Lazy Man and Money

The Cost of My Baseball Addiction

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[Editor’s Note: The following is a guest post that I commissioned from Kosmo at The Soap Boxers. I think it is an interesting look at how one person’s hobby can fit into a frugal lifestyle.]

My third grade teacher got me interested in baseball. I quickly become addicted and am resistant to any intervention attempts.

How addicted am I? I’m writing this on February 21, and I’m planning to take a late lunch at Hardees (free WiFi) so I can catch the first game of the spring – the Boston Red Sox playing an exhibition against Northeastern University. I’m not even a Red Sox fan. Yeah, I’ll be the guy watching an iPhone with headphones plugged in.

When I was a kid, my baseball addiction was very cheap. I’d wiggle the antenna on my radio and pull in WGN radio. Once in a blue moon, the Cubs would be on the local broadcast TV station and I’d get to watch a game.

Today, though, it’s a far more expensive hobby. I live in Iowa but am a fan of the Colorado Rockies. This means that there is really no (legal) low-cost way to watch games, since the team is not in my local market. A few years ago, I bit the bullet and ponied up $200 per year for a subscription to MLB Extra Innings. Now I could watch almost every Rockies game (except for games in which they played any of the five teams that are blacked out here).

In the last year, there has been a proliferation in the number of streaming devices in the house. This has allowed me to make the jump to MLB.TV. This will allow me to watch games on either of the two normal sized TVs in the house (via a Roku or WiFi-enabled Blu-ray Disc Player), computer, or my wiPhone (my wife’s old iPhone which I used as a WiFi-only device because I’m cheap).

So, how much does my baseball addiction cost me?

The basic cost of MLB.TV is $109.99. That buys streaming on computers. It costs an extra $20 to stream to “connected devices”. Then there is the upsell to buy the minor league package. $20 for the year. I’d get a chance to see how fast Reds prospect Billy Hamilton is (very fast) and watch the talented, but raw, prospects at the lower levels. All for the cost of an Andrew Jackson? Yes, please! So we’re up to $149.99 for the viewing package.

Then, of course, there is a subscription to Baseball Prospectus. For $40, I get access to premium content on the site. To slide further into geek mode, I buy Ron Shandler’s Baseball Forecaster ($16) every year. Then there’s a preview guide to buy ($10). I currently subscribe to the print edition of Sports Weekly, but will likely let that lapse this year – the Baseball Prospectus web site has better analysis. I probably average $25 in apparel purchases per year. That’s not completely an addiction-related cost, as I do have a utilitarian need for shirts. I run a fantasy league and spend about $15 to buy a trophy and have it shipped.

We’re at $256 already, and this doesn’t include tickets to any games! I rarely see Major League games in person (not very close to any teams), and haven’t seen many minor league games in recent years, due to the presence of young kids in the house. My last minor league game was watching Mike Trout play for the Cedar Rapids Kernels in 2010. Let’s assume that I’ll make it to a game this year. Tickets, parking, food for my wife and I would probably run $50. Let’s estimate $25 for other baseball expenses during the year.

My baseball addiction is going to cost me $331 this year!

What does this buy me?

First of all, that is the gross cost. I made a few bucks selling this freelance article to Lazy Man, which shaves off a portion. That’s the tail wagging the dog, though – obviously, the main benefit I get is entertainment value.

This is the first time I’ve tried to estimate how much entertainment value I receive. Over the course of the year, I’ll likely watch at least a small portion of 100 or more Rockies games. Due to time zones difference (they play a lot of night games in the Pacific time zone) and the demands of the job (up at 5:45 each morning) and the aforementioned young kids, I rarely get to watch a full game. The ability to watch on the WiFi devices should help a bit. I’ll estimate 125 hours of viewing of Rockies games, and probably another 100 hours listening when I’m not able to watch (when mowing lawn, for example). I’ll probably watch at least 25 hours of minor league games, most likely in small snippets as I catch the at bats of a few prospects I want to watch. That’s 250 hours when I am actively consuming the content I pay for.

I try to watch as much of the playoffs as I can – probably another 50 hours or so.

I also spend about an hour per day during listening to baseball podcasts (better option that talk radio for the commute). That’s about 180 more hours. I also catch up on back episodes during the off-season – probably another 50 hours there.

While I’m not paying for this content, the paid content that I watch adds to my enjoyment of the free content. This also doesn’t count the time I spend reading articles or discussing baseball with friends, but it’s a good stopping point.

That’s a total of 530 hours. That brings my hourly cost down to 62.4 cents. That’s a far better deal than watching a first run movie at the theater (about $5 – $7 per hour). There’s also a qualitative aspect to the entertainment value. Baseball puts me on a six month high, even when my team isn’t going well. The boost I get from a movie fades much more quickly.

Want a Guaranteed Investment? Buy a Baseball Team.

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Editor’s Note: The following is a guest post from Kosmo who writes at The Soap Boxers. The timing is particularly good with the baseball season ending today and my local teams the San Francisco Giants and Oakland Athletics dominating the local news.

George made his money in shipping and shipbuilding.  In 1973, George dipped into his wallet and bought a sports franchise.  Nearly 40 years later, this investment is estimated to be worth 400-500 times the original purchase price.  Not a bad investment.

George Steinbrenner’s group paid $10 million for the Yankees, but the deal also included some parking lots.  When CBS bought those parking lots back, the true cost of the team was a modest $8.8 million.  Today, the team is worth an estimated $3-5 billion dollars.

Recently, the Dodgers were sold for $2 billion.  Frank McCourt got this price even though everyone knew he had to sell the team (to raise money for a divorce settlement), public knowledge that he had used team assets as his personal piggy bank, and having his hands tied by restricted place upon him by Major League baseball.

In football, the Cleveland Browns – who have never had any sort of success in their second incarnation – were sold for $1 billion.  Who knows how much a good team would sell for. Editor’s Note: In 1994, Robert Kraft paid an all-time high of $175 million for the New England Patriots. In 18 years they are worth nearly ten times as much according to Forbes.

Why have baseball teams – and sports franchises in general – historically been a very good investment?

Limited supply –  There are a limited number of teams.  If you want to start a widget company, you can simply start a new company and compete against the existing players in the market.  It may be tough sledding for a while, but it’s actually possible.  You can’t simply form a baseball team and start playing games against the Cubs.  You could probably win a fair number of games, but it’s simply not allowed.  Sports leagues use a model of coopetition.  Individually, the teams compete against each other, but collectively, they cooperate on many important issues (such as collective bargaining) and also scheduling games against each other.

Occasionally, there will be expansion, but the opportunities are infrequent and buying an existing team – with an installed base of customers and a pipeline of minor league players – is often the desired direction, unless an owner wants her team to suck for a lot of years.  In recent years, there has been more discussion of contraction – dissolving a couple of franchises – than expansion.

Revenue sharing – Imagine opening your widget company, performing poorly in the marketplace, and then getting a fat check from your successful competitors at the end of the year.  That sounds too good to be true.  Yet, this very situation exists in the sports world.

Fans generally want to watch competitive games, and leagues take certain actions to attempt to achieve the appearance of competitive balance.  One way is by having a draft where the teams that suck most have the top picks, allowing them to get the best young players.  Another way is to institute a luxury tax on the teams that spend the most money and redistribute this to the teams that produce the least revenue.  Generally, these teams produce minimal revenue because they aren’t investing in the on-field product (low revenue but also low expenses).  The premise: when you spread the wealth around, it’s good for everybody.

Capital gains – Don’t feel sorry for the teams that are incurring massive expenses for player salaries.  There are two ways to be successful as a sports franchise – by making money or by winning games.  Even if a team doesn’t make an annual profit, there is almost certain appreciation.  Spending money on player salaries can make the team more successful on the field and thus more desirable on the auction block.  Trading annual profits for appreciation can be a smart move – the former is ordinary income while the latter is a capital gain.

Publicly-finance stadiums – Occasionally, teams will move.  The Dodgers moved from Brooklyn to California decades ago, and more recently the Expos moved to DC and were re-branded the Nationals.  More often, a team uses the threat of moving to get public money for a new stadium.  Los Angeles doesn’t have a football team, and for years teams have threatened to move to LA to get their cities to pony up cash for a stadium.  Even if a team doesn’t move far, they can play one suburb against another to get the best deal.

Why would a city be dumb enough to pay hundreds of millions of dollars to help a team build a stadium?  Because they fear the financial cost of losing a team.  Not just taxes on ticket sales and concession, but everything that goes along with seeing a game.  For out of town fans, this could include a hotel stay, several meals at local hotels, shopping, taxi rides, and much more.

This can be tricky to quantify.  Some cities could sustain losing a team more than others.  Green Bay would be devastated by the loss of the Packers.

Salary control – While the big free agent signings make a splash in the news, the youngest players are almost always paid less than market value for their production.  The financial value isn’t in being able to hit a ball 450 feet or throw it 98 miles per hour; it’s in getting people to pay good money to watch you do it.

One of the leading contenders for American League MVP this year is 21 year old Angels outfielder Mike Trout.  Trout signed for a $1.215 million bonus in 2009 and spent his minor league service earning peanuts (as is the case for most minor leaguers, who often live with host families out of financial necessity).  His 2012 salary is $480,000.  So far in his career, Trout has made a total of about $1.75 million.

That’s a lot of money to most people.  However, Trout’s on-field performance has been worth 10 wins more than a replacement level player this season (yes, this is an actual statistic).  The financial value of 10 wins to a baseball team?  Somewhere in the neighborhood of $25-$35 million!

Trout, who still lives with parents in the off-season, won’t be eligible to test the market as a free agent until after the 2017 season.  Assuming he does not sign a long term deal,  his 2013 and 2014 salaries can be unilaterally set by team (subject to certain minimums), with no obligation to reward him for his performance.  His 2015, 2016, and 2017 salaries would be set during binding arbitration, where each side make a case an arbitrator choose one side’s proposed salary (the arbitration is now allowed to pick a number in between the two figures).  At that point, he can finally opt for free agency and test the market.

Starting in 2012, Major League Baseball has instituted hard caps for draft spending, with substantial penalties for exceeding the cap.  Many other sports have salary caps, with some having rookie salary caps or hard slotting.

How does this happen?  Quite simply, the unions are happy to bind younger players to relatively bad long-term deals to get concessions for younger players.  Why?  Because the drafted players are not yet members of the unions, and have no say in the matter.

In the NFL , this has been sold to the public as a way to avoid overpaying JaMarcus Russell and freeing up money to pay established veterans such as Peyton Manning and Drew Brees.  More often, though, it seems that we see teams underpaying young players so that they can overpay journeymen like Ryan Fitzpatrick.  Luck will be paid $22.1 million over the next four years while Fitzpatrick is scheduled to make nearly twice as much annually ($59 million over six years).  I like Fitzpatrick as a person, but if you can find someone (other than his mom) who thinks he will be twice as good as Andrew Luck over that next several years, do them a favor and check them into the psych ward at Bellevue. Editor’s Note: I think most people would agree that the Fitzpatrick contract was an anomaly and it was widely criticized at the time it was announced. Quite often I’m surprised that good veterans don’t get signed. Here are some fairly high quality players that could seemingly play a role on some teams: Bob Sanders, Randy Moss (was out of football last year and signed this year), Plaxico Burress, and Kellen Winslow.

Emergence of Regional Sports Networks (RSNs) – In particular, baseball teams have seen huge jumps in TV revenue in recent years.  This is due to the emergence of RSNs, such as Fox Sports (insert geographical descriptor here).  Unlike football, where the TV rights are controlled by the league and divvied out to a small number of networks, baseball rights can be auctioned off by individual teams.  The Angels recently sold 20 years of rights for $3 billion.  That’s $150 million per year in their pockets before they sell a single ticket, hot dog, or t-shirt.

Sports is a coveted jewel for a couple of reasons.  First, it’s premium content that fans will actually pay to add to their existing TV packages.  I’m thrifty in many areas of my life, but savings be damned, I’m a subscriber to MLB Extra Innings so that I can see my Rockies play (I’ll switch this to MLB.TV next year to save a few bucks).  Second, many fans watch the games live, making it fairly Tivo-proof.  You’re probably going to end up watching the commercials.  Advertising also pervades the games in a couple other ways.  If you’re watching a baseball game, you’ll see company logos plastered on walls and behind home plate – there’s really no way to avoid seeing them if you want to watch the game.  You’ll also see company logos during the broadcasts, and various companies sponsor trivia contest, plays of the game, and other specific content.

Bubble? – Of course, the big question is whether we’ve hit the bubble yet.  Historically, it’s been very rare for an owner to sell a baseball team for less than what they paid.  It may happen at some point in the future, but I don’t think we’re quite there yet.  Over the coming years, even more people are going to watch games on their cell phones or tablets, exposing even more people to advertising.

Who wants to jump into my ownership group and buy a team right now?  I’ll kick in the first $100!

Heroes, Knuckleballs, and Zink

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I’ve mentioned in the past being a rather large Red Sox fan. Yesterday, some interesting news came out from Red Sox Nation. Tim Wakefield, the Red Sox player with the longest tenure, is injured and won’t be able to pitch as scheduled tomorrow. For those who might not be familiar with Wakefield, he’s a pretty unique talent in baseball. He’s one of two major league players (that I know of) who throw the knuckleball. In a world where other players are trying to throw the ball 100 miles per hour, Wakefield is successful “tossing” the ball to the plate at a mere 65-70 mph. The knuckleball pitcher is so uncommon in modern baseball that ESPN had a story about how they’ll help each other out – even if they are on competing teams.

The interesting news is that the Red Sox are replacing Wakefield with another knuckleball pitcher from their farm system, Charlie Zink. The odds of that astound me. Zink isn’t being called up as some kind of publicity stunt – he’s simply one of the best pitchers the Red Sox have available.

The story takes a twist more bizarre than the knuckleball itself. I was reading up on Charlie Zink trying to get to know him a bit. I found this question and answer with Zink. Zink didn’t play baseball until he was 11 (by that time I had been retired from baseball for 4 years). He saw a baseball game and became fascinated by a pitcher able to dominate the opposing team, with a slow pitch. That pitcher… Tim Wakefield… the same guy he’ll replace.

For a number of years, I have thought, “If I get bored enough, I’ll learn how to throw a knuckleball and get a few million dollars a year playing baseball.” In fact, I remember telling a co-worker this just last year. Of course it’s not quite that simple – in fact throwing a knuckleball well is extremely difficult. Competing in professional sports typically requires an extreme amount of athleticism. I love the fact that someone without great strength, speed, or reaction time can compete at a top level.

Why is Zink my hero? He was undrafted, almost out of baseball. He stuck through with it and if all goes well, will be doing his dream job and getting paid well to do it. He has also succeeded despite all his coaches telling him that he should give up on the knuckleball. That kind of perseverance gives me motivation that I can succeed with blogging.

On the other hand, if he pitches horribly today, at least he has a pretty cool name.