Last Dec. 14, the Braves’ bean counters and ballplayers awoke to a great rumble. Fat cat Philadelphia had just dropped another pallet of cash on a free agent, completing the purchase of a potentially epic pitching staff.
Cliff Lee, a Cy Young winner in 2008, had spurned the Yankees and agreed to take his talents to South Philly for $120 million. The rotation of Lee, Roy Halladay, Roy Oswalt and Cole Hamels suddenly loomed as the most fearsome in the game and the gaudiest example yet of the Phillies’ financial muscle.
How were the Braves — the team that used to own the National League East before being overtaken by Philadelphia in both winning and spending — to react?
“Two ways,” team president John Schuerholz said.
“One was: Oh, no, they’ve now put together as strong a pitching rotation as existed since ours in the 1990s. And that could be daunting.
“And the other was: You should expect it from them. That’s how they’re doing things now. They have the resources and they’re putting them back into the team.
“They’re very good at their craft. But, ultimately, they are beatable.”
Welcome to life just on the other side of baseball’s financial divide, a place where attitude must sometimes stand in for hard currency. Surrender in the face of such overwhelming spending is not an option.
Chipper Jones was a Brave for much of the team’s string of 14 straight division titles and just a callow youth in the mid-1990s when his team supported the heftiest payroll in the National League. Now, while Jones is trying to squeeze another season from a battered body, the Braves find themselves spending tens of millions less than what the Phillies do on talent.
Having become a member of baseball’s middle class, Jones said, “Nobody’s intimidated. We’re not afraid of any of those guys. We respect them. They’re very good at their craft. But ultimately, they are beatable.”
Spend more, win more
Money can’t buy happiness, it’s true. But it can put you on the right path to a pennant (the New York Mets notwithstanding).
You don’t have to be a sports economist to posit, as does Kennesaw State associate professor J.C. Bradbury: “There is a strong correlation between payrolls and wins. When you spend more, you tend to win more.”
With the third-highest payroll in a five-team division — at $89 million, far behind the Phillies’ $164 million lead, according to estimates from Baseball-Reference.com — the Braves are obvious financial underdogs. Yet, just eight years ago, they outspent the Phillies by 51 percent ($106 million to $70.1 million); 16 years ago, while winning the World Series, no one in their league spent more.
For a sport that so reveres numeric purity, baseball yields few exact money figures. Teams guard their ledgers dearly. Still, the trend is obvious. While the Braves have reined in payroll since their heyday, the Phillies have gone on a spending binge that has returned four straight division titles, one world championship and huge expectations this season.
Why, asks the fan who lives in Fantasy League Land, don’t the Braves just spend more? Why aren’t they ever in the market for the hottest free agent of the day?
Their big splash during the winter was signing slugging second baseman Dan Uggla, whose $9 million salary for 2011 would rank only ninth-highest among the Phillies.
Game economics
Braves chairman and CEO Terry McGuirk is happy to conduct a class on the bizarre economics of his game, in which, he said, the return on the owners’ investment is nowhere close to what they would expect in any other enterprise.
In fact, McGuirk said, “Everybody sort of manages toward zero, which is the most nutty thing in American business that I’ve ever been around.”
However, the Braves last year generated a much-improved operating income — a leading measure of profitability — of $22.2 million, up from $1.5 million the year before.
The Braves are determined to spend responsibly, said the man who has headed the team’s business operations since 2001, maintaining his role when Liberty Media bought the Braves from Time Warner in 2007.
“In 2003, we lost $39 million with the Atlanta Braves,” he said. “We managed the Braves erroneously, hoping always to spend money to capture revenue. It’s a bad way to manage.
“We spent more money on payroll from 1995 all the way through 2003, hoping to get out ahead of the winning tradition — win more games and more people would come out. What happened was that fewer people came out every year, so we had crossing curves [in revenues and expenses]. The light bulb sort of went on — we can’t get out in front of this. Spending has to be more closely aligned to what your [revenue] expectations are.”
In their 1995 World Series-winning season, the Braves spent $45 million — about half what they will this season. Yet that was more than any other National League team at the time, and behind only Toronto and the New York Yankees in all of baseball. In 2003, their salary high water mark, payroll was $106 million.
According to Baseball-Reference.com, the Braves’ estimated 2011 payroll ranks ninth in the National League and 18th overall.
Bottom-line advantage
Fans have been quick to seize on the absentee ownership of Denver-based Liberty Media as a leading cause of the Braves’ tightening payroll. Last week, Forbes magazine reported that Liberty plans to sell the Braves when its tax advantages expire next year.
“Ownership has slashed player payroll from $102 million [in 2008] to $84 million [in 2010] ... despite higher revenue,” Forbes reported.
But Schuerholz said it is coincidental that the company bought in after the Braves’ run of 14 straight division titles had crested, at a time of fewer victories and leveling attendance and revenues.
“Let’s be realistic. It has nothing to do with Liberty’s ownership,” he said. “It has nothing to do with this owner coming in and not being willing to spend cash.”
Why, then, do the Phillies now have such a pronounced bottom line advantage? When did they become the richest guys on the block?
That would be around 2004, as they moved from the drab confines of Veterans Stadium to Citizens Bank Park.
“We really thought [the new ballpark] was an opportunity to showcase our game to the fans in a different fashion than we ever had,” said David Montgomery, the Phillies’ general partner, president and CEO.
In preparation for the move, they increased their payroll by more than 22 percent in 2003 from the season before, acquiring Jim Thome, David Bell and pitcher Kevin Millwood. They bumped it up another 31 percent for their first season in the new digs, up to $93 million. It has kept spiraling upward since.
As Phillies’ ownership hoped, the fans responded. Attendance soared to 3.2 million in 2004, an increase of nearly a million from the year before. Despite an average ticket price nearly twice that of Atlanta — $33 to $17, according to 2010 Team Marketing Report — the team owns a string of 123 consecutive home sellouts entering this season. Last season, the Phillies drew 3.6 million fans, compared to 2.5 million at Turner Field. As it is goes with any other business, more customers equal more revenue — and higher value.
The Phillies are worth $609 million, compared to $482 million for the Braves, according to the latest Forbes report.
Philadelphia is experiencing the same sort of honeymoon-like period the Braves enjoyed when they moved into Turner Field in 1996.
“Fan support was phenomenal and that’s enabled us to continue to do things that, if you asked me six years ago if we could have done them, I would have said no, not possible,” Montgomery said.
Give the Phillies their due. As they have made more, they have spent more. A lot more.
Granted, throwing around money does not guarantee success on the field. The Mets, with their nine-figure payroll, are a hot, perennial mess. On the other hand, the Texas Rangers made the World Series last season, despite a $55 million payroll that ranked 27th among baseball’s 30 teams.
“There is a randomness in baseball,” said Bradbury, author of three books on money and baseball. “You can spend a lot of money and get bad players.”
Small margin for error
But a team that can spend wisely while not forsaking the development of young talent within their own minor league system has a clear advantage. Such an operation has the benefit of being able to act quickly to fill holes in the lineup and more easily withstand the inevitable attrition of a long season.
With less to spend than the Phillies, the margin of error for the Braves in personnel decisions is proportionately smaller. It is more difficult to swallow bad deals like the three-year, $23 million one for starter Kenshin Kawakami, who went 1-10 last season. And injuries — like those to Jones, Martin Prado and Billy Wagner at the close of last season — are particularly devastating on a roster restricted by payroll limitations.
“You’ve got to be on your ‘A’ game from the day you start this process to the day it end. There is not a lot of room for stubbing your toe in decision making, in team construction or economic plans that you put in place,” Schuerholz said.
Returning to the postseason as a wild card last season after a four-year absence, the Braves believe they are on the uptick again. Key to that will be a group of young, modestly compensated players, like Jason Heyward, Tommy Hanson and Jonny Venters, who make the team’s economic approach viable.
“We believe now we’re positioned to stay on the ascent,” Schuerholz said. “It has to do with scouting, with player development, with the raw product we develop and turn into major league players. We feel really good about that.”
Sports economist Bradbury agrees that there is great value to patiently bringing along talent rather than plunging into quick-fix free agency. “I figure that Heyward is worth about $14 million, but he was paid $400,000 last year. In general, the Braves have been very savvy about not saddling themselves with big free agent contracts.”
The Braves also can take comfort in the thought that no one in sports, regardless of the weight of their purse, can stay on top forever.
Philadelphia ownership will admit to as much. “Our thought process right now is that we are in a very good Phillies cycle, and we’re trying to do what we can to continue it as long as possible, knowing that there is an end in sight,” Montgomery said.
Price of success
The Phillies everyday roster is aging, with seven of eight projected regulars north of 30. Their revenue stream is maxing out.
The balky knee of second baseman Chase Utley is a concern, which is why they are giving former all-star Luis Castillo a tryout. Troubled by a sore shoulder, 34-year-old closer Brad Lidge likely will begin the season on the disabled list.
And there are big bills coming due. Noted Bradbury, “Ryan Howard is going to be paid a lot more in a few years, and I don’t think he will be worth it.”
The 31-year-old first baseman is to make $20 million a year for 2012 and 2013 and $25 million 2014-16. The 32-year-old Lee’s contract escalates, from $11 million this season to $21.5 million next season to $25 million for 2013-15.
In the meantime, the Braves accept their current limitations and take their chances.
There is a sense of defiance in the face of the Phillies’ spending that extends from the front office. “I think we’re going to do real well against the Phillies head-to-head,” McGuirk said. “I’m more concerned with what the Phillies are going to do to the other teams in the division and the league.”
To the front lines: “On paper [the Phillies] look really, really good. But you got to play the games, man,” pitcher Tim Hudson said. “Right now, without a game being played, they look pretty darn good. But at the same time, Roy Halladay might twist his ankle covering first base the first game of the year. You never know.”
The two teams will be able to compare paychecks and production soon enough. They’ll take their business models straight to the unforgiving marketplace when the Phillies come in for the Braves home opener April 8.
