A “Slippery Slope” Created By Baseball Negotiation
Author: William E. Livingston (welivingston@comcast.net)
Date: November 29th, 2004
NEGOTIATION OVERVIEW
Major League Baseball (“M.L.B.”) aspires to relocate the former Montreal Expos franchise (“Expos”), now tentatively renamed the Washington Nationals (“Nationals”), to the District of Columbia (“D.C.”) effective Opening Day 2005. Because the Expos franchise became insolvent due to atrocious attendance (often less than 5,000 paid ticket holders per home game) and inability to finance a competitive team during the last decade or more, the decision to relocate the Expos based on financial necessity and fan apathy appeared blatantly obvious. http://www.canoe.ca/SlamBaseballBatboyArchive99/batboy_apr14.html
However, a much tougher decision for M.L.B. was the determination of which new geographical market should reap the potentially significant financial and community benefits to be gained by representation of the relocated team. Washington, D.C., home of the former baseball team the Washington Senators (“Senators”), was determined to be the most appropriate first choice for relocation despite competitive bidding and marketing from other baseball-starved markets such as Virginia, the Carolinas, Las Vegas or even Puerto Rico (where the Expos played a portion of their home games last year in front of passionate, capacity crowds). The final relocation is contingent upon D.C. approving funding for construction of a new stadium; however, barring compelling local political opposition to use of public funding for a new private stadium, Washington will be the league’s newest baseball city.
M.L.B. and Expos management have agreed on terms to sell the Expos to new management from the Washington, D.C. area. There are some obviously apparent advantages to the local economy that would be gained after relocating a failing franchise to an eager market. However a couple parties are passionately resisting the move due to perception that the relocation is not in the best interests of either the D.C. or Baltimore markets. Local politicians within the fiercely democratic D.C. stronghold have recently indicated desire to back away from the relocation deal if they are required to use significant taxpayer dollars to finance new private stadium construction. These politicians feel this money would be better spent revitalizing local public schools and strengthening public health and safety programs rather than subsidizing construction of extravagant sporting facilities with luxury skybox suites for multi-millionaires. http://www.fieldofschemes.com/
In addition to this passionate internal negotiation of D.C. politicians who have expressed their fiduciary concerns regarding unnecessary financing for new stadium construction, the most assertive challenge to M.L.B.’s proposed relocation has come from Peter Angelos (“Angelos”), owner of the Baltimore Orioles. The Orioles have played their home games at Oriole Park at Camden Yards (“Camden Yards”) since 1992 after many successful seasons in their original ballpark, Memorial Stadium. Angelos, an aggressive trial lawyer, has expressed strong resistance to the proposed relocation of the Expos because he feels placement of the relocated team in D.C. threatens to dilute the baseball market for both teams in such geographically close proximity. Baltimore, Maryland and Washington, D.C. are merely 30 minutes or so away via the major east coast traffic artery, Interstate 95. Angelos feels that relocation of the new team in D.C. will cut into his profits from ticket sales, concessions, and merchandising, which would reduce the potential future sale value of the franchise and potentially jeopardize the significant investment the state of Maryland has made with taxpayer dollars to build and maintain the Camden Yards complex.
In an attempt to assuage these concerns and prevent formal litigation, M.L.B. has entered into VOLUNTARY negotiation with Angelos during the past year to provide certain assurances that will guarantee a minimum sale price if the Orioles franchise is sold, as well as similar assurances that the value of Camden Yards will be protected. M.L.B. owners will meet prior to the winter holidays and it is hoped that negotiations with Angelos can be favorably concluded by that time in order to allow for formal change of ownership, and to allow the new owners to begin season ticket sales, television/radio broadcast coverage and merchandising. Although recent news accounts suggest significant progress has been made, no formal final deal between M.L.B. and Angelos has been announced during the week leading up to the M.L.B. owners meetings.
If the M.L.B./Angelos negotiations (or the new D.C. stadium construction financing negotiations) can not be drawn to a prompt and satisfactory resolution, M.L.B. may reconsider its D.C. relocation which would possibly irrevocably harm D.C.’s ability to have any future baseball team. This failure to negotiate would work to Angelos’ advantage. However, if the negotiations with Angelos continue to be locked in stalemate, M.L.B. might dig in its heels (in more of a “Soviet negotiating posture”) and withdrawal any voluntary concessions offered to Angelos. Clearly, M.L.B. has something to gain by relocation in D.C.; however, M.L.B. is not confined to D.C. as its only alternative. M.L.B. clearly has several valid options which represent “next best alternatives” if the D.C. location falls apart. Angelos does not have as many other alternatives. At best, he has a chance to gain a significant M.L.B. sponsored “safety net” under his Oriole franchise. However, if Angelos is too demanding he stands to lose any and all concessions from M.L.B., who will stress Angelos’ ultimate responsibility to keep his business profitable much like any other corporate entity in a free market economy.
Negotiation is a valuable tool with tremendous potential to bring a conflict to an efficient and final conclusion. However, it may not be advisable or appropriate in every situation. In the present case this negotiation appears to present a danger of creation of a “slippery slope” where M.L.B. makes itself vulnerable to all manners of potential future claims for financial assurances from other owners who feel that they are somehow financially threatened by a “nearby” competitor. A significant question is why, in a free market economy, would a business receive additional rewards not based on the merits or success of the team on the field merely because their perceived monopoly is threatened
by new competition? Simply put, will this negotiation successfully resolve an isolated conflict in one regional market only to open “Pandora’s Box” where future threats of litigation from greedy owners spread like a brushfire across the league, ultimately passing higher prices on to the consumer and stripping away owner incentives to build profits based on the competitiveness of their teams on the field of play?
The Washington Senators Leave D.C.
Washington D.C. was the home of the Washington Senators (although it was not lost on the new ownership that the team was in fact originally known as the Nationals, or “Nats”) from 1901, when they formed as a part of the original major American League of Baseball, through 1960 when they were relocated to Minnesota as the league expanded. http://www.baseballlibrary.com/baseballlibrary/ballplayers/S/Senators_Washington.stm The Senators were not always the most competitive team throughout their history. The franchise got off to a poor start; however, the Senators experienced moderate success in the 1920s and 1930s, winning a World Championship during the 1924 season.
However, a subsequent regression of success on the field, as well as the extreme poverty and urban decay of the surrounding D.C. metropolitan area after World War II doomed the original D.C. baseball franchise despite passionate attempts by the local legislature to keep the team in the city. There were perceptions that the increasingly black population in D.C. either could not afford to come to the ballgames, or were resentful with the Senators unwillingness to integrate black baseball players upon dissolution of the old Negro Leagues. Tragically, rather than reaching out to the community and giving them a chance to embrace and support their team, ownership immediately relocated the team to Minnesota.
A Brief History of the Baltimore Orioles
“Charm City” (Baltimore’s popular nickname) welcomed the Orioles to their new home ball park, Memorial Stadium, effective at the beginning of the 1954 season. http://www.sportsline.com/mlb/teams/history/BAL . The Orioles would remain an American League team after relocation from St. Louis, where they were originally known as the St. Louis Browns. Memorial Stadium was situated in a working class neighborhood on 32nd Street, and had a seating capacity of just over 53,000.
Baltimore embraced the Orioles, who soon became a major competitive force within the entire league. Clearly, Baltimore’s best era was the time period between 1966 and 1983 when the Orioles won many division titles, league pennants, and ultimately won World Series championships in 1966, 1970, and 1983. Oriole legends such as Jim Palmer, Frank Robinson, Brooks Robinson, Boog Powell, and Cal Ripken have earned nationwide respect and Hall of Fame selection.
The Orioles remained somewhat competitive through the early 1990s, when the Yankees and Red Sox fortified their rosters with the best superstar talent that money could buy. Angelos took over as the Orioles’ owner and president during the 1994 season. In the decade that has followed, Angelos has not proven to be a shrewd baseball president. Angelos has been unwilling to spend the money needed to compete with division rivals, the Yankees and Red Sox, and as a result Baltimore has finished 3rd or worse in the division for the last several years. During Angelos tenure, the only trip to the playoffs was a single wild card birth-Angelos has never earned a trip to the World Series. The few high priced free agents signed during Angelos early tenure were complete busts (most notably Albert Belle). Recently, the Orioles have struggled to even finish with a winning record despite attempts to revitalize the team with new general managers, coaches, and some decent free agent signings (most notably Miguel Tejada and Javier Lopez).
The Birth of Camden Yards
Oriole Park at Camden Yards opened to the public effective Opening Day of 1992 after 3 years of construction. http://www.ballparks.com/baseball/american/oriole.htm It was designed since its inception to go against the old “cookie cutter” model of artificial turf stadiums built in the 1970s and 1980s such as the old ballparks in cities such as Philadelphia, Cleveland, Cincinnati, and Houston. Funding for the ballpark was provided by the Maryland Stadium Authority. Estimates for construction of the facility range from around $135 million for the structure and approximately another $100 million to purchase the land, which was predominantly the site of a former railway line.
One of the old railroad warehouses was preserved and converted to office and luxury box suites that dominate the skyline just beyond the right field wall in order to project the feel of a “retro ballpark” such as Fenway Park, Yankee Stadium, and Wrigley Field. The stadium also features dual elevated bullpens over the left-field wall, a natural grass playing surface, and a standing room only “flag court” area over the right field wall where Oriole legend Boog Powell has strategically set up an open air barbeque stand. Seating capacity is just over 48,000 per game (see link above for photos and specifications.)
During the first several seasons, Camden Yards was the hottest ticket in town. http://www.baseball-almanac.com/teams/baltatte.shtml The combination of the wonderful social atmosphere and a winning team resulted in a sold out venue through the late 1990s. However, during the last few seasons, division rivals the Yankees and Red Sox have clearly separated themselves as perennial World Series contenders while the Orioles have generally had seasons where they lost more games than they have won. The combination of a losing team and the fading of the initial “buzz factor” of the new ball park has resulted in very mediocre crowds generally averaging around 30,000 or so per game. Analysis of this timeline is very important because it suggests that Angelos and the Orioles started to lose profits based on their lack of competitiveness well before any significant D.C. relocation discussions regarding the Expos began.
Metropolitan and Suburban Population Comparisons
Below is a chart summarizing approximate current state populations of several relevant major baseball markets. All population estimates and projections below are
provided using 2003 United States census data. The current U.S. population is estimated to be around 290 million people. The most recent population “head count” estimates for all states are not only summarized by linking to the incredibly informative U.S. Census Quickfact site, http://quickfacts.census.gov/qfd/index.html , the population data is also broken down into several demographic categories based on age, race, sex, and profession. These demographics are particularly helpful determining how many adults will be available to purchase tickets, merchandising, and concessions; the statistics will also be useful determining how many adults may be capable of AFFORDING tickets and merchandising for the increasingly expensive family trips to the ballpark.
It is significant to note that within two of these extremely large markets, New York State and Illinois, the largest metropolitan areas of the New York City and Chicago actually have had two successfully functioning baseball franchises each during the last several decades (New York Yankees and Mets; Chicago Cubs and White Sox). For the purposes of this research, focus was on the highly populated East Coast and Midwest teams due to California’s abundance of baseball teams (the Oakland Athletics, San Francisco Giants, Anaheim Angels, Los Angeles Dodgers, and San Diego Padres) and the expansive geographical territory within that particular state that is not comparable with the closely packed borders of metropolitan areas within several smaller states situated within the Interstate 95 corridor between upstate New York and the Carolinas.
State Current Population
New York 19,190,115
Illinois 12,653,544
Maryland 5,508,909
Dist. of Columbia 563,384
Virginia 7,386,330
West Virginia 1,810,354
Wisconsin 5,472,299
Missouri 5,704,484
Michigan 10,079,985
Pennsylvania 12,365,455
Delaware 817,491
Ohio 11,435,798
Current Shared Baseball Market Analysis
Analysis of the above population figures suggests that New York, Illinois, Ohio, and Pennsylvania all have between 12 and 20 million residents, and all of these states support two professional baseball franchises without significant dilution of the market. The states of Wisconsin (Milwaukee Brewers), Missouri (Kansas City Royals), and Maryland (the Orioles) all have very similar populations at just under 6 million residents per state. The small market Brewers and Royals are excellent references because each of these teams are small market teams that are the only baseball franchises within their states.
The Brewers and Royals are already franchises that struggle to compete with the big spenders on both coasts. These small market teams would appear to have a very legitimate argument regarding market dilution if another franchise moved within the borders of their states. However, the Orioles don’t seem to be as threatened. One must consider that Maryland’s home population is also just under 6 million, but adjacent states (within a couple hour car ride or so) such as Virginia, Delaware, and D.C. add as many as another 10 million people to their potential fan base. When one assesses the Baltimore AND D.C. AND Virginia region as a whole, it is apparent that this region would be comparable to the regional fan bases within New York and Chicago. Within these markets of 12 million or more people, it is a proven fact that two franchises can successfully share a fan base without dilution of profits and need for external subsidies.
The Major Angelos/M.L.B. Deal Points
Below are the major negotiation deal points between M.L.B. and Angelos. Although the final deal has not yet been announced, these are the best estimates of contemplated M.L.B. voluntary concessions to Angelos based on the limited information that has been disclosed to the public at this time. http://www.usatoday.com/sports/baseball/al/orioles/2004-09-30-angelos_x.htm
At the time of this publication, no final deal with Angelos has been agreed upon. However, the new Nationals ownership has started merchandising and ticketing procedures so it appears that barring a last minute breakdown regarding final approval of new stadium construction, D.C. will be the ultimate final destination of the relocated team.
M.L.B. will guarantee a minimum sale price for the Orioles franchise:
Angelos is asserting that M.L.B. should guarantee the value of his investment if the Nationals thrive in D.C. Angelos fears that the Nationals presence will strip away his professional Washington, D.C. fan base, as well as the lucrative Northern Virginia market. Angelos feels that if M.L.B. infringes on his local market with another team, that M.L.B. should guarantee a minimum bidding price if he chooses to sell on the open market. Angelos paid $173 million to purchase the Orioles in 1993. He is now insisting
M.L.B. guarantee a sale price in the neighborhood of $350 million; where if the top bid was only $250 million, M.L.B. would have to compensate Angelos for the other $100 million out of league funds. Angelos is expected to insist that this minimum guarantee be reviewed every several years to account for any upward fluctuations in the general market value for professional sports teams.
M.L.B. will guarantee the value of Maryland taxpayer investment in Camden Yards:
As noted, the Maryland Stadium Authority built Camden Yards in the early 1990s using mostly taxpayer funds. If Angelos were to decide to sell the team to an ownership group who would insist on relocation of the franchise, Baltimore would be left with a baseball-only stadium (a new football-only stadium was built next door for the professional football Baltimore Ravens) with no team to play there. Angelos is a well respected, professional member of the Baltimore community. He is insistent that the local community not be burdened if the baseball market sours due to dilution. Just as he is asserting that M.L.B. should guarantee his lucrative investment in the team itself, Angelos asserts that M.L.B. should also provide the same minimum sale price guarantee regarding sale of the stadium and its assets. Initial construction cost over $250 million and it is estimated that Angelos is seeking a similar $350 million dollar guarantee for the stadium assets to recoup taxpayer investment if the team is relocated outside the Baltimore market.
Orioles receive a larger percentage of revenue distribution from regional broadcasting:
As noted, The Baltimore/D.C./Northern Virginia metropolitan area is densely populated. Now that D.C. has baseball, there is discussion of designing a regional cable television/satellite radio broadcasting network to promote interest and attendance for both franchises. Angelos asserts that when this revenue stream from broadcast rights is flowing, that the Orioles should get a larger percentage of the revenue based on their established presence during the past 50 years. Estimates are that Angelos and the Orioles would receive 60% of the broadcasting revenue, while the Nationals would only receive 40 %.
Best Case Scenario for Peter Angelos and the Orioles
The biggest winner appears to be Angelos, who has threatened litigation but has welcomed voluntary negotiation with M.L.B. Angelos has positioned himself in an apparent “win-win” scenario. Angelos is on the verge of securing voluntary financial concessions from M.L.B. that will act as a “security blanket” providing a minimum guarantee on his investment even if the team fails to maintain competitiveness in the tough American League Eastern Division, where a significant portion of their games are played against the powerful New York Yankees and Boston Red Sox. The general public gets no such guarantees when speculating on stock or real estate.
Best Case Scenario for Major League Baseball
Major League Baseball also seems to be in a “win-win” situation. As noted, there is a competitive market for professional baseball franchises, as well as all other professional sports franchises. In addition to being significant revenue streams for franchise cities, there is a great deal of community pride that goes along with representation by a home professional sports franchise. M.L.B. has passionate suitors in a variety of markets including Las Vegas, the Carolinas, and Puerto Rico.
M.L.B. does have one significant interest in bringing baseball back to D.C. During the last decade, M.L.B. has become concerned that there has been a significant decrease of black athletes and fans within the sport. Baseball is extremely popular in Japan and there has been a significant influx of Asian players in M.L.B.. In addition, nations in the Caribbean, such as the Dominican Republic and Puerto Rico, are unbelievably passionate about the game and many athletes from these nations are now the greatest superstars within M.L.B. today (Sammy Sosa, Vlad Guerrero, Johan Santana, Albert Pujols, etc.).
Expansion of the league has not been considered a wise move in these financially fragile times, and M.L.B. will have limited opportunities for relocation in the future. If M.L.B. is truly interested in reviving its black athlete and fan base, D.C. is by far its best choice of markets. It must be a priority of M.L.B. and the Nationals to reach out to the inner city community, and to assure that there is ample opportunity for affordable tickets and merchandise so that a new generation of children can look to heroes such as Jackie Robinson
Best Case Scenario for the District of Columbia
Washington, D.C. has the most to lose if current negotiations between Angelos and M.L.B., as well as the city’s own internal dissention regarding use of taxpayer funds for stadium construction, break down. In addition to the pain of losing the Senators, D.C. has had several heartbreaking (and sometimes last minute) rejections from M.L.B. when they have attempted to secure a new franchise for the city. As noted, M.L.B. has other markets that would gladly take on any financial burden to draw a professional baseball franchise (Puerto Rico and Las Vegas are very intriguing choices). However, the current relocation of the Nationals may represent D.C.’s last chance to show that it is in fact a thriving and competitive market.
Best Case Scenario for Baseball Fans
Despite Angelos’ best arguments that the presence of the Nationals will dilute income streams of both the Baltimore and D.C. franchises, establishment of a rivalry between two closely situated teams may actually spark greater overall interest in both towns. The Orioles will remain an American League team; however, the Nationals are located within the National League. True fans recognize that each of these leagues have nuances that make their styles of play subtly different, such as the American League’s use of the designated hitter instead of the pitcher hitting for himself. This change adds more explosive offense to the games and stresses the value of the home run. However, baseball purists would argue that the National League’s heightened use of bunting and aggressive base running offers a more strategic and cerebral approach to the game. Although true fans will usually strongly prefer one team in their local market over another there are benefits to be gained from a passionate local rivalry. After all, apathy is the true enemy of ticket sales and merchandising.
What is most important to the fan is that they not only have a local team to passionately root for, it is imperative that the fans have access to affordable tickets and concessions. This is exceptionally important if the Nationals want to go beyond their Capitol Hill “spectators” and reach out to true fans in D.C.. There is great disparity in the incomes of families in the D.C. area; alternating between multimillion dollar salaries of political and professional bigwigs to under-employed single parent families earning less than $30,000 per year. A disturbing trend has emerged in all professional sports arenas. Ticket prices have skyrocketed beyond the capability of most working families to pay for a day at the ball park. The best seats are so expensive that usually only corporate or government entities can afford the good seats. The average fan is lucky to afford the nose-bleed seats where they are dramatically separated from the action on the field. A family of four can most likely expect to spend in excess of $200 by the time the costs for tickets, parking, beverages and snacks are tallied. It is imperative that if the Nationals eventually build their new stadium from taxpayer funds, and if Angelos secures the fiscal safety net he desires from M.L.B., that these benefits be passed on to the fans somehow in the form of reasonable ticket prices and ample opportunity for discount and promotion days at the ball parks.
“Next Best Alternatives” for All Parties
The D.C. relocation is almost an absolute and final deal. However, there is a very small chance that the relocation could fall through due to internal political dissent in D.C., or a last minute roadblock by other teams owners, most notably Angelos. Except for the D.C. baseball fan, all parties do have next best alternatives if negotiations fail to bring about the desired result. As noted, M.L.B. has other potential suitors in Puerto Rico, Las Vegas, and the Carolinas. Angelos can still use his own private millions of dollars to improve the product on the field and reinvigorate the Orioles income stream based on its competitive merits without reliance on M.L.B. If he is not pleased with his current investment; he is free to sell the team at any time to new ownership who would welcome the challenge of rebuilding a competitive franchise. Current estimates of the value of the Orioles franchise would be between $350-400 million on the open bidding market-at that price Angelos would be doubling his initial investment price anyway. D.C. and the surrounding fan base may be most at risk due to a lack of other alternatives. If D.C. is not able to finalize the relocation this time, it is unlikely that they will be the first choice for the next relocation or expansion.
Conclusions
It may take a decade or more to establish baseline data on whether Angelos, M.L.B., or D.C. got the best part of this particular bargain. However, despite who wins or loses (or maybe everybody wins to a certain degree in the present case) this particular regional dispute, the precedent has been established that a major sports league (and it also could be a football, basketball, or hockey league) has indicated that a “tipping point” may exist where the necessity of beating the competition in a free market with a quality product could be diluted by cozy private subsidies just so that “nobody rocks the boat.”
Reduced to a smaller scale family dynamic, it is arguable that this conduct is tantamount to parents raising one twin daughter’s allowance because she chooses to drive a gas guzzling sports utility vehicle and simply must keep up with those high gas prices (Angelos and the Orioles) while telling the other twin daughter driving herself back and forth to school in a Honda Civic that she can only have a disc jockey, and not a band, for her wedding (the Kansas City Royals or Milwaukee Brewers for example) because the guest list will be smaller anyway. What is more disturbing is that this type of conduct could transcend the sports world and become a “slippery slope” in all manner of similar negotiations regarding placement of corporate entities, hospitals, and schools.
For example, the small family dynamic model can also be extended to comparisons within the corporate manufacturing world. A state legislature or some other local budgeting agency may be willing to speculate about potential advantages of relocating another state’s large, but failing, poultry processing plant to their state. However, while a multimillion dollar incentive and subsidy package makes an already unsuccessful tycoon sweat a little less in his Armani suit, this deal fails to reinforce and protect the positive benefits that a prudent, safe, and proud two-family butcher operation in a small county has provided the local community for years. It is simply a slap in the face of self-made men and women with calloused hands who have maxed out personal credit lines and taken on a second mortgage, while still working 60-80 hour weeks, to assure that their investment prospers according to the quality of their work, their financial prudence, and the strength of their character and reputation, instead of dependence upon the sly wink of a “sugar daddy” with manicured hands and deep pockets.
One could argue that Angelos has a proactive, fiduciary duty to his corporation and stockholders to take any ethical measures to protect their investments. However, if one looks at the larger picture, when one squeaky wheel proves it can get the grease, how long will it be before all the other wheels start squeaking? In our current times of “what have you done for me lately,” M.L.B. unfortunately appears to have broken ground on what could be a fatal slippery slope for all professional sports leagues in the future.
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