Free Contracts Television

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					Major League Baseball
      Major League Baseball
 Teams  share central revenues (the national
 television contract and MLB Properties).
          MLB Television Contracts
Years Networks            Programming                         Cost
2006 - FOX       World Series; All-Star Game;         Estimated $3
2013             American League Championship         billion for both
                 Series in odd years and National     FOX and TBS
                 League Championship Series in
                 even years; up to 26 Saturday
                 Games of the Week
2006 -   TBS     National League Championship         Estimated $3
2013             Series in odd years and              billion for both
                 American League Championship         FOX and TBS
                 Series in even years; all Division
                 Series; Sunday (afternoon)
                 Games of the Week beginning
                 in 2008
2006 -   ESPN    Sunday night games                   $273.5 million in
2013                                                  2006; $293.5
                                                      million in each of
                                                      $308.5 million in
                                                      2011; $306
                                                      million in 2012-
Major League Baseball Properties
 Controls  marketing and licensing for the
  league and its teams
 Royalty revenue from licensed merchandise
  goes into the central revenue fund. The
  Commissioner distributes these shared
  revenues disproportionately to benefit
  smaller revenue teams.
 In the existing Collective Bargaining
  Agreement, this annual transfer from larger
  revenue clubs to small revenue clubs is $326
  million. This amount will continue to grow
  with revenue and changes in disparity.
         Major League Baseball
 Each  club aggregates local radio and
  television revenues (all those not in the
  national contract), ticket sales, luxury suite
  rentals, concessions, and parking (minus
  expenses) and pays 31% of this pool to the
 These revenues, which comprise the Base
  Plan, are distributed equally among the 30
        Major League Baseball
 No  salary cap; teams must pay a competitive
  balance tax on player payrolls with annual
  ($148 million in 2007) and increasing
  thresholds); penalties for exceeding threshold:
   22.5% for the first time
   30% for the second time
   40% for the third time
 Base salary amounts are guaranteed and must
  be paid regardless of performance or injury.
 A player will receive the remainder of his
  annual salary as termination pay unless he is
  picked up by another team on waivers.
 Signing bonuses are usually prorated over
  length of contract.
            Revenue Sharing
Serves as an            Serves as a
  incentive               disincentive
 Receive revenues       Receive revenues
  so they can attract     regardless of
  free agents or          whether they win
  retain their star       or lose
                         May lead to teams
 May help attract        choosing to dump
  more fans with          payroll costs and
  better quality          keep the money
                         Detract from
 Contributes to          being
  competitive             entrepreneurial
       Major League Baseball
 Allows  the public issuance of stock as long
  as the incumbent owner retains 90% voting
 Example: Jacobs’ issuance of stocks to
  general partners, while retaining 99% of the
  control as the 49% limited partner with
  limited financial risk and the opportunity to
  benefit handsomely from related party
                 Free Agency
 Within  their first six years, players (about two-
  thirds of the total) are not eligible for free
  agency (to allow clubs to recoup player
  development costs).
   About 16% of these players (with three or
     more but less than six years) are eligible for
     arbitration after three or more years.
 About one third of all players are eligible for
  free agency.
 Long-term contracts have became important to
  owners, whereas prior to free agency only
  players wanted these.
         Major League Baseball
 In arbitration, a player asks for specific salary,
  and the team makes a salary offer. This salary
  arbitration process means that the arbitrator
  must select either the player’s requested salary
  or the team’s offer as the final and binding
  amount of the contract.
 According to the Major League Baseball Players
  Association: “Since 1974, and including 2006,
  arbitrators have ruled on behalf of the players
  199 times and clubs 269 times. Although the
  number of players filing for salary arbitration
  varies per year, the majority (88% since 1990)
  of cases are settled before the arbitration
  hearing date.” (with a player usually benefiting)
        Major League Baseball
 The rise in player salaries (from about 20% to
 about 60% of revenues) during free agency is
 not attributable just to free agency; other
 factors include
  Increased broadcast rights fees
  Changes in owners (fewer individuals and
   more corporations)
  The owner who forms a limited partnership
   for financial benefits while retaining general
   partnership control has
    Status and perks of ownership
    Less financial risk should the franchise
      decrease in value or lose money
   Major League Baseball Draft
 Includes  50 rounds, with teams drafting in
  reverse order of finish
 Includes players in the United States,
  Canada, Puerto Rico, Dominican Republic,
  Venezuela, and Panama, but not other
  foreign nationals
 Players are eligible if their high school
  classes have graduated.
 If a player does not sign with the team who
  drafted him and goes to college, he cannot
  be drafted again until after his junior year.
 Almost every drafted player develops while
  playing Minor League Baseball.

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