What a potential new TV deal means for the Royals

On Thursday/Friday, all around good guy Sam Mellinger of the Kansas City Star reported that the Royals are soon to be sitting down with the executives at Fox Sports to hammer out a new TV deal.

The single most important moment of the next decade for the Royals will happen in a conference room. No baseball people will be present. Dayton Moore will get an update when it’s over. Sal Perez may not even hear about it.

But it’s coming, and soon. The Royals are negotiating to replace one of the worst television contracts in major American sports. Sources on both sides now call the talks serious.

This will replace of course the old network deal, which brought the Royals some of the lowest payouts in professional sports. While there is some viable backlash at the Royals front office for poor negotiations, it’s also worth mentioning that the deal was agreed to shortly before the huge television boom we’ve seen for regional and national sports broadcasting over the past decade or so.

Still, the Royals are likely (per Mellinger) to bring in somewhere between $60-80M a year from the regional broadcast, a ~20% boost in revenue. Obviously all of that isn’t going towards on the field talent, but it’s not unreasonable to think that half or so could be spent towards player salaries.

While $30M sounds like a huge windfall, and it isn't, it’s a smaller number than it seems. Mellinger made the point on Twitter (and I don’t want to turn this into my personal rebuttal towards him since he unfairly won’t have the ability to reply - this is just general thinking out loud) that an additional $25M could have perhaps gone a long ways the past decade to helping the club.

I don’t think Sam is wrong because of course, any team would have more leeway if they found $25M under their proverbial pillow. However I think we need to put that $25M (or any monetary windfall) in the context of the Royals.

Say we could travel back to December of 2015, the Royals being just a month off from a World Series title, our collective hopes never being higher and our smiles never being bigger. The Royals want to keep that mojo going and they clearly needed a new right fielder with Alex Rios departing (ultimately they would wind up giving Paulo Orlando 484 plate appearances). One of the best free agents of recent memory was on the market and happened to be an extremely great defensive outfielder (fitting the Royals mold of speed and defense - and he was a good hitter too). That guy was Jason Heyward, who would go on to sign an eight year, $184M deal with the Cubs, paying him ~$21M a year. If the Royals had an additional $25M a year, they could have afforded that deal with a little bit left over. Furthermore, Heyward had an opt out after 2018, which fit the Royals general timeline of their core leaving (Heyward probably would have been amenable to bumping up that opt out to after 2017).

Except, the Royals were never going to be players for Heyward, or JD Martinez, or David Price, or really any big name free agent. Instead, that $25M is more likely to be spread around in small deals, parceled out in $5M or so increments. It’s still nice to have, but would having a couple more Jason Vargases, Travis Woods, Kendry Moraleses, and Omar Infantes have turned the tide for the 2008-2013 and the 2016-2018 Royals? More money is always better than less money, but the Royals are still a small market team. Small market teams are adverse to signing huge mega deals because if they go wrong (and they often do), they represent an larger albatross to a small market team than say the Yankees or Red Sox (who are paying Rusney Castillo $40M to be off the 40-man and play in AAA).

I don’t think this new money will be a gamechanger, necessarily. What it’s likely to do is help the Royals around the margins. If they are claiming they are losing $30M a year, $60M in new capital goes more towards getting them into profit than it does making them open market spenders. Then money is likely to be spent on smaller, supplemental deals. David Glass does get credit for spending when the Royals needed it, running payrolls near big market teams, but I wouldn’t be surprised if the Royals never get far above their high recent payrolls (save for baseball inflation).

When will they have the opportunity to spend?

Another point worth mentioning here is that no team is going to wield big payrolls and spend on free agents if they expect to be poor. We’ve talked on here before about timelines to competition and how long the Royals might be bad for. Realistically, the bar is set for ~4-5 years on the quick path, meaning 2022 to 2023 before the Royals can expect to compete if things go right. Assuming a ten-year deal, half of that window will cover poor teams, with the potential to supplement a “wave” near the mid-2020s.

Teams typically run their clubs on a year-over-year basis, meaning that their budget for the next year is based off of projected revenue for that year. They work similar to a hedge fund or private equity group where most of the excess revenue after operating expenses gets paid back to the shareholders (in this case, the Glass family mainly). They don’t typically sit on hoards of cash like they are Apple, with reserves being greater than revenues. Instead, they typically spend what they need, keep a little in reserves, and distribute the rest out to the equity holders. If they need additional capital (to support a run), then the equity holders will dip into their pockets and then expect to be made whole later on.

I say this because I don’t expect the Royals to tuck away $60M a year like it’s a savings account, waiting for a rainy day. The majority of the excess will likely go back into the shareholders pockets. There’s nothing wrong with that. It’s a business for Glass et al, and they get credit for how they spent when it was needed and they can keep as much or as little as they’d like. They have some duty to the fans (not to go full Miami Marlins on them), but there is no reason they need to run a deficit every year.

What should they spend it on?

There is still a sizeable exploitive opportunity for resources that have gone underused, primarily in international scouting and development of those players. The Royals should allocate considerable capital to having the best international scouting department from both a scouting and analytical department, supporting a global scouting network. Furthermore, they should field multiple complex league teams in Arizona, Surprise, and the Dominican. As some organizations are getting rid of their lowest level clubs, there is a real arbitrage opportunity for a team to develop more players. Finally, they should consider paying their minor league players a living wage. That might be the most unlikeliest of them all, but it’s something that could really help developmentally (living wages lead to better quality of life and production). Also using capital to support minor league development through nutrition and exercise. Money received typically gets earmarked to the major league teams payroll from a fans standpoint, but it doesn’t have to.