Maury Z. Levy

Hard Ball: The Business of the Phillies

In Business Philadelphia on September 1, 2009 at 8:22 pm

giles0710THIS ONE BIT THE BIG ONE. WILLIAM YALE GILES, who had finally quit smoking for sure, for good, forever at 10:05 PM on Thursday, February 6, was sitting on the second row of the box next to the radio booth, the box where the owners sit in the dark through the chill of April and the light in August, chomping on an unlit stogie, a tightly-wrapped replica of a Lenny Dykstra chaw. Soon, the butchered bites were bouncing off his blue buttondown, down to the bare boards below.

Outside, over there on the green sponge carpet that poorly of for grass, his team is having a time of it. Looking very new in their bright red uniforms, they are up to the same old stuff. Tommy Greene, a pitcher of some promise, is having trouble doing what he does get paid a measly $255,000 a summer to do for a living. He is putting Cubs on base. If this doesn’t stop soon, the Phillies will have to bring in some help. Eventually, that means Mitch Williams, who earns $3,200,000 for pitching about an inning every other night.

But first, Ryne Sandberg, who used to be a Phillie, Ryne Sandberg, who will make over $7 million a year starting next year, is parking a Tommy Greene fastball over the left field fence for a three-run homer. As Sandberg rounds third, Bill Giles pounds his fist and mutters to no one in particular: “I traded him, you know. All our reports said he couldn’t hit well enough to play third and couldn’t field well enough for second or short. So I traded him.”

He bites down very hard on his cigar, which splinters all over his still-hot dinner of fried mozzarella sticks and shells with marinara sauce. It is not a pretty sight.

“I just get so ticked off,” he says, “I have to bite on something. I went to sunflower seeds after I stopped smoking, but the salt just made my blood pressure go sky high.” He brushes the stogie off his shirt and tries to smile.

THIS ISN’T A GAME ANYMORE, THIS SUMMER sport owned by men and played by boys. This is an industry. This is a business.

“It’s a game, it’s a business, it’s a religion,” Bill Giles says. “But it’s certainly becoming more of a business as time goes on. So many dollars are at stake now, compared to what it used to be. It’s kind of scary sometimes.

“The challenge used to be just trying to put the best team on the field you could. Now the challenge is trying to put the best team on the field and not go broke in the process.”

But are Giles and his management team really running this business like a business? Are they putting out a quality product while keeping their fixed costs down?

“Baseball,” he says, “is more of a people business than it is like other companies that are making nuts and bolts and computers and automobiles. Almost 80 percent of our expense is on people, which makes it more unpredictable. Who could have predicted that Lenny Dykstra would break a bone on the first day of the season? Or that Jose DeJesus would be out for the season?  

“And it’s risky even without the injuries. You can pretty much tell whether a player can run or throw. It’s harder to judge his hitting abilities. But the hardest thing to judge is whether he’s going to have the maturity and determination to get better. Or is a young player going to go backwards. That’s one of the hardest things in judging talent on the field. So many kids get better and so many kids just falter.”

BACK BEHIND THE SLIDING GLASS door is where they try to figure these things out. Bill Giles’ office opens up onto Dave Montgomery’s office. Montgomery is the COO now. He runs the operation on a daily basis. Bill Giles, after 22 good and bad years in Philadelphia, looks more at the big picture.

The portrait behind his desk is of his father, Warren, who used to be president of the National League while Bill grew up in Cincinnati, before he went to Houston. Pictures of the rest of his family hang on these walls, too. His wife and three kids. And Pete Rose and Mike Schmidt and Steve Carlton.

He sits in a red leather tufted wing chair behind a fine mahogany desk. There is reading material. Over on the coffee table near the grandfather clock, there’s a copy of Baseball Uniforms of the 20th Century. The P&L statements are right at hand, in the second drawer on the right.

It is a busy office. Lee Thomas, the handsomely hulking man who serves as general manager, walks in to deliver a player report. This day, with Dykstra down and DeJesus gone, it’s not a good one.

There is a call from Fay Vincent, the commissioner. It is a conference call that takes 20 minutes to set up. Giles and the other 25 major league owners are about to approve the new owner of the Yankees. Giles holds the phone, fidgets for a very long while and finally says one word. “Yay,” and George Steinbrenner is history.

This is the office where the secrets are kept. The new uniforms hung in that locked closet for over a year. This is the office where the deals are done. The Phillies tried to get Bobby Bonilla this year. On paper, Bonilla is one of the best players in baseball. The Phillies bid $5 mil­lion a year for his services. Bonilla went to the Mets, who offered a million more.

There are people, a lot of people, who say that this is what’s wrong with baseball—desperate owners paying crazy salaries, salaries they might not have the money to cover in a year or two.

Bill Giles isn’t happy about it, but he thinks he can justify it. “Bonilla was worth $5 million to us,” he says, “because he would have gener­ated $3 million more in revenue through ticket sales and TV contracts. The other $2 million would have come from trading a player he was going to replace.

“Also, and this is the hardest part to judge, if you win a pennant with Bonilla, that helps you for an additional two years. That’s based on history. When we won it all in 1980, it generated enough ticket sales and enthusiasm to carry us two years into the future.”

There is a formula now in baseball. A player like Bonilla means an extra two or three hundred thousand people at the gate, at just over ten bucks a pop. And it means a big kick in local TV revenue. The more people watching the game, the more Channel 29 can charge for a commercial. The Phillies get 50 percent of every local TV dollar sold. And next year, when the contract goes to Channel 17, they’ll get even more.

BUT BASEBALL IS SO WONDERFULLY self-destructive. Just when someone figures a way to cover costs, someone else finds a way to up the ante. Have baseball salaries gotten out of control? Well, the average salary for a major league player is just over $1 million this year. In 1980, hack when the Phillies won it all, the average was just over $200,000. And a little over 20 years ago, when this stadium opened, it was $30,000.

Right now, there are 270 players who get paid $1 million or more. And there are 22 players who will get $4 million or more this year. The Phillies, with a comparatively low team average of under $900,000 a player, have nine players making over a million. Seven of them make over $2 million. All of which puts the Phillies’ payroll at $24 million. The rival Mets, with Bobby Bonilla in tow, are spending almost twice that.

Meanwhile, the TV market—that’s where the big money is—is declining. There’s now eight percent more product available to an audience that’s down 20 percent in the past two years.

So what does baseball do? It expands. There’ll be two new teams next year—the Florida Marlins and the Colorado Rockies. What gives?

“Expansion,” Bill Giles says, “is very questionable from an economic standpoint. In the long run, you’re going to have to divide up all the national television sales and all the national licensing money by 1/28th instead of 1/26th. Which amounts to about $1 million less for the Phillies beginning in 1994. So it’s not a great idea, but we were forced into it politically.”

Seems the commissioner gets a lot of pressure from the U.S. Senate to bring baseball to parts of the country that don’t now have it.

Will expansion be good for the TV contract? Probably not. Sources at CBS say the current network deal that pays each club $14 million a year will drop by $5 million a team after next season.

Has baseball prepared for that? No. Giles thinks baseball should set up its own cable chan­nel. He thinks baseball should finally initiate interleague play. But has baseball done that? No. Like an eight-year-old kid with a weekly allowance, most teams have gone out and spent it all in the first two days on bubble gum.

“You bet,” Giles says, “a lot of clubs have spent the $14 million past the year they’re going to get it. I can’t believe these clubs that are giving five-year contracts. We won’t have that kind of money in five years. That’s why Bonilla was such a gamble, because of the length of the contract. To commit beyond 1993 is such a big gamble. The TV dollars are really leveling off both nationally and locally.

“The argument for expansion is that we’re each going to get $12.3 million on December 21 from the two expansion teams. You could argue that’s kind of a wash.” Others would argue that baseball is once again trading its future for a quick hit.

SINCE THE LAST NATIONAL TV CONTRACT two years ago, the average player salary has doubled. Make sense? Not to Bill Giles.

“The compensation system,” he says, “has to change or else. Most clubs are either going to be sold or go bankrupt. It just cannot continue the way it’s been going the last two years. You have to negotiate that, but it’s very difficult to do because the players’ union sees the Seattle Mariners, which is probably the least valuable franchise in baseball, being sold for $100 million. So when you get down to the bargaining table with them and start crying poor mouth, the union isn’t going to believe it.

“The basic problem with the economics of baseball, Peter Ueberroth said this, is that ‘if you gave each owner a red button here and a black button there and said if you push the black button you’ll finish fourth but you’ll make $3 million, but if you push the red button you’ll win the World Series but you’ll lose $3 million, they’ll all push the red button.’

“That’s either for civic pride or ego trips or that they are so wealthy in other ways that they don’t really care about whether their ballclub makes money or not. All of those reasons factor into why baseball is not particularly a good business to invest in.”

And just where do the Phillies fit into this blind greed? Certainly not among the greedy. But their philosophy is not exactly up there with IBM.

“Since my group took over in ’81,” Giles says, “we have had a philosophy of not trying to make money necessarily. But we will not lose money. We will try to win as many games as possible without going broke.”

And that’s not easy these days with the economics so wacked out. The Phillies have almost as many players at or near minimum wage ($109,000) as millionaires, that there is hardly any middle class at all.

“That’s why we let Joe Boever and Randy Ready and Dickie Thon go,” Giles says, “because they were into the $700,000-to-$1.2­million category, and you just can’t have an extra man making that kind of money anymore if you’re going to keep the Dykstras and Kruks and Mitch Williams’ happy. Your extra guys are going to have to be in the $100,000-to­$300,000 category if you are going to make any logic out of your team payroll.”

Indeed, when $2.3-million Len Dykstra went down, he was replaced by $109,000-rookie Ruben Amaro.

THE PHILLIES, WITH A $24-MILLION payroll, will struggle to break even this year. They’ll be the lucky ones. The California Angels, with a $33-million payroll, have already announced they plan to lose $8 million this season.

Bizarre salaries and free agency have turned baseball into one big game of musical chairs. Used to be a player started and finished his career with the same team. But the days of DiMaggio, The Mick and The Duke are gone. In fact, the days of Mike Schmidt are gone. Baseball players have become hired guns.

You go where the money is. Witness American League Cy Young Award winner Jack Morris. He’s one of the best pitchers in baseball. But the champagne was hardly dry in his hair from celebrating last year’s championship when he announced he’d be moving on—to his third team in three years.

“We try to take care of our own players,” Giles says of the loyalty question. “Maybe even overpay them on occasion, like Darren Daulton, who we didn’t want to lose because he was part of the family.

“But the truth is, even though the loyalty factor is nice to talk about, the fans really prefer winning baseball. I mean, Ricky Jordan is pretty popular here, but I think if whoever we would get to replace him would bring us a pennant, the fans would prefer that to seeing Ricky Jordan.”

Giles, who is not one to overstate, thinks the future of baseball hinges on the next negotiations. “And these negotiations are going to be tough,” he says. “The next 24 months are critical for the economics of the game because I think there’s a great potential to have a long work stoppage—either a lock­out or a strike sometime either this coming spring or in the spring of ’94. And that doesn’t do anybody any good.”

Why is Giles so sure about a work stoppage? Only five of the league’s 26 teams are making money now. Some are losing as much as $10 million a year. Something’s got to give.

AS THE GAME GOES ON, the only other visitors to Booth 400 are Dave Montgomery (the COO), Jerry Clothier (the financial VP) and Bill Webb (the lawyer). They sit together on the first row while Giles sits by himself up top. They are Giles’ management team. They make a lot of major decisions together.

“Dykstra gone for two weeks?” one of them asks.

“Realistically, three or four,” Giles says.

“DeJesus for the season?”

“If we’re lucky.”

He pulls no punches, Bill Giles.

Down on the field, Tommy Greene has walked the first batter of another inning.

“Damn,” the now red-faced Giles says, almost punching his pasta, “here we go again.”

Greene works his way out of the inning and the Phillies come up with yet another fighting chance. There are two men on and the veteran Dale Murphy is at bat. Murphy grounds out.

“We just can’t cash in,” Giles says. He shakes his head and stares out at all these new faces in new uniforms—all these new millionaires.

“You know,” he says, “you sit here for 20 years and you don’t realize how you took a guy like Mike Schmidt for granted. It’s strange, you don’t know what  you’ve got ’til it’s gone.”

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