Introduction - Scroll Down

The objective of this sports business organization simulator is to understand the fiscal and economic dynamics of a baseball firm, how decisions effect those dynamics, and how dynamics influnce decisions. The better your mastery of making the proper decision at the right time, the higher your score will be.

The Oakland Baseball Simworld is a tool for the baseball executive, and can assist in the formation of scenario plans for the future of the business firm. All primary aspects of operations are represented here to some extent, but in a simple form. The complexity of the simulator comes from the large number of considerations common in the operation of a baseball organization.

The process works like this:

1) Decide what direction you want to take the team. Do you want to have a low payroll team without a new stadium? A high payroll team with a new stadium? A large marketing budget? There are manycombinations of decisions that can produce a winning, money-making organization.

2) Scroll down the decisions panel and type in the decisions you make. Once you do this continue down the panel to the button "Submit Decisions" Click on it to start the simulation.

3) The web page will "refresh" and the first results of the passage of the first year of your job will appear in a graph that will replace this panel you're reading now. It's a moving chart of the firm's Net Operating Income. It will start "in the negative" to reflect where the organization was at that time, according to reports. Depending on your decisions, the graph line will have either moved up toward zero, or down further into the negative. This movement will effect your score.

On the matter of your score, it appears at near the top of the decisions panel and is a large sized number. After the first year (each simulation run after a click of the button on that page equals one year of the 15-year run) the score may remain at ";0"; (zero). It may change as you progress through the simulation. "May" because that depends on what you do.

Posting A Good Score

To achieve a good score, you must do the following:

1) Keep Net Operating Income over zero as often as possible.

2) Cause the organization's Franchise Value, estimated as being just over two-times the total revenue, to increase as often as possible. Every time it increases, you score a point.

3) Build a new stadium. The successful opening of the stadium gives you three-and-a-half-points each year.

4) Pay your stadium rent and don't reduce PSL prices, after you've set them. Doing the opposite will cause your legal fees to increase, and drag down your score. That's right. Your score can go into negative numbers.

5) Maintain a positive cash reserve. If your NOI is negative, this will cut into your reserve. If' NOI is positive, the reserve will build. This reserve, along with your credit line, permits you to build your player payroll.

5) Get to the playoffs and win the World Series. You get eight points just for getting to the playoffs, but 25 points for getting in the post-season tournament and being the World Series Champion. (As a note, it's possible to get to the playoffs and win the World Series, but have a negative total score because you're losing money.)

Players and Payroll

Game Control Decisions

This decision was explained above. If you check YES, that means you want to use the more involved, but fun Player Negotiations Center, where you can "negotiate" individual player contracts. If you want to concentrate on the level of the total team payroll only (say for an economics course), then make sure the control reads "NO."

Team Expenditure and Debt Decisions

Amount of Money to Draw From Reserve

Again, you can fine tune your fiscal condition. Here there's the opportunity to use the money you borrowed which is now in the Cash Reserve.

Percent of Local Revenue to Expose to Revenue Sharing

This decisions is set at 75 percent, with 25 percent increments, from 25 percent to 100 percent. This one controls the amount of local revenue you "expose" to MLB to pay your share into the total pool. This simple variable is designed to reflect the degree of "shielding" of revenue that occurs. For example, by having different corporations that the baseball organization "purchases" services from, local revenues are reduced because, from an account perspective, the revenues are divided between the businesses, and don't show up on the baseball organization's books. This is not to imply that the Oakland Athletics do this, but baseball organizations owned by media conglomerates do. Thus, if your organization's not performing well financially, you may seek this remedy. But be careful. You may be audited and fined by MLB.

Number of
Front Office and Coaching
Employees

This asks you to establish the number of people who will be working in the A's front office. For now, this simply helps to establish front office total payroll, but you can't have a zero number or one that's realistically small or the simulation will stop and kick you out. "Front Office" employees refer to the team president, general manager, vice presidents of finance and administration, stadium administration, marketing, community relations, ticket sales, and other positions. It also includes support staff, like receptionists. At present there are 94 Oakland Baseball staffers in the front office.

The coaching staff includes the manager, positions coaches; scouts are represented in Scouting and Player Development"

Having too few staff or coaches can result in an inefficiently run organization. In this simulator, a decision to have a small staff can result in increased legal fees due to mistakes in several categories, from ticketing to public relations.

Average
Team Front
Office Salary

With this, you can set the average salary of the organization's front office and coaches. Again, a low salary structure can result in errors and mistakes. If you want the best, you've got to pay to draw them.

Scouting
and
Development
Expense

Here, you can determine how much you spend on scouting and player development. This includes faculties, and college visits, as well as special development camps and programs. This is an extremely important variable, because it basically determines how large and effective your farm system will be.

The success of this part of the organization helps to build a winner on the field of play.

Team
Marketing
Expense

This is the marketing budget for the team. If you like the creative A's advertising slogans, well, they don't come cheap. They're part of an effort to draw people to the games. The more money spent, the greater the chance that people will buy tickets to the game, both in the simulator and in real life.

Desired Team Annual
Player Payroll

This variable simply asks you to post how high you want total player payroll to be. The simulator will monitor that level and compare it to the actual total payroll gained from player negotiations. This will not stop you from going over the ";Desired Team Annual Payroll"; If you do, then you have to change the direction of your negotiations for those players contributing to the payroll overage.

Existing Stadium Operations Decisions

NS:
Single
Game
Ticket
Price

Here you can set the average price for a single game ticket at the current stadium the A's play in. But be careful, if the price is too high, you could turn people away from coming. Of course, a winning team draws a higher ticket price.

Stadium
Rent
Paid

Generally, stadium authorities collect rent from the sports team tenants. The examples where this is not the case, is where the team owns the stadium. This is not one of those examples. Here, the public, though the stadium authority, owns the Coliseum, and the A's are tenants. Payment or non-payment of stadium rent can affect future relationships with the stadium authority. There's no negotiation process represented here, but there are consequences for not paying rent. Let's see if you can figure out what they are.

ES: Set
Season
Ticket
Price

The season ticket is the way teams make "premium revenue" from their product. Again, you can charge as much as you desire, just don't be surprised when people stop coming to see your overpriced product. It's up to you to find the proper "price point:" that number where people come to the games consistently, regardless of performance of the team, and where the team realizes positive net operating income from revenues.

ES:
Number
of
Season
Tickets
Available
to Buy

Here, you can set the number of season tickets that patrons can buy. If you're confident you can sell a lot of season tickets, then you should produce a large number of them. If you don't have a lot of them available, you can enjoy any revenue gains from those who would buy them.

New Stadium Decisions

NS: Build
New
Stadium?

This is the first of the "binary" decision variables, where only a 1, for "yes," or a 0, for "no," is required. If you decide to build a new stadium, type a 1 here. But what happens from there is complex. You, as team president, have to identify the necessary revenue streams to pay for a new stadium, and receive government approval before you can have a new home. The computer will not do this for you, so you've got to put your thinking cap on. But the reward for successfully building a new stadium is tremendous. Do it, and what that is will be obvious.

NS: Build
with
Retractable
Roof?

You can decide to have a retractable roof stadium, similar to Safeco Field, where the Seattle Mariners play, or Reliant Stadium, home of the Houston Texans. The gains from such a facility are event flexibility: more events can be held there than in an outdoor stadium. But this kind of stadium is more expensive to construct than the conventional edifice of this type, so a less-than-optimal financing structure, combined with this kind of "gold plating" can cause deficits you and the County Authority will have to pay for.

NS: Stadium land acres

Land are for a baseball stadium is generally about 14 acres, not including parking. Anything less than that in this simulator will result in no stadium being built at all.

Land and
Property
Prep Cost

This refers to the cost to build the land. There's a lot of flexibility here, so one can have as little or as much as possible, and test different cost scenarios. If you pay zero land cost, the assumption in the simulator is that someone else, usually the public sector is providing it. So if that's the case, you should make sure your political relationships are maintained. In this model, as in reality, there's only one way to do that: money.

How Many
Retail Sq
Feet?

You don't have to be stuck with a simple baseball stadium. You can direct the construction of a mixed use development, with retail and housing. This permits you to add retail square feet to the stadium. Once it's approved for construction, this is "locked in" changing it in hopes of lowering the construction cost will not work. If you attempt to lower it, the simulator will kick you out, so give this some thought before you act.

Number of
Housing
Units

This is the next step in your mixed use development. Adding housing will add cost to the complex, but also has other benefits as well. It makes the politicians happy. They love to be able to take credit for housing projects, especially in the case of something controversial, like your new stadium. But adding more units drives up the cost of the development, so be careful.

NS: Urban
or
Suburban
Location?

If the stadium is to be in the middle of downtown, type a 1; if it's out in the sticks, type a "two" What difference does this make? Plenty, especially if you're getting money from other events held at the facility. Let's put it this way: if a concert featuring a good band you never heard of were playing, would you go 25 miles away from the city to see it?

NS: Total
Number of
Seats

This variable sets the number of seats in the stadium, not including luxury box seats. Again, once it's set, that's it. You can't go back and adjust it. Since this is a 12 year run, I assume that your new stadium is not going to need to be expanded so quickly. Thus, there's no stadium expansion provision here.

NS:
Number of
luxury
boxes

This variable sets the number of luxury boxes. The more luxury boxes in place, the greater the total stadium capacity. The reason why luxury boxes are not combined with the total number of seats is that I wanted to represent the difference in purchasing due to price differentiation. In some cases, luxury boxes are what economists refer to as "Giffen Goods:" they are in higher demand because of their high price and amenities. But even with luxury boxes, there is such a thing as too high a price.

Also, remember this: the more boxes you have, the greater the cost of the stadium. The team does not receive all of the luxury box money: it gets a percentage, and the rest goes to the stadium authority. If no public money is used at all, you can keep the box money, but if any percentage of public money is used, the split comes into play.

NS:
Number of
Seats in
each
Luxury Box

This is the best way to control the stadium capacity and not build too many boxes.

NS: Price
of Luxury
Box

Here, the number of people who will purchase your boxes is affected by what you charge for them. The other major determinant is the success of the team. As is the nature of this simulation, a price too great will chase people away.

NS:
Season
Ticket
Price

This is similar to that for the existing stadium, and the price / demand dynamic is similar as well.

New Stadium Financing Decisions

NS: Will You
Use PSL
Financing?

This is another in the series of "binary" decisions. Each one of them activates a sub-simulator for that financing approach. This is true for PSL Financing to start. This kind of stadium construction payment system relies on the sale of "licenses" to purchase season tickets. The PSLs take direct advantage of the idea that sports fans will build your stadium with their dollars by purchasing a right to buy an annual season ticket. The drawback is that if the PSL is not purchased, the season ticket can't be purchased, which effects your bottom line.

Will You
Use
Redevelopment
Financing?

Redevelopment financing is a type of use of public money. In this case, a boundary is legally formed by the city's government around an area of land within which the stadium is to be constructed. All property taxes collected within that zone go to what is called a "redevelopment agency" The redevelopment agency issues bonds to pay for, in this case, the construction of a stadium. The bonds are paid off via the annual collection of revenue from what is called "Tax Increment Financing," or TIF. In TIF, the assessed value of the first year of the zone's existence is subtracted from each successive year of assessed value of the zone. The difference between them is called the "Tax Increment" and that value, multiplied at a tax rate, is called "Tax Increment Revenue"

In this simulator, we start with an assessed value of land equal to almost $ 2 billion, or the value of the downtown Oakland Redevelopment project area. That value is increased at an annual rate of 2 percent. Chances are you are not familiar with TIF, so you are not asked to type in any factors that a redevelopment agency director would have to worry about. The total number of years of the collection of bond monies is 20 in this simulator.

This TIF simulator is designed with respect to California Redevelopment Law, although TIF is used in other cities of America.

Sell Naming
Rights?

Naming rights are another form of stadium financing. This is where a corporation agrees to pay for the right to have its name placed on the stadium. The stadium not only has its name, but also must refer to the corporate name in all forms of advertising and insist that television producers refer to the name in their telecasts.

While naming rights alone can't pay for a stadium, they can add a substantial amount to the financing structure. The two largest deals are for Reliant Stadium, where the NFL Expansion Houston Texans play, at $300 million, and Fed Ex Field, home of the Washington Redskins, for over $200 million. This is not paid at once, but over a period of years. In the simulation, again to make it somewhat easier for you, any deal struck is for a nine-year period.

Also, the deal is subject to economic conditions. Thus, the desired level of naming rights payments you seek may not be what you get.

NS: Use retail
revenue?

This is yet another tool in the financing box. Here, a percentage of retail revenue is collected from the retail uses that are a part of the stadium development (if any) and applied to the stadium's financing. The assumed percentage used is 20, or 20 percent of the gross revenues of the stores in the retail uses you include in the development. This is also collected for a limited period of time.

NS: Use
Income Tax
Financing?

Income Tax Financing is a tool developed in Portland for the proposed new baseball team. It simply takes the income tax the players pay and applies it to the construction of the stadium. There's a capped limit to the tax rate. If you go beyond 10 percent, 10 percent is what is used. You can't gouge your players.

NS: Will you
use REIT
Financing?

REIT stands for real estate investment trust. A REIT is a legal corporation which owns a portfolio of properties, and can raise money to acquire more of them via the stock market. The REIT shareholders are entitled to dividends, and they are paid from the collection of rents from the various properties. In the case of the stadium, should you select this option, you take the REIT on as a partner. The REIT will provide you with a financing contribution, but you've got to pay them back over time. That's automatic in the simulator; we don't want you to get sued for that.

The more money you ask from the REIT, the more you have to pay back. And this money comes out of the baseball team's revenue stream.

NS: Use Event
Revenue?

Hopefully, your new stadium will not stage baseball games exclusively. It will play host to concerts, other sports events, and the occasional birthday party. In negotiations with the City and County, you may want to use some of that for the stadium. The tricky part is how much do you apply to the stadium, and how much do you keep for the baseball team.

NS: Use Hotel
Tax Revenue?

Hotel tax revenue is yet another method, and it also should not be used alone. It calls for the application of a special "transient occupancy tax" to the purchase of a hotel room night. This is above and beyond the standard tax, and goes directly to the financing of the stadium. In some cases, the entire TOT, as its called, is used for the stadium, but in this case, we have a special tax. In this case, the rate is fixed and not adjustable by you. The reason is to maintain some element of simplicity.

NS: Use
Corporate
Sponsor
Financing?

This is related to naming rights use, in that it involves a corporation paying for the right to have its name placed in an area of the stadium. Note, that this is not for the stadium name, and thus should be substantially less than the naming rights request. Your request, if it's too large, will be capped.

Establish New
Naming Rights
Contract?

This is a switch that says "I want to continue to renew my naming rights agreement" Because the team collects a percentage of this, it can be a boost to revenue, and net operating income. It can also help you pay for the construction of a contending team.

Establish New
Sponsorship
Contract?

This is just like the naming rights contract note above, only it applies to corporate sponsorship.


Total Redevelopment Bond Issue Size

This is the third kind of "type-in" decision. The overall idea is to permit redevelopment agencies to actually test proposed bond issues in a specially designed version of the simulator, with other variables unique to the redevelopment agency of concern. Here, all you do is select a number, like "$150 million," which is a number representing a $150 million bond issue. Remember, the higher the bond issue, the more resistance you will receive from elected officials, both in reality and in this simulator. If you have a good public affairs budget, you should meet with fewer problems in implementing the construction of a new stadium.

NS: Income
Tax Rate on
Players

This is the specific rate for the player income tax, should you use that financing option.

Percent of
Retail Revenue
Used To Build
Stadium

This is the percent of retail revenue you can draw for the stadium's construction. The percentage is the inverse of what the team will get from retail, so the more you set aside for the stadium complex, the less will go to the team's coffers.

NS: Desired
REIT Loan
Size

This is "how much" you need from the REIT. Remember, economic conditions may hamper the size of your request.

NS: Desired
Level of Corp
Sponsor
Revenue

This decision variable essentially asks you to describe how much money you're looking for from the corporate sponsor. Again, how much you receive depends on the economic conditions at the time.

NS: Desired
Level of
Naming Rights
Revenue

This decision variable essentially asks you to describe how much money you're looking to close a naming deal with the corporate sponsor. Again, how much you receive depends on the economic conditions at the time. Unlike corporate sponsorship, there's no cap on this category.


Team Stadium
Construction
Contribution

This is the amount of money you're going to pay to help build the stadium. It's a yearly contribution that comes straight out of the team's revenue.


NS: Average Price of PSL

This setting controls the average price you will charge for each Personal Seat License. Remember that the term "average" in the simulation is a simplification and intended to represent a "weighted average": it means that for an average PSL price of $2,000, you may have "X" number at $500, "Y" number at $1,000, and "Z" number at $2,500, all equaling $2,000 as the weighted average.

It's also important to remember that you should not "jack up" prices thinking that you may finance the stadium in this way, for two reasons:

S The higher the price, the less likely you are to sell PSLs, depending on economic conditions and the team's performance.

S Once you establish the initial PSL average price, and those seats are sold, whatever you sell after that will have no significant impact on stadium financing. The PSLs are assumed to be "lifetime," and not renewable. Once they are sold, that's it. If you sell the remaining ones at a lower price, the organization (you) may be sued, both in this simulation and in the real world. The implication is that you're giving the same product to someone who paid less than the first price, and may end up sitting next to a person who paid much more for the same offerings.


NS: Percent of Seats PSL

Here, you control the number of seats in the stadium that will be PSLs. This variable, once set, can't be changed. You may try typing in different percentages, but once the initial sale takes place, the percentage is locked in for the life of the simulation. Any future change will show up on the interface, but not be recognized by the model.

NS: A's PSL Marketing

Should you chose to control the PSL marketing process, and indicate this by typing a "1" this decision variable allows you to determine how much to spend on the marketing program. If you decide not to do this, and give control to the public sector, $1 million is spent for this purpose annually.

The difference between this program and the standard team marketing group is that the entire ticket operation for PSLs is handled here, where other marketing efforts come under the "team marketing" division of the office.

A's percent of stadium food revenue

Stadium concessions revenue is divided into three parts: what the food vendor gets, what the stadium authority takes, and what you (the team) pocket. In stadiums owned by the teams, the sports organization retains as much as 50 percent to 60 percent of revenue. In this case, the division is more complex because the team will not own all of the stadium, but participate in a joint effort to some degree.

Within this joint venture, depending on your design, the public sector will be a large player gaining substantial revenues, or a small player, with a lot of private money spent. That's up to you. In the sim, your share is capped at 50 percent, or ". 5". This is because it's assumed that the rest of the percentage will be shared with the stadium authority, and the food vendor. Generally, the food vendors are happy with a 40 percent to 30 percent take on what revenue they generate from game day sales.

A's percent of parking revenue

This is also adjustable with respect to the public sector. In this case, the more you ask for, the higher your cost of political capital. That will become important when you work to build a new stadium. What you, the team organization, take is money that would go to the stadium authority or the parking vendor. This is also capped at 50 percent.

Percentage of Stadium Ad Revenue to Team

This variable refers to interior stadium advertising revenue, and can be varied from .1 (or 10 percent) to 1 or 100 percent to the baseball organization. In actual practice, once a lease is signed, it's signed and part of that agreement is what your stadium ad revenue take, and revenue gain from other sources, will be. This simulation assumes a "flexible lease" in these cases. This is not true in the real world, but it's intent is to give you a feel for how different combinations of revenue "takes" work in a simulation. (Also, teams and stadium authorities commonly write "amendments" to facility lease agreements, and at times to provide for greater revenue for one body or the other, so nothing is truly set in stone. And teams that own the stadium, and collect the lions' share of revenues generally rewrite agreements with vendors.)

Percent of Naming Rights Revenue to City

In any stadium private (team)-public (city and county) joint venture, naming rights revenues are generally split. Such agreements are part of the overall lease structure. In this case, the greater the percentage of naming rights you (the team) "ask for" the higher the political cost this request will be. Also, do not think that you can annually adjust your naming rights percentage request after the stadium financing deal is approved. Once the agreement is struck, that's it. Remember, even if you are able to change numbers, your efforts are meaningless after the simulator informs you that the "stadium financing has been approved" That total estimate is "locked in"

Politics and Public Affairs Expense

Money is the mother's milk of politics, but what this goes for in actual practice is much more than campaign financing, but that's where it starts. The basic requirement, should you chose to be "political" is that you pay approximately $346 or a total of $4,500 to each of the 13 City of Oakland and Alameda County elected officials campaigns. But for each higher percentage of public money to the total stadium cost there is, there's a higher degree of political expenditures that must be made.

No, not just to campaigns, but to community outreach. To use one example, the San Francisco 49ers have a government relations director. That person's job is to make sure the 49ers name and public assistance abilities have an impact on the community. In that way, the "path" toward building a stadium is made easier for them. That cost alone can be a minimum of $75,000 annually for a good government relations representative.

This is not to imply that such measures are common is sports. The effort varies from team to team. In baseball, many teams not only lack such government relations programs, but at times act as if they're owned something from the public. This is one key reason why many voter initiatives for publicly financed stadiums fail the first time they are launched. The voters do not view the sports organization as in partnership with the community.

To have such trust, a constant and constantly financed government relations effort is key.

Special Decisions

Activate Strike Scenario?

About every six years or so, there is a baseball strike. As you read this, the MLB is about to implement a new agreement formed to avoid a work stoppage this year (2002). Such decisions result in monetary losses for the team.

Just how much of a loss depends on the length of time of the strike. In this model, a strike can and will happen at some point in time if you "flip" this switch by typing a "one" The length of the strike is not known and completely random: it could last the entire season.

What you still have to pay are expenses related to the front office and the stadium, like rent. What you will not have to pay are players salaries, but then you can't sell tickets either. You also have to pay basic expenses common to the operation of the business firm, like insurance.

The point of this exercise is to cause you to run the organization is such a way that you're saving money for these kinds of rainy days, or seasons as the case may be. It's also intended to make you properly tuned to dealing with uncertainty in baseball organizations.

The objective is to build a firm that can withstand any unforeseen occurrence. That is called good planning.