Money stuff

Newsworthy Castellini

John Fay has an excellent article up this morning about the Reds’ financial picture. It’s based on a long interview with Reds’ CEO Bob Castellini. If you’re interested in taking the pulse of the top leadership for the organization, I strongly recommend you read it.

Fay’s reporting confirms that the Reds can, in fact, afford nice things. As I’ve been saying for a couple of years, the local sources who uncritically repeat the talking point that the Reds don’t have enough money for this or that haven’t carefully studied the new revenues washing up into baseball, even in Cincinnati.

For example, Castellini talks positively about the ability of the Reds to sign Mat Latos and Johnny Cueto to extensions. Castellini also discusses a few details of the national broadcast contract. I particularly enjoyed reading Castellini’s remarks about negotiating the Reds’ next local TV agreement.

“We will maximize the value of our rights when we’re able,” Castellini said. “We will consider every option.”

His reference to “every option” might include a competitive bid from Time Warner/Comcast or possibly a stand-alone regional sports network. Either way, I bet the Reds end up with ownership equity in their new broadcasts. That’s a positive financially, because franchises don’t have to share revenue they earn from owning the broadcast. That’s considered “media revenue” not “baseball revenue” and therefore beyond the scope of the revenue sharing provisions of the CBA.

In the midst of taking a shot at media reports (including blogs, I suppose) criticizing the lack of action by the Reds this offseason, Castellini also puts attendance figures into context by comparing Reds’ season ticket sales to those of the Cardinals. I’d have never guessed this (my emphasis):

“The Cardinals have a huge ticket base because they deserve it,” Castellini said. “They win year-in, year-out. But when we bought the Cardinals in 1996, they had fewer season tickets than we have now. But they brought back that winning tradition. You have to contend.”

Castellini gets it. You have to spend money (wisely) to generate revenue. Baseball franchises can’t cut corners and expect to thrive.

Fabulous reporting by John Fay.

38 thoughts on “Newsworthy Castellini

  1. Agree that this is a very enlightening article. Maybe it is a “state secret” but I would have liked to have known what the Red’s piece of that national $1.5B national media pie is and how much of it they generated directly and how much of it was handed down to them.

    It only makes sense that they will try to have some ownership position in the new media deal if for other reason than the fact that they have been so successful taking back and running their own radio operation.

  2. It seems to me that with the advent of digital over the air TV, one of the most wasted/ under utilized media resources is the capability of TV stations to broadcast multiple program stream (i.e. the sub channels).

    Unless encryption of the over the air sub channels is banned by regulation, it has to be only a matter of time before somebody comes up with a scheme to use them for subscription services. Consider the possibilities for a team like the Reds who are a “smaller market” team trying reach a very large geographic area.

    • @OhioJim: Agreed this is a vital component of the future. Digital streaming to submarkets undercuts the value of regional sports networks to cable TV carriers. As consumers cut their cords to CATV to cherry-pick online content, cable companies won’t pay stations like FSO as much for broadcasting content like the Reds’ games. And that hurts the Reds over the long term. So what you suggest is a trade-off — and one that inevitably looms. My sense is that these decisions will first have to be made on a league-wide basis. Individual teams probably don’t currently have the rights to the digital sales. MLB is already selling subscriptions on an enormously profitable basis (which all 30 teams share).

      • @Steve Mancuso: I see digital over the air subscription as an entirely different model but of course I have no data on the risk/ reward.

        Right now, essentially, everyone is a full season ticket holder. They buy cable or satellite and Fox Sports Ohio is one of the channels in their package. Because there is no partial or cafeteria provisions, many times a person spends the cost of entire package just to get the Reds games.

        Suppose the digital over the air feed used a model more like the in person ticket model or movies on demand. There would be the core group of full season packages sold up front at deep discount. From there partial packages, individual series or even single games packages would be available. Maybe you use the feed of the current distributors and cut them in for a piece of the action. But all these costs would be lower than the full service package they buy now.

        For the team, the balance is in selling those folks who cannot afford or chose not to pay for a full cable package just to get the Reds.

        Seeing as how all the money coming in from this system is part of the team’s pot, I think it works for them with enough to take care of the local stations and the broadcast producers/ distributors.

        • @OhioJim: I would love to see Netflix figure out how to do streaming of live events. I’ve been thinking about it for a while now actually. Imagine if Netflix offered you the opportunity to stream every Reds game for an additional 5 bucks a month. How fast would you sign up for that? Rather than starting a whole network, which would force you into developing programming to fill the 99% of the hours the Reds arent on, you could just broadcast the pregame, game, and post game. Netflix is already big into original programming (House of Cards, Orange is the New Black, Turbo:FAST), this seems like a logical next step. Imagine the possibilities.

  3. One of Fay’s best most insightful articles. nice to see Bob do some explaining to the fans that might not understand how businesses work.

    I think Bronson leaving is a good sign as to how they are managing their money, he is probably worth what Arizona is paying him, but not to the Reds who have cheaper arms, you have to pick your spots on signings, money saved on Bronson, is money likely allocated to Homer.

  4. I liked the article, but did not like one bit the reference that the Reds didn’t succeed last year because people were hurt, especially Ludwick. The LF problem still hasn’t been addressed.

    It’s admirable that Big Bob is seeing the big picture, but the 2014 Reds aren’t exactly a top-tier offensive team on paper.

    • @jessecuster44: “injuries are part of the game.” True, certainly, but it is also true that injuries affect–often catastrophically–the way teams play. The Reds have not addressed LF, no argument, but I would be astounded if that were due to lack of trying–WJ cannot simply will a trade (Hannahan, Ludwick and–if they insist–Ondrusek for Trout, with LA picking up 75% of his salary for the next 10 years). The Reds are probably not a top-tier offensive club, as you suggest, but they may well be a top-tier pitching and defensive club, which could carry them far.

  5. My biggest problem wasn’t so much with the article….but with Castellini’s belief that the media’s job is to help the Reds sell season tickets. Was there anything the media (including this blog)said that was not true?

    The Reds did little to nothing in the off-season, believing that the ’13 version of the Reds (minus Arroyo & Choo) will be “good enough” and then want to blame the rest of us for being pessimistic about the upcoming season.

    • @Bill Lack: Exactly. There’s the whole “truth” thing. Plus, he sort of implies that the fans can’t evaluate for themselves, they just uncritically accept what the media tells them. I understand his emotion, but not a well thought out complaint.

  6. I think that signing both Latos and Cueto to extensions is pie in the sky thinking. Sign one, and then trade the other next winter for a couple of high ceiling prospects. Then get an extension on Leake.
    The only thing that Big Bob just doesn’t get, is a big RH bat to hit in this bandbox called GABP. Hit him 4th in front of Bruce or 5th behind him. It doesn’t matter. But go get a big RH bat.

    • @WVRedlegs: I’d be surprised if they try to resign both Latos and Cueto, for financial reasons. And Leake is going to be priced out of the Reds slot for him. He’ll be a #2 or #3 for some pitching-poor team. The Reds won’t pay him that well. My guess is down the road we’re looking at Bailey, Latos, Cingrani, Stephenson and someone else not currently on the radar.

      • @Steve Mancuso: I would absolutely take that rotation, especially if Stephenson pans out to be the No. 1 everybody expects. I also think Lorenzen, Lively, Moscot and Travieso are a real solid bunch to pick from going forward, especially if all we need to fill is one spot. I’d say the odds are good for the Reds to have a top-notch rotation for years to come.

      • @Steve Mancuso:

        I’m keeping my fingers crossed that they can keep two of the three. Each pitcher has their attributes. It’s going to be a tough management decision.
        Even though the Reds could theoretically replace all 3 after 2015, that certainly wouldn’t be advisable.
        Those four you mention would be worthy of going into NL battle with, no doubt.
        The 5th? Dare you say it? Chapman has an epiphany ($100M contract) by then?

    • @WVRedlegs: Do you really think that Big Bob and WJ don’t get that? Or is it more likely that the price for that big bat was too high (and who was he, anyway?)

      • @greenmtred:

        What’s the price difference between a divisional third place finish while struggling to keep a wild card spot and a world series championship?

  7. I do not mind the Reds NOT overpaying to go all out for 2014. I actually think they could do fine in 2014 and winning the division is not improbable. The 2012 Reds won 97 and should have at least been in the NLCS.

    Position by position comparison from 2012 to 2014 (assuming minimal injuries/DL time)…
    C Mesoraco should be better or at least equal to Hannigan offensively (though pitch catching matters)
    1B A healthy Votto should be better overall for the year than an injured second-half Votto
    2B Phillips will probably be the same, but slightly better or slightly worse is definitely possible
    3B Anything near what Frazier put up in 2012 or even a 2013 Frazier will at least equal Rolen
    SS Cozart will be about the same, batting lower in the order should help
    RF Bruce will likely be at least as good as 2012 but probably better
    CF It would be hard for Hamilton to be worse than Stubbs
    LF I will assume (hopefully) Ludwick will be slightly worse in 2014 than 2012

    P Bailey will be better
    P Latos will be equal/better
    P Leake will be better
    P Cueto won’t be better and probably worse
    P Cingrani should be near Bronson Arroyo (plus a much needed lefty to boot)

    Bullpens are always questionable, but I do not see too much difference from 2012 to 2014.

    Minus Frazier as a super sub, the bench players look like a wash, with Schumaker being a bonus.

    Not playing the Astros a ton will not help, but we didn’t play them except for 3 times in 2013 and should have won 93-94 games minus the late season meltdown. Is it possible that Price will help add a couple games with proper lineup construction and in game decisions? I have no idea how 2014 Reds will do, but I am looking forward to the season and think they should be fine.

    • @petejohnson: People don’t argue that. But there are other factors you aren’t including:

      1.) The Reds beat up on the Astros with 9 wins and 3 losses that season.
      The Astros are no longer around to beat up on.

      2.) The Reds beat up on the Cubs with 10 wins and 2 losses that season.
      This is NOT the same 2012 Cubs team. I don’t think they are quit ready to challenge for the Division, but they have tons of talent.

      3.) The Pirates had and epic fail in the second half of the season.
      The Reds were fortunate to get the Pirates for most of their games in the second half where the Reds (and everyone else) were 7-2 for the series.

      We said this last year, and it proved to be true. While the Reds may be improved, so is EVERYONE else in the division, especially the Cubs. The Brewers may be back in contention. They still have perhaps the most potent offense in the division. The question is did they do enough with pitching this offseason to make it matter. The Pirates may regress a bit whether from over achieving (which I don’t think) or because they lost Burnett and picked up Volquez. Hard to tell. It depends on the rookies this year and the whether their second year guys improve or regress. The Cardinals, well, are the Cardinals. I think the odds of them NOT winning the division are extremely long.

    • @petejohnson: There is too much turnover on teams these days to go back two years and think that your projections are going to work out. The Reds have changed, the division has changed, and all the other teams have changed.

      It makes a lot more sense to go back to last year, and build from there. Whether the Reds “should” have won 93 games last year, they won 90. That seems like a pretty fair place to start projecting from.

    • @petejohnson: I’ve seen some projections for the Reds’ win total this year and they’ve not been too positive. I’m pretty optimistic at 87-92 wins. Most Vegas odds-makers have the over/under for wins for the Reds at 85.5. That is in line with some of the sabermetric projections I’ve seen. Let’s hope they win more than that.

  8. I loved reading that interview. Big Bob gets it, inasmuch as any self-made rich old guy can get running a professional sports franchise. He clearly views the Reds as a public trust of sorts, a far cry from Carl Lindner.

    Anyone else see that piece on sportscenter about Marge Schott last night? Much ado about nothing. Crazy old lady with no filter who just happened to own a major league team. Of course it would end badly.

    • @Sultan of Swaff: I’d say the difference between Lindner and Castellini is that Lindner viewed the Reds entirely as a public trust of sorts, someone rich from Cincinnati had to own the team, just like contributing to other social institutions in the city. But Lindner seemed indifferent about the results on the field. Castellini is an ultra competitive guy. Public trust plus wining.

      • @Steve Mancuso: Steve, would you say the financial numbers quoted in the article are in line w/ the article you did a while back? It seems to me that, like you, the Reds could actually be spending more.

        • @Sultan of Swaff: Yes, Castellini is citing several of the new revenue sources (national and local broadcast contracts, attendance) that I wrote about. There were a couple others (MLB digital platforms, post-season revenues, more generous league revenue sharing program) he didn’t mention, but I’m sure he knows about them. It was interesting to hear him say the new national revenue doesn’t arrive for a while, my impression was that it started in 2014. He said the local contract runs out in 2017, but my understanding is that the current deal ends in 2016, but maybe we’re saying the same thing.

          I do think the Reds could be spending more, even with the big hike last year. I found it odd how they were so particular about structuring Bailey and Votto’s contracts so that big chunks of the payment for a given season were actually paid in November. That puts them in the following fiscal year for the Reds. But that’s really more of one-time accounting trick, not something that speaks to the fundamentals.

          The Reds are definitely receiving more revenues. They have other things they could spend it on (stadium improvement, front office salaries, minor league programs) besides player payroll. But it also wouldn’t surprise me to see them take on some more salary mid season. They were, after all, at least trying to sign Shin Soo Choo for a while. That was 2014 money they never ended up spending. So even though they might not have been willing to spend $13 million on Choo, they surely thought they could handle $8-10 million, putting the 2014 payroll another bump above the already higher 2013.

        • @Steve Mancuso: It’s possible it’s more than an account trick that is only helpful the first year, it could be more of a cash flow issue. Some of their monies such as MLBAM may pay in a lump sum late in the year, also the majority of the contracts pay through the season, so for flow purposes paying these at the end after the others have ceased may allow for a more even flow as well.

  9. I enjoyed the vinegar he displayed. It shows passion. I love an owner with passion who knows how to stay out of the media.

    • @TC:

      I enjoyed the vinegar he displayed.

      Here’s a big ol’ 2nd for that motion. I agree with Bill and Steve that his angst was missplaced, but I love the passionate response. Every response Castellini makes is indicative of a strong desire to build a consistent winner and keep as much home-grown talent as possible.

  10. Uncle Bob always said as long as the Reds can, what, “break even”, “don’t lose money”, etc., he will spend the money. He always has said he’s not looking to make a profit from the Reds but not looking to lose money, either. That’s what I like.

    As far as bringing someone else in, again, it would require us having to either:

    1) have someone like the $7 million Ludwick sitting the bench, or
    2) trading away one of the current regulars

    I just don’t see us having $7 million sitting the bench. And, for #2, we have to have a package that other teams would want “and” they have a package that we would want. That isn’t that easy, especially when you consider that we don’t have that many pieces to make a trade package with. I don’t doubt we could have afforded someone. But, I do doubt that we had any kind of trade package anyone wanted.

    That’s one reason why I would almost rather see the “organization” forego this season in terms of FA, trades, etc., in order to put resources into instruction and player development at all levels, especially at the minor league level. Develop the ability to be able to make a package so we can have more flexibility to do things in the trade front. Like with Latos, I could see 3 players for him but I do question 4 players. I never thought Marshall and Broxton were needed. I could understand why bringing them in; I just wouldn’t have brought them in.

    • @steveschoen: Mostly agree with you. I expect that the big bat everyone (me, too)wishes the Reds had would have cost a substantial amount of pitching. One more big bat (unless it happened to be Eric Davis, Big Klu or Frank Robinson), wouldn’t, in my view, make them favorites to win the division, let alone the WS, and the pitching has taken too long to build to squander it for anything less than a real shot. Even though the Reds probably can spend more than I habitually think that they can, it makes sense to further build the player development part of the equation: they have been doing pretty well at drafting and developing talent recently.

  11. No good place to talk about early spring training issues and results, so I hope BC doesn’t mind sharing…

    Hannahan is 5 months removed from shoulder surgery for a torn labrum and a month away from the regular season. Hannahan is not of any value unless he is completely recovered and healthy. I just don’t see any way that happens in the next two months. I think it’s time to get him on the 60 day DL and free up a spot on the 40 man roster. That would completely open up the competition for the 2 available utility IF spots (counting Schumaker as a utility OF along with Heisey).

    The current options in spring training camp for utility IF are: Soto (RH & only IF on 40 man roster), HenRod (SH), Santiago (SH & SS candidate), Nelson, (RH), Navarro (SH), Diaz (RH), Negron (RH & SS candidate. I would prefer any of those options to Hannahan if he is not completely healthy.

    • @Shchi Cossack: I concur. I think there’s a possibility that we might pick somone off the waiver wire because the in-house options aren’t too attractive.

      We’ve got probably 4 players who could be removed from the 40 man roster without repercussions. If the season started tomorrow and we were cutting guys, I’d move Hannahan, Corcino, Beato, Guillon in that order.

  12. What a great owner. I love that he values scouting and homegrown talent. It’s been great watching this ballclub come of age together. I think that connection can be of great service to winning.
    I think this club will have a nasty streak. We will be the team that no one wants to play.

  13. Content of the message aside, this article once again reminds me how refreshing it is to have the ownership it has. I hope Reds ownership becomes the Rooney’s of Major League Baseball.

  14. Hamilton just took a walk, stole second on the first pitch, the ball went to CF and he’s on 3rd. And he has a base hit today. Kelch says he thinks Billy “seems to understand more that he doesn’t have to just hit to get on, just as long as he gets on.”

    • @Matt WI: Third time already this spring training that’s happened, right? It’s absurd how many throwing errors Hamilton creates when he runs.

  15. I know it doesn’t mean a whole lot seeing as how it’s Spring Training and tiny sample sizes, but Schumaker and Soto have really surprised me thus far. Soto is absolutely mashing the ball (7-12, 4 2B) and Schumaker is hitting really well too (5-9, 1 2B). Wonder if there’s any chance Soto plays well enough to push Hannahan out of his 1st/3rd backup role? It certainly seems like he’s trying.

    Nice to see Cozart looking good too.

    • @ToddAlmighty: Due to the off season shoulder operation, it looks like there is no way Hannahan is going to be ready to go coming out of camp. However, I suspect a LH hitter gets that roster spot, at this point I’d think Bernadina even though he is an OF guy.

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