir, this is entirely false. MLB is run as one unit that is pawned off on the public as thirty separate entities. The 30 Made Guys or 30 Families subscribe to and take an oath to “This thing of ours” and anyone who steps outside of their rules goes out like “Coppy” who walked into an empty room like Tommy in “Goodfellas” and exclaimed “Oh no!”
The antitrust exemption gives baseball a lot of leeway in dealing with any individual franchise, but I haven’t looked specifically into what kind of limitations they have set up between ownership groups.
I wouldn’t be surprised to see Jeter’s share preferred above its cash value, so that part makes some sense.
Sherman would contribute “close to $400m” for 46% if they paid $800m plus took on the debt. They don’t have to cover that part; you can consider that it comes equally to the shares.
“preferred above its cash value”
You mean Jeter is a paid front man for the criminal enterprise?
The assumption of debt was in the sale price. That’s normal for an acquisition and would have been done no matter who the buyers were.
Jeter has said that the Marlins want to get their payroll down to $90mm or so. Go look at what other low-revenue teams spend on payroll – the Marlins’ number is reasonable/fine. That’s not a “shoe-string” budget.
“forever on-field disaster” etc., etc., is just exaggeration that is not connected to the facts.
“That’s normal for an acquisition ”
For many members of the “business community” burying bodies at construction sites is normal.
Its a shoe-string budget when you realize that most of it is driven by 2, arguably 3 large Ks, that will be difficult for them to offload.
It shouldn’t be normal for an acquisition. Such low-ball tactics are usually frowned upon in other segments of the business world. If there was even one offer that was willing to pay the full $1.2M including the debt, it should’ve been accepted over any of the other offers.
MLB has rules about how much debt an ownership group can assume in order to prevent teams from being buried by debt service costs, which is why they review the bids. this one (33% of the price, of $400mm) is within the guidelines.
the group did additionally corral $800mm in cash, which included almost $400mm from Sherman, $90mm from MSD Partners raised by a preferred equity issuance, and smaller (<$40mm) from several others.
the total sale price, then, is $800mm in cash plus $400mm in debt (call it a "mortgage") — so $1.2bn. that was the amount transferred to Loria. Loria then effectively extinguished $400mm in debt and pocketed the other $800mm.
i wouldn't get caught up too much in reconciling the percentages — all figures being reported are approximate.
whether the new group will be good or bad remains to be seen, but they definitely will have to service some debt. they are clearly interested in reducing payroll but almost any group would have — the Marlins reportedly lost $70mm last year, which may or may not be true but if anything close you can understand the new group's need to get closer to revenue neutral. Loria had increased payroll in recent years to bolster the sale prospects, as is common in baseball.
No MLB team “lost money” last year nor will any MLB team lose money this year or the following year or the…….
When you have a corporate media who understand their job is to lie to the public this is not a problem.
The value of the Phillies TV deal is at least six billion dollars but almost 100% of the corporate media have insisted it has a total value of $2.4 billion. I had a Twitter confrontation around the time of that sale with a “business journalist” in the green room at MLB studios killing time on his cellphone. He used several F-bombs on me insisting that the deal was worth exactly $2.4 billion and not one dollar more. I don’t have the MLB Network so I can at least thank him for letting me know exactly what lie he told that propaganda networks audience minutes later.
So if 100% of the media has that claim, then where does your number come from? Are you a member of the Phillies organization or their TV network highly enough placed to know the true value? If not, then you’re just a conspiracy nut pulling random numbers out of his/her butt and deserve those F-bombs for trying to spread unfounded urban rumors.
Sonny L – they approved this group, at least in part, because no other owner was going to come in and keep intact a team with a $130+ million 2018 Opening Day payroll and Rays-level revenue. That credibly does look like a team that has something like $50 million or more per year in operating losses.
And there’s not even really an optimistic path out of that based on “we’ll make a playoff run that brings out fans and boosts revenue”, because it’s all to fund basically the same roster that won 77 games in 2017 for a team with an absolutely horrible farm system.
Yeah, but tell us how you really feel about the Lorias.
Funny how Cameron was never willing to do that say seven years ago when there was no hint that Loria would be going anywhere.
Now that Loria is gone it’s OK to say whatever comes to mind. The more Loria is blamed the happier the 30 Made Guys of MLB are.
No one ever had anything bad to say about Paul Castellano when he was the boss. As soon as Gotti wacked him it was OK to run Paul Castellano into the ground. The more bad things said the happier the new boss Gotti was.
The entire Sabermetric community has been bashing Loria since he owned the Expos. I suppose there was a time in the middle when we were more quiet about it because it had gotten rather boring. But it’s always been there.
Forgive me if I’m a novice, but why would the Marlins be saddled with this much debt? Their new stadium was taxpayer funded and they’ve always fielded payrolls in the bottom third of the MLB. I know their TV contract doesn’t pay them much, and attendance is low. My guess is Loria ran up debts on the team hoping to sell high on them without spending any of his own money.
It’s the mafia equivalent of “busting out” a business and then setting it on fire to collect the insurance money.
It’s a strip mining private equity op selling to…a strip mining private equity op.
“My guess is Loria ran up debts on the team hoping to sell high on them without spending any of his own money.”
Bingo. Speculation was that Loria knew he’d sell the team in the next few years, which is part of the reason why Stanton’s deal was super backloaded. Loria figured he wouldn’t be the owner when the money starts to become a big issue on the deal.
It’s similar to how Mike Ilitch ran the Tigers in the final years of his life (not trying to speak ill of him here). A sort of moral hazard.
If so, it is exactly “moral hazard” (in the economic sense, not the actual moral sense).
https://www.cbsnews.com/news/explainer-moral-hazard/
Although I am not sure that Loria knew he was going to sell the team. He liked being an owner. But he was also convinced Stanton would opt out. Different path, same result–he figured he’d never pay the back half.
“Although I am not sure that Loria knew he was going to sell the team.”
So you’re a special kind of stupid?
It’s amazing how excited we are to predict the past, and to proclaim that it could not have happened any other way.
I tend to agree with sadtrombone. Maybe Loria is stupid enough to think that what he’d get for the team is completely independent of the financial outlook, but that’s not reality.
Buyers do due diligence and see the numbers. While there’s a scarcity value that sets a sort of floor for what any team is worth, there are financial reasons that the Dodgers sold for $2 billion five years ago and that Forbes estimates that teams like the Yankees, Red Sox, and Dodgers are worth over twice as much as the Marlins’ sale price.
likely because the new partners want it that way.
look at how things played out for Loria, and you’ll get an idea of what Jeter/Sherman is hoping for. he bought at $160mm in 2002, and was able to ride the investment up to $1.2bn in 15 years — that’s a $14% RoR.
over that time, however, he borrowed $400mm against the asset (to cover operating losses and expenses).
consider what that means for the return on his cash investment. if Loria owes nothing and sees the Marlins double in value over some period, he earns 100%. but if he owes 50% of the value of the team to a bank and has 50% equity stake, his RoE is actually 200% (less debt service costs).
this is known in finance as “leverage”, and it can turn good investments into great ones. Loria tied up less cash in the property while it appreciated, and the cash that was tied up was much more effective for it.
Jeter/Sherman could have found more equity partners easily — but for the reasons above, don’t want to. they want their cash investment to return better with leverage. they still have to stay within MLB debt rules, but they want to have leveraged what they can.
You have the right principle here of leverage driving higher equity returns for a given increase in enterprise value, but some of the math is wrong.
If enterprise value is financed 50/50 and then enterprise value doubles, equity value triples before considering interest costs. The math is 0.5x equity + 0.5x debt for the purchase. Then, if the enterprise is sold for 2x, the equity is worth 1.5x (2x – 0.5x debt), which triples the initial equity investment.
Loria got a sweet deal on the stadium, but the Marlins shouldered something toward it. The reports that I’ve seen are $125 million, and $160 million if you include an interest-free loan from the county.
The team reportedly did lose money in 2017 and maybe also 2016, which I believe looking at the payroll numbers, estimated revenue, and key drivers of estimated revenue (attendance and local TV contract revenue).
Add both of those up, and it’s pretty easy to get to something like $250 million of the $400 million in debt. The rest may well be Loria leveraging up the team to take out money, it may be something else.
I agree that Loria was a really bad owner who clearly had no clue about building the team into a sustainable franchise, but there’s arithmetic that helps explain this situation beyond just screaming “Loria sucks”.
Why do the Marlins need to shed payroll so drastically?
Because their TV deal is bad, their attendance is poor, and they spent more on player salaries than were justified by their revenues.
If all of that were true though, nobody would ever have spent $1.2B to buy it. Instead they’d say: “this is a sinking ship, no thanks”
Companies that are currently losing money are bought all the time by people who intend to make changes, turn them around, and run them profitably.
It seems that M&A work is not something with which you are familiar.
not exactly. Loria bought the club in 2002 for $160mm and just sold it for $1.2bn. that’s a 14% RoR during some really difficult investing times.
if you expect that to continue, then almost anyone would buy in.
during that time i’m willing to believe the Marlins were often losing money — that’s part of the reason Loria borrowed $400mm against the equity of the club over that time, to finance operating costs. but in the end, he never lost so much that he didn’t make more on the appreciation of the property value.
this is the same game many homeowners played during the housing boom with HELOC loans against the booming equity value of their houses.
And the new ownership knew that going in and that would have been part of the price to begin with.
Yes, and it was part of the price.
“It is unquestionably embarrassing for Major League Baseball that Jeffrey Loria was allowed to run the team in such a ridiculous way that the new ownership group had to assume $400 million worth of debt, the service of which is going to eat up such a significant amount of their cashflow that they couldn’t afford to keep a great player making $25 million per year.”
How is that all Loria’s fault?
The fact that the Marlins were $400M in debt under Loria is completely irrelevant. They sold for $1.2B in total value (cash + assumed debts) to new ownership that only raised $800M in cash. If the Marlins had been debt-free, the total sale price wouldn’t magically be less; instead, the new owners would have been forced to take out $400M in loans to pay the full $1.2B. No difference there.
The most you can say about Loria is that he was such an awful owner that the remaining franchises decided it was worth selling the Marlins to an undercapitalized group likely to embark on its own fire sale just to get him out the door. That’s likely fair.
But it seems to me that MLB and new ownership willingly made that choice. So letting them off the hook entirely and blaming the whole thing on Loria? I’m not buying it.
This is a really good point. When you sell your house, the new buyers don’t care how much you have left on your mortgage; they care how much they have to pay. Whether they take out a large mortgage or buy the whole thing in cash is THEIR problem and has nothing to do with you.
The real issue is that Loria smeared $^@& all over the walls before selling the house.
The issue with this analogy is that typically the new buyer doesn’t take on the seller’s remaining mortgage.
The Sherman group did.
The accounting is the same either way though. Imagine two cases:
Case 1: The Sherman group pays Loria $800mn for the team and agrees to take on the debt. Sherman group is left with the team plus $400mn of debt, Loria has $800mn and no debt.
Case 2: The Sherman group pays Loria $1.2bn for the team, with $800mn in cash and $400mn of new loans. Loria pays off his debt and is left with $800mn and no debt, the new ownership group has the team plus $400mn of debt.
As you mention in your comment below, the exact numbers might shift a bit one way or another due to the details of the financing arrangement (taxes/transaction fees/etc), but the underlying intuition is the same- it doesn’t matter if the Sherman group debt was a transfer of existing debt or a new loan.
There was nothing stopping the new ownership group from simply paying $1.2bn right away and starting out with no debt. That they didn’t reflects MLB’s inability to find a better ownership group willing to pay more, and a good chunk of that is on Loria for alienating the fanbase.
exactly — but i think it more reflects the low current cost of debt, the ability to write off the interest expense, and the ability to increase the RoE on cash with the leverage that results. taking on debt here is a bet on the continuing spectacular increase in sports franchise values. the group could easily have found more partners but chose not to in an effort to increase their returns while staying within MLB debt rules.
I couldn’t help but think of:
“He shit everywhere. There’s shit everywhere! DAMN IT!!! There’s shit on the windows! Oh, my God! My house is full of SHIT!! HE SHIT EVERYWHERE!! Look what he did! He shit all over the wall!”
“MY HOUSE IS FULL OF BILE! SHIT!!”
Bob Sagat
I think the discrepancy here is equity value vs enterprise value.
The Marlins equity value (the cost to buy 100% of shares) was ~$800M given what they paid. The enterprise value of the Marlins though was the equity value (~$800M) plus any debt ($400M).
If the Marlins had no debt, their enterprise value would equal their equity value, and the Sherman group would only needed to have found $800M.
Assuming the $400M in debt raised the cost of the reported sale (enterprise value). If Loria didn’t run up $400M in debt, the Sherman group wouldn’t have to had kill their roster to afford running the team. Loria wouldn’t have sold the team for $1.2B without any debt. The Marlins would have gone for likely more than $800M (Sherman and Co. probably took a discount on the equity value because of the debt)but less than $1.2B.
Loria basically took out what a homeowner would know as a HELOC of $400mm against the property value appreciation (from $160mm in 2002 to $1.2bn today). i doubt very much that, had he not, the valuation of the franchise would’ve been reduced — likely the competing buyers would’ve got to $1.2bn and financed it in any way they wished (with a significant debt component likely, given the permissive private debt market we have now).
Loria extracted equity over time, and for that he sees $800mm rather than $1.2bn as a result of the sale. that’s his penalty, but he surely doesn’t regret it at all. that appreciation is still north of 14% raw RoR.
where Loria earned his reputation was in using the franchise to extract an incredible stadium deal from Miami Dade County. that brought the enmity of a lot of people opposed to public stadium financing, and it definitely will cost the county plenty. but i have a hard time blaming Loria for getting all he could. the Marlins attendance has always been terrible, and some kind of attempt to solve that problem had to be made. Loria could’ve been made to take on more of the cost, but then he could also have left South Florida for Charlotte or Las Vegas or anywhere.
his move to improve the sale value by signing free agents to backloaded deals also has a long history in baseball — hard to blame him especially for doing that when it makes business sense for him in terms of the sale.
“The Marlins would have gone for likely more than $800M (Sherman and Co. probably took a discount on the equity value because of the debt)but less than $1.2B.”
Why would the enterprise value of the Marlins somehow be less and/or Loria somehow accept less than full enterprise value because they were debt-free? Are the tax/accounting benefits of assuming existing debt really that significant?
Otherwise, the only value to the current situation is that the new ownership group gets to blame Loria for the current firesale rather than their own inadequate finances. I guess this article demonstrates there might be some value in that…
@ Chris – you are correct. That is how businesses are pretty much always valued, on enterprise value rather than equity value.
There can be some edge cases like a buyer being willing to pay a bit more if the buyer is able to assume debt that’s on more favorable terms than currently available in the market, but the difference is pretty marginal compared to what Shauncore is claiming. It’s the sort of thing that could turn a $1.20 billion number into something like a $1.17 billion number if the buyer can’t assume debt but has to obtain higher cost financing.
There are two things for which I blame Loria:
(1) Screwing up the Miami market so much as a bad owner that what should in theory be a decent revenue market is down right around the same revenue as the Rays. That said, the purchase price would presumably be at least somewhat higher if the Marlins generated better revenue.
(2) Entering into contracts, including backloaded contracts, that set the Marlins’ Opening Day 2018 payroll to be $130+ million when a level that fits the team’s current revenue is something like $70 to $90 million (see point 1).
I know that it seems odd to accuse Loria of overspending, but he set up the Marlins with contract commitments that just don’t fit the franchise’s revenue. It looks even worse since some of these contracts, most notably Chen’s 5/$80, went bad almost immediately.
And, it’s on Loria that he tried to get around the team not really having the revenue by backloading contracts and deferring some money, which was just kicking the can down the road unless the team dramatically increased revenue via something like multiple deep playoff runs.
Oh, I think a lot of us understand that the deal is justifiable, but the chance to take a shot was too good to miss.
Still the deal is bad. if stanton opts out he will have produced about 50M of Surplus value. if the two are worth 25M they are still negative 25M (if we assume castro has a net value of Zero).
and if stanton does not opt out the marlins eat 30M probably making the net negative even larger.
it is true that loria messed that up but sherman new about the debt Situation before he signed and nobody forced him to buy the Team.
if the 9th lowest payroll is not low enough to renovate the finances of the Club mlb should have found another solution. loria sold the Clubs for 1.2B so he could have paid the debt by himself.
why didn’t the MLB force either loria or sherman to pay for the debt? they could have threatened to contract the marlins and start a new Franchise. not sure how possible that is legally but it sure sucks.
But even if the debt and saving is inevitable:
the new ownership Group still wasn’t open about their plans. when jeter took over they still insisted they Keep and retool around the other two good outfielders.
if jeter had said at day one “we are going full rebuild” and sell everyone People would have understood.
but instead their communications was a disaster.
-they fired Franchise Icons – which made sense because the Club wasn’t good with them and communicated it badly
-Players stated that jeter didn’t even talk to them
-it is unclear who runs Baseball ops. they have a gm but it seems jeter runs this now. jeter is a smart guy but he doesn’t have a college degree in an Age when havard trained Business People run that Job
-they publicly stated they did not bid for otani due to financial reasons. wouldnt have gotten him anyway but otani could have been sold for 20m of salary AND two top 100 prospects. likely did not cost them but still not a reasonable thinking.
yes: some of the steps are inevitable and caused by loria but still the new Group communicated stuff terrible, doesn’t Show a plan to the public other than saving Money and executed things not all that well either.
it is mostly lorias fault but still the marlins new Group did not Show up well.
what they could have done:
-formulate a clear rebuild plan from day one(uncluding salary Dumping)
-hire a new high Profile analytics GM
-communicate in a non terrible way to the public.
I disagree with the opt-out portion. If he opts out, he would’ve opted out with the Marlins, in which case they would have received either nothing or a compensation pick, which are both less than what they got in return.
Dominikk – remember that all of our surplus value calculations are based on the marginal cost per win in free agency, which is far and away the most expensive cost per win compared to the average cost per win including minimum salary players and arbitration year players.
Basically, Stanton’s surplus value isn’t worth that free agent WAR cost to the Marlins from either a baseball or business standpoint.
From a baseball standpoint, the team is very unlikely to be a contender in the next 3 years. It won only 77 games in 2017, has a terrible farm system, and doesn’t have the revenue to support what would have been its payroll for 2018, much less increase it. Whether it was Stanton or other trades, payroll was going down and the team was almost certain to get worse.
From a business standpoint, we saw in 2017 what sort of revenue the Marlins got out of a 59 HR MVP season from Stanton, and the answer looks to be very little. Attendance was just under 1.6 million fans, which was actually lower than every one of the prior 3 seasons (by 150,000, give or take) and basically the same as 2013.
The other owners didn’t do anything because most of the want to BE Loria. Flipping an asset for more than 10X its value! He’s their hero. Is there really much difference between him and any other owner? Loria is more detestable on the surface, but he and Jeter are cut from the same cloth. They ALL own teams to ‘wildly enrich’ themselves.
This is sorta true. They buy into teams so their bratty kids can have the run of the spring training fields (used to be clubhouse so at least there’s some progress), but once having done so they also want as much $$$ out of it as possible. You don’t earn enough to buy into an MLB franchise without really really loving $$$ in the first place.
Wow, a rational, thoughtful post about this. Nice job. I think this trade is for roughy equal value when you look at the risk and the ability of both teams to absorb risk. Miami needed to get rid of the contract, period.
You have to hand it to Loria, he bought the Marlins for $158 mil, got the taxpayers of Miami to pick up most of the tab on a new stadium that allowed him to sell the team for $1.2 bil (or $800 mil, depending on how you count it, but either way, he made a ton of money).
Loria probably doesn’t care about baseball or what people think, and in that context he played Miami taxpayers big-time. Sucks for the Marlins though….
You forgot he paid eight figures annually to a ‘management company’ to run the day to day ops of the team. That management company was himself and his son-in-law. Plus Loria’s annual $10M in unclassified ‘administration’ payments to himself.
http://www.miaminewtimes.com/news/six-lies-about-the-marlins-stadium-6380692
With all accounting included you’d be hard pressed to find a single calendar year during the Marlins’ years Loria didn’t personally come out ahead.
He could probably be president.
While the NL East hasn’t been a particularly competitive division in the last few seasons, the Miami’s current fire sale certainly isn’t helping matters. Washington really needs to capitalize the competitive advantage they have for the next few seasons. One assumes that by the 2019 seasons the Braves and Phillies rebuilds will start to bear fruit, and one hopes the Marlins can achieve respectability soon after. Unless the Mets can get healthy, the Nationals have a clear path to the play-offs for the next two years. We will see if they squander it.
“In reality, Stanton’s current salary is well under market value for an elite player, and if the Marlins can’t even afford players at this level, it’s unclear how they’ll ever compete.”
I don’t think this is true, and a review of Cot’s contracts for a host of small-market teams (like, e.g., the Indians) shows that teams compete without having +$25MM-per-year players.
Moreover, at this point, Stanton has a 10-yr/$295MM contract (with a player opt-out). I don’t agree that his current salary is “well under market value.” Maybe you’re speculating that it will be under market value a year from now, after the Harper and Machado deals, but it is certainly not under market value today.
Well said.
It seems very unlike Dave Cameron, and Fangraphs writers in general, to appear to be speaking of a 10/$295 deal (with a player opt-out after 3 years) based on what the player will make next year. Obviously a host of teams would love to have 28 year old Stanton for 2018 for 1 / $25 million, but that’s not even remotely reflective of the totality of his contract.
I also recall a point made by a writer – I think at Fangraphs, but not sure – that Stanton becomes less and less tradeable as he approaches his opt-out because the upside for the acquiring team (great years before the opt out if he performs well) diminishes in value while the back-end risk remains about the same if he doesn’t opt-out due to injury and/or performance decline. In other words, keeping Stanton for 2018 materially diminishes the chance of ever being able to trade him before his opt-out without agreeing to eat a lot of the post opt-out money.
Marlins would be able to field a team if they weren’t in the bottom 3 in attendance every year. In a September game in 2008 they had 600 total fans show up…
Agree with the crux of the article: 1), Jeter has as much business running an MLB franchise as Brian Cashman has playing shortstop; but 2), the Stanton (and Gordon) dump really is fine all things considered.
I will contest Miami “should be one of the best baseball markets in the country”, tho’. (lived there for 5 years) It’s too darn hot, summer’s the rainy season, the broader area has too many transplants who will never warm up to the local team, the Cuban-Americans of typical baseball fan age are parochial enough such that they don’t much root for anyone other than fellow (white) Cuban-Americans. In all ways other than raw size it’s a lousy market.
You made me laugh with point one. I was thinking Sterling screaming….”past a diving Cashman into Left Field”
pasta diving
“In other words, the two prospects the Marlins got are probably worth close to the amount of Stanton’s contract that the Marlins kept on the books. ”
It’s worth noting that we shouldn’t be using the value of Stanton’s contract they’ve kept but the expected value, which is the money * the percentage of the time he doesn’t opt out. That should be considerably less.
Exactly the wrong way to look at it. The value of Stanton’s contract is based on a normal distribution of his future, expected performance. What the opt-out effectively does is eliminate most of the scenarios where the expected value of his future performance is greater than his guaranteed salary, while keeping all of the downside scenarios.
Sure, but that’s irrelevant to how much money the Marlins end up paying. That part only matters to the Yankees now.
One of the issues in talking about this trade is that there are wildly differing estimates of what Stanton’s contract and production are going to be worth.
So my thought on the whole “how much value does Stanton really have relative to his contract” question–let’s see what JD Martinez gets in free agency. If Martinez comes even close to his asking price, Stanton’s contract is going to look better (I suspect once Bryce Harper signs a $400 million dollars next year, we may say the same thing). They might all be bad contracts from our perspective, but at least we’ll know what the market is for sluggers.
Why is everyone so sure that Harper will sign for $400 million in guaranteed money?
He has one absolutely one great year (9.5 WAR in 2015, which is getting farther and farther into the past). Other than that, he hasn’t had a season above 5 WAR.
I understand that he’ll only be 26 next year and that Steamer projects him for about 6 WAR this year. If he puts up a 6 WAR season, I’m sure that he’ll have an incredibly robust market. If, however, he misses time in 2018 with an injury (like he did two of the past four years) and puts up a 110 to 115 wRC+ (like he did two of the past four years), what’s his market then? It’s big, but I don’t see something close to $400 million in guarantees.
I understand that’s not his mean projection for 2018, but it’s hardly crazy. It’s just combining his 2016 batting production with his 2017 health.
Doesn’t the cash only apply if Stanton does not opt out? The Marlins likely will not be paying any money
My understanding is that, yes, the money is only paid if Stanton doesn’t opt out.
I think, though, that you’re overestimating the odds that he’ll opt out. He hasn’t been a model of health, and he’s a big-bodied slugger who will be into his 30’s by then with something like 7 / $210 remaining after the opt-out.
Wow, take off the aqua goggles Dave. This was a horrific outcome for Miami and a stain for MLB. Just horrible all the way around.
How do 28 franchises stand around while Derek Jeter engineers a trade of the NL mvp to the Yankees for flotsam?
Jeter is the gift that keeps on giving (to Yankee fans).
This conspiracy stuff is just ludicrous. Stanton had a no trade clause. Jeter made deals with at least two other teams that we know of, only to have Stanton nix them. So, to buy the conspiracy theory, you would need Stanton and Jeter to be in cahoots so Jeter’s negotiating would be window-dressing knowing that Stanton would turn them down–all so the Yankees could rip off the Marlins.
Conspiracy? I’m just working with facts now. If you don’t think there is an optics problem with the fact pattern, well, there are more than a few people who do. Sure, I don’t think the Marlins could be prohibited from ever dealing with the Yankees but this is such a lopsided baseball trade directly resulting from MLB’s apparent rush to approve the under-funded Jeter group in Miami, for reasons that are yet to be fully explained.
It’s hardly lop-sided if you understand this point that Dave Cameron makes:
“this is yet another reminder that teams aren’t just trading players, but they’re trading contracts. And Stanton’s contract, with an opt-out after 2020 — or $295 million in committed salary if he doesn’t use it — isn’t all that attractive of an asset. There’s a reason Stanton cleared waivers back in August, and why every team negotiating with the Marlins wanted Miami to keep part of his post opt-out money on their books”
The Cardinals’ offer was reportedly to take almost $250 million of the contract plus send two good but not elite prospects (Alcantara and Flaherty). Guzman might be as good of a prospect as one of them, albeit farther from the majors.
The Giants’ offer was reportedly to take about $230 million of the contract and send Tyler Beeded and Aramis Garcia. Less money than the Cardinals, and less of a prospect package.
The Yankees’ trade package (money plus players) actually looks better than that package from the Giants (which the Marlins were reportedly ready to accept) and something like 95 cents on the dollar of what the Cardinals offered.
It’s not an unattractive asset. That’s the problem here. As stated, that contract is already prob below market for an elite player in his prime. This is not some past prime player whose contract was an albatross the moment it was signed (Ryan Howard, Miggy, Pujols). This deal goes thru Stanton’s age 37 season, not more.
And as DC said, if this group wasn’t even willing to pay full price for one elite player, it’s really unclear how they are ever going to field a competitive roster. They already have a bottom half payroll.
As said above, this is all the residue of the misguided decision to approve this ownership group in Miami. Very unfortunate for the city of Miami and by extension, all of baseball.
The market is defined by other teams, so Stanton with his contract is clearly not an attractive asset, at least not in the sense that the player is seen as worth more than the remaining contract.
The opt-out occurring so early (3 years) in the contract is a pretty big deal in how teams look at the contract. Looking it as a probability distribution, the upside is limited on team-favorable outcomes where Stanton ages gracefully, because he opts out after 3 years. If the contract looks like an albatross by 2020, though, he stays and a team gets to pay him for 10 years.
You’re also wildly overstating what “only through age 37” implies. Let’s look at the players you name. Pujols has one season with more than 2 WAR (and 2.8 at that) since he turned 32. Ryan Howard was never as valuable as people focused on his HR totals thought, but he was down to replacement level by age 33. Cabrera was replacement level this season at age 34, and we’ll see to what degree he rebounds.
I’m saying “only 37” relative to other long term deals that locked up players past 40. And even accepting that the last few years of this deal may be under water, this contract still encompasses many prime years where Stanton should out-perform the contract.
Sure, it’s not a deal that half the teams have the capacity to sign, but for the half that do, it’s not structurally a bad contract, which seems like the knee-jerk reaction of many people. And I’m glad that DC made that a talking point in this piece.
“In reality, Stanton’s current salary is well under market value for an elite player, and if the Marlins can’t even afford players at this level, it’s unclear how they’ll ever compete. Great players are now routinely pushing $20 million in their final few arbitration years, so if the Marlins can only field guys with 0-5 years of service, or guys who aren’t good enough to command big money in arbitration, putting a competitive team on the field just isn’t practical.”
This is a good point. The Marlins needed to do more to talk to Stanton ahead of time to get a list of teams he would go to (quietly). THEN they can start negotiating with those teams. Hell, they can continue to negotiate semi-publicly with teams he won’t go to just to drive up leverage for the 3 or 4 teams he would go to.
Doing it the way they did (get offers from a bunch of teams before knowing if he would even go there) really killed their leverage.
The problem with that idea is that it could never have stayed private. And if other teams found out later that they had been used that way, it might have had serious consequences. Miami really didn’t want to know, for plausible deniability sake
I agree with Mike NMN.
I’ve never been involved at all with a baseball front office, but I used to work nearly 20 years in corporate M&A which has some similar negotiating dynamics (repeat players in negotiations, multiple bidders for one asset).
On top of the considerations that Mike describes, which I think are very real, one thing that invariably happens in these sorts of negotiations is that a deal reaches a point where a bidder says something like, “this is my best and final offer, but I need a yes or no within 24 hours or it’s off the table.” In this case, the demand might be to set a meeting with Stanton for almost immediately after the offer is accepted. So the Marlins would still run the risk that the “phantom bidders” very publicly drop out of the process before the real bidders reach acceptable offers.
Also, in terms of getting Stanton to waive his NTC, the fallback for Stanton is to go back to a rebuilding Marlins team. He can’t guarantee that they’ll trade him. There are plenty of examples of players changing their minds. Verlander this year supposedly would only go to the Cubs or the Dodgers, but then he accepted a trade to the Astros. Curt Schilling in the early 2000’s supposedly wouldn’t agree to waive his NTC to go to Boston, and said so publicly, but then he waived his NTC after meeting with Epstein and Hoyer and getting some sweeteners to his contract.
More rationalizing.
I called it. Loving this !!!!!!
Because the other franchises engineered the acquisition by a Jeter led consortium, knowing this would be the result.
This isn’t a stain to owners, and they own the toys we all like. This is what they *wanted*.
Yes, it’s a shame they approved the sale to a group they knew couldn’t afford to operate the team.
This is a real black eye for MLB and Manfred in particular.
Stanton put the club in a disadvantage with the limits he placed on his no trade clause.
Leaving aside the writer’s need to spin a compelling narrative, I don’t think Miami is potentially one of the best baseball markets ruined by a couple of bad owners. Heat, traffic, lack of tradition, etc. are all factors against pro baseball in Miami. In any case, Cameron doesn’t provide any support for the claim that the actions of a few bad owners caused baseball to stink in an otherwise great baseball town. Why shouldn’t Miami be in the position it is in now? Teams dump salary all the time, and small market teams struggle to compete against teams with several times the revenue. This is not a problem that is unique to Miami and not a problem that is caused by, and can be fixed by, replacing a few bad owners.
It seems like Miami and Tampa BOTH need to be moved. As you said, the weather, the very old demographics, the snowbird identity (who are fans of other teams already) all make any Florida team likely to be ineffective long term.
In Miami’s case, moving the team might actually improve it as a baseball market, in the way that Montreal is sort of slowly heading. Or look at Minnesota or Winnipeg in the NHL. Losing their teams more or less developed fanbases for the new ones.
How does gutting the team resolve the TV deal and low attendance?
The Cubs or Astros could afford to tank for a couple years, because they had a history of success, a fan base and solid revenue streams. These aren’t comparable situations. The Marlins desperately need to build a fanbase from scratch before they can grow their commercial revenue and then payroll. A better comparison is the Rays. They had a generation of good talent (Crawford, Price, Shields, Zobrist, Upton) that they couldn’t afford to keep beyond their arb years, and now they’re back to being irrelevant.
The Marlins are in the same boat. They won’t be able to grow their revenues to be able to support anything more than a roster full of team controlled players. What television company is going to offer them even market rate for a team no one watches https://www.forbes.com/sites/maurybrown/2017/10/10/here-are-the-2017-mlb-prime-time-television-ratings-for-each-team/2/#3695334e63cc ? Who is going to attend games and buy merchandise for a team that will struggle to win 60 games? When the team finally begins to play well, they will have to trade their best players in their arb seasons to be able to replenish the farm system, creating a vicious cycle of boom (if all your prospects pan out) but mostly bust.
The Cubs are an extreme anomaly that draws well even when the team isn’t very good due to Wrigley and the “lovable losers” history. Even through their 95 to 100 loss rebuild years, their attendance was above 2.6 million each year.
The Astros, though, didn’t have very solid revenue streams. Granted, they were better than the Marlins, who right now have one of the three worst revenue situations along with the Rays and the A’s after the way that Loria’s ownership screwed up the market, plus a really low local TV deal.
The Astros, though, bottomed out at attendance of 1.6 to 1.7 million in both 2012 and 2013, basically the same as the Marlins drew in 2016 and 2017. The Astros also launched an RSN (CSN Houston) in 2012, in the works since before their ownership change, that flopped massively and went into bankruptcy 12 months later. They jointly owned it along with the Rockets and Comcast, but that basically just gave the Astros the right to give a big chunk of their TV money back to the RSN to cover operating losses.
The Astros straightened out the TV situation with a new local TV deal, and attendance has been coming back. This season, though, they still only drew 2.4 million with a really good team, compared to averaging attendance of about 3 million over 2004-2007. I’m sure that they’ll do better next year after the World Series win, but getting attendance back was a steady but slow climb through 2017 even with 3 straight winning seasons, a 100+ win team this season, and marketable homegrown stars like Altuve, Correa, Keuchel, and Springer.
It all worked out for the Astros, but their business situation looked pretty bad in 2013. They had a failing RSN with 0.0 local ratings for some games and low attendance. They could have ended up stuck in bad spot for awhile if their team rebuild had been less successful, such as if had either taken a lot longer or stalled out with a 75-80 win team.
MLB has itself to blame. Loria was hailed as the saviour of the Expos way back. He actually got an agreement for public participation in a new stadium in Montréal (quite the feat in Québec). He then broke it himself to ask for more, and threw a tantrum when he was refused. He ran the franchise to the ground (not that difficult to do in those years, but not agreeing to TV AND radio rights…), then MBL bailed him out, giving him the Marlins instead to engineer the John Henry takeover of the Red Sox (he even left with all the computers and data, leaving the MLB-owned Expos, and later Nationals, with no own data on their players or scouting reports, for instance, but the Marlins now had them for free).
Loria and Samson then found much more receptive listeners for publicly-funded stadiums in Miami…Still couldn’t run a team properly.
Loria bought 24% of the Expos for 18 M$ in 1999. With unanswered cash call, he got his participation to 93% (increasing his commitment to 50M$). He sold the team for 120 M$ to a MLB holding, which also gave him an interest-free loan to buy the Marlins from John W Henry for 160 M$. Basically, 50M$ in 1999 became 800 M$ plus whatever he could get away with during his Marlins tenure. Not bad…
“Great players are now routinely pushing $20 million in their final few arbitration years, so if the Marlins can only field guys with 0-5 years of service, or guys who aren’t good enough to command big money in arbitration, putting a competitive team on the field just isn’t practical.”
Read: Oakland A’s.
I agree with Jimmy, DAVE CAMERON is a fraud. Dude makes money off of bull. One of the biggest supporters of the juiced ball theory yet he won’t answer ONE simple question… Is Mike Trout really that great seeing their is a “juiced ball.” How come it only benefits people he sees fit. Don’t expect a answer from anybody… lol
Bad gloss on this deal by jeff, which is absolutely about getting rid of payroll and talent acquisition is of minimal concern.
Marlins restricted the number the potential suitors, and hence their own leverage, by asking for as much salary relief as they did.
If, as this article says, they made a move that was partly about buying young talent with money, then by not even bringing in the dodgers to add leverage, they limited tremendously the amount of talent brought in.
Keep in mind they’ll certainly look to dump the entirety of starlin castro next. The calculation with that 30m going to the yankees, purportedly for prospects? It’s contingent on the expectation that Stanton will opt out of his deal, and thus voiding the obligation altogether. The marlins expect to unload the entirety of their obligation to stanton in this deal, and this restrictive condition highly limited their talent intake to the degree that you’d think it lands them in a rather inefficient spot as far as money vs prospects go.
This absolute commitment to reducing payroll is very clear and not well described by jeff’s take.
Blaming the debt and Loria is absolute nonsense. In any purchase such as this the buyer subtracts the debt they would have to assume from their own valuation of the asset and makes an offer. The servicing of the debt is likely no more than 15 million a year.
From a PR POV the trade has to be devastating for the Marlins and may kill off MLB in Miami. Maybe thats the point of MLB approving the sale to an ownership group that cant afford to run a ball team. The fact Stanton was traded to his old team for a bag of balls (relatively speaking) also looks bad for the face of the franchise. Embedded Yankee would be a thought by the fans there
This is an interesting analysis, although the Marlins may have been better off just keeping Stanton for now and trading everyone else of good value around him in order to meet their desired payroll.
Seems like the only real accounting datum we have is the sale price of $1.2b. It isn’t clear to me what the buyers are getting for that money – there can’t be that much value on the team’s balance sheet considering the debt Loria ran up. I’d be surprised if assets exceed liabilities.
That said, the buyers decided SOMETHING here is significantly valuable. So, either:
The team runs profitably during the year despite whatever games are being played with expenses to make it look otherwise (very possible. Probable?)
Or: Essentially the whole purchase price is “goodwill”, which in accountant-speak means we dont know what they’re buying but we aren’t going to gainsay an arm’s length market transaction.
I disagree with Dave’s point that cutting payroll is just about servicing the existing debt. That will be part of if they take the payroll all they way down to something like $50 to $60 million, but there were big cuts coming just in order not to run up more debt (or put in more cash to fund operating losses).
The Marlins right now basically have Rays-level revenue per Forbes estimates, and those estimates make sense based on the very low value of their local TV contract and very low attendance. The market size suggests those revenue issues can be fixed over time, but I realistically think that it will take fielding a competitive team for 5-10 years for revenue to get where it “should be” from the South Florida market, with some gradual increases possible during that period. (The current TV contract is up after 2020.)
Before they started to cut, the Marlins were set for 2018 opening day 25-man payroll north of $130 million. Look at the Rays, or the A’s, in recent years. Opening Day payroll has been on the order of $85 million or less or the A’s, $75 million or less for the Rays. There’s no comparable telling us that a team with the Marlins’ level of revenue is going to fund a $130+ million payroll.
I fully agree that the Loria era really screwed up the Marlins, both in terms of screwing up the revenue potential of the market and saddling the team with contracts that outstrip the team’s revenue. Concern on the latter point is a big reason that we don’t see the Rays and A’s signing Wei-Yin Chen for 5/$80 or extending their homegrown stars for $13/$325 with an opt-out in the middle of the deal.
But now that those things have happened, the question is how to dig out of the mess.
There could be an answer here that MLB should have required the new ownership to have big reserves for losses that were deducted from the purchase price paid to Loria. Forbes did report that this winning Marlins bid includes about $100 million in reserves for future losses, the $50 million that each team got from selling BAMTech plus another $50 million ( https://www.forbes.com/sites/mikeozanian/2017/09/27/miami-marlins-1-2-billion-sale-to-burce-sherman-group-approved/#1167f870728e ).
Even with reserves, though, the question is what the team’s buying with operating losses. They were a fringe playoff contender at best with the current roster. They have a terrible farm system – ranked worst in the majors pre-2017 by some sources. Other than Yelich, the top players are potentially gone after the next 2-3 years due to service time (Ozuna, Realmuto, Bour) and Stanton’s opt-out after 2020. They saw what a 59-HR, 7 WAR NL MVP year from Stanton helped them get in 2017: 77 wins and attendance of less than 1.6 million. In reality, their path to contention and drawing more fans probably required Jose Fernandez alive and putting up 5-6 WAR in his last two arb years while being a big draw on days that he pitched, and Wei-Yin Chen staying healthy and putting up 2-3 WAR seasons. That’s perhaps not a crazy path to contention, but the problem was that their downside if those didn’t happen – and let’s remember that Fernandez could have simply gotten hurt like so many pitchers, not tragically died – was the team’s annual finances becoming an utter train wreck.
And there would be only a very narrow and unlikely path to having Stanton past 2020 as a good player. If he puts up 3 more seasons close to 2017, he opts out and signs a huge contract elsewhere. If his contract turns into an albatross due to injuries and/or aging poorly, then he stays. The only way to keep him for the last 7 years, and really want to keep him for the last 7 years, would be an unlikely career progression where his career goes sideways and then he rebounds or gets healthier in his early 30’s, when most players are declining.
Valuations have been increasing 200 million a year. Maybe that slows given the purchase price was 60% above Forbes latest valuation but thats the value in owning a MLB franchise. Most of these losses are accounting tricks that dont have any cash flow like depreciation
With a 100 million in reserve where half the money from MLBAM that should have bought them time to buy goodwill with fans and try and compete. Stanton opts out in 3 years and you cover the possibility of injuries with insurance. Plus they have about 45 million coming off the books in the next 2 years with FA leaving
Jeter and company have done irreparable harm to fan-team relations. This is as bad as selling Babe Ruth to finance a play. Like I said, sign CC and pick up some pitching to go along a playoff quality offense and you will generate more revenue to go along with the revenue sharing and future share sales of MLBAM. After 2020 they will be able to negotiate a new RSN deal with Fox or set up their own RSN and increase their revenues another 40 million.
Now I fear the eventual outcome is moving elsewhere. Maybe that was the plan
“you cover the possibility of injuries with insurance”
The bulk of the risk that you have with Stanton isn’t insurable. The insurance that MLB teams obtain pays out for situations like Prince Fielder, or some pitchers, where the player is medically unable to perform. Insuring still costs money spent on premiums, and it only covers certain situations. From a Nathaniel Grow article at Fangraphs: “Some insurance policies only kick in when a player misses an entire season, while others go into effect once an injury sidelines a player for 90 or more days.” ( https://www.fangraphs.com/blogs/insuring-prince-fielder/ )
That covers some possible issues with Stanton, but it doesn’t really help if he doesn’t opt out but just ages poorly, in part due to injuries, to the point that by the early 2020’s he’s a 1-2 WAR player who is often playing only 120-130 games per year (which doesn’t equate to a 90+ day injury, much less a full season one).
This idea of buying pitching to get to the post-season, with the post-season revenue later covering for it, looks to be a decent part of how the Marlins got in their current mess in the first place. It’s how they’re paying Chen and Volquez a combined total of $22 million in 2018 and $65 million over the next three years for what looks like it will be next to no production.
Before Stanton and Gordon were traded, the 2018 Marlins projected to be more or less the same as 2017’s 77 win team, maybe a win or two better. To have a good projection to get a wild card spot, they should want to improve that by something like 6 or 8 wins. And that’s just to be on a par with St. Louis and Arizona, before those teams make any off-season additions. And the Mets may also make some moves to improve on their 79 win projection, but they’re able to spend starting from a 2018 Opening Day payroll that’s currently $34 million below what it was in 2017. All three of those teams also have better farm systems than the Marlins.
CC Sabathia is projected by Steamer for 1.7 fWAR in 2018, and Dave Cameron projects that he’ll get $15 million per year for 2 years. And that’s assuming that he’d agreed to sign there.
That’s the sort of price that you pay for pitching in free agency. And a lot of those 2-ish WAR pitchers, who aren’t as old as Sabathia, are guys like Cobb and Lynn who Dave also expects to get around $15-16 million per year, except on 3 or 4 year deals.
The Marlins’ farm system is absolutely barren. The pitching isn’t coming from there, either directly or by trading for cost-controlled pitching.
So that’s what you’re really saying with “get some pitching to get to the playoffs”. To get enough to project to be at about the same level as the other Wild Card contenders requires spending about $45 to $50 million in free agency on multi-year deals. So now, if we don’t see any pop in 2018 revenue, we’ve got a $175 to $180 million payroll and lose something like $75 to $100 million, burning through all or nearly all of our reserves in one year. Even if the plan does work, we aren’t going to get enough incremental revenue from attendance and playoff games to break-even in 2018, we’re just hoping to make it up in future years. And we’ve still got a top-heavy roster that’s thin on pitching and weak in the minors, so a ton can go wrong.
To be blunt, I think that your idea is a whole lot more like Loria than you realize. He apparently thought that the revenue would come gushing in right away on the couple occasions that he spent to up payroll for free agents – 2012 and then 2016-2017 – but it takes time under the best of circumstances and isn’t any guarantee of making the playoffs. Your idea doesn’t require $100 million of reserves for operating expenses. It requires more like $200 to $400 million unless you acknowledge that you might just need to have an even bigger, and tougher to execute, firesale than the current one after 2018.
“The MLB is treating me well … “
So a Yankee shortstop spends money Brian Cashman paid him to buy a spot on another team, and he trades the league MVP to Brian Cashman ?
Derr … nothing to see here people …. derr ………..
how is the Situation going to resolve? if he saves 40M per year it would take 10 years to consolidate 400M. do they expect to increase Revenue anytime soon? TV contracts are inflated and their next one might be better but that bubble might also bust at some Point and their product to sell is as shitty as it gets.
I do understand that no owner wants to lose 50M per year – you can’t expect even a billionaire to do that.
however if your payroll is already in the bottom third and you lose Money than you are not making enough Revenue.
so what is the solution? running a 60M payroll for 10 years? Revenue is not getting better anytime soon, the Marlin did not have a spending Problem but a income Problem.
first of all the marlins Need a plan to sustain a 120M payroll without losing Money. I don’t see them working toward that. IMO MLB should say I don’t care why you lose Money, you Need to at least be able to Support a certain payroll.
if Teams can’t do that give them a Deadline and then contract or relocate them. that also applies to the rays and As of course.
Honestly, I think it’s probably a 10 to 15 year business plan to turn Miami into something resembling a normal baseball market without much revenue increase for the first 3-5 years, then gradual increases after that if the plan goes well.
The key part of it is a rebuild with elements of what we’ve seen from teams like the Astros, White Sox, Padres, and Phillies. Yelich is the only good player on the current roster who the team maybe keeps (contract through 2022), and maybe he goes because he’d net such a great return of prospects. Basically everyone else goes to help rebuild the horrible farm system. Keep the bad contracts and let them run-off: that’s an investment in the future to get better prospect returns when trading the good players.
Do all the other standard stuff: spend on scouting and player development improvement if those areas are sub-par, spend the full draft and IFA bonus pools, etc. They may need to poach some up and coming baseball people from other organizations to make a lot of decisions and basically let Jeter be the public face of the franchise. The Marlins shouldn’t have had IFA bonus pool space available to trade to the Mariners: they need to spend that money on prospects now that Loria doesn’t own the team.
And do a much better PR job of explaining to fans the vision to build up the farm system and then the major league team. Say that the team was wrong to fire Jeff Conine and hire him back.
They may not need to get as bad as the Astros did, but the major league team will be pretty ugly for the next few years. Do the standard rebuilding stuff like signing reclamation project pitchers on 1-year pillow contracts and flipping them at the trade deadline if they perform well.
Revenue almost certainly doesn’t increase during this phase, but it lays the groundwork.
So, basically, the goal by 2020 or 2021 is to resemble a normal rebuilding team with a few good young homegrown players in the majors and more on the way. Add to that with modest free agent signings as the team gets better. From there, get better with gradual payroll increases as the team markets young players and draws fans.
They probably still won’t be very good when the TV contract is up after 2020, but work that situation as well as they can. Maybe it’s negotiating upside if ratings and advertising revenue improve over time. Maybe it’s a shorter than normal renewal so that they can renegotiate again in 2025. Maybe it’s that there’s enough progress on the way from the farm system that they can capitalize on it in TV negotiations.
The overall goal, though, is to publicly describe a rebuilding plan now, which admittedly is going to be ugly for a few years. Then execute on it. It’s not guaranteed to work. The Miami baseball market wasn’t screwed up overnight, though, and it’s not going to be fixed overnight.
They can negotiate a new RSN agreement after 3 years. Might be good for another 40 million a year. They just got 50 million from MLBAM share sale. More will be coming. Franchise valuations keep rising and they can borrow what they need at low rates with the increased equity. Revenue sharing payments keep rising along with MLB revenue growth. At some time , perhaps 10 years from now they sell and make a return comparable to what Loria received. Winning is not necessary.
How much of these so called losses are high salaries paid to Loria and now Jeter I would love to know
That’s very high on the immediate RSN increase. People look at these RSN deals, see numbers like 20 years / $1.2 billion, and assume that they are like many free agent contracts where the money is the same (or basically the same) each year. They’re not. They have annual escalators so the annual revenue at the beginning of the deal is much lower. Look at the estimated current annual vs. AAV’s of those deals in this Fangraphs article from 2016, for example – https://www.fangraphs.com/blogs/estimated-tv-revenues-for-all-30-mlb-teams/
A 20 year, $1.2 billion TV deal with steady 5% annual increases pays about $36 million in Year 1. The increase versus a prior deal also needs to take into account how that changes a team’s revenue sharing payments or receipts (the latter for the Marlins). It’s obviously a good thing over time if the Marlins get revenue to the point that they receive little if any revenue sharing money, but well less than 100% of increases in local revenue go into a team’s pocket.
Do the Marlins actually have positive cashflow to eat up?
They have 100 million in reserve. Half of that came from the MLBAM share sales to Disney
I cant help but think the Marlins really fucked this up based on what it seems they will be doing next. With reports that Ozuna and Yelich are probably getting traded, it begs the question of why not eat a lot of the money on Stanton especially after the first 3 years in order to get a much better return. I mean if they are willing to eat enough money all 4 of Stantons preferred destinations would have been in the bidding war, and they could have netted a huge return. Even if you keep 200MM on the books who cares with a monster return, since it looks like they are heading towards a full on tear down anyways. I mean they would have been well under 90mm if they kept the money with Gordon/Yelich/Ozuna and others on the way out.
If Im the Marlins I go full tear down deal Ozuna/Yelich/Stanton/Gordon/Realamuto/Bour and anything else with value not stapled down. If you pay for better returns MIA has enough assets that they could really turn the farm around while paying down Stanton/Chen over the next 3 years. If Stanton doesnt crater you expect he will opt out after Harper/Machado set the new market rates, and will be FA with Trout making him appear cheap. As long as GS opts out they have a clear slate financially mostly in two years, and if you deal enough you have space for some fliers to find more in season trade value. Either you make this team look like a real winner, or you admit where your at and rebuild right, and GS at 10/100 would have been worth a ton to HOU/CHC/LAD/NYY, so yeah Jeter and Co need to lay off the pipe since they already fucked this up.
I’m almost certain that you’re greatly overestimating the chance that Stanton opts out, or at least what multiple teams perceive it to be.
Bob Nightengale’s reporting on the offers from the Cardinals and Giants, after the Yankees deal, puts the cash plus player value of the Yankees’ offer at better than the Giants ($230 million of the contract plus Beede and Aramis Garcia) and something like 95% of the Cardinals ($250 million of the contract plus Flaherty and Alcantara). If acquiring teams thought that they were getting Stanton for 3 / $77 due to very little chance that he doesn’t opt out, then they would have been all over that opportunity with better offers.
And the issue for the Marlins in the deal you’re proposing is that, if Stanton doesn’t opt out, then the Marlins are paying on the order of $20 million per year of his contract until 2027 when they’d rather have that money to spend on the team that they’ve (hopefully) rebuilt.
I do generally agree with the idea of a full teardown for the Marlins, keeping the bad contracts and letting them run-off rather than packaging them to diminish the prospect return. PR may dictate that they keep at least someone. Could be Yelich with his control through 2022, although he would net so much in trade return.
They basically moved into a new house needing some renovations which they cant afford since they borrowed 150 million at 14% interest with a full payback within 3 years. So they burn the house down to collect insurance (selling off star players contracts) to pay off the debt and try to sell the fans that they needed to burn it down to rebuild a house that did not need rebuilding until they lit it up. In 3 years time they get a new RSN deal paying them 40 million more a year. All they needed to do was in these 3 years was supplement the teams core of playoff quality hitters with some pitching, and because they cant afford to operate the team until they service their own debt (not Lorias) the fans suffer. Jeter said the fans were their first priority. I call BS on that
I think that you get prospects that price in the value of years 4-10 at those prices or those years dont get covered as much, but I remember an article I believe Dave wrote last week where he was advocating taking a bunch of the later money for a better return since the odds he doesnt opt out are fairly low. Obviously his performance could crater for some reason, but I think that the market rate will have changed by 2020 where if he is performing well opting outs a no brainer. Harper and Machado are going to set new heights for both AAV and years in FA next season, and while GS is not as valuable as Trout he would be the Trout runner up prize in 2020. I think the players who will be FA over the next three years will raise the bar enough that it wont be very hard for Stanton to clear it and get a better deal since there might be multiple other players pushing up on 40mm AAV. Do we really see 7/218 for a 30 year old Stanton as being where the markets at in 2020? I mean thats only a little better then the Fielder deal, and less then Cabreras extension at an older age, over 6 years later. He also might have a few monster years in Yankee stadium that could make another 10/300 his floor…
Every stadium and lineup configuration for all 4 of his preferred destinations would have been more conducive to big numbers then his former home park, hitting between Bryant/Rizzo, Judge/Sanchez, Correa/Altuve, or Turner/Bellinger all in parks with significantly better Park factors then MIA lends to better things from the now peak age Stanton.
“an article I believe Dave wrote last week where he was advocating taking a bunch of the later money for a better return since the odds he doesn’t opt out are fairly low”
You may be thinking of this article a few weeks ago from Eno, not sure – https://www.fangraphs.com/blogs/the-case-for-acquiring-stanton/ . He arrived at a value of over $100 million surplus value, ignoring the opt-out, with about $75 million of that value prior to the opt out. Again, though, there’s pretty strong evidence that other teams didn’t value Stanton that way. That value implies sending something like a top 10 overall prospect to the Marlins for Stanton and all of his contract.
Craig Edwards backed into a probability that Stanton will opt-out of 31% ( https://www.fangraphs.com/blogs/giancarlo-stantons-opt-out-caps-his-trade-value/ ) by starting from the assumption that his contract is market value, which sure seems like what the reported package from the Cardinals implies. The two prospects in that package should be worth about $45 to $50 million of surplus value going by their prospect rankings and how Fangraphs values prospects.
Dave’s prior comments on this contract, echoing what he says in this article, are things like:
“Stanton and his full contract has very limited trade value” and
“He’s a big guy with a history of knee problems who is due almost $300M going forward and has an opt-out. So if he’s good, you get him for a few years, then he leaves. If he’s bad, you get a $250M albatross. It’s not that appealing a bet.”
https://www.fangraphs.com/blogs/dave-cameron-fangraphs-chat-102517/
Also, FWIW, Stanton would be 31 when he can opt out after the 2020 season, and then 31 for the 2021 season.
Prince Fielder signed his big deal when he was 3 years younger: he was 28 during his first year with the Tigers. I don’t know if that looked like a great contract at the time, but he was 3 years younger so a team could think that it was getting at least a couple years of Fielder in his prime before he declined.
Cabrera’s extension was pretty widely seen as an overpay (e.g., https://www.fangraphs.com/blogs/miguel-cabreras-terrible-and-understandable-contract/ ) with a common view that it had a lot to do with a then 84-year old Mike Ilitch wanting to keep Cabrera as part of Ilitch’s quest for a World Series and not really caring that much about the back years of the deal.
So Marlins owners knew the Marlins revenue situation and debt situation when agreeing to buy the team.
We all know the only way to improve revenue is by building a winning team or waiting until the current RSN deal expires in 3 years and negotiating a new deal. They already have a brand new stadium.
They inherited some pretty good hitters, a playoff caliber lineup that simply needed a couple of good pitchers to compete for a WC in league with very few competitive teams.
So what are they doing?
“Bloomberg
The Miami Marlins owners are seeking to raise at least $150 million and have tapped Morgan Stanley’s private wealth management group to advise them, according to a person who was approached about the possible investment.
Snip
Sherman put up about $400 million of the $1.2 billion purchase price for the team, whose ownership includes former New York Yankees shortstop Derek Jeter. The money could also go toward repaying the investment firm founded by Michael Dell, which contributed $175 million
The group’s financing included capital from Dell’s MSD Partners. The preferred equity, according to Forbes, includes a mandatory payment to MSD at an interest rate of 14 percent. The Marlins are required under the deal to pay back the entire amount in three years. If the Sherman-led group doesn’t have the cash, it will have to give MSD equity in the club, Forbes said.”
So basically they had to borrow money at usurious rates that needed very quick payback and prevented them for even thinking of competing until its paid back. Servicing that 150 million could cost 20 million a year in the first year. Since increasing revenue was not an option, cutting back on player salaries was the only option.
So again, why does MLB approve the sale to someone who needs to pay usurious interest rates to finance the deal and sell off its assets, and losing most of its fan base by doing so?
While you may not like it, these sorts of structures to buy an MLB team are fairly common. The Cubs were bought under a similar structure as a leveraged partnership – http://www.bleachernation.com/2014/03/19/the-chicago-cubs-financial-story-the-payroll-the-debt-and-the-syncing-of-baseball-and-business-plans/