Long-term CBT considerations on 2025 roster planning

Alex Speier on the Reddit AMA: "-Largest contract the Sox hand out this offseason.... Whew. Lotta variables. But the team's urgency is such that I'd expect there to be a $100M+ deal this winter." Jack Flaherty you are a Boston Red Sox!

I believe them that they're willing to be more "aggressive." But they've had some weird assessments of contracts the last few years though: Yoshida's deal, offering Imanaga 2/$26M, apparently thinking Yamamoto's price would be lower. Julian McWilliams had an anecdote right after Chaim got fired about negotiating with Kevin Gausman and Chaim earnestly offering something that the agent had to be like, "Where are you getting your numbers from?" If they end up surprised at how much some of these guys this free agency cost this time around, that's a red flag.

If we're now defining a mega-deal as any very long (9+ year) contract, there have only been about 16 mega-deals given out this century (not counting extensions for very young players like Witt and Julio Rodriguez). And one of them was the Red Sox with Devers. Only the Dodgers, Yankees, Phillies, Padres, and Rangers have given out more than one.

The stark reality is they're not a "Tier 1" media market.  Consider:

Boston's market size is 4.9M, ranked 15th in the MLB.  This is the key measure that constitutes media market size, along with population of outlying / regional areas.  The NY teams enjoy a massive market size advantage (19.5M+), followed by the LA (12.8+) and Chicago (9.3+) clubs.  In the traditional media revenue model, media providers' revenue are driven by the number of subscribers x a per-subscriber fee.  For example, let's say NY's distribution providers (e.g., Spectrum, Optimum, etc) have a combined subscriber base of 6M.  YES network negotiates a fee of $6/subscriber/month.  That would add up to $360M (from which they would distribute x% to Nets and Liberty, as well as to YES investors -- NYY only owns 20%).  Without question, there are more subscribers "paying" for channels carrying YES, SNY, SportsNet LA, Marquee Sports than are paying for NESN.  So BOS is NOT a tier 1 media market.  It's probably closer to middle of the pack.  

But let's reconcile to revenue:

Per Forbes' (granted, they're estimates, but I imagine they invest considerable time and effort in developing a methodology that paints a directionally accurate picture), the Sox revenue in 2023 was $500M, 4th in MLB overall, trailing NYY ($679M), LAD ($549M), and CHC ($506M).  Based on that, we might say they're competitive with the tops teams, but let's dive under the hood.  TV revenue makes up the largest component of team revenue, and BOS comes in 8th place at $188M (local media rights of $97M + national TV revenue of $91M, evenly allocated to all teams) and in household viewership.  Teams ranked 1-7 include:  LAD ($287M), NYY ($234M), PHI ($214M), LAA ($203M), ATL/SEA (both at $191M), and CHC ($190M).  To put into perspective, the difference in TV revenue between BOS and NYY is more than the difference between BOS and OAK.

Next largest revenue item for most teams comes from gate receipts, and BOS ranks 4th at $186M, trailing NYY ($284M), HOU ($232M), LAD ($211M), and CHC ($194M), but there's some needed context here, as well.  BOS attendance ranked 10th overall (88% of capacity), but the avg ticket price ranked 3rd highest at $70, behind NYY ($84) and HOU ($76).  Fenway has the fifth smallest capacity of all MLB parks, so room to grow gate revenue appreciably relies on pricing, though maximizing the number of butts in those few seats could add, at most, another $20M.

Back to TV revenue (and here's the biggest issue of all, IMO):

20/30 teams get local media rights revenue from contracts with RSN's.  The remainder (co-)own their own TV platform (e.g., SOX - NESN, NYY - YES, etc).  The RSN model offers fixed contracted revenue to the team, with the RSN looking to leverage higher margins through their own operating effectiveness.  This provides relative cash flow certainty through the horizon of the contract (except in the case of situations like Diamond bankruptcy).  The latter model appeals to some owners since they believe they can shelter a portion of their property's revenue from revenue sharing obligations, but this orientation is subject to downside risk, too.

Here's the rub and how it affects BOS long-term:

It would appear, as evidenced by Diamond bankruptcy and publicly available information due to bankruptcy court filings, that actual RSN revenues have substantially underperformed market expectations that were the basis of the RSN contract valuations; hence, bankruptcy-driven renegotiations.  This surely isn't isolated to the Diamond markets.  Macro factors, such as cord cutting and emergence of competitive alternatives (e.g., streaming platforms), have impacted revenue and profitability of the traditional TV channel.  This has to be affecting owned platforms, too.  Thus, seduced by the upside potential of owning media distribution, teams that are more vertically integrated are paying for not having a fixed contract they can rely on.  Conversely, LAD secured an $8.35B contract with Time Warner Cable* (now Spectrum) over 25 years.  Unless Spectrum goes the way of Diamond and files for bankruptcy, they're on the hook for that over the remaining 14 years of that deal.  $8.35B averaged over 25 years comes to $340M annually, but LAD only received $196M in 2023, suggesting that the revenue schedule is backloaded (which make sense), so fees are set to escalate all the way through 2038.  Revenue sharing rules stipulate that 48% of local revenue is aggregated and then evenly shared among all teams, so LAD is not likely to get all of that, but the enormity of that contract, and the escalating fee schedule ensure that LAD will have a guaranteed revenue stream that is so much higher than every other team, and is relatively sheltered from the economic factors that are affecting all other teams.  This is why LAD can keep spending massive sums of money, and why the likes of BOS can't compete.

I feel like the binary designation of large market - small market is just a lazy one.  In reality, LAD is in a tier by themselves, followed by NYY alone in the next tier.  Then you have a tier for NYM and LAA (based purely on market size), followed by the tier that includes BOS, along with clubs like PHI, ATL, HOU, SEA, CHC, etc.  In my mind, those are the peers BOS is likely to compare to from a payroll perspective.  PHI, ATL, and HOU are all above BOS today, but these things tend to swing back and forth.  I just think we need to move away from the notion that we are just as mighty as the upper-echelon spending clubs.  We just aren't.  Not to say we can't or shouldn't spend more than we are, but consistently staying, say 10% above the CBT is just not what teams in a similar revenue outlook position to us tend to do.  Just trying to be realistic, rather than emotional.  John Henry, after all, is a disciplined investor, not an irrationally emotional one.

I recall arguments at the time was the worst thing thing they could have done was just hedge (neither extend him or trade him, but just hold on to him and hope for the best, which is honestly where I was) and end up letting him walk for just a QO pick. And so of course 1) a pandemic happens a month later that ends up lowering his asking price, and 2) the Red Sox best draft picks through pure sheer luck have their players drafted with qualifying offer compensation (hello Roman, Christian)

I think he cares very much about winning another WS.

The problem is that, it's not so much about the teams that have had these franchise types or how many contracts there are (9+ year contract players), but how few and far between franchise type players are to come by.

Well now we have Alex Speier saying that in 2019 the Red Sox in fact offered Mookie more than he ultimately received from the Dodgers. Do you find that less credible than Zack Scott's tweet?

Let's not rehash the Mookie trade please.

I don't think the Red Sox will sign Juan Soto because I think there are other organizations that are willing to give absolutely reckless contracts in order to acquire that level of talent, not because I think the Red Sox have some arbitrary affinity to big deals. 

Ugh you avoided to 500 million dollar question. I think you kind of answered it by not answering it.

Why are other teams susceptible to long term reckless contracts, but the Sox aren't?

The Sox aren't smarter than everyone else here. Everyone has a ivy league graduate GM now.

  I've always believed that.  Covid was a giant wild card that could have dampened revenues for years.  Mookie got less from the Dodgers (let's call that X) than he would have gotten if there had been no Covid (Y); the Red Sox could well have offered Z which is less than Y but more than X and Mookie thought he would get more..