9. Toronto Blue Jays Build, boom, and bust! That’s the quickest and simplest way to describe the fortunes of the Toronto Blue Jays. The Blue Jays have existed for 28 years (1977 to 2005), and when you look at their history in terms of team performance and fan attendance you’ll see that they have definitely gone through a business cycle. Currently, the Blue Jays (specifically) and Major League Baseball (generally) are facing tough economic times, and the game is suffering. Fan interest is waning, largely due to escalating payrolls and labour disagreements between players and owners. The attitude of extremely well-paid players and the arrogance of extremely rich owners toward the fans have negatively affected fan participation at games. Lower attendance around the league indicates that fans are tired of paying high prices to watch a failing product. Over the past five years (1999–2003), total league attendance has been virtually flat. See Figure 1 for details. Baseball Economics The rich are getting richer and the poor are getting poorer. That’s one way of looking at baseball’s present situation. Another version of the same premise has rich owners paying whatever it takes to build a winning team while other owners follow a business model that places an emphasis on cost control and profit. It seems that the former rather than the latter produces the best results, at least in terms of attracting people to the ballpark. As well, exceptional teams like the New York Yankees and Atlanta Braves, both consistent World Series participants, tend to have it both ways. Major League Baseball Commissioner Bud Selig insists baseball is in trouble. His solution is to reduce the number of teams if the economic situation isn’t corrected. The plight of the Montreal Expos has been a sore spot for the league since 1996. Would the team stay in Montreal, move, or simply be dropped from the league? At the end of the 2004 season Selig finally confirmed that the Montreal Expos would move to Washington D.C. for the 2005 season. Over the past two decades, baseball has been hindered by labour strife. While each round of negotiations (eight rounds in total) can be viewed separately in terms of success and failure, the impact on the public has been cumulative and negative. The sentiment of many fans is “Go on strike again and I won’t be back.” The last strike occurred mid-season in 1994, when the players, anticipating an attempt by the owners to unilaterally impose a new contract, went on strike. There was no World Series that fall, and the owners began spring training in 1995 with replacement players. Later that year sanity prevailed and a settlement was reached. Attendance dropped 19 percent—but if Cal Ripken hadn’t been chasing Lou Gehrig’s iron man record for consecutive games played, it could have been much worse. It wasn’t until 1998, when Mark McGwire and Sammy Sosa staged their dramatic home run–hitting spree, that attendance levels—and TV ratings—began to come back. Copyright © 2007 Pearson Education Canada 1 The Commissioner is probably right when he says the system is in serious need of repair. But, as the representative of the owners, his view is biased; it is the owners who continually pay exorbitant salaries to free agents and then cry wolf about not making any money. If the money is on the table, the players are going to take it. Both professional football and basketball have a salary-cap system in place whereby teams cannot exceed a total team salary figure. In principle such a system keeps the league competitively balanced. The assumption, however, is that all teams pay the cap. To demonstrate how things are out of whack, teams such as the New York Yankees, Boston Red Sox, Atlanta Braves, and Los Angeles Dodgers have payrolls of more than $100 million. The Yankees lead the pack at $180 million (all figures are for 2003), and they have been to the World Series for three consecutive years. There is no problem with fan interest and attendance in the Big Apple. Other teams such as the Arizona Diamondbacks, Seattle Mariners, San Francisco Giants, and Philadelphia Phillies spend $80 to $90 million on salaries, and with the exception of the Phillies have proven to be competitive teams from year to year. The lower echelon that includes the Toronto Blue Jays, Pittsburgh Pirates, Kansas City Royals, and Oakland Athletics is in the $50- to $60-million range. The Tampa Bay Devilrays have the lowest payroll, at $31 million. Alex Rodriguez, former shortstop of the Texas Rangers and now New York Yankees, makes $24 million a year himself— further proof that the salary scales are out of whack. Major League Baseball has imposed a luxury tax on any payroll that exceeds $98 million a year. The taxes that are collected go into a pool that is used for revenue sharing among the poorer teams. This system doesn’t seem to be working, and rich owners are tired of subsidizing their poorer brethren. Blue Jay Economics Over the years, the Toronto Blue Jays have been one of the stronger teams financially. They have approached the salary situation from both ends of the spectrum. In good years, when the team was winning, they paid a high price to attract free agents. The payroll was as high as $70 million in the early 1990s when the team won the World Series championships. At the same time the team led the major leagues in attendance, cracking the 4-million mark for three consecutive years (1991–1993). More recently, the team has exercised fiscal policy (or sanity). In 2002, the Blue Jays weren’t doing that well on the field so they traded away some high-salaried players to save money for the future. Rather than emphasizing star players, they are focused on developing young players and building from within. In the short term, the team continued to lose more than it won, but midway through its five-year development plan the team showed encouraging signs of improvement. Whether the fans will continue to support such a plan is questionable. Copyright © 2007 Pearson Education Canada 2 The Club’s Owners—Rogers Communications Rogers Communications is a national communications company engaged in cable television, wireless communications, media communications, high-speed Internet access, and video retailing. The Rogers Cable network is Canada’s largest cable system with 2.3 million customers, serving approximately 75 percent of homes. Rogers AT&T Wireless offers a complete range of wireless solutions including digital PCS, cellular, advanced wireless data services, and one- and two-way messaging services. Rogers Media operate Rogers Broadcasting and Rogers Publishing. Rogers Broadcasting embraces major- market radio stations, multicultural television stations, a regional sports network (Rogers Sports Net), and the Shopping Channel. Rogers Publishing produces well-known consumer and trade magazines such as Maclean’s, Chatelaine, Flare, and Canadian Business. All print media have their own websites. The Toronto Blue Jays operate out of the Rogers Media division. Rogers Communications posted revenues of C$5.6 billion in 2004 and an operating income of C$644 million. However, non–operating expenses have a considerable impact on the overall financial situation. Net income before taxes was only C$70.2 million. Refer to Figure 2 for more details. Rogers Media Division and the Toronto Blue Jays The media industry in Canada has changed drastically in the past five years. Media convergence has taken place, producing a market that is virtually controlled by three media empires: Bell GlobeMedia, CanWest Global, and Rogers Communications. When the Toronto Blue Jays were acquired in 2000, Rogers saw a good strategic fit. The Blue Jays would be a headline property that could be promoted and broadcast by its radio and television stations. The team would make money, and the broadcast outlets would make money by selling advertising. However, the on-field performance of the Blue Jays has not met with fan or sponsor expectations. Advertising revenue has fallen short of expectations and television ratings have declined each year since Rogers took control of the team. Poor television ratings translate into less revenue generated from television advertising. Owning content in targeted niches is an element of Rogers’ business strategy, and sports content is no exception. The Toronto Blue Jays and anything else that Rogers owns can be promoted from within through two durable mediums: broadcast and print media, and stadiums. The Jays are promoted heavily on Rogers Sports Net and radio station 590 The Fan in Toronto, an all-sports talk station. The Blue Jays also struggle financially because of the Canadian dollar. Revenue is earned in Canadian dollars but players are paid in U.S. dollars. For operating purposes the Jays benefit when the Canadian dollar is high relative to the U.S. dollar. On an annual basis the Blue Jays generate about $130 million in revenue from all sources but operate at a loss each year. Refer to Figure 3 for details. Copyright © 2007 Pearson Education Canada 3 Rogers is working with the league to address the economic issues, and its goal is to make the Blue Jays a profitable franchise. As a key move in that direction, the club hired a new general manager, J. P. Ricciardi, three years ago. Ricciardi had a strong track record of building a winning baseball franchise on a modest budget. Most of his experience was gained with the Oakland Athletics organization. He developed and is in the process of implementing a five-year plan for the club; the past year (2004) was the third year of the plan.