Local owners must save Expos
By Gregory Dole
Dole believes it will be in the hands of the citizens of Montreal to encourage the majority 76-per-cent ownership group that it has a public responsibility to keep the Expos in town. When that is done, then Montrealers can consider the demands of constructing an adequate new ball park.
Dole also says the 76-per-cent ownership group cannot just go their way behind closed doors. Not if they wish to be known as responsible Montreal corporate citizens.
Why do you who represent 76 per cent of the Expos ownership even entertain the idea of selling out to Jeffrey Loria? If Loria's intention is a quick flip and massive rewards, the entire Expos ownership stands to be judged naive and incompetent.
Loria must relinquish control were he to move the team to Washington, D.C., because the Virginia Stadium Authority has given exclusive rights to the Virginia Baseball Club LLC. So Loria would be forced to sell the Expos, albeit for much more than he paid.
Shareholders in the companies that own the Expos should be outraged at the prospect of losing a valuable financial and community asset such as a Major League Baseball franchise. As a matter of justice, if the Expos are destined to relocate, each and every shareholder should get a piece of the action based upon the fair market value of the team. In a contingency where Loria reaps enormous profits, they must explain how the sale was in the best interests of the shareholders. Were such a sale to occur, the CEOs and the mayor of Montreal deserve collective pink slips on the grounds of dereliction of fiduciary responsibility.
The issue is simple. From responsible owners, shareholders expect responsible management. The ownership group should not sell out to Loria and the team should not leave town. Montreal is a great market for professional sports, with a large population to support any major-league team. If you include the province of Quebec, the Maritimes and the Ottawa region, you are looking at a potential market of almost 10 million people.
Although fans used to show up at the Big O, low attendance figures are currently common throughout small- and medium-sized markets. Fans today are apathetic, and for good reason. Last year, all the playoff teams were in the top 10 in payroll. Twenty of 30 teams do not have a chance of winning. There is no illusion of hope, no thought of "next season."
Flashback to 1987: 15 of the 26 teams were in contention to win their division on Sept. 1.
Baseball commissioner Bud Selig has said: "There are franchises with no chance on Opening Day, not when there is a gap of $160 million to $170 million in gross revenue between the top team and the bottom team."
Selig is referring to the Expos and a host of others. With the greatest respect to the current Expos, they are the second-youngest club (average age 26.8) in the major leagues. In many ways, they are a Triple-A team.
The bona fide Triple-A club in Ottawa finished dead last the past four years because they are more like a Double-A or Class-A team.
Ray Pecor, the new owner of the Ottawa Lynx, says he might look for another major-league parent club because the Expos do not give the Lynx better players. With this in mind, the Expos' attendance average of about 15,000 per game is exceptional for a Triple-A organization.
The difference is, the Expos are a major-league club. The Expos owners should realize they own a potentially lucrative franchise, but with each move to unload a star player, they are less likely to win, and they lose more fans. That there are any Expos fans is an encouraging sign.
Why keep the Expos? For starters, there is a fan base in Montreal, even though the very idea of being an Expos fan is absurd because the odds are that the team won't win. But if you listen to what Selig is saying, the future of every major-league franchise looks bright.
"There will be significant change this year," Selig says.
Having eliminated the National League and American League offices, Selig has centralized authority. It is in his interest to change the system. His family owned team, the Milwaukee Brewers, lost $14.4 million U.S. last season.
Earlier this year, Selig joined National Hockey League commissioner Gary Bettman in praising the virtues of the National Football League salary cap and revenue-sharing model.
Said Selig: "All of us are moving in the direction of the NFL system first implemented by late commissioner Pete Rozelle."
Selig will enforce revenue sharing and a salary cap - yet another reason to believe in the future of baseball in Montreal. If baseball becomes anything like the NFL, the measure of a great team will be its scouting and player-development system. The Expos are one of the best teams in both those departments.
Said Selig: "I'm a history major, and I've done the research. I am stunned that there was not much financial difference between clubs back in the old days. It was the genius of Branch Rickey (Dodgers) and George Barrow and George Weiss (Yankees) in scouting and player development that made the Dodgers and the Yankees great teams."
What About Yankees and Dodgers?
Naysayers allege the big-market clubs will not go for Selig's small-market sensibilities. How wrong and misinformed they are. Big-market clubs are losing more money than the Expos ever will. The Los Angeles Dodgers had the worst operating income in baseball last year (minus $21 million U.S.).
Forbes magazine reports that the New York Yankees are now part of a holding company called YankeeNets, and that Moody's and Standard & Poor's rated the YankeeNets bonds as junk, the lowest rating ever given for a sports team. They have a debt of $327 million U.S., which is about 35 per cent of its equity. YankeeNets recently took on more debt to buy out the New Jersey Devils.
Their future part in YankeeNets' new regional sports channel is promising. YankeeNets could receive more than $100 million a year in television revenues from baseball, even more when revenues from the Stanley Cup champion Devils are included.
If there is a strike next season, the Yankees won't be on television. Without cash flow to pay off their 12.75-per-cent interest rates, YankeeNets must take on more debt. It is highly leveraged banking based on a successful future filled with baseball games, not strikes and lockouts. The mighty Yankees cannot afford to go to war against anyone. For the first time, George Steinbrenner and company will have to be team players. The Yankees need a stable and fiscally responsible league just as much as the Expos.
Critics who say the players will not go for a salary cap need only look to the National Basketball Association, where commissioner David Stern got a salary cap because he realized one immutable truth: the rank-and-file players outnumber the superstars. Raise the league minimum and give more money to the people at the bottom of the pay scale, and it won't matter what Kevin Brown, Randy Johnson and Albert Belle have to say.
To all the investors out there, from the city of Montreal to Nesbitt Burns, baseball is at a crossroads.
As a matter of Economics 101, investing in the Expos is like getting in on a hot Initial Public Offering. The Expos have so much room to grow it ought to be a major attraction for investors with foresight and guts.
Forbes says the Expos sit at the basement of the team-valuation chart, with an estimated value of $89 million U.S. The league average is $233 million. Far up the chart in third place, the Cleveland Indians are valued at $364 million. The Tribe is worth more than four times the value of the Expos. Yet the Indians were in such a bad state in the 1980s and early '90s that the Cleveland press talked seriously of moving the team to Vancouver. Perhaps you remember the Hollywood hit movie Major League?
"So I phone up the Cleveland Indians' ticket booth today and ask: 'What is the start time for tonight's game?' And the ticket agent replies: 'What time can you get here?' "
This was the oldest joke in baseball. Dick Jacobs scooped up the Indians for next to nothing. Last year, the Indians had the third-highest operating income in baseball. Any sane investor will look at the Cleveland blueprint and say: let us follow their plan and let the good times roll. The best part is, the formula works not only in Cleveland. The Detroit Tigers moved into Comerica Park and their value increased by 32 per cent. The Seattle Mariners moved into Safeco Field and their value increased by 23 per cent. The Houston Astros moved to Enron Field for a 17-per-cent gain. All these teams were decidedly small market until they built a new stadium.
Wait, there's more good news. In the Tigers' new home, the estimated yearly revenue from luxury seating increased by 561 per cent ($24 million). At Pac Bell Park in San Francisco, the estimated yearly concessions revenue will increase by 142 per cent ($20 million). In Houston, the estimated yearly revenue from gate receipts will increase by 45 per cent ($43 million). We are talking big bucks here.
You would be foolish to walk away from all this potential growth.
The Expos receive about $15 million U.S. annually from Major League Baseball's U.S. national television contract. The deal expires this season, and the commissioner's office will sign a more lucrative television deal.
In January, the owners voted Selig sweeping powers. His first move was to pool all Internet-related revenues now and for the future. Sandy Alderson, an executive vice-president for Major League Baseball, believes this alone translates into billions of dollars of revenue to be shared evenly among all the teams. In the same way that Rozelle's television deal transformed the NFL, Selig's Internet deal will change the definition of small markets in baseball.
Television will someday move to the worldwide Web. In fact, a Canadian was one of the first to make this happen with IcraveTV.com . In the not-too-distant future, New York's cable-TV deals won't matter so much when everyone is logging on to watch baseball games.
Keeping the Expos should be regarded as a civic responsibility. Corporate Montreal ought to consider this an act of citizenship and, as it were, a moment of paying their rent to society. But helping the Expos stay in Montreal is not only a good deed, it is also a good business decision.
Do the math. Very soon, the Expos will be a cash cow. Increased revenue-sharing and a soft salary cap are certain. Strike one, Jeffrey Loria. Labatt Stadium will send Expos revenues through the roof. Strike two, Jeffrey Loria. New television deals and the future of baseball on the Internet are flashing dollar signs. Strike three, Jeffrey Loria.
Memo to Bud Selig: Baseball has to succeed in Montreal. If it doesn't, you ought never entertain the idea of taking baseball to a global scale. In Canada, baseball works successfully on the grassroots level. Larry Walker, the best hitter in the major leagues, is Canadian. We Canadians are not all that different from Americans. We do the same things, just without guns. If Major League Baseball cannot work one hour north of the border, it won't work in France or China.
It is no good demanding that the Bronfmans finance a rescue. Yes, it would be good. No doubt about this one. The Bronfmans have been significant Montreal supporters, sometimes pioneering. Were I a Bronfman, I would be a little tired of always heading cultural and sporting rescue efforts.
In the end, it is for Montreal's citizens to raise high the roof beams and demand that their business leaders play their part in keeping the Expos.
Corporate Montreal, not to speak of corporate Quebec, has the money. BCE, CAI, etc., could finance the Expos out of their coffee money. Where is CAI in all of this? Has anyone asked them to be part of an Expos syndicate? It is known that Conrad Black's group has offered a few million. Bravo Black for demonstrating corporate citizenship. I hope he will talk his fellow UCC alumni Galen Weston into releasing some Loblaw's money and commitment. This should be an easy sell, given the Expos prospects, and Galen can be assured that Loblaw's will continue to fill my weekly shopping basket.
If the Loria "three-card trick" succeeds and the Expos leave, successive generations of business students will have a classic home-baked case study on the shameful failure of Montreal's business leadership. Loria, the modest art dealer from New York, will have scooped Montreal's jewel whilst their leaders slept. What a story of shame to tell. This will be a story that will stink in the nostrils of all decent citizens, fans or not. For the sake of all that is decent, may it never come to that..
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