21 October 2014

2015 Steamer Projections for the Orioles' Arbitration-Eligible Pitchers

The Orioles have a lot of decisions facing them this off-season. They have big name free-agents, the Nick Markakis option decision, important players entering their final year of team control, as well as a number of players in arbitration. These decisions facing the Orioles will get plenty of attention on Camden Depot as we proceed through the off-season. In this post, I'm not going to offer opinions on the decisions facing the team, but instead hope that this creates a useful resource as we proceed into the off-season. A couple other resources that may be helpful are Jon's arrivals and departures post, as well as this salary chart courtesy of Grantland.

The list below are all of the Orioles pitchers facing salary arbitration. In my next post, I'll take a look at the hitters. I've included some 2014 numbers for each players, but just as important are the 2015 Steamer projections for these players, in order to give the arbitration cases some context.

Photo by Keith Allison


Bud Norris
Arbitration year 3
2014 salary: $5.3 million

IP
FIP
fWAR
2014
165.1
4.22
1.5
2015 Projection
182.0
4.34
1.4

Tommy Hunter
Arbitration year 3
2014 salary: $3 million

IP
FIP
fWAR
2014
60.2
3.15
0.8
2015 Projection
35.0
3.55
0.2

Brian Matusz
Arbitration year 3
2014 salary: $2.4 million

IP
FIP
fWAR
2014
51.2
4.00
0.3
2015 Projection
40.0
4.03
0.1

Evan Meek
Arbitration year 1
2014 salary: $800,000

IP
FIP
fWAR
2014
23.1
5.10
-0.4
2015 Projection
1.0*
4.51
0.0
*For players who weren't on the active roster when a team's season ended, they are only give 1 game played for now. This will be fixed after the playoffs, but I believe the rate projections will be unchanged. 

Chris Tillman
Arbitration year 1
2014 salary: $546,000

IP
FIP
fWAR
2014
207.1
4.01
2.4
2015 Projection
202.0
4.64
0.9

Miguel Gonzalez
Arbitration year 1
2014 salary: $529,000

IP
FIP
fWAR
2014
159.0
4.89
0.6
2015 Projection
189.0
4.95
0.2

Zach Britton
Arbitration year 1
2014 salary: $521,500

IP
FIP
fWAR
2014
76.1
3,13
1.1
2015 Projection
65.0
3,29
0.7

These are the 7 Orioles pitchers that are eligible for arbitration this off-season. Like I said, I put this together as a resource, as there is still plenty of time to debate and analyze the decisions facing the Orioles. Feel free to do so in the comments, if you'd like. In my next post I'll take a look at the hitters who are eligible for arbitration. 

20 October 2014

MASN and the RSDC

Previously I discussed why the Nationals felt their media rights were worth $590 million from 2012-2016 and why this argument was rejected by the RSDC. In this post I’d like to discuss why MASN is disputing the ruling made by the RSDC. The most basic understanding of the dispute is that MASN believes fair market value for the Nationals and Orioles media rights is nearly $200 million each over the five year period while the RSDC believes that fair market value for the Nationals and Orioles media rights is nearly $300 million each over the five year period.

Both MASN and the RSDC agree about certain points. They agree that the most valid method to determine fair market value is by analyzing the results of MASNs income statement. The RSDC final decision states that “while the RSDC has considered market comparables as a “check” or point of reference in considering the results of the income statement analysis in the past, it has never relied exclusively or even predominantly on comparables in determining whether a rights fee is of fair market value.” Bortz Media claims on behalf of MASN that “a comparables analysis would be completely improper here, assuming arguendo that such an analysis has any validity”. Unlike the Nationals that solely use market comparables both the RSDC and MASN believe that comparables are of limited or no importance.

MASN and the RSDC disagreed about two things when analyzing MASNs income statement. The first difference was the operating margin for baseball programming while the second was the amount of MASNs revenues attributed to Nationals and Orioles programming.

MLB wants to ensure that team controlled RSNs pay their parent club a reasonable rights fee so that the MLB team benefits from the RSN and MLB receives a reasonable amount for revenue sharing taxes. Therefore the RSDC determines a fair operating margin on baseball programming for each team controlled RSN. This determines the percentage of profit that a team controlled RSN earns and all other baseball generated revenue goes towards baseball-related expenses and media rights fees. This makes it impossible for team controlled RSNs to set a low media rights fee and thus pocket excessive profits.

Bortz Media claims on behalf of MASN that the typical operating margin on baseball programming on pay television services is at least 20% and therefore MASN should receive that operating margin. They further note that if MASN paid a rights fee based on a 20% operating margin then MASN would have an overall EBITDA of approximately 33 percent. Bortz Media has extensive experience working with the RSDC to determining fair operating margins and claims that typical RSN margins are between 30 to 40 percent. This claim is supported by a large number of public documents unrelated to MASN. 

The RSDC notes that “according to MASN’s own data, the operating margin for the entire network was 6.2% in 2007 and grew to 25.7% in 2008, 25.1% in 2009, 30.9% in 2010 and 33.4% in 2011.” The RSDC further notes that “as the price of rights fees increases, the margins of RSNs have not surprisingly decreased. Therefore taking these considerations into account, the Committee believes that MASN would have been forced to operate at a relatively low operating margin for baseball programming in 2012.”

It is important to understand that MASN had a low operating margin in 2007 due to extenuating circumstances. MASN didn't receive the rights to broadcast the Orioles until April 2007 and therefore their affiliates didn't pay license fees reflecting the addition of the Orioles until MASN received those rights. In addition, MASN and Dish didn’t agree to carriage until April of 2007. These circumstances meant that MASN didn't receive a full years worth of revenue while still having to pay a full years worth of expenses. As these extenuating circumstances no longer exist it may have made sense to simply ignore or reduce the importance of the 2007 results.

Instead the RSDC claimed:
Indeed, in light of the robust market for sports rights fees in 2012, MASN’s contractual obligation to increase the Nationals’ rights fee to fair market value in 2012, and the corresponding right of the Orioles to receive the same rights fee as the Nationals, it would be wholly unrealistic to assume that MASN could recognize an operating margin much higher than the six percent network operating margin it achieved in 2007. Accordingly, the Committee will assume that MASN would have achieved an operating margin from baseball programming in 2012 of five percent had it obtained the Nationals local broadcast rights in an arm's length transaction, which would result in an operating margin for the entire network of approximately eight percent.
Bortz Media believes that MASN should receive a reasonable operating margin of at least 20% just like all other successful team-owned RSNs. The RSDC believes that MASN should receive an operating margin based on its 2007 results despite the extenuating circumstances and the fact that those results were not recent.

The second disputed point is about the amount of revenue that comes from Nationals and Orioles programming. MASN and other RSNs only pay rights fees based on the amount of revenue directly related to baseball programming. Some RSNs like NESN control the media rights to sports teams in multiple leagues and it wouldn’t be reasonable to make NESN pay rights fees to the Red Sox based on revenue earned from the Bruins. Likewise, MASN is expected to pay rights fees to the Orioles and Nationals based on revenue earned from the Nationals and Orioles and not from revenue earned from televising NCAA basketball, football and lacrosse games.

Bortz calculated that MASNs baseball-specific revenues are 81% of total revenue. They determined this “by determining the same reasonable allocation for MASN's subscription fee revenues to baseball programming as Bortz has consistently applied to all other related-party telecast rights fees analyses and allocated advertising revenues based on the actual data regarding the allocation of those revenues to baseball and non-baseball programming. Bortz calculated revenues for baseball programming to be approximately 80% of total revenue and provided that analysis and data to the RSDC.” Bortz's documentation explaining this in detail is still redacted.

The RSDC asserts that baseball specific revenue makes up 95% of MASNs total revenue. They claim that baseball programming accounts for virtually all of the network’s revenue and there is little reason to believe MASN would secure non-trivial carriage without the baseball rights that the Agreement provides. They give no explanation as to why baseball specific revenue should make up 95% of all revenue as opposed to 80%, 90% or 99%.

These two differences are the reason why MASN and the RSDC are in conflict. MASN believes that they should receive profit margins that are reflective of the industry while the RSDC believes that MASN should receive significantly lower profit margins.

I find charts to be helpful when attempting to visualize this type of data. The following five charts show the total revenue, each teams’ media rights fees and each teams’ equity stake payment according to MASNs proposal; the RSDCs decision; if MASN received a 20% baseball operating margin and 95% of total revenues from baseball; if MASN had a 5% baseball operating margin and 81% of total revenues from baseball and the amount of media fees proposed by Allen and Co on behalf of potential buyers of MASN.



17 October 2014

It Wasn't Bad Luck That Ended the Orioles' Season

One team’s magical season had to end, and unfortunately for the Baltimore Orioles, it was theirs.  After sweeping the Detroit Tigers in the American League Division Series, they ran into the buzz saw that is the Kansas City Royals, who became the first playoff team ever to win their first 8 games in a postseason.  It’s a particularly difficult series loss, considering that each game was decided by 2 runs or fewer, with Games 1 and 2 tied at the start of the 9th inning or later.  One break here, or another break there, and this series (at the very least) is still being played.  Unfortunately, it didn’t happen that way.

You could spend a lot of time talking about how the Royals were lucky and the Orioles were not.  In a series where the final outcome was lopsided but each game was close, a luck-based argument could reasonably be assumed, even if you only saw the box scores.  And luck arguably did play a factor in the outcome.  It was reflected in not only each team’s BABIP (Royals with .324 compared to the Orioles at .259), but also in the way the Royals scored some of their runs (for example, Alex Gordon’s bases loaded broken bat double in Game 1 or scoring 2 runs without hitting the ball out of the infield in Game 4).  However, it’s difficult to claim that the Royals were that much luckier than Baltimore. Kansas City certainly had missed opportunities of their own.  So while they did score 2 more runs with 2 outs than the Orioles, they actually left 2 more men on base (31 to 29) and hit only .182 with runners in scoring position (for the sake of comparison, the Orioles hit .346 with RISP during the ALCS).

No, luck wasn’t the deciding factor in the outcome of this series.  The Orioles did plenty on their own to seal their fate.  The vaunted Baltimore offense, which finished the regular season as the 6th best in all of baseball (according to wOBA and wRC+) went quiet, hitting just .217/.283/.297, with only 2 home runs.  On the other hand, the Royals (arguably the worst offensive team to make the playoffs) soundly outhit the Orioles, with a .280/.362/.417 triple slash line.  The potency of the Baltimore offense was their power, and with a team slugging percentage of .297, that power was noticeably absent in the ALCS.  You can probably attribute some of that to luck, but it can also be the result of pitching and defense.

Speaking of defense, you have to give credit where credit is due.  The defense of the Kansas City Royals during this series was phenomenal.  It was some of the best defense I think I’ve ever seen over an entire 4 game stretch.  Whether it was the Gordon/Lorenzo Cain/Nori Aoki/Jarrod Dyson outfield combination (that seemingly didn’t let a fly ball or line drive hit the ground all series), the dramatic catches of Mike Moustakas, the difficult plays made to look routine by Alcides Escobar, or the pitch framing of Salvador Perez behind the plate, the Royals defense dominated the series, and helped make the Kansas City pitching staff look much better than they were.

Not that the pitching was necessarily bad.  Prior to the ALCS, the pitching generally was considered to be evenly matched, with Kansas City potentially holding a slight edge. Although some of the individual performances were somewhat surprising, as a unit, each starting pitching staff performed about as well as expected.  Since the score of each game was tied or within one run when the starters left, the bullpens played an integral role throughout the series.  Here’s how each bullpen performed.



While the Orioles bullpen pitched well, it’s clear that the Royals bullpen pitched better.  Luck isn’t to blame for the Gordon and Moustakas home runs in Game 1.  It’s also not the entire reason Kansas City took the lead late in Game 2.  In the end, the Baltimore hitters weren’t able to muster up any offense against the Kansas City bullpen.  There’s no reason to feel bad about this.  The Royals had the best bullpen in baseball, so essentially every team struggled to score runs against them, unless they managed got some help.

Luck may have played a small role in the outcome of the ALCS, but it wasn’t the reason Baltimore lost.  The bottom line is the Orioles were outplayed in every aspect of the game.  Granted, they weren’t outplayed by much, but in a game where one inch can make a big difference, sometimes that’s all you need.  The pitching, hitting, baserunning, and defense of the Kansas City Royals were just a little bit better than that of the Baltimore Orioles, and that’s ok.  It happens sometimes.  As Matt pointed out yesterday, it’s important to remember that there are a lot of positives to take away from the 2014 season.  You can be disappointed that the Orioles lost the ALCS, but you can’t say that 2014 was a disappointing season.