The Winter of Our Discontent

Fans scorched Larry Dolan for cutting payroll and trading stars, but the Indians' money troubles were years in the making.

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Back in the good old days -- say, 1997 -- winter crackled with excitement for Indians fans. The sting of postseason defeat cooled with the air. Wahoo jackets piled up under Christmas trees. Travel agents booked passage to spring training. Tuesday nighters against the Angels sold out six months in advance.

Baseball was the city's renewable energy source. Cleveland prized a beautiful park, a corps of talented players, and a gunslinger of a general manager. "Wait till next year" wasn't a failure's delusion -- it was a threat.

But this winter, Opening Day doesn't glisten on the horizon. After the loss to Seattle in the playoffs, owner Larry Dolan delivered his State of the Indians Address. Though he didn't speak the word "cut," his fingers all but made a scissors motion. In the failed hopes of winning a World Series, Cleveland's first since 1948, player salaries had climbed to $92 million. It was time for a new plan, what Dolan and General Manager Mark Shapiro termed a "transition." Call it what they want, the 2002 Indians will spend about $75 million to field a team.

Dolan paid $323 million for the club two years ago and started to fuss about money soon after. To fans, he is the guy who buys a Cadillac and then complains about the gas mileage and the upkeep. Indians Nation viewed him suspiciously when he let Manny Ramirez walk away via free agency. The Roberto Alomar trade drew the loudest howls yet.

"If your goal was to see what 7,000 fans look like in Jacobs Field, I think you might have achieved it," one fan wrote to The Plain Dealer. Even dispassionate out-of-towners wrinkled their noses. baseball reporter John Donovan wrote that Shapiro traded the best second baseman in the game "for an outfielder, a minor league 'prospect,' a couple of other regular guys, a sack of flour, two peppermints from Mets GM Steve Phillips's coat pocket, and four tickets to Harry Potter. Or something like that."

The Indians defend Dolan as generous, a man who reached into his pocket to rent Juan Gonzalez for one last title grab. Such splurging, however, wasn't feasible in the long term. Major League Baseball says the Indians last year lost $14.2 million, a number Dolan confirms. Though baseball has been accused of using creative accounting to inflate its losses -- the better to plead poverty in upcoming labor negotiations -- there's little doubt the club was in the red. "People have to consider that the Indians, like any other major league team today, is a business, and you have to operate in direct relation to revenues," Dolan says.

His words don't send fans reaching for season-ticket renewal forms, but the reality is, the Indians' money woes -- from hat sales to revenue sharing -- loomed in plain sight before Dolan bought the club. The Alomar trade and the reclamation of Brady Anderson, who hit a misprint-like .202 last season, simply brought them into hard focus.

During the four decades before Jacobs Field opened in 1994, Indians baseball was synonymous with ineptitude and stormy luck. Cleveland sportswriters have never lacked for dismal moments in club history: Herb Score. Rocky Colavito. Ray Fosse. Tony Horton. Ten-Cent Beer Night. Wayne Garland. Super Joe. Little Lake Nellie.

The change in fortune began with the team's sale to Dave and Dick Jacobs, then low-profile real-estate developers from Akron. The Jacobs brothers regarded the Indians as an investment, not a novelty or a tax write-off. Their best decision was one of their first: the hiring of Hank Peters. It was Peters who committed the club to scouting and player development, who traded Joe Carter for Sandy Alomar and Carlos Baerga, who added John Hart and Dan O'Dowd to the front office. It's not hyperbole to say that all that is good and right about the Indians flows from the headwaters of Hank Peters.

Since Jacobs Field opened, winning seasons have become habit. A generation of fans is growing up with no memory of sad sacks like Richie Scheinblum, Horace Speed, and Junior Noboa. Alas, winning a championship is still something only the city's grandfathers can speak of.

Then, in 1999, Dick Jacobs stunned Cleveland by putting the Indians on the auction block. He had already done well by the club. According to Major League Baseball's numbers, the franchise turned an operating profit of $37.8 million from 1992 to 2000.

Jacobs's sweetest move, though, was taking the team public in 1998. First, he transferred to the team the personal debt he incurred to purchase the Indians and cover losses during the lean years. Then, when the stock went on sale, he pocketed $60 million with no loss of control. He also cut himself a yearly salary that climbed to $700,000 in 1998.

For Larry Dolan, who grew up in Cleveland Heights, Jacobs's announcement jingled like the keys of heaven. The Chardon lawyer yearned for a sports franchise. He and brother Charles, who founded the Cablevision empire, lost the expansion Browns to Al Lerner's credit card millions. Larry also tried to buy the Cincinnati Reds from Marge Schott.

But in Jacobs he found a man who doesn't believe in leaving a nickel on the negotiating table -- so shrewd, he used the sale of seat licenses to put his own name on the stadium. Tom Chema, Gateway Economic Development Corporation's first executive director, says negotiating a lease with Jacobs was "a struggle." Once, at a meeting to determine the Indians' share of the ballpark's construction costs, then-County Commissioner Tim Hagan called Jacobs and his partners "pigs."

Jacobs rejected Dolan's first bid of $250 million. Eventually, in November 1999, Dolan offered $323 million -- $12 million more than what News Corporation paid for the glamorous Los Angeles Dodgers the year before. Once stockholders were paid, Jacobs took home $184 million, minus $6.3 million to keep his name on the stadium until 2006. (The team leases the naming rights from Gateway.) Jacobs also enjoys a luxury suite, 11 club seats, 12 field boxes, Terrace Club membership, and a parking slip for the rest of his life. Even in retirement, Jacobs is rewarded handsomely.

Then, barely a year after taking the reins, Dolan said the Indians were losing money. He had married a starlet as her looks began to fade.

Dolan should not have been surprised by the constricting budget: The warnings were printed in black and white.

In 1998 the Indians issued a prospectus for the stock-buying public. The report was gloomy about earnings: "Management believes that much of the Indians' local revenue potential has already been realized and that future increases in revenues, operating income and net income, if any, are likely to be substantially less than those realized over the past five years."

For the Indians to make money, the prospectus showed, they have to go deep into the playoffs. In 1997, the year the Tribe lost to the Florida Marlins in Game 7 of the World Series, postseason revenue accounted for 79 percent of net income. But in order to advance through the playoffs, the Indians have to be good, and good players cost money.

The catch-22 of winning and money is fundamental to baseball ownership. Other economic realities are unique to Larry Dolan's Indians. Since the club has returned to private hands, detailed financial records are no longer available, but the grim facts and forecasts in the prospectus and other sources remain:

Ticket sales. Jacobs Field attendance fell by 238,000 in 2001. But even before the remarkable sellout streak ended at 455 games, attendance was softening. After the 2000 season, Dolan noted how the number of no-shows had hurt concession sales. And the Indians can no longer price tickets based on scarcity, as they did under Jacobs. (A bleacher seat that cost $6 when the park opened now sells for $17.) Sensitive to the falling demand, the club kept 2002 tickets at last year's prices.

Revenue sharing. Teams contribute a percentage of their net local revenue to a pool that is split among all clubs. Since the Indians are a high-revenue franchise, they pay more into the pool than they receive. Particularly bedeviling to the Tribe, the portion of income teams must share has increased from 12 percent in 1997 to 20 percent today. Revenue sharing spelled a $13.3 million net loss for the 2001 Indians.

Merchandise sales. How many Thome jerseys can one fan own? Bob DiBiasio, the team's vice president of public relations, says merchandise sales are "above budget" and still in the top five among all teams, but it's hard to believe the numbers match those of the glitter years. Merchandise revenue fell by $2 million in 1998, the year after the Indians' last World Series.

Interest. The Jacobs-owned Indians earned interest on the millions of tickets that were sold months before the season began. Much of that money vanished with the sellout streak, while the team's debt service rose with the sale to Dolan. "The cost of acquisition does not affect operations in a meaningful way," DiBiasio says. But according to baseball's numbers, the club paid $3 million in interest last year.

Tax and rent increases. The city's admission tax on tickets has increased from 3 percent when the park opened to 8 percent today. And in 2004, the rent the Indians pay Gateway will be adjusted for inflation. The team will also have to pay more for the stadium naming rights. All told, Gateway expects an extra $1 million a year from the club.

Expansion fees. During Jacobs's ownership, four expansion teams paid a total of $450 million to join the leagues -- essentially free money for owners. Now baseball wants to contract by paying off the owners of struggling teams.

The economy. A recession has officially arrived. Corporations and families have less money to spend on tickets, nachos, and oversized foam hands.

The club has little or no control over these income eaters, which is why it is looking at revenue streams it can influence. No longer will games be seen for free on WUAB-TV. This off-season, the Indians sold local television rights to Fox Sports Net Ohio for a reported $12 million a year. The 2002 uniform changes were also surely conceived with a retail boost in mind.

Other financial wounds were self-inflicted. The club is anchored to a number of costly deals, as Hart seemed to lose his touch with each passing year. Always fond of veteran hitters, he traded for Wil Cordero in July 2000. Cordero, who has few redeeming qualities as a player or as a human being (while in Boston, he was convicted of beating his wife), will make $4 million next season -- absurd even by baseball's standards. The Indians extended the contract of shortstop Omar Vizquel, transforming a bargain into an aging luxury. In 2003 Vizquel will turn 36 and make $7 million. The club also extended the contract of catcher Ed Taubensee, whose defense is so unreliable, Tim Laker made the playoff roster.

An executive is entitled to a few rock-headed deals (pun intended) now and again, especially in the frenzy of a pennant race, but the unmistakable fact is that Hart left the organization with too many high-priced veterans and too few prospects. "A little expensive also means a little old," says Minneapolis attorney Clark Griffith, whose family owned the Twins from 1919 through 1983. "When a team is starting to look a little old, it's already too late."

Of last season's regulars, only catcher Einar Diaz is under 30. The Indians, with Hart gone to Texas, now admit the price of shortsightedness. "We're kind of void of position players, because they're all playing for other teams," DiBiasio said before the winter meetings. He didn't have to recite names like Brian Giles, Sean Casey, and Jeromy Burnitz to get the point across; fans know them well.

Baseball experts like what Dolan and Shapiro purport to do: get cheaper, get younger. "If I were a fan in Cleveland, I would be happy they're cutting payroll by $15 million," says Gary Huckabay, who writes for Baseball Prospectus, which publishes an annual player guide and consults with general managers.

For not only did Dolan inherit an aging and expensive roster; he made it more so before the 2001 season by approving the Vizquel and Gonzalez deals. For all the talk of Dolan being a cheapskate, it's unlikely Jacobs would have come up with the money for either of them. Jacobs, after all, didn't extend Ramirez's contract when the outfielder could have been had for a fair price.

"I think they probably have good reason to cut the payroll," baseball writer Rob Neyer says -- which is not to say he agrees with how the payroll is being cut. Neyer later wrote a column questioning the Matt Lawton and Ricky Gutierrez signings because of the players' ages (30 and 31, respectively).

The Indians seem to want to emulate the Seattle Mariners, who won 116 games last season despite the recent departures of Randy Johnson, Ken Griffey Jr., and Alex Rodriguez. Paul Mallarkey, a vice president at Houlihan Lokey Howard & Zukin, an investment banking firm that watches sports franchises, doesn't think payroll cuts "are a real negative for the Indians, as long as it's done with a systematic approach to what's important in baseball," as the Mariners did.

In some ways, Dolan is like the new teacher who first lets an arrogant, misbehaving classroom run wild, then enforces discipline. The Alomar trade was the equivalent of assigned seats and no recess. Dolan says the deal was made to avoid a Ramirez replay: "There's a maxim in business: 'Don't fall in love with your assets. Use them to best effect. Understand what your mission is all about.' It is clear in my mind that what the fans want -- the fans who buy tickets, our corporate sponsors -- they want a winner. Robbie Alomar in his way is going to help us be a winner, because we've used the asset appropriately."

Cleveland once flashed all-stars at every position. Now the club is emphasizing pitching, defense, and balance. "We didn't get a first-line pitcher, we didn't get an all-star," Dolan says of the Alomar trade. "We got what we needed. We got help in some specific places this year and help in the future. Was it enough? Who knows? We'll all know in two or three years."

There is, amid all the happy talk of "energy" and little ball, the lingering issue of the owner's wealth. Angry fans are quick to point to Dolan's bank account (or lack thereof) as the explanation behind the Indians' supposed chintziness. He's given them reason to question his juice.

Dolan purchased the Indians through family trusts and bank loans. While he has insisted that his brother has no stake in the team, Dolan couldn't have bought the club without Cablevision stock. Charles created the trusts that own 80 percent of the Indians' equity interests. Larry controls 100 percent of the voting rights, though the trust he created bought but 10 percent of the equity.

Dolan believes his net worth is irrelevant to the Indians' success. "I think I could give [fans] a number, and they would say, 'You know, you're right. You don't have enough money.' Again, you're missing the point. I could have 10 times as much money as the richest person in the world, and if I spent beyond the revenue streams, I'd be hurting baseball."

Mark Rosentraub, dean of Cleveland State's college of urban affairs, has studied sports economics for 25 years. He has determined three classifications of owners: the welfare maximizer, who will lose money to field a winner; the community beneficiary, who looks to break even; and the profit maximizer, who relies on the franchise for income. Rosentraub says that, thus far, Dolan has behaved like a community beneficiary. In other words, he's not Mark Cuban, but he's not Bob Irsay, either.

That said, Rosentraub thinks Cleveland fans are getting screwed. The dean believes it's not Dolan who's jamming fans -- it's Commissioner Bud Selig and his kitchen cabinet. "Cleveland is really the poster child for doing everything baseball asked and is now being abandoned," he says. Rosentraub, incidentally, is no homer; he's a native New Yorker.

Recall the final days before the Gateway vote. Then-Commissioner Fay Vincent virtually came to town in a Mayflower truck, threatening to allow the team to move if the sin tax didn't pass. Voters responded; fans filled the park.

Despite the city's enthusiasm, the Indians cannot hope to compete with the Yankees' revenues. Last year the pinstripers commanded local radio and television deals valued at $56.7 million -- $35 million richer than the Indians' contracts. That's two Derek Jeters. The owners whose teams don't play in Gotham, Rosentraub says, must ask themselves, "How much am I willing to sacrifice to compete with the Yankees?"

What's especially rotten for Cleveland is that, while its broadcast dollars lag far behind New York's, it has to share its hard-earned gate receipts with the game's weak sisters. As it's structured now, revenue sharing doesn't seem to foster competitive balance as much as allow skinflint teams like the Reds and Royals to break even or post a profit.

And the disparity is only getting worse. The Yankees, with the NBA Nets and NHL Devils, are starting their own cable channel next season; George Steinbrenner can expect even more broadcast cash. With the signing of Jason Giambi, the Yankees' 2002 payroll is heading to $147 million, far beyond what even fellow big spenders like the Dodgers and Red Sox are willing to pay.

The Boss's checkbook has Dolan convinced that baseball's current system is a mess. "In one way, I'm almost happy about it, because the Yankees couldn't have made the point any better with the kind of spending they did. And you'll notice no one else was doing any spending. The problem is clear; the solution is not."

Fans who gripe about Dolan whittling salaries, Rosentraub says, miss the point. The real villain is the game itself: "Stop pointing fingers at the owner. Start pointing fingers at baseball."

Baseball, of course, is not to be trusted.

As sympathetic as Rosentraub is to Dolan, he and others don't believe the game lost $519 million last year, as Selig recently claimed. For one, thanks to a quirk in the tax code, owners can depreciate their players over a five-year period, as if they were plant equipment. This allows clubs to deduct player salaries twice -- first as expenses, then as assets. Also, many owners choose to carry heavy debt burdens in anticipation of the club's value at time of sale. Depreciation and interest accounted for $286 million of baseball's "losses."

"The numbers that have been reported don't have anything to do with the real value of owning a baseball team," says Washington State University sports economist Rod Fort.

The accounting jujitsu doesn't end there. Many teams are able to hide profits in related businesses. AOL Time Warner, for instance, owns the Atlanta Braves and the Turner Broadcasting System. AOL valued the Braves' broadcast rights at a mere $20 million -- $1 million less than the Indians', though Braves games reach a national audience on TBS. The number AOL assigns to the broadcast rights is meaningless, since it owns both the content and the distributor. But in baseball's books, the Braves lost almost $24 million.

Dick Jacobs worked similar magic, albeit on a smaller scale. From 1995-'97 the Indians paid Jacobs-owned companies $2.4 million for legal and accounting services, ballpark operations, and mall space for team shops.

Onetime Toronto Blue Jays executive Paul Beeston once confessed: "Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss, and I can get every national accounting firm to agree with me."

Beeston is now baseball's chief operating officer.

Did the Indians lose 14 million real dollars last year? Doubtful. And even if they did, the Dolan family will always have the sale price to look forward to. Just a year after Dolan bought the club, Forbes valued the Indians' worth at $372 million -- $49 million more than what he paid. If baseball was doomed, guys who owned teams in the past wouldn't now be trying to buy new ones. Former U.S. Senator George Mitchell, who sat on the blue-ribbon panel that wrote a Chicken Little report on baseball economics, is part of the group that purchased the Red Sox. "You're not going to invest millions in a business you know to be insolvent," Neyer says.

Not to mention the intangible benefits of owning a baseball team. "They're rare, they're fun to operate, and there's always the promise they're going to get better," says Griffith, the former Twins owner.

Cleveland fans will simply have to tolerate getting worse first.

"I can talk myself blue in the face about this being a good team and it's balanced, but the results will be on the field," Dolan says. "If we do well on the field, the fans will be there. If there's some interim, it will be difficult, but that's my job. We'll see to it that there's no lapses."

But, he concedes, "Fans are not going to tolerate a second-division team."

They've done enough of that.

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