Time to Make It Rain

Wendy Thurm | March 28, 2014 | Lifestyle Story City Life

The first Saturday in February at AT&T Park is cool and sunny—the kind of day we dream of in July, when we're socked in by fog, shivering in the decks. There's not a game this afternoon, but the scene at Giants FanFest is a lot like what you'd find during other baseball events at the stadium—30,000 fans decked out in orange and black, jostling to see their favorite players. Unlike those other events, however, this one is free.

And indeed, the Giants' financial footing is so strong right now that hosting a free pre-season party is the least they can do for their fans. Not that there isn't a profit motive. Since these fans got inside the ballpark, they've been bombarded with opprotunities to give their money to the Giants—for food and drinks at the event; for single-game tickets for the 2014 season; and for yet more orange-and-black paraphernalia. It’s the team’s business model writ large: Be creative in generating enough revenue to contend for a World Series title every year, and give back to the fans and the community.

It’s also a neat show of just how far the Giants have come since 1992, when they were losing $15 million a year playing at Candlestick Park and then owner Bob Lurie was planning to sell. Larry Baer—now the Giants’ president—and Peter Magowan put together an investor group to buy the team. “Going in,” Baer recalls now, “our goal was to make it a first-class operation in every way.”

They went about that by employing what Baer calls an “entrepreneurial” business model. The Giants were the first team in Major League Baseball to use dynamic pricing for single-game tickets—lowering day-of-game prices when demand is low and raising them when demand is high. During the off-season, the team’s management rents out every nook and cranny of its stadium for private events from concerts to weddings. (Perhaps most notably, last summer Kanye West rented AT&T Park to propose to Kim Kardashian.) These days, Baer says, “we’re a top-tier team.”

He’s right: In 2012, the Giants’ local revenue was more than $300 million—the sixth highest in the majors. They were also the sixth-most-valuable franchise in Major League Baseball in 2013, with an estimated total value of $1.23 billion. (UPDATE: Forbes just released new data for the 2014 season that pushes the Giants up to the fifth-most-valuable slot.)

But a funny thing happened on the Giants’ way to becoming one of baseball’s biggest cash cows: The team never stopped acting like an upstart. That's clearly a fruitful strategy when it means finding creative new revenue sources or juicing Kimye for $220,000 in a single night, but Giants management is also quite cautious when it comes to payroll. “It comes down to having as much homegrown talent as possible,” Baer says, the corollary being and as few free agents as possible. “That’s our strategy.”

In fact, the team hasn’t lavished a big-money contract on a free-agent megastar since Barry Bonds in 1993. Last year, the Giants’ $142,180,333 payroll was 37 percent less than that of the Yankees and 34 percent less than that of division rivals the Dodgers. And despite an underperforming, injury-ridden 2013 season—the kind of season after which most teams would stock up on sure bets—the Giants have opted to keep their roster largely the same, save for relatively cheap adds like starting pitcher Tim Hudson, a 38-year-old who spent much of 2013 nursing a broken ankle, and outfielder Mike Morse, who’s also coming off an injury and who’s proved himself to be pretty middle-of-the-road. It’s certainly possible that those new players will be the shot in the arm that the Giants need, or that older players like Matt Cain will get past whatever bedeviled them last season. But those are both fairly big question marks, and there’s a fine line between thriftiness and underinvestment. If the Giants are to compete with the big guys, isn’t it time that they start spending like them?

Baer doesn’t think so. “We don’t feel we need to outspend everyone,” he says, estimating that the team has been between sixth and eighth in spending over the last several years. “We can clearly win at that level.”

He’s right—sometimes. The team won the World Series in 2010 with a payroll under $100 million—less than half of what the Yankees spent on their players. The same was true in 2012, when the Giants’ payroll rose to $131 million—the sixth highest, but still well below that of the Yankees, the Red Sox, and the Dodgers.

It’s true that there’s no direct relationship between spending and winning. “If there were,” Baer says, “the Yankees would have won the World Series every year of the last decade, and the Dodgers would have won last year.” But it’s also true that past success doesn’t guarantee future results. And it looks like Baer’s secret weapon—the farm—is alarmingly weak.

Baseball analysts rank the Giants’ farm system in the bottom third. There are a few young pitchers to be excited about, most notably Kyle Crick, but he isn’t likely to make his major-league debut until 2015 or beyond. The position players, meanwhile, haven’t distinguished themselves at the plate or in the field. And for years, the Giants have ignored the international market, with its players who defected from Cuba or played professionally in South Korea or Japan—something that they can no longer afford to do. If the Giants are to remain a perennial World Series contender without spending like the Dodgers or the Yankees, they need to be smarter than the Dodgers and the Yankees. That means identifying the best young ballplayers around the world, grabbing them when possible, and putting them in positions to succeed at every level.

This, of course, is easier said than done. But sitting in the decks at FanFest, it’s easy to envision the team applying some of its business canniness to recruitment and development—and to see these 30,000 people hoping with all their hearts that it does.

Originally published in the April issue of San Francisco magazine

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