September 1, 2014

A BREWING STORM OF CHANGE

If the whole financial apple cart rides on the Cubs creating their own "Dodger" cable channel, then there are going to be more potholes in the road to 2020.

The Hollywood Reporter reports that MLB is facing its toughest anti-trust suit to date. It involves the very lucrative television rights revenue streams.

Major League Baseball could be on the cusp of enduring something almost unimaginable: The end of the lucrative system by which professional baseball games are televised by region, consumers pay high prices for out-of-market package fees, and some digital telecasts are blacked out in home markets. 

With the prospect that sports broadcasting might forever change, the league is seeking permission to file an interlocutory review of U.S. District decision that ruled against MLB's motion for summary judgment in the claims in a proposed class-action lawsuit.

In Judge Scheindlin's ruling, she determined that MLB's antitrust exemption doesn't apply "to a subject that is not central to the business of baseball, and that Congress did not intend to exempt — namely, baseball’s contracts for television broadcasting rights." As a result, she allowed the plaintiffs to pursue claims that MLB, Comcast and DirecTV have violated antitrust law by making anticompetitive agreements that negatively impact the output, price and perhaps even quality of game telecasts.

MLB is quite disturbed by the opinion and now wants to go before the 2nd U.S. Circuit Court of Appeals to present this issue: "Whether the professional baseball exemption to the antitrust laws bars Plaintiffs' claims against Major League Baseball with respect to Major League Baseball's territorial broadcast rules and structure."

Baseball's  antitrust exemption dates back nearly a century and has been addressed in several big court cases, including Supreme Court rulings. However, legal scholars have debated whether the antitrust exemption merely covers labor matters like restrictions on free agency or goes further. Over the years, Congress has adjusted sports broadcasting rules but hasn't offered substantial clarity on the matter.

In a memorandum to support the interlocutory appeal filed on Wednesday, MLB says that every appellate court has "held that the exemption applies broadly to the business of baseball and is not limited to any particular facet of that business."

The ruling is important because it could upset the original club power and control over territorial licensing fees. Washington and Baltimore are current in court over their television territorial rights and provisions which stem from the Expos relocation into part of the Orioles territory. The Oakland A's have been stymied by the Giants who have much of the territory south into Silicon Valley as their exclusive domain. The A's could not move to Santa Clara. Baseball was not happy about it, but it will not upset the club's rights set forth in their original charters.

Exclusive territorial rights extend to radio and television broadcasting games. The home team controls the airwaves in their own community (or share it with a dual club city like New York or Chicago). Any team that comes into a pre-existing team's market will have to pay to do so.

The concept of exclusive local broadcasting has been eaten away by MLB itself, with its own cable channel and national television contracts with several networks who push games to everyone just about every night of the week. The advent of digital mobile apps and streaming video has taken away the territorial reach of over-the-air broadcast signals. The league would like to continue to package baseball as seller; but clubs protect their local rights like a Tiger mom to her cubs.

If baseball loses it stronghold on local broadcast rights, and national television deals, the overall price for "baseball as a commodity" will fall. In some circles, like large market teams,  that could be a significant loss of revenue. Further complicating matters is large cable carriers have stopped paying for more sports channels because the fee structure is not supported by their average customers. The new Dodger network wallows in obscurity in the LA market because no transmission deals were made with other carriers. Some reports say that three-quarters of LA fans have lost their ability to see Dodger games.

The Cubs are banking on a huge revenue boost with television money. This is betting on the old baseball revenue model which is being attacked internally and externally in the courts.

August 30, 2014

THE TIME LINE IS NOT HERE

Cubs president Theo Epstein told reporters that the team will have the financial wherewithal to add to the payroll in the coming years due to its young core of prospects playing at the major league level. The core prospects are on team friendly deals, several years away from arbitration or free agency.  Epstein said he never looks at one off-season and decides that he has to get something done that year, but he expects to add impact starting pitching from outside the organization in the next 18 to 24 months.

The latter part of the story is the key element. As media columnists and radio pundits "expect" that the core will ramp it up next year in collective production, they also "expect" the Cubs to pull the trigger and go out and sign two "impact" players, like a Jon Lester (who may cost $140 million or more). But Epstein is foreshadowing the opposite.

He is not going to commit to spending money this off-season. Eighteen months brings the Cubs to the trade deadline in 2016. And the outer limit is spring of 2017. But these goal posts can continue to move, farther away to 2020 (when the old local media deals expire).

So Epstein is quietly signaling that the front office is not convinced (rightly so) that the core will actually perform at a high enough level in the next two years to "justify" spending hundreds of millions of dollars on quality, proven starting pitchers.

 The Cubs rebuilding program has this built in Catch-22. The team does want to grow cheap, controllable players through their minor league system. In order to draft the best talent, the major league team needs to lose. Losing does not help sign talent in the free agent market. Once the prospects arrive at Wrigley, there is no guarantee if any or all will become impact major leaguers. If the team's new core does not pan out, then there is no reason for Ricketts to approve spending millions for pitching for a bad club.

Besides, the concept that the "business side" needs to catch up with the "baseball side" is another built-in diversion in case the Cubs rebuilding program falters. Epstein claims there is plenty of money in the future, but any idea that the payroll savings are being banked in the past three years is an illusion. Ricketts has a highly expensive real estate project to build in and around Wrigley. That is the business side priority, not the baseball team. The hundreds of millions to be spent on pitching more likely will be spent on brick and mortar projects.

August 29, 2014

HOW THINGS PLAY OUT

The excitement continues to swell like an Off-Broadway production in dress rehearsal as Jorge Soler is promoted to the major league roster.

The Cubs Way is nearly ready to debut.

There are many ways to look at the new way.

First, in the best light, the prospects and young players the Cubs have acquired will play beyond expectations like the championship caliber teams like the Marlins or Rays. Those clubs came out of small market nowhere and won pennants. But even those teams could not sustain themselves purely on their own home grown talent (since most left prior to free agency).

Second, the prospects and young players give us a reasonable expectation of being good, but not great, ball players. Over time, they may gel into the 2005 White Sox, and push through to a championship.

Third, the prospects and young players have statistically average careers. The team can hover around .500 if its pitching holds up. This is like the Kansas City Royals, who are just getting out of another 15 year rebuild cycle. They had touted prospects that got to the majors and did not excel to a juggernaut line up like the big market, big spending teams like the Red Sox or Yankees.

Fourth, the prospects and young players mostly play below average. They follow the cursed string of recent prospects like Brett Jackson, Josh Vitter, Junior Lake. For all the hype, the team as constructed only ebbs and flows around 75 wins per season.

Fifth, the prospects and young players don't pan out long term, due to inability to adapt or being plagued by injury. The total fail scenario is something that no one wants to talk about - - - especially ownership and the front office. If this happens, the risk-reward bet will probably crater the franchise in a huge hole.

It is highly unlikely that the Cubs will hit on all their prospects. It is likely that one or two will be very good players if healthy. But a team needs a balance between veterans and young players, skill and luck, and ways to avoid a culture of losing. Final success will only be objectively measured by the number of wins, number of pennants, and number of championships.

August 28, 2014

FALLING CHIPS INTO PLACE

This is a diagram of the Cubs state of team rebuilding. The Cubs hope that the right side of the diamond will be solid and stable. The left side of the infield will be in transition soon, as the team likes Russell at shortstop more than Castro and Bryant really wants to play third in the majors (even though he may wind up in left field). Alcantara is holding the CF spot until Almora arrives in several years. Even so, there are two starting unknowns when the team is ready to compete: catcher and left field/third.

Bruce Levine believes that the Cubs will show marked improvement next season. Peter Gammons believes the Cubs should be competitive in 2017. They may be optimistic.

The risk-reward is that the push of prospects to the majors will work out. That means the team has a cheap roster of good players under their control for six seasons. If they don't work out, then the Cubs are back to square one.

There is a huge unknown going forward: pitching. Arrieta, Hendricks, Wada may look good this year, but that is no guarantee that they will not slide like T. Wood has this season. Edwin Jackson is not an option for 2016 but he is under contract and virtually untradeable. Perhaps a trade of Castro for major league ready pitching will help.

Fans and pundits believe that even if the chips don't fall exactly to plan, the Cubs could just go out and "buy" the necessary pieces (starting pitching, closer, hitters).  But the evidence points to the Cubs continuing to run a small market budget until 2020 television consolidation.

What is lost on most is the fact that the Cubs will not have the WGN TV money next year. That is going to be a big revenue hole to fill. Declining attendance and increased no-shows do not help either. If the Cubs are constricted financially by debt service and lost operations revenue, the team will not be a player in the free agent market this winter.

August 27, 2014

ANOTHER ERROR

If this is true, then the front office needs to be fired.

According to Bob Nightengale of USA Today, the Cubs rejected a trade offer that would have sent right-hander Edwin Jackson  to the Braves  for outfielder B.J. Upton. They were teammates while with the Rays a few years ago. The two sides discussed the deal before the trade deadline in July.

A Jackson-for-Upton swap would be the epitome of a bad contract-for-bad contract deal. Jackson is owed approximately $24 million through the 2016 season while Upton has roughly $49 million left on his deal, which runs through 2017. Nightengale says Atlanta would have had to kick in quite a bit of money to facilitate a trade.

Jackson, 30, is 6-14 with a 6.09 ERA in 26 starts and 139 innings for the Cubs this year. He is 14-32 with a 5.47 ERA since signing a four-year, $52 million contract prior to last season. Jackson was just placed on the disabled list with a lat strain and there's been talk of moving him to the bullpen.

The 30-year-old Upton is hitting .208/.282/.329 (71 OPS+) with nine home runs and 18 stolen bases this year, which is better than the .184/.268/.289 (54 OPS+) line he put up last season. The Braves gave Upton a five-year, $72.25 million contract prior to 2013.

Apologists for the Cubs not pulling the trigger on the deal state that since the Cubs, who have a ton of position player prospects on the way, the team don't need someone like Upton clogging up payroll and a lineup spot. However, this is clearly not the case. The Cubs have no legitimate starting outfielder on the roster; Upton would have been their best OF player this season. The Cubs have a second baseman patrolling center field for the first time in his professional career. And if Upton does bounce back with a change of scenery, let the rookies "earn" a starting spot.


In my opinion, it is much easier to get a veteran hitter back on track than a pitcher that plain sucks.  The Cubs regularly play players hitting under the Mendoza line so having Upton on the roster would not have been unusual. And if did not perform well, sit him on the pines like Schierholtz.

It is not that Jackson helped his cause by being an innings eater. He only averaged 5.3 IP/start. He led the majors in earned runs allowed. And he was brutal in the first two innings, leaving the Cubs well behind in games he started. Jackson amassed an unbelievably bad NEGATIVE 1.9 WAR this season.

If some other team wanted him, you trade him faster than lightning. Period.
But the Cubs failed to do so. A major error by the front office because there was no reason to keep him.

August 26, 2014

JRW NOTES

When Yoshi Wada was throwing a no hitter on Sunday, more than ten times as many viewers were watching the Little League Championship featuring Chicago's Jackie Robinson West All-Stars.

Chicago's Little League champions are a compelling story. City kids who have stable, two parent households, supportive coaches teaching fundamentals, the confidence to overcome adversity and a sense of pride in themselves and their sport. The maturity and sportsmanship shown was well beyond the average 13 year old.

Even though they lost to a powerhouse Seoul, South Korean team, Jackie Robinson West is still the pride of the U.S.A., the highlight of the Chicago baseball season.

After watching several games in the LLWS, major league baseball can learn a few things.

There were no controversy about the umpiring which I think is because no matter who was behind the plate, there was a very consistent letters to knees strike zone. A consistent strike zone is the key to speeding up the tempo of the game.

Another is that the pitchers go the baseball back, found their point on the rubber, and threw. There was hardly any batters getting out of the box after each pitch to adjust something. Pitchers may have only two signals (fastball or curve), but the rhythm between pitcher and catcher was very sound.

And the pitchers were not just throwing toward the plate. They understood the basic concepts and strategy of pitching: throwing inside to set up an outside pitch.

Hitters were also very polished in their approach. A few did overs-wing at times, but they made adjustments as the game went on. By shortening up their swing to make contact on fastballs, the hitters were spraying the ball hard all around the yard.

The coaches also understood that speed is an important part of baseball. Using speed on the base paths puts pressure on the defense which led to a few errors, extra bases and better scoring opportunities.

Yes, some players were out of position on defensive throws or covering the bag or hitting the cut-off man, but there were some kids who really can pick tough hoppers and throw accurately across the diamond.

What the national audience saw last weekend were kids playing baseball for the love of the game. And this seems missing in most of major league baseball.

August 25, 2014

HERALDED PROSPECTS

When rookie shortstop Gordon Beckham arrived on the South Side, he had a quick start which propelled him into the "can't miss" category. In 2009, he hit .270, 14 HR and 63 RBI with a 2.1 WAR. Sadly, that was his best major league season. He went to play second full time, and was a Gold Glove caliber defender.

But after 5.5 years with the Sox, Beckham batted only .244, 61 HR, 276 RBI and 5.9 WAR. The "can't miss" prospect with the confidence to be an All-Star turned into a "can't hit" major leaguer.

Beckham's case is not unusual. Less than six percent of all minor leaguers make it to the majors, and very few have All-Star caliber careers. Beckham is the latest example of how an accomplished minor league prospect can make an initial splash in the Show, but fail to have a good career.

So the White Sox traded Beckham to the Angels for a player to be named or cash.

Beckham lasted longer than the Cubs Brett Jackson, who was also traded this summer for nominal return. Jackson was a highly anticipated five tool centerfielder who could be a cornerstone player for the Cubs for a decade. His major league career lasted only 44 games.

Even today, highly regarded prospect Javy Baez is wowing the crowds with massive home runs. But Baez also is a strike out mess (being punched out more than 43 percent). In his first 17 games, Baez has hit 5 home runs, but struck out 30 times. He is only hitting .214. It is feast of famine. It is almost an exact repeat of Jackson's struggles.

Even players who have a good track record can begin to falter for no apparent reason. Travis Wood's last outing against the rain soaked Giants was termed "an Edwin start," a Cub term of art for a bad performance. Wood's performance has become to noticeably slide from his excellent 2013 season (4.4 WAR) to this year (negative 0.4 WAR).

Even the best prospects may only give a team a slight, one year jolt in performance. The lesson is clear: there is still a major leap from AAA to the majors. More than 90 percent of those prospects don't make a long term career out of their opportunity.