Relocation? Your Team’s Not Going Anywhere

“Fear makes the wolf bigger than he is.” – German Proverb

On Sunday, March 25, The Kansas City Star ran several articles regarding two upcoming referendum votes for stadium improvements to the Truman Complex, which is comprised of Arrowhead Stadium for the Chiefs and Kauffman Stadium for the Royals. In an article by Randy Covitz entitled “Other cities would line up to woo Chiefs, Royals”, Covitz wrote:

Imagine the Portland Royals. Or the Charlotte Royals. What about the Los Angeles Chiefs? Or Anaheim Chiefs?

Those are among the cities that have their eyes on Kansas City’s major league teams if Jackson County voters do not approve an April 4 sales tax measure that would help fund renovations at the Truman Sports Complex.

Without the improvements at Arrowhead and Kauffman stadiums, the county is expected to default on the leases in 2007, freeing the Royals and Chiefs to leave town.

Kansas City residents went to the polls on April 4, and with many a voter dwelling on the word “relocation,” they cast their votes and passed a 3/8 cent sales tax to pay for the bulk of renovations to the Truman Complex. The final vote was 53% yes to 47% no, close enough where the veiled threat of relocation could have held the day for the Royals. The Royals are staying put in Kansas City, but then were they ever really going to leave?

The threat of relocation has been used by clubs and politicians before and will probably be used in the future. But are there really any realistic relocation candidates at this time? When the Expos were relocated to D.C. and renamed the Nationals, would MLB really have pulled up the team after a year playing in their new home if a sweetheart stadium deal didn’t come through, given the club was going to be sold for $450 million? Can not only the Royals, but the Marlins, Twins, and A’s use this mantra, “Pay up, or we’ll be forced to look at other options,” to good effect? Can they pack up and go to Portland, San Antonio, Norfolk, Charlotte, or Vegas at this time?

The answer is pretty much no, and here’s why.

When MLB awarded the Expos to D.C., the owners lost their last best leveraging city. All the markets left are, at best, small to mid-market with most of them falling into the former. While all things can change—with political winds shifting on a dime over the course of a vote in selected relocation cities—as it stands now, these teams clamoring for new stadiums (borne on the back of heavy public subsidy) are threatening their home cities with an empty gun.

Let’s look at the franchises that have used the veiled threat of relocation in one form or another, and I’ll then follow up with the relocation candidates that these franchises might explore. But before that, we need to set the stage…

MLB’s Flush With Cash

When MLB purchased the Expos in 2002, they were in a much different state financially than they are today. We can argue and speculate as to the actual levels of financial disarray that Bud Selig touted in front of Congress at the time, but there is little doubting that MLB was in a more depressed state than it is now, and threats of contraction in 2001—either real or of the straw man variety—point to at least the appearance of a sports business that was more “red” than “black” at the time.

With that, threats of relocation tended to seem more reasonable. It certainly seemed more realistic to a number of markets that wished to land an MLB club. While the Expos were the main prize, many other smaller suitors, such as Portland, saw more than one chance at the Brass Ring. If not the Expos, then the A’s, Twins, Marlins, or Devil Rays would be coming up for relocation should the Expos land in D.C.

Well, the Expos did land in D.C., and the other clubs clamoring for new stadiums are still trying to fund and build new facilities. The difference is the economic landscape of MLB now, compared to then.

At this point in time, MLB is on extremely solid footing. Revenues and profits are up substantially, and with that, there comes less urgency for clubs to have to seriously consider relocation. After all, those clubs that have mentioned or acted in a manner that would lead to relocation would be foregoing their larger home markets for smaller untested markets. When times are good, as they are now for most all the clubs, why risk it? Yes, they say, but we can’t be competitive. We’re bleeding red trying to compete in facilities that don’t generate sufficient local revenues. Well, to that I say, look at how much money the current revenue sharing system is distributing to these clubs.

The Royals, that club that could have relocated if improvements to Kauffman were not made, pulled in a reported $55 million in revenue sharing last year. Who paid the most into the system? The Yankees with an estimated $77 million payment. After I looked into the Forbes valuations, five of the bottom 10 clubs gained the most in value from last year to this. In the case of the Royals and A’s, their values went up by over 20%.

So, are clubs desperate without new stadiums? Will they collapse in their host cities and be forced to relocate? Let’s see what these clubs are looking for.

The largest factor for any MLB club in terms of local revenues is not attendance, but rather television broadcast revenues. To outline where clubs talking are at, and where they might land through relocation, I provide the Designated Market Area (DMA) Ranking for the markets as provided by Neilsen Media Research, along with the total television homes within that market.

Also, I’m providing a short recap of where stadium funding is at with these clubs, and what the expressed or implied threat of relocation is, as well as some points of interest that factor into the discussion.

Twins

Population based on the 2000 census (Minneapolis-St. Paul, MN-WI MSA): 2,968,806 (Rank 15th)
Minneapolis-St. Paul Designated Market Area (DMA) Ranking: 15th (TV Households: 1,652,940)

Length of time working on new facility: 1997

Where are they at on the new facility front? On Thursday of last week, the Minnesota House Taxes Committee backed the Twins’ effort to avoid a Hennepin County referendum on a sales tax that would finance three-quarters of the team’s $522 million ballpark project in the Warehouse District of downtown Minneapolis.

The relocation threat: In February, a District Court ruled that the Twins’ lease was year-to-year, and the team could vacate the Metrodome at the end of the 2006 season.

Points of Interest: Twins owner Carl Pohlad is the richest owner in all of MLB. He is ranked as the 282nd richest man in the world. The Twins were ranked second-to-last in franchise value by Forbes’ most recent valuation rating. Forbes reports that although the Twins received substantial revenue sharing, their operating income was -$500,000 for last year.

Marlins

Population based on the 2000 census (Miami-Fort Lauderdale, FL CMSA) 3,876,380 (Rank 12th)
Miami-Ft. Lauderdale Designated Market Area (DMA) Ranking: 17th (TV Households: 1,522,960)

Length of time working on new facility: 1997

Where are they at on the new facility front? After a deal to build on land next to the Orange Bowl came up $100 million short, the Marlins have been stalled in the Miami area. In South Florida, there have been in talks with Hialeah, which just made a large area of land available that had been outside the “Urban Development Boundary” and therefore unavailable for business development.

The relocation threat: The Marlins officially requested permission from MLB to explore relocation in November 2005 and were granted that request. Since that time, Marlins officials have visited several cities and are in conversations with others as well. The list includes Charlotte, Portland, Norfolk, and San Antonio. On San Antonio, the Marlins have been working closely with Bexar County Judge Nelson Wolff on possible relocation.

Points of Interest: The Marlins slashed Opening Day payroll by $45,410,334 from the year prior to $14,998,500. This drop represents a 75.17% decrease from 2005. The reason given by the Marlins? Inability to work within a stadium facility that will allow them to control revenues.

A’s

Population based on the 2000 census (San Francisco-Oakland-San Jose, CA CMSA): 7,039,362 (Rank 15th)
San Francisco-Oakland-San Jose Designated Market Area (DMA) Ranking: sixth (TV Households: 2,355,740)

Length of time working on new facility: 1996

Where are they at on the new facility front? The A’s have been looking for a new facility ever since the construction of “Mt. Davis,” the name given to the addition of 10,000 seats to McAfee Coliseum. Since Lewis Wolff purchased the club, the talks with Oakland have been of the non-productive variety. Wolff seeks to develop more than a ballpark; he wants to develop a ballpark village comprised of mixed-use development to offset stadium construction costs. Currently, the ability to meet that criterion comes not from Oakland, or as some had speculated in San Jose (regardless of the territorial underpinnings as it pertains to the Giants), but rather Fremont, which is still within Alameda County, deemed “Oakland Territory” by the MLB Constitution. To add to this deal, the large area of land being looked at for the ballpark village and stadium is controlled by one land owner, Cisco Systems.

The relocation threat: The A’s year-to-year lease expires in 2007, although talks of extending the lease “to at least 2010” are occurring.

Points of Interest: Lewis Wolff is a change from the prior ownership of Schott and Hoffman. Prior owners seemed content to let things move at their own pace, while Wolff has actively worked on a new facility. Wolff served as VP of Venue Development during the Schott/Hoffman era.

Relocation Cities

Below are profiles on possible relocation cities

Portland

Population based on the 2000 census (Portland-Salem, OR-WA CMSA): 2,652,232 (Rank 23rd)
Percentage of increase between the censuses: 26%
Portland, OR (DMA) Ranking: 23rd (TV Households: 1,099,890)
Number of Fortune 1000 Corporations: four
Number “Big-4” franchises currently in market: one (Trailblazers)
Number of other professional sports: Lumber Jax NLL – Lacrosse

Pros: When the Expos were awarded to D.C., Portland became the largest city without an MLB franchise. At 2,2652,232 Portland is ranked as the 23rd-largest market in the US growing 8.63% between the censuses.

In 2003, at the height of the Expos derby, the Oregon Legislature passed Senate Bill 5, which would allow Oregon to earmark any of the income taxes paid by home and visiting players when they played in Oregon. This method also reached to front office personnel for the home team. The total figure for this funding method is capped at $150 million and has no sunset provision. They also worked up a comprehensive vetted framework to complete the deal, which could act as a launch point.

Portland also has a good interim facility in PGE Park, which could be expanded to 25,000 while a new stadium was being built. Portland was in the running for the Expos.

Cons: Portland is butted up against several issues that have stalled the effort there. The largest of these issues is that Mayor Potter has been dead set against any discussions regarding public subsidy of a new facility. This stance is based in part on a continued crisis involving education funding dollars in the Portland area and the NBA Portland Trailblazers’ request for public assistance. In the case of the latter, Paul Allen has met with Potter, and there is speculation that the sale of the franchise could be in the offing.

The Skinny: Given these factors, the Portland effort has opted to wait out the issues facing education funding and the Blazers—biding time, as it were. When asked about how integral government participation is in a relocation/expansion effort, and if it is obstructionist in nature, how effective the Portland effort can be at this time, Drew Mahalic, CEO of the Oregon Sports Authority said:

Government involvement is integral, and it can take form in a number of different ways. The fact that the state legislature and Governor [Ted] Kulongoski stepped up with a commitment of up to $150 million in financing is a major first step—one that separates Portland from other candidates. The potential relocation of a team is always going to have some aspects that are controversial, both in the team’s current locations and in each of its potential locations. There’s a necessary educational process that occurs in each locale—details of the public involvement, appropriate safeguards, the economic and cultural benefits, etc. That process continues here in Portland and we are optimistic that it will prove successful.

To add to this, the dollars associated with SB5, the state funding that earmarks the state income taxes of players and executives, must be associated with a third party guarantor. While there are different scenarios for the guarantor (ownership, naming rights, seat lisences are some), if guarantor were to be coupled to Portland in some fashion, (and as the law is worded, the stadium can only be placed in Portland, not an outlying county), then dealing with Mayor Potter may come into play with this issue, as well.

Charlotte

Population based on the 2000 census (Charlotte-Gastonia-Rock Hill, NC-SC MSA): 1,499,293 (Rank 34th)
Percentage of increase between the censuses: 29%
Charlotte, NC (DMA) Ranking: 27th (TV Households: 1,020,130)
Number of Fortune 1000 Corporations: 13
Number “Big-4” franchises currently in market: 2 (Bobcats and Panthers)

Pros: The Twins flirted with the idea of relocation to Charlotte in 1998. Local lawyer Jerry Reese has proposed a funding scheme that is largely based on private financing (details not given) for a $600 million facility.

Cons: Small market coupled with over saturation of professional sports options (NFL Carolina Panthers and NBA Charlotte Bobcats).

The Skinny: While Charlotte has been on the list for the Twins, mostly as a stalking horse, and mentioned as a possibility during the Expos’ relocation derby, the market size, coupled with two other pro sports franchises makes Charlotte an extreme long shot. As Charlotte Mayor Pat McCrory told the Charlotte Observer, “We’re not ready. If [the Marlins] see the same numbers we have, you question why they’re interested. I want to make sure we’re not being played.”

San Antonio

Population based on the 2000 census (San Antonio, TX MSA): 1,592,383 (Rank 30th)
Percentage of increase between the censuses: 20.2%
San Antonio, TX (DMA) Ranking: 37th (TV Households: 760,410)
Number of Fortune 1000 Corporations: five
Number “Big-4” franchises currently in market: 1 (Spurs)
Number of other professional sports: two (Texans – CFL Football; Missions – Double-A Texas League baseball)

Pros: Growing market, and political leadership willing to push forward and negotiate with the Florida Marlins. Interest from prominent local entities wishing to invest in an MLB team in San Antonio ranging from Nolan Ryan to billionaire BJ “Red” McCombs to the San Antonio Spurs

Cons: Small market with concerns related to impacts to Astros and Rangers broadcast territories. The cost of the stadium has been pegged at $310 million, which many analysts predict will be far short of the actual cost. No interim facility for a team to play in while an MLB-ready stadium is constructed.

The Skinny: Bexar County Judge Nelson Wolff has been spearheading an effort to lure the Florida Marlins to San Antonio. He has proposed a deal in which an extension on hotel/motel and rental car taxes used to help finance the Spurs’ AT&T Center would be placed before the voters. If passed it would generate $200 million towards the stadium construction, Wolff has said. The San Antonio baseball effort has been aggressive, to the point of Jeffery Loria inviting Wolff, San Antonio Mayor Phil Hardberger and District Attorney Susan Reed to take in Opening Day at Minute Maid Park in Houston. There’s a catch in this deal, however.

Wolff wants the Marlins to sign a Memorandum of Understanding with San Antonio stating that the Marlins will only negotiate with San Antonio and no other markets (outside of South Florida) regarding relocation. The Marlins have stated that MLB would have to approve of such a deal. As of late, the San Antonio effort has tried to play a little hardball. Bexar County officials are giving the Marlins until May 15 to accept their offer, or the deal’s off the table. As Precinct 3 commissioner Lyle Larson said to the San Antonio News-Express, “It definitely looks to me like they are using us to leverage a (stadium) deal in Florida,” Larson said. “I say that because I’ve seen their owner on national TV on two different occasions saying his preference is to stay in South Florida. He’s not mentioning us.

“It’s like we’re a boy who’s asked a girl to the prom and she says, ‘I’d love to go with you, but I’m waiting on another boy to ask me. If he doesn’t accept my offer, then I’ll get back to you.’ We shouldn’t have to sit by the phone like that.”
Of all the relocation candidate cities, San Antonio has been the one market that has been the most aggressive as of late in trying to lure a team (specifically the Marlins). By May 15, we’ll see if the San Antonio effort for the Marlins takes off or dies before ever starting.

Norfolk

Population based on the 2000 census (Norfolk-Virginia Beach-Newport News, VA-NC MSA): 1,569,541 (Rank 30th)
Percentage of increase between the censuses: 8.8%
Norfolk-Portsmth-Newpt Nws (DMA) Ranking: 42nd (TV Households: 704,810)
Number of Fortune 1000 Corporations: 4
Number “Big-4” franchises currently in market: 0

Pros: Worked aggressively during the Expos’ relocation derby, and local baseball boosters claim to have a funding proposal that is attractive to any relocation candidate (read: low ownership equity component). The funding model is designed with rebates of state and local taxes generated on site and also with revenue streams—a portion of the city’s meals and hotel taxes—already dedicated for a major sports facility. Norfolk also has an interim facility in Harbor Park (to be expanded from 18,000 for MLB purposes), while a new facility is built. Was in the running for the Expos.

Cons: Norfolk is still deemed a small market. Also, since the Expos relocated to D.C., there have been concerns that Norfolk is too close in proximity to the D.C. This is in part due to the thorny issue of how Baltimore Orioles owner Peter Angelos and MLB had to negotiate the deal to place the Expos in D.C. A team in Norfolk would complicate that matter.

Las Vegas

Population based on the 2000 census (Las Vegas, NV-AZ MSA): 1,563,282 (Rank32nd)
Percentage of increase between the censuses: 83.3%
Las Vegas Ranking: 48th (TV Households: 651,110)
Number of Fortune 1000 Corporations: 7
Number “Big-4” franchises currently in market: 0

Pros: Las Vegas is the fastest growing city in the U.S., and the city claims over 2 million visitors a year. Mayor Oscar Goodman has been a tireless advocate for a professional sports franchise in Vegas. Market would be a magnet for corporate purchases of suites and long-term season ticket packages given Vegas’ entertainment factor. Was in the running for the Expos.

Cons: Baseball on the books in Vegas is the biggest hurdle. MLB initially said that times may have changed, but when the Marlins started actively looking at relocation cities, MLB put the kibosh on Vegas. MLB President Bob DuPuy told the Marlins that Las Vegas is one market that they cannot explore due to gambling concerns.

The Skinny: Oscar Goodman has been pushing for an MLB team since the Expos relocation derby, to the point of bringing showgirls and an Elvis impersonator to the Winter Meetings. Reggie Jackson has said he has interest in bringing a club to Vegas as well. The market is growing at an unbelievable rate, but the DMA size is the smallest of all the markets being discussed for relocation, with a ranking of 48th. In other words, outside of Las Vegas proper, there’s little more than scrub brush.

When coupled with the gambling issue, Vegas is still a ways off, although many believe it is simply a matter of time before a professional sports franchise calls Vegas home.

How Population and Television Territories Impact Relocation

Now that you have read through the data as it pertains to the markets that currently have clubs that have been considered possibilities for relocation, a look at the DMA and population paints a picture as to why relocation at this time would have to come with a sweetheart stadium deal, and even then, it could be debatable.

Below is the DMA data presented in graph format, with existing markets with MLB where relocation has been discussed, along with possible relocation candidates.

As the graph illustrates, television households drop considerably from the markets that a franchise currently is in, to a possible relocation markets, dramatically in some cases. We’ll touch more on television territories in a minute, but first let’s just talk about pure population.

As the graph illustrates, the DMA and population can be different. In some cases, the markets have divergent population to television numbers.

On population figures: If there is one area of contention when discussing markets it is how their populations are represented. In these cases, how a market is represented can be a case of multiple cities comprising what is deemed to be a metropolitan area.

For this discussion, however, we’re not going to split hairs. As the graphs and numbers illustrate, no matter how you slice it, market size would be a considerable downgrade for all the franchises that might relocate.

It should be noted that in the case of San Antonio, there has been talk of tapping into the Austin market, which would bolster the market size discussion for San Antonio. The city’s baseball boosters argue that San Antonio and Austin residents are more “commuter friendly,” and therefore tapping an outlying market, such as Austin, will minimize the small market concerns.

Television territories come into play in all the markets, to a certain extent. The U.S. is split up by all the MLB clubs, with many of them sharing areas. When local television revenues come into play, there is most assurdedly a compensation component involved, as was brought fully to light over the relocation of the Expos to D.C., and the indemnification package that included an RSN within it for Peter Angelos.

On MLB’s television territories: I haven’t seen the map as it relates to these territories, and let me tell you, not many outside of MLB owners and executives get the luxury, as well. Those that I have spoken with that have seen it are bound by non-discloser agreements, and therefore any details are impossible to get.

That said, Dan Werr of Baseball Think Factory did a fascinating research project as it pertains to MLB broadcast areas. Dan has allowed me to use this map to outline why relocation is so difficult given these broadcast territories. (I delve into this further, and a larger map can be accessed at the link provided.)

As the map shows, relocating a club to any of the possible relocation markets would land them in another franchise’s broadcast territory. For Portland, it would be in the Mariners’ broadcast territory, although if a franchise were to broadcast to the lower part of Oregon (which it would undoubtedly do), the A’s and Giants come into play, as well.

As for San Antonio, they would need to deal with the Astros and Rangers. This is something that Marlins President David Samson already has latched onto. As Tom Orsborn of the San Antonio Express-News reported:

(Stadium) naming rights, suite deals, season-ticket ticket sales, corporate support—without all of that there is no franchise,” Samson said. “But TV revenue is the engine that keeps the train rolling.”

But Samson also said it has been difficult to determine how much television revenue is available in San Antonio because it doesn’t know what kind of territory MLB would carve out for the team. Wolff said the Marlins are considering asking MLB to include northern Mexico in the equation.

“The stadium deal we’ve offered will work fine and the economic forecast for San Antonio is favorable,” Wolff said. “The two big unknowns are the media piece and what kind of territory MLB would give.”

So, when discussing relocation, a compensation element is involved as a relocating club would need to “carve out” a television territory out of an area already occupied by one or more exisiting franchises. This too becomes a key factor in the relocation discussion.

Conclusions

When looking over this research, it becomes clear that relocation for franchises, at this time, is not favorable. The economics of franchises in existing markets is much better than the last time a serious discussion on relocation occurred, which places less stress and strain on clubs to force themselves into changing markets.

As for those that are looking for MLB through relocation or expansion, maybe the man that I worked with during the Expos’ relocation derby in Portland has some insight.

David Kahn headed the Portland effort at that time, was the general manager of the Indiana Pacers, and now owns four NBA D-League teams in the Southwest. I asked Kahn, given MLB’s current state of well being from a financial perspective, if clubs are less likely to realistically explore relocation given the fact that in all cases, franchises would be jumping from far larger markets to smaller ones, such as Portland and San Antonio. As Kahn said:

Of course. In a nutshell, that’s why D.C. landed the Expos—as soon as D.C. said it was willing to finance a baseball stadium, [Portland’s] effort was over because of the disparity in market size.

Having said that, it’s important to note that cities such as Portland can lure a team from a larger market (such as Oakland), but only if the team being relocated is convinced it will make its franchise more secure (and increase its valuation) through a new stadium’s revenue streams and a sweetheart lease deal. Any efforts to redirect those revenue streams into a finance plan are non-starters. That’s why the plan [Portland] crafted with former Mayor Katz was an excellent starting point: it assumed the relocated team would capture all the stadium revenues (aside from user fees) and, for all intents, be a single tenant in a new facility. Not a bad deal.

And that outlines it in a nutshell for all the candidates, and why it can be politically messy.

Relocation only comes with a stadium tied up in a shiny bow. Given the fact that more and more municipalities are latching on to the facts that I outline, they see that providing heavy public subsidy as not favorable, nor possibly needed. With that, MLB clubs will, most likely, continue to reference relocation in one manner or another, and work to try and get funding in their current markets, the relocation threat ever present.

So, for you fans of the franchises that have been discussed here today, remember: your team, at least for the time being, isn’t going anywhere. Not, at least, when markets are, for the time being, not offering up enough to make it attractive. As I said, clubs may be threatening, but the gun’s not loaded.

References & Resources
Nielsen Media Research Local Universe Estimates (US)

Ranking Tables for Metropolitan Areas: Population in 2000 and Population Change from 1990 to 2000