Deep into a solo voyage in the Indian Ocean, an unnamed man wakes to find his 39-foot yacht taking on water after a collision with a shipping container left floating on the high seas. With his navigation equipment and radio disabled, the man sails unknowingly into the path of a violent storm. Despite his success in patching the breached hull, … the man barely survives the tempest. … But with the sun unrelenting, sharks circling and his meager supplies dwindling, the ever-resourceful sailor soon finds himself staring his mortality in the face. —Roadside Attractions
Like Robert Redford in the 2013 film All Is Lost, David Bell must feel at sea in a 162-game tempest with little help on the horizon. Injuries have seen the ship taking on water. Each night, there’s no idea if the radio call to the bullpen will bring aid or the disconcerting static of ineffectiveness. Bell has patched his small market yacht with players who were supposed to play supporting roles below deck (Kyle Farmer, Brad Brach, Tyler Naquin, Heath Hembree, Art Warren, Jonathan India), but have been thrust into the unrelenting sun as key players. By sweeping the St. Louis Cardinals on the first Sunday in June, then repeating that feat against the Colorado Rockies the next Sunday, by sweeping the Milwaukee Brewers in Milwaukee, then the Chicago Cubs, then following that by winning 3 of 4 games on the road against the first place Brewers heading into the All Star break, Bell had somehow avoided the circling NL Central sharks. He’s bailed and paddled his team’s way above .500. The storm ahead appears in the form of nightly seventh, eighth and ninth innings with meager supplies out beyond the outfield walls.
Measured by ERA, the Reds relief corps is 28th in baseball according to Fangraphs, 23rd in xFIP and 26th in fWAR. They’ve shown flashes of competence in the days before the break, assisted by a starting pitching staff that had lately lightened their load, but really, it’s just a thinner pig. Nick Senzel and Mike Moustakas are marooned on the Isle of Broken Toys. Eugenio Suarez has misplaced his hitting skills the way I misplace my keys. Tejay Antone, Lucas Sims, and now Michael Lorenzen are mere rumors.
But, somehow, some way, the Reds have stayed afloat. But, for how long?
You don’t need to be Tom Verducci to know the Reds need an infusion of talent to race to the top of the NL Central before the clock strikes midnight. Realistically, it’s the team’s best and probably only shot at the 2021 postseason.
But before we go there, we must talk about the money. Because no matter the subject, be it marriage, parenting, higher education, business, you name it—it always comes back to the dollar bills.
Some would like to make it black and white. It’s not. Commissioner Rob Manfred claims Major League Baseball lost almost $3 Billion during the pandemic season of 2020. Their accounting employs depreciation and amortization to do the heavy lifting required to garner sympathy for the plight of put upon millionaires. It’s all accounting sleight-of-hand, the kind that reminds me of the three card monte I used to watch in Times Square when I first moved to New York City. Only, baseball owners don’t set up cardboard box tables on the street and deal in crumpled $10 bills. They play for real money from the comfort of public-funded ballparks and take our money without so much as a wink and a smile.
What Is Amortization? Investopedia defines amortization as “an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time. In relation to a loan, amortization focuses on spreading out loan payments over time. When applied to an asset, amortization is similar to depreciation.”
In the ProPublica article “The Billionaire Playbook: How Sports Owners Use Their Teams to Avoid Millions in Taxes,” Robert Faturechi, Justin Elliott and Ellis Simani examine the ways billionaire owners of sports teams use the U.S. Tax Code to take the kind of deductions that have them playing not only less of a percentage in taxes than the players they hire, but also less than the people that work the concession stands in their venues:
In an effort to stop the endless litigation, Congress inaugurated the modern era of amortization by simplifying the rules in 1993: Under the new regime, the purchaser of a business would be allowed, over the span of 15 years, to write off more types of intangible assets. This might have been welcome news for the sports business. But Congress explicitly excluded the industry from the law.
Following lobbying by Major League Baseball, in 2004, sports teams were granted the right to use this deduction as part of a tax bill signed by President George W. Bush, himself a former part owner of the Texas Rangers. Now, team owners could write off the price they paid not just for player contracts, but also a range of other items such as TV and radio contracts and even goodwill, an amorphous accounting concept that represents the value of a business’ reputation. Altogether, those assets typically amount to 90% or more of the price paid for a team.
That means when billionaires buy teams, the law allows them to treat almost all of what they bought, including assets that don’t lose value, as deteriorating over time. A team’s franchise rights, which never expire, automatically get treated like a pharmaceutical company’s patent on a blockbuster drug, which has a finite life span. In reality, the right to operate a franchise in one of the major leagues has in the last few decades been a license to print money: In the past two decades, the average value of basketball, football, baseball and hockey teams has grown by more than 500%.
So, that’s fun.
Speaking of that license to print money, there’s this thing, MLB.TV. You may have heard of it. It was once called MLB Advanced Media, which begat another media money monster called BAMTech. When Major League Baseball sold BAMTech to Disney for $3.5 billion, Major League Baseball’s owners kept a 15% equity in BAMTech. What does BAMTech run? Oh, just Disney+ (which I gave $70 this year to for the privilege of watching Hamilton) and ESPN+.
Here’s the thing, though. Because these revenues are not considered baseball-related, they don’t count against the losses Commissioner Manfred would have us believe occurred in 2020.
As I sat in my car on a steamy Fourth of July weekend, desperate to pay anyone $20 to park within an Adam Dunn moonshot of Great American Ball Park, as I watched a Friday night standing room only crowd clog the lines to the bathrooms, wait endlessly to pay for fake cheese helmet nachos at Mexican haute cuisine prices, it wasn’t hard to see how quickly the money spigot was being turned back on for major league baseball and its owners.
FOX will extend its rights to nationally broadcast games beyond 2021, signing a contract with MLB that will pay them $5.1 billion over 7 years. That will be a 39% increase over this year’s rights fee. ESPN and Turner Networks are next as their contracts expire soon.
Let’s not forget that the owners are going to water down the postseason further, by adding more teams, while pocketing millions more in television revenue. Found money, but for them a mere amuse-bouche. Much like the $20 bill you or I might find in an old pair of pants.
The Sinclair Broadcast Group is dipping their toe into the water by attempting to raise money to start a monthly $23 direct-to-consumer subscription service in an effort to reach those who’ve cut the cord. That’s a steep price to pay considering the monthly price many of us already pay for Netflix, Disney+, YouTube, etc.
And consider this from Sportico’s article, “Sinclair Venture Steps Nearer to Unbundled, DTC Local Sports Content” regarding the impact of a direct-to-consumer model on regional sports network revenues:
“If you’re the Reds and you own 40% of [Bally Sports] Ohio, you don’t have an incentive to destroy that revenue stream or even impact it, because it has to grow every year to pay the team the contractual fee increases,”
Gee, do the Reds own 40% of Bally Sports?
We could also look at the financial sheets of the publicly-traded Atlanta Braves, as Fangraphs recently did. What we’d find is that, yes, baseball lost revenue in 2020, but as we can see from the above, the sport and it’s owners have been awash in big profits for years and the losses Manfred claims look exaggerated.
If you believe Steve Cohen made a mistake in ponying up $2.42 billion for the Mets after the Wilpons and their real estate company, Sterling Equities, paid $391 million for controlling interest in 2002, the Reds have a $19 wine slushie they’d like to sell you.
Hey, it’s not unreasonable to believe Major League Baseball lost money last season. It’s also not unreasonable to believe the league will sail through these losses in the upcoming new media years where everyone has a computer in their pockets and an insatiable desire to stream everything MLB has to offer onto their always-on eyeballs.
If the 2020 pandemic season was just a temporary halt to the gilded bacchanal that sports, in general—and Major League Baseball, in particular—inhabit at the expense of their fans, why must owners like Bob Castellini embark upon an austerity plan over what in the grand scheme of things is almost surely a momentary pause in that aforementioned money spigot?
If part of the parlor room panic is the looming Collective Bargaining Agreement—and it most certainly is—then are we talking about another problem of the billionaire classes’ own making, i.e., squeezing the Players Association for an even larger feeding at the money trough?
The prevailing opinion is that majority owner Bob Castellini, contrary to his proclamation at the time he became majority owner, is no longer committed to bringing championship baseball home to Cincinnati. To be sure, he’s spent money. The contracts to Joey Votto, Brandon Phillips and Homer Bailey before the sell off and subsequent rebuild, followed by the free agent deals to Mike Moustakas and Nick Castellanos were all encouraging signs at the time. The retreat now—just as the Reds are showing a resurgent offense, seeing several young players on the cusp, and with two top-flight pitchers in Sonny Gray and Luis Castillo who could carry a team in a postseason series—seems like an opportunity lost, the kind all those rebuild years were suffered through to get to just this very moment.
Has the principal owner of the Cincinnati Reds fully embraced a “Rays Way” model that includes a future of budget spending and reliance on off-the-rack vintage store players discarded by other teams? Are rosters going forward to be stocked with cheap, home-grown talent supplemented with former first round draft picks (e.g., Jeff Hoffman) that never quite panned-out elsewhere hired here at Costco prices?
I ask because while the Reds have cut spending between the foul lines, they haven’t everywhere. From Baseball America:
“From 2019 to 2021, seven teams reduced their scouting staffs by double-digits across all departments. The Rays and Brewers were each down by 10 scouts, the Dodgers and Giants each were down 13, the Cubs were down 20 and the Angels and Mariners were down 23 apiece.
“The decreases by those teams don’t paint the whole picture. The Dodgers and Rays, still have 71 scouts apiece, tied with the Royals for fifth in the game. The Reds, Red Sox, D-backs and Yankees each employ more than 75 scouts throughout all levels.”
If this surprises you, it certainly dovetails with the direction the organization has been moving: the money spent on the farm system under Dick Williams; the full-bore commitment to an analytic approach; the emphasis on pitching development.
On the pitching side, the Reds have increased their MiLB strikeout rate by 25%, which leads all orgs. So I guess this @DrivelineBB stuff works, @drivelinebases? Other clubs to top 20% increases: Yankees (22.8%), Pirates! (22.7%), Royals — again — (22.1%), Braves and Giants
— Travis Sawchik (@Travis_Sawchik) July 17, 2021
David Bell gets a lot of heat for his devotion to his lefty/righty matchup numbers. To wit, I’m reminded of this quote by Kevin Cash on MLB Radio, which all but screams the Reds manager: “I try not to use gut feel. If we’re using gut feel, we’re not prepared as a staff.”
But, Bell’s philosophy is surely in sync with his front office. Remember his insistence on having his office moved near the front office decision-makers’ suites just after his hiring? It certainly smacks of Rays methodology:
When asked about his relationship with the team’s front office, [Rays] manager Kevin Cash — a former journeyman catcher for teams including the Rays, Red Sox and Yankees, and who later served as a Toronto Blue Jays scout and then Cleveland’s bullpen coach — described the dynamic as “a collaboration,” noting a running conversation between the player development, scouting, front office and coaching groups, with ideas pitched — and heard — from all sides.
If only it were as easy as all that. If the Reds are moving to a Tampa Bay model, they would not be the only team cozying up to those familiar with the Rays Way. The Twins Rocco Baldelli, Derek Shelton of the Pirates, the Nationals Dave Martinez, San Francisco’s Gabe Kapler, Charlie Montoyo of the Blue Jays, and of course, Joe Maddon of the Angels, are all managers of clubs who are graduates of Tampa Bay and its philosophy. Rays alums Chaim Bloom and Andrew Friedman run big market teams with budgets that dwarf anything the Reds can fund.
That philosophy includes a hyper-intense devotion to statistics, a willingness to trade fan favorites and churn the roster, the development of players who can fill multiple roles, building depth with solid, if underappreciated players—and doing it all in service of a tight budget.
The Reds drafted several “low-risk” future major leaguers who might not have star ceilings but profile to be at least average or above-average players who could reach the big leagues quickly. These are the type of players contending teams like the Tampa Bay Rays and San Francisco Giants field on a nightly basis.
Ken Burns, speaking of his award-winning PBS series, reminded us in his own words “how we play games and the nature of immigration and the exclusion of women and popular culture and advertising and heroes and villains and our imagination and race and race and race.”
Add to that the modern baseball owner and the business of building fortunes at the expense of the fan base. If you find yourself in line at Chipotle and curse your lack of spare change for the guacamole, perhaps eating out isn’t for you. If Bob Castellini and his ownership group cannot afford to play in Major League Baseball’s Michelin 5-Star environment, why not just say “check, please” and give someone else a seat at the table?
Like Billy Beane’s disappearing small-market OBP advantage, the sabermetrics/player development model is no longer the field-leveler for the little guy it briefly was. It is now a given, the entry-level ticket that gets owners and front offices into the game. Andrew Friedman has taken his R&D wisdom and married it with all that Dodger money. The new math now is Analytics + Development + Mookie Betts and his $365M contract.
This is the reality Bob Castellini and his ownership group now face. It’s no longer enough as an organization to be smart. You must be smart AND spend, but spend wisely. Trevor Bauer was allowed to walk because even though the Reds have means, small-market vs. big-market is still a very real thing. The Yankees would indeed be hurt if Gerrit Cole turned into a pumpkin, but they would walk on. The Reds, on the other hand, would be crippled if Bauer blew out his arm after signing the contract the Reds would have had to offer to keep him from wearing Dodger blue.
As Brian Kenny wrote in Ahead of the Curve: Inside the Baseball Revolution, by the time most sought-after players approach 30 years of age and become free agents, teams are paying retail. And, as Brian says, “Do not pay retail.” That may mean locking up Nick Castellanos for the foreseeable future is a less-than-obvious decision, depending on his demands, no matter how much we believe Nick is the hero we deserve. However, money will need to be spent locking up players while they are young and under control, while their best years are ahead of them, while the Reds have leverage. That would mean first and foremost, Luis Castillo, and probably Tyler Mahle and maybe even Nick Senzel down the road if the Reds are convinced he can move past his early history of injuries.
Whether the ownership group is up to the task is anybody’s guess. In the wake of a year of empty seats and the sea of troubles a lockout may portend, Castellini decided to cut and run, rolling the dice on the team he had.
It’s been a bad bet.
With a major league shortstop and with something other than a budget bullpen, the Reds most assuredly would have been right there at the top of the National League Central. In a season where the Cubs and Cardinals have fallen back, it has been a huge miscalculation.
It’s now up to Nick Krall to find a way to improve the team in an area every contender is seeking help without getting his pocket picked, without surrendering too much future talent. He’s now fishing in a tiny pond with a dozen other poles looking to hook the same prize. That’s the unenviable position Bob Castellini has placed his most important front office employee. Godspeed, Nick.
In the meantime, Mr. Castellini can look down Mehring Way to One Paul Brown Stadium, where the most disliked sports owner in town resides. How long before that address changes to 100 Joe Nuxhall Way?