From the top down, sports is all about the bottom line

May 04, 2007|By RICK MAESE

Forget performance-enhancing drugs, escalating contracts and the endless dissection of every transaction by blogs and fan sites. Sports has changed on a much more fundamental level. Our games, put simply, have become pretty complicated.

Author Michael Lewis has called it the "intellectualization of professional sports," but we're really talking about a revolution, one that's dividing sports consumers into two groups: those who are content to digest sports as they always have, and those who need supercomputers and economics textbooks to process these new-fangled statistics and fancy-pants strategies.

I'm not just talking about the fan here. The way you run a professional sports team is a lot different than just a decade ago. I bring this up because you might have noticed earlier this week that the Orioles' chief operating officer, Joe Foss, resigned just one month into the 2007 season. Foss had been with the team the past 14 years and for much of that time was considered the Robin to owner Peter Angelos' Batman. (You're welcome for that visual.)

There's no sense in throwing opinion to the wind and urging Angelos to take advantage of the opportunity for some structural growth inside the warehouse. But let's at least use it as an excuse to discuss how a ballclub is run today.

In looking ahead, it's important to realize how different the business of baseball has become from when Angelos and Foss came on board 14 years ago. If you'd like, you can argue that they didn't really "get it" then, but the safest assertion is that new blood is especially critical right now.

"There's a continuum out there like everything else. There's teams that want the most sophisticated approach and there's those with the least sophisticated," says Vince Gennaro, a business consultant whose client list includes major league teams. "Some folks got in so long ago with a low cost base for their franchise, and they're playing with a lot of house money. And they may still be running the business the way it used to be run.

"But you have to realize that it's changed so much. A $50 million commitment to a player is becoming commonplace. And where around the globe do you want to allocate your scouting resources and your dollars? How do you use the Internet to build a relationship with your fans? These are complex decisions that baseball didn't have to deal with 20 years ago."

Gennaro wrote the recently released Diamond Dollars: The Economics of Winning in Baseball, which breaks down how television, economics, player development and team branding have changed the game in recent years.

Gennaro is plenty familiar with Baltimore; former Orioles executive vice president Jim Beattie wrote the book's foreword. Despite some futility on the field, Gennaro says what impresses him most about the Orioles' recent years is the addition of the Mid-Atlantic Sports Network, a huge revenue coup usually reserved for the larger-market teams. Negotiating this deal could be the lasting part of Foss' legacy with the Orioles.

"The way I think about it, a team-owned regional sports network actually raises the financial stakes of winning and losing," Gennaro says. "As a fan, I love to see my team get a regional sports network because it means they have more of a vested interest in winning."

By that, Gennaro means that the more a team wins, the more viewers the network attracts and the more money that can be made in advertising. Conversely, though, if a team loses and its ratings drop, it could potentially make less money than the upfront fixed fee offered by a Comcast SportsNet or Fox Sports Net. In fact, this is partly why the Kansas City Royals are abandoning their own network for a Fox deal next season. (A monetary loss isn't as likely with MASN, though, because the network features two teams.)

The network is now run by John Angelos, the owner's son, and if it wasn't clear before, most doubts have been erased: John Angelos, currently the top boss at MASN, is essentially operating as the club's No. 2. (In the team's media guide, we see Peter Angelos' picture, followed by author Tom Clancy's, Foss' and then John Angelos'.)

I asked Gennaro whether, given the business changes, there's a need for today's owner to be more hands-on than in the past.

"If anything, I would probably be biased to say they're better off to have a high degree of confidence in the talent they hire and not be too hands-on," he said. "It has to do with them bringing in the right people. In an organization today, you clearly need a mix of baseball experience and business savvy."

Essentially, that means baseball folks who know how to build and mine a farm system and business folks who know how to identify and take advantage of new revenue streams.

One thing that hasn't changed about sports business - both blame and praise runs uphill. If you don't have the right talent at the top, you shouldn't expect to have it at the bottom, either.

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