How the radical economics of pro sports powered a mega-trade
The Toronto Blue Jays' massive trade has shaken up the baseball world, left Jays' fans cheering and set the team's payroll above $100-million (U.S.) for the first time.
The deal had a lot to do with some shrewd calculations by team owner Rogers Communications Inc., which took into account the club's improved attendance, some weakened competitors and a trio of blockbuster television deals. It also comes as Rogers is putting more emphasis on sports as content for mobile devices by taking almost half ownership in Maple Leaf Sports and Entertainment, owners of the Toronto Maple Leafs and Raptors.
In the trade with the Miami Marlins, the Blue Jays will acquire five players, give up seven and push Toronto's payroll to $110-million from $75.1-million last season. Many fans and commentators believe the new players will strengthen the team enough to get in the playoffs next season.
For many observers, the trade is a stunning turnaround in strategy for a team that consistently ranked around the bottom of Major League Baseball in spending and seemed content to develop players with promising futures rather than acquire stars.
The Jays had also just finished a disappointing season, placing fourth in their division, the American League East, with a record of 73-89. Few expected such a radical change in spending habits.
Rogers management saw things differently.
While the team's play had disappointed fans, the club's attendance increased 15 per cent last season, and revenue was higher than expected.
Some marketable players, like Brett Lawrie and Jose Bautista, were attracting fans across the country.
Meanwhile, divisional rivals the New York Yankees and Boston Red Sox looked vulnerable for the first time in years, and MLB had just concluded television deals that would put about $25-million extra in each team's pocket.
Suddenly, spending more on players looked like a smart investment and a chance to capitalize on fortunate events.
In the words of a source familiar with the trade: "The banana was ripening."
A few weeks ago, Rogers management cleared the way for Jays' president Paul Beeston and general manager Alex Anthopoulos to take the payroll as high as $120-million for the season if necessary, according to the source.
Mr. Anthopoulos went out to look for players, and soon found a willing seller in Jeffery Loria, owner of the Marlins, who seemed eager to unload some team members with big contracts.
The two concluded the trade this week, even as the Red Sox tried to poach a couple of the Florida players, not realizing Mr. Loria was interested in a much bigger transaction.
Under the trade, which MLB officials still must approve, Toronto receives five players, including three stars, sends seven lesser lights to Florida and takes on an additional $165-million in contract commitments over several years.
Among those heading north are shortstop Jose Reyes, whom the Jays tried to acquire last year, and starting pitchers Josh Johnson and Mark Buerhle. Mr. Reyes is on track to receive $96-million in total over the next five years, Mr. Buerhle is to get $51-million over three years and Mr. Johnson will earn $13.75-million next season before becoming a free agent.
The key to making the deal work for Rogers was a series of lucrative television deals MLB struck a few months ago. Those deals, with ESPN, Fox Sports and Turner Broadcasting Systems, will double broadcast fees to more than $1-billion annually and hand each team about $25-million extra revenue per year. That will help cover the extra salaries. And if the team does contend for the divisional title as a result of the trade, that could jolt attendance, which is among the lowest in baseball, and push up revenue, which has already been increasing in recent years, to $164-million in 2011 from $156-million in 2010, according to Rogers financial statements.
It's not a bad strategy, says Andrew Zimbalist, an economics professor at Smith College in Northampton, Mass., and author of Baseball and Billions. "It has to do with striking when the iron is hot," Prof. Zimbalist said on Wednesday. Rogers "looks around in the American League East and they see for the first time in a long time, the troubles that the Yankees and the Red Sox are having. I think that there is a very good chance that the domination by those two teams is going to take a respite now for several years. So they see an opening."
Professional baseball overall is seeing something of a resurgence, he added. Total revenue has climbed to around $7-billion despite the weak U.S. economy, and there's no prospect of strikes by player or lockouts by owners.
Nonetheless, Rogers' move carries plenty of risk. Other teams have made similar splashy purchases, including the Marlins and Red Sox, only to see the players falter. There are also worries about Mr. Johnson, who has a history of injuries, and some fears the Jays might have trouble meeting payroll in future when big pay raises in the contracts of Mr. Reyes and Mr. Buerhle are due.