OWNERS’ INTENTIONS – PART TWO

By:  Holly Horning

On Monday, we discussed how winning may not be the top priority of every owner in MLB because they all have different reasons for owning their respective teams. Check it out at: https://totallytigers.wordpress.com/2015/10/18/owners-intentions-part-one/

What motivates each owner to make or not make possible moves with his team? Even before any analysis takes place, it’s important to remember that we’re talking about an elite group of highly successful businessmen. And as such, they will almost always make decisions based upon their finely-honed business acumen.

Just because an owner has millions or billions at the ready, doesn’t mean money is no object. He didn’t get where he did by spending freely. In most cases, he made his money by making smart moves.

But yes, there are those who will take calculated risks and increase spending in order to achieve their ultimate goal. And that brings us to Mr. I.

Tiger fans should be most grateful to have this type of owner. There are too many out there who own teams which exist solely to feed egos, pockets and primary businesses.

I’ve watched once-glorious teams like the Orioles fall from grace because of a new owner who cut programs that churned out players like Cal Ripken. And after they swept the Tigers in the playoffs last year, what did the owner do? He gutted the team in order to save some bucks.

So how does Mr. I roll? Fortunately, his motives are multiple and they all support and mesh with each other – at least for now. Yes, he loves baseball and his city of Detroit. And we know that bringing a World Series to this part of the country is important to him – and part of his “bucket list.”

But there’s the financial side, too. Ilitch Holdings is comprised of 10 companies in the food, hotel, sports and entertainment industries. And they all are structured to feed off one another.

His business vision continues to grow with the monster renovation plan of 5 distinct and connected neighborhoods downtown appropriate for people to live, work and play. The plan is to create a continual massive flow of revenue.

The first part of this plan was put into play the day Mr. I bought the Tigers. Do you think it was coincidence that he owns two teams which afford fans the ability to come downtown every day of the year to see a sports game? Not to mention dine, stay or spend their money in a myriad of other venues.

But the Tigers have been a gold mine of an investment for Mr. I., too. He bought the team for $82 million and it is now worth $1,125,00 billion – the 13th most valuable team in MLB.

And proof of his devotion to the team is the reality that the Tigers have been operating at a loss for at least the past 10 years. Their operating costs have exceeded revenue. And most of this can be traced to one of the highest player payrolls in the game.

The Tigers were only 1 of 4 teams in 2014 to lose money despite having one of baseball’s highest attendance records. In their last division title year, they lost almost $21 million.

Fast forward to this year and we can only guess what Mr. I may be thinking. Certainly, he sees that the only team losing more money than his is the woeful Phillies – a team taken down by a bloated payroll and expensive long-term contracts to ageing players. And it’s got to concern him.

He’s also got to be thinking about the financials from 2015. A year that saw the team go from first to worst with an even higher payroll than 2014. Attendance figures, which comprise 40% of revenue, will be down. Overall revenue will be down which means that the net operating loss will most likely be higher than the previous $20+ million.

And he undoubtedly noticed that 8 of the 10 playoff teams this year have significantly less payroll. Statistics also show that World Series winners for the past 15 years had, on average, the 8th largest payroll. Not the third or fourth like the Tigers’. And then there’s the lesson to be learned from the Dodgers who have over $300 million in payroll.

And this all has to concern him. The Tigers took calculated risks over the past 5 years by increasing payroll, signing big name players to long contracts, trading for rentals and depleting their farm system. And it didn’t work. Now the risks are much higher so expect the Tigers to be more cautious.

What does this mean for fans? Mr. I will be more likely to refrain from boosting payroll outside of contract increases and arbitration. Al Avila said that Mr. I mentioned going near or above the luxury tax threshold of $189 million would be “pure insanity.”

They’ve got $111 million committed to just 5 players – and two of them don’t play every day. Arbitration will take payroll to near $130 million, leaving less than $50 million (a generous estimate) to spend on at least 2 starting pitchers, a closer and assorted other relievers.

And while the Tigers have a solid core of players, their greatest needs are also their most expensive ones. Will the Tigers go after big names? Unlikely. Limited payroll and an empty farm system won’t allow them. But there is another option – and one we’ll explore later during Hot Stove season.

It’s also doubtful they will go after other expensive free agent players like Yoenis Cespedes who will require a contract of at least $150 million and 6 – 7 years.

But on the positive side, the Tigers current financial inflexibility won’t allow them to trade some of the big names being speculated about in the media. And that means Miggy.

As much as his contract and injuries make people gasp, Miggy is the straw that stirs the financial drink for the Tigers. He is the primary player who puts fannies in the seats and spurs revenue. He is the franchise face and a merchandising gold mine. His jersey is one of the top sellers and the Tigers profit from all of that.

Take Miggy away and attendance will turn downward significantly. So will the revenue from ticket sales, food and concessions, parking and merchandise. Will fans turn out en masse to see JD or McCann if Miggy is traded? Uh, no – at least not this year.

So as we turn from World Series games to the Hot Stove season, keep in mind all of the above. When a trade gets made, or a player goes somewhere else, it’s all going to be based, bottom line, upon the limits Mr. I has imposed, anticipated revenue, and the value of any possible trade bait.

There’s also the potential that Mr. I realizes that 2016 will be a retooling year given the immense pitching needs. Maybe he is already looking at 2017.

But as much as he loves this team, the financial aspects will always take priority over performance-based ones. That mantra is what moved him from #122 to #88 on Forbes’ list of wealthiest  Americans last year.

6 thoughts on “OWNERS’ INTENTIONS – PART TWO

  1. A very fair and accurate assessment of Mr. I who I had the pleasure of meeting in the early Red Wings days. I firmly believe he is writing 2016 off but also believe that he will spend any amount in 2017 if he believes the Tigers will get back to the Series. I am certain he is looking for a baseball Scotty Bowman to manage the Tigers. Problem is: Are there any?

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  2. Thanks once again Holly! You have assembled a wonderful analysis of the investment links that drive Mr. Illich’s empire in addition to his personal goals for the Tigers. When I read of Don Mattingly’s release from the Dodgers yesterday I immediately wondered if Mr. Illich & Tiger executives contacted him to discuss taking over the reigns of our team. What are your thoughts?

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    • Hi, Ray – Thanks for your question. As soon as I heard the story, I knew I had my next blog. I’ll publish something lengthier than I can here on Monday. Thanks for reading – and for your question. – Holly

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  3. 2017 FA options is only a small fraction of the 2016 class in quantity and quality. Add that the farm gives Avila little to work with, addition by subtraction with the 25 man roster is the only option. They may spend a little more now to start the season, and then tweak the payroll if necessary. That TV contract needs to be watered and fed before they can harvest it.

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