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A bit more on the distinction between the Wilpons and the McCourts

Feb 9, 2011, 4:57 PM EDT

handshake

In that last post about the difference between the McCourt situation and the Wilpon situation, I said that there was a difference between Wilpon’s ownership interest in SNY and the Dodgers’ ownership of broadcast rights.  That distinction led to a couple of similar reader comments. Like this one:

The situations are identical, just different structures. The major asset of SNY is the rights to Mets games, right? McCourt has Dodgers rights He could create a network and sell the broadcast rights to for $bazillion
He could then sell the network which is his personal asset to pay off his divorce. And that is OK where selling the rights to Fox is not?  SNY is just a shell for the rights that is packaged as an operating company.  No difference at all.

It’s actually even more stark than my reader says.  The Mets — as a team — likely get pennies on the dollar of what their broadcast rights would be worth on the open market because Wilpon is on both sides of the deal with SNY.   By underpaying for Mets rights, SNY is worth more and the money it keeps — as opposed to the money the Mets would have received — is not subject to revenue sharing with the other 29 clubs.  This has been going on for years, by the way. Ted Turner used to do with the Braves and TBS, albeit for some different reasons.

All of that said, I don’t disagree with my reader’s analysis. The point I was trying to make in the last post — and in hindsight utterly failed to make — is not that there is a fundamental difference between broadcast rights and regional sports network ownership interest. It’s that Bud Selig does and will continue to treat such things differently — and thus he will likely treat McCourt and Wilpon differently — even if doing so is disingenuous.

Why?  Because if he acknowledges that straight broadcast rights and the revenues of team-owned cable networks are essentially the same, the economic structure of baseball unravels.  Because it’s not really a structure. It’s an uneasy peace between big market, high revenue teams and the small ones.

That peace is predicated, in part, on the big clubs and the little clubs being allowed their respective excesses.  The big clubs can house their money in enterprises that are not subject to revenue sharing. Think the Red Sox investing in NASCAR teams and, more traditionally, big teams operating RSNs.  For their part, the small clubs are allowed to pocket revenue sharing money rather than invest it in their teams. At least within reason, as Jeff Loria and the Marlins found out last year.  Each type of team chafes at what the other is allowed to get away with, but they mostly keep their powder dry because everyone is getting rich.

Practically speaking, if the Wilpons are forbidden from using SNY money to settle their Madoff problems on a theory that doing so would harm the Mets, the fiction that this money is non-baseball-related is exposed and the Pirates and Royals of the world will demand that they be given a share of the RSN money the big teams are making.

Likewise, if Frank McCourt is allowed to use straight broadcast rights money to pay off his wife, the Pirates and other small teams — who are smaller than the Dodgers but, like the Dodgers, don’t have an RSN —  will feel free to pocket their own rights money and put even less into their teams than they already do, which will be a bridge too far for both the big clubs and the fan bases of the small teams (pocket the gate receipts and the concessions, Mr. Loria, but too many people are watching when you pocket the TV money).

If all of this sounds borderline corrupt to you — if it sounds like, hey, at some point someone should have filed a lawsuit over it — don’t worry! You’re not crazy!  Someone probably should have long ago.  But they didn’t.  Why? Because there are only like three owners in all of baseball who weren’t admitted to the very cozy ownership club before Selig took over. The price of their entry to the club: fealty to Selig and the highly anti-competitive arrangement described above.  Indeed, every year there are a half dozen things that happen that, if baseball teams were run as independent businesses who felt free to vindicate their rights through legal action, would lead to lawsuits.

But the lawsuits never come because no one is willing.  Big city teams are given monopolies over huge media markets so that they can build media empires. Small market owners are given the keys to small teams that, while not as lucrative on a cash flow basis, are almost certain to appreciate nicely and — with a few high profile exceptions like media revenues — they’re allowed to treat as their own private piggy bank.  It’s not ideal and it’s not fair, but it ain’t a bad bargain.

At least if you own a baseball team.

  1. indyralph - Feb 9, 2011 at 5:34 PM

    Thanks, Craig. I was unaware of this difference. And it is a big difference. I’m sorta surprised still that the small market teams don’t shake the tree. The books that the inner circle get to see are no doubt different, but the Forbes data suggests that there are very few teams undeniably using revenue sharing as a piggy bank – Gator’s Scrooge excepted.

  2. Jonny 5 - Feb 9, 2011 at 8:35 PM

    Either way, the profit from the networks is generated by the team, with the owners using the profits for their personal interests outside of salaries or other team functions. In my opinion, it’s stealing team profits that should be going back into the team. = wrong. If I’m a fan of either team this pisses me off to no end. Funding mismanagement of personal finances and divorce instead of investing in the team is wrong. It’s blatant skimming of profits. What would we say if other owners made a similar deal then paid themselves 250 million dollars in salary? Selling the team to owners who will use the profits to benefit the team more than themselves would be the right thing to do in both cases.

  3. seeingwhatsticks - Feb 9, 2011 at 8:48 PM

    In other news, “it’s good to be the king.”

  4. whynot22 - Feb 9, 2011 at 9:19 PM

    The way they’ve colluded to keep Cuban out seems criminal. No boat-rockers wanted. It is indeed good to be the king (s).

    • lja76 - Feb 9, 2011 at 9:44 PM

      hey u never know??? baseball need a new fiery owner now that the boss past

  5. lja76 - Feb 9, 2011 at 9:36 PM

    so tell me, especially now that george steinbrenner, god rest his soul, has past. when does baseball implement a salary cap? i tell u one thing, if cuban ever gets approved. thats when baseball gets a salary cap.

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