The Business of Baseball Exposed

[Mac the Knife]

In case you hadn't read it or seen it elsewhere, yesterday the Associated Press revealed the financial statements for several Major League clubs which were leaked to it, among them Pittsburgh, Florida, Tampa and Seattle. The report itself focused on the Pirates and their business operations, and the evidence of what I've claimed for a decade (that they don't give a flip about winning, only about profit) has proven damning. It also has exposed some pretty interesting things about the business behind the sport if you look inside the numbers.

For example, the Pittsburgh Pirates in 2008 took in $145,993,437 in total revenue. The fact that it's this high for a club that's had 18 consecutive losing seasons seems downright puzzling at first, until you break down that number and see where the money came from - and in doing so, you learn conclusively just why it is that teams such as Pittsburgh, Kansas City and a few others have virtually no incentive to put a competitive ball club on the field:

• The largest source of the Pirates 2008 revenues? Revenue sharing proceeds from among baseball's 30 clubs, at $ 39,046,312. In effect, the Pirates receive nearly 27% of their total revenue through corporate welfare generously provided by the likes of the Yankees, Red Sox, Dodgers and Angels.
  
• The second largest source of revenue? Broadcasting, at $ 39,007,164. The network television deals MLB has established with Fox and TBS provide great sums to the Pirates, despite the fact that their games are rarely if ever actually aired. Couple that with a lucrative (for the market) local television rights deal, and it's a recipe for a financial windfall.
  
• The third largest source (but what should be the largest source)? Gate revenues, at $ 32,129,368. This is the telling statistic of the first three in two different ways: first in that despite the Pirates record-breaking streak of ineptitude, people still go out to see the team because of their relatively new ballpark; and second, the fact that gate revenue is the team's third highest revenue source gives them no incentive to improve their on-field product.
  
• Coming in fourth? "Miscellaneous" revenues, at $ 17,067,049. This category includes MLBAM proceeds (roughly $2 million), parking revenues at the stadium, their share of merchandising revenues, and the like. Most things that make up this "Miscellaneous" category are, again, equally shared revenues between the 30 MLB clubs - thereby giving the Pirates no incentive to improve.
  
• Fifth up are ballpark signage and naming rights, at $ 10,459,674. Despite the Pirates perennial "loser" status, businesses in the Pittsburgh area continue to remain associated with the club in an attempt to reach its (dwindling) fan base.
  
• Last on the list is concession revenues, representing $ 8,283,870. Coming in at roughly $100,000 per home date, that's a considerable chunk of change, and it again helps underscore the lack of need for the team to compete - the mindset seems to be "people come out whether we win or lose, and they buy food and drink while they're at the park, so... why bother?"
  

The Pirates net income in each of the two years reported (2007 and 2008) was also staggering, at over 10% of their total revenues in each year. While anyone knows I have no aversion to making money, this kind of profit margin is monumental by MLB standards. By comparison, the 2008 Tampa Bay Rays, who won the American League pennant, had slightly higher revenues ($ 160,961,576) but had a net income totaling just $ 218,509. The reason? Tampa spent on its talent and infrastructure to develop a good on-field product, while Pittsburgh spent on its talent and infrastructure to trade it away for future considerations.

Having grown up a Pirates fan, this information doesn't shock me, but it admittedly it does piss me off enormously. To see the breakdown of how the team gets its revenue, then proceeds to pocket it rather than invest it in player talent (which, in turn, would produce a more competitive on-field product that would... raise revenues through better attendance and increased local radio/television revenues, concession revenues, merchandise sales and so forth) galls me.

To think that people with such stupid business sense have custody of this 124-year old Pittsburgh treasure should inflame the anger of everyone who follows the team - and it should cause them to ACT. Or, well, actually, to NOT ACT, by not attending Pirate games in person (either at home or on the road), watching them on television or listening to the team on the radio. If attendance drops far enough, gate receipts and concession revenues fall, and maybe the clowns in charge would actually attempt to do something about it. If radio and TV ratings for Pirate broadcasts fall far enough, maybe the contracts don't get renewed (or get renewed for less money). There's not much that can be done about the rest as it's MLB shared revenues, but perhaps if fans of the Pirates, Royals, or any other team that simply doesn't try to put a competitive product on the field were to take these (un)steps, those clubs would actually do what ostensibly they were organized to do: play competitive baseball.

[Shmee]

I wonder if this news could be enough to convince Nutting and company that it's time to bow out of the baseball business. Universally reviled already, this information just proves what everybody has thought about the team for years. With the very public attempt by Mario Lemieux to buy the team earlier this year, this could be a blessing for Pirates fans. That's a team that needs some serious good will right now, and booting Nutting in favor of Lemieux would provide exactly that. Doubtful, but sports fans can hope, right?

[Lights Out]

To think that people with such stupid business sense have custody of this 124-year old Pittsburgh treasure should inflame the anger of everyone who follows the team

That depends on your definition of "treasure."

On a serious note, thank God the Rays draft well and now have semi-competent ownership because otherwise we'd be in the same boat as the Pirates.

[zer0dotcom]

If attendance drops far enough, gate receipts and concession revenues fall, and maybe the clowns in charge would actually attempt to do something about it. If radio and TV ratings for Pirate broadcasts fall far enough, maybe the contracts don't get renewed (or get renewed for less money). There's not much that can be done about the rest as it's MLB shared revenues, but perhaps if fans of the Pirates, Royals, or any other team that simply doesn't try to put a competitive product on the field were to take these (un)steps, those clubs would actually do what ostensibly they were organized to do: play competitive baseball.

After I read these sentences, I immeadiately thought about the Blue Jays and their attendance figures earlier in the year. I thought about all of the people who began to point at the Jays, saying "They can't support a team! Move them!" or all the discussions about fair weather fans and why more people won't go to the Roger's Centre if the Jays are losing.

It's a difficult position to take on several levels. Jays fans stop going and people don't point at managment and blame them for not putting a competitive team on the field (they try, but in a division against the Rays, Sox and Yankees it's difficult, but there aren't many big names except Bautista to be excited about lately). If they came out, and filled the Dome, would Roger's still try and compete? or would they fall into a pattern much like the Pirates have? It can be argued the Jays have been trying by signing players that they can, like Glaus, Rolen, Thomas and others to have passed through. many could look at those moves being a part of the Red Queen complex (in Alice in Wonderland, the Red Queen tells Alie she must run as fast as she can just to stay where she is.) The Jays have signed players just to prevent themselves from dropped below Baltimore in the standings, but serious big name free agents have chosen to go elsewhere. It's difficult to tell if this is managemnt doing what they can to compete, or to give the impression they are competing so they can maintain the status quo and say "Next year is THE year!" yet again...

Reversed, if Pirates' fans began to turn away in droves, would management be rightfully (in this situation) blamed? Or would the finger instead point at lack of fan support, and lead into talks of selling the club and a potential move? There are so many ways the fans get screwed either way in this situation. It's truely sad that baseball has gotten to this state where more than half the league has been eliminated from the playoffs on Opening Day because 75% of the high end star talent in the league belongs to 1/4 of the league clubs, for the simple fact they can afford a $100,000,000 payroll (7 teams can, and in the case of the Yankees, $200 million) and others can't. (Like the Pirates, whose payroll is somewhere around $35 million this season),

[Gothamite]

It's truely sad that baseball has gotten to this state where more than half the league has been eliminated from the playoffs on Opening Day because 75% of the high end star talent in the league belongs to 1/4 of the league clubs, for the simple fact they can afford a $100,000,000 payroll (7 teams can, and in the case of the Yankees, $200 million) and others can't. (Like the Pirates, whose payroll is somewhere around $35 million this season),

I think you're missing his point - the Pirates have clearly decided to eliminate themselves from the playoff hunt.

Their payroll is $35 million? No problem - they get more than that from revenue sharing. They also get more than that from the television deal. So, either one of those two revenue sources covers the payroll, before the Pirates sell even a single ticket.

So what are they doing with the $110 million extra they take in above and beyond their payroll? Some of that goes into staff salaries, some undoubtledly goes into facilities, etc. Some goes down to the minors. But does any of it go into the pockets of Nutting & Company?

You may hate the Yankees, but they want to win. More than anything else. And they churn every single dime back into the organization - no dividends, no payouts to ownership. "You don't make any money while you own Yankee stock, you make the money when you sell your stock" is what Steinbrenner used to tell his minority partners. Whatever you thought of the man (in my case, not much), you have to admire his business plan.

And when small-market owners use the money given to them by Steinbrenner and the Yawkeys and the McCourts not to make the team better, but to line their own pockets, then you can't blame the larger teams for fighting tooth and nail against any expansion of revenue sharing.

[Lights Out]

At the same time, though, a lot of the reason why the revenue sharing money just gets pocketed by the lower-tier teams is because by the time the Yankees, Red Sox, Mets, Phillies, and Dodgers get done with the free agent market every year, there's no big names or talent left to put butts in seats in Pittsburgh, Toronto, Kansas City, etc., and therefore, there's very little motivation to spend that money.

The draft is a joke as well. Boras has ruined it to the point where great players fall into the lower portion of the draft just because a lot of franchises refuse to deal with him. The two major methods of improving your team in the MLB are both stacked way in favor of the top payroll teams.

The financial documents being leaked should be a wake-up call to Selig that the system in place does not work anymore, but we're talking about the man who is killing the league he runs with his obsession with tradition and stubborn refusal to change rules and fix problems.

[BaltimoreFan]

It's truely sad that baseball has gotten to this state where more than half the league has been eliminated from the playoffs on Opening Day because 75% of the high end star talent in the league belongs to 1/4 of the league clubs, for the simple fact they can afford a $100,000,000 payroll (7 teams can, and in the case of the Yankees, $200 million) and others can't. (Like the Pirates, whose payroll is somewhere around $35 million this season),

I think you're missing his point - the Pirates have clearly decided to eliminate themselves from the playoff hunt.

Their payroll is $35 million? No problem - they get more than that from revenue sharing. They also get more than that from the television deal. So, either one of those two revenue sources covers the payroll, before the Pirates sell even a single ticket.

So what are they doing with the $110 million extra they take in above and beyond their payroll? Some of that goes into staff salaries, some undoubtledly goes into facilities, etc. Some goes down to the minors. But does any of it go into the pockets of Nutting & Company?

I have trouble believing that the Pirates simply pocket the profits and don't worry about winning. For one, the Pirates have spent some of the most money in the draft over the past couple years. That would seem like the one area where the team could spend very little, because the average fan doesn't follow the draft. It appears to me that the Pirates have finally figured out thats how they're going to compete. Its too hard for them to get quality free agents because no one wants to come to Pittsburgh. The net profit doesn't really come into play for free agents, because teams pay free agents based on future cash flows, not past.

You may hate the Yankees, but they want to win. More than anything else. And they churn every single dime back into the organization - no dividends, no payouts to ownership. "You don't make any money while you own Yankee stock, you make the money when you sell your stock" is what Steinbrenner used to tell his minority partners. Whatever you thought of the man (in my case, not much), you have to admire his business plan.

And when small-market owners use the money given to them by Steinbrenner and the Yawkeys and the McCourts not to make the team better, but to line their own pockets, then you can't blame the larger teams for fighting tooth and nail against any expansion of revenue sharing.

I believe every team wants to win, no owner buys a team just for the profit. They obviously want a profit, but that isn't the sole reason they purchase a team (there would be much better options to invest in, if that were the case). The Yankees are located in the largest city in the country and have one of the largest fan bases in all of sports. The demand for the Yankees is much larger than the demand for the Pirates or Royals will ever be. We can see this quite clearly in the ticket prices. The Yankees have tickets for $2,000, when I've heard the Royals sell the same seats for $30. Yes, the Yankees care about winning, but they also have the luxury of never having to worry about going bankrupt in free agency. This isn't something they've done better than every team, its something they've "lucked" into. The Yankees have an unfair advantage, that MLB should really look into if they want to give every team a chance.

I also don't think any team is pocketing revenue sharing. The Steinbrenners, Yawkeys, and McCourts wouldn't be doing it if that were the case. Wasn't there an investigation into the Marlins for this earlier this season, for that very reason. The big boys wouldn't sit around and just let that happen.

[Gothamite]

There sure was, because the Marlins were pocketing the money. Owners aren't supposed to, but some do. That's one reason why Nutting is so desperate to claim that they aren't - he doesn't want MLB to step in and force him to raise payroll, as happened with the Marlins.

[BlueSky]

What an interesting parallel to the government. Success is punished and mediocrity/failure rewarded, and there's little incentive to change. The ones who excel are those who are driven from within, who want something more than to take whatever is tossed their way.

They should at least pro rate the revenue sharing in reverse order, with the most improved team receiving the largest share and the least improved getting the smallest.

[BBTV]

At the same time, though, a lot of the reason why the revenue sharing money just gets pocketed by the lower-tier teams is because by the time the Yankees, Red Sox, Mets, Phillies, and Dodgers get done with the free agent market every year, there's no big names or talent left to put butts in seats in Pittsburgh, Toronto, Kansas City, etc., and therefore, there's very little motivation to spend that money.

The draft is a joke as well. Boras has ruined it to the point where great players fall into the lower portion of the draft just because a lot of franchises refuse to deal with him. The two major methods of improving your team in the MLB are both stacked way in favor of the top payroll teams.

The financial documents being leaked should be a wake-up call to Selig that the system in place does not work anymore, but we're talking about the man who is killing the league he runs with his obsession with tradition and stubborn refusal to change rules and fix problems.

The Phillies, despite being a big market team with a high payroll, aren't the free agent poachers you make them out to be. Most of their talent has been either home grown players, role players they acquired who blossomed into good players, or a few notable additions (Halladay, Oswalt) acquired via trades.

The only noteable free agents signed by the Phillies over their past few years of making the playoffs:

2009 - Placido Polanco

2008 - Raul Ibanez (who sat out on the market for a long time)

2007 - Geoff Jenkins (part time player)

[Gothamite]

True, but many high-profile trades are essentially free agent deals as well. The Halliday deal involved a three year extention at $20M per (with an option for a fourth), which was negotiated as a free-agent contract would have been.

[BBTV]

True, but many high-profile trades are essentially free agent deals as well. The Halliday deal involved a three year extention at $20M per (with an option for a fourth), which was negotiated as a free-agent contract would have been.

Agreed, but you also need the prospects in your system that other clubs want in order to make the trades. You need both homegrown talent and money. Actually, getting Halladay meant that they had to give away Cliff Lee over $9M, so it's not like they have an unlimited payroll (though they should, all things considered.) They wouldn't have brought Oswalt in here if they were planning on resigning Jayson Werth - instead they'll replace him with the low paid rookie Domonic Brown.

[BaltimoreFan]

There sure was, because the Marlins were pocketing the money. Owners aren't supposed to, but some do. That's one reason why Nutting is so desperate to claim that they aren't - he doesn't want MLB to step in and force him to raise payroll, as happened with the Marlins.

Well, Jeffrey Loria may be the one exception. He may actually be in it for the money only. But I don't think small market teams pocket the money like so many fans want to insist.

What an interesting parallel to the government. Success is punished and mediocrity/failure rewarded, and there's little incentive to change. The ones who excel are those who are driven from within, who want something more than to take whatever is tossed their way.

They should at least pro rate the revenue sharing in reverse order, with the most improved team receiving the largest share and the least improved getting the smallest.

Not really the same thing. As I said before the Yankees have an unfair advantage compared to other teams. They can afford to take more risks. They can get higher revenues on players than other clubs can (therefore they can offer contracts that other teams simply cannot without losing money). The Yankees aren't excelling because they want it more, they are excelling because they have a vast amount of resources at their disposal. Resources that smaller market teams will NEVER have. If you switched the front offices of the Yankees and Pirates, things would probably be similar to where they are now.

I'm not saying the Pirates get a free pass. Small market teams can succeed. The Pirates have been run poorly for a long time, but they seem to have realized what they have to do. They've invested in youth. The Pirates can't buy the top 3 pitchers and hitter on the free agent market when they have a down year. They'll go bankrupt. I'm not saying small market teams can't succeed. They clearly can if they invest in youth and player development. All I'm saying is that they're at a clear disadvantage to teams in larger markets.

[The_Admiral]

http://sports.yahoo.com/mlb/news;_ylt=AlitfzBk0PX.WE8FHvmg.uc5nYcB?slug=jp-marlinsfinancials082410

Well, Jeffrey Loria is one rotten human, huh.

[crashcarson15]

At the same time, though, a lot of the reason why the revenue sharing money just gets pocketed by the lower-tier teams is because by the time the Yankees, Red Sox, Mets, Phillies, and Dodgers get done with the free agent market every year, there's no big names or talent left to put butts in seats in Pittsburgh, Toronto, Kansas City, etc., and therefore, there's very little motivation to spend that money.

The draft is a joke as well. Boras has ruined it to the point where great players fall into the lower portion of the draft just because a lot of franchises refuse to deal with him. The two major methods of improving your team in the MLB are both stacked way in favor of the top payroll teams.

The financial documents being leaked should be a wake-up call to Selig that the system in place does not work anymore, but we're talking about the man who is killing the league he runs with his obsession with tradition and stubborn refusal to change rules and fix problems.

That is something that the MLB supposedly wants to fix though. By slotting the bonuses for draft picks (and not letting the bonus exceed the slot), you eliminate this problem.

And if Pittsburgh, Toronto, or Kansas City would go after top free agents maybe they'd get 'em.

(Of course Pittsburgh fans deserve the Pirates sucking so...)

[Lights Out]

If Pittsburgh, Toronto, or Kansas City even dared to go after a top free agent, the Yankees would double their highest offers before the end of the day. Face it, it's impossible for a second-tier team to get a big name in free agency under this current system.

And the real solution for this mess is to introduce a salary cap and a salary floor, so the Pirates can't just pocket the revenue sharing money and not spend it on the team and the Yankees can't continue to field the BALCO Labs All-Star Team every year.

[The_Admiral]

To think that people with such stupid business sense have custody of this 124-year old Pittsburgh treasure should inflame the anger of everyone who follows the team - and it should cause them to ACT. Or, well, actually, to NOT ACT, by not attending Pirate games in person (either at home or on the road), watching them on television or listening to the team on the radio. If attendance drops far enough, gate receipts and concession revenues fall, and maybe the clowns in charge would actually attempt to do something about it.

I don't really believe in this. I went over this principle with the Cubs sucking. This is like withholding lunch from a student until he answers his algebra problems correctly. Not only does this intrinsically make him no likelier to figure out how the quadratic formula works, he's also going to get hungry and not think very clearly. You can issue bomb threats at PNC Park every day and it won't make them stop sucking at drafting. If anything, they'll cut their scouting department.

[DG_ThenNowForever]

http://sports.yahoo.com/mlb/news;_ylt=AlitfzBk0PX.WE8FHvmg.uc5nYcB?slug=jp-marlinsfinancials082410

Well, Jeffrey Loria is one rotten human, huh.

I would love to see some sort of constitutional amendment banning the public financing of sports stadiums. Sports are fun and regional pride is great, but when not they require poor and middle class citizens subsidizing the accumulation of recreational wealth by billionaires.

[Sodboy13]

http://sports.yahoo.com/mlb/news;_ylt=AlitfzBk0PX.WE8FHvmg.uc5nYcB?slug=jp-marlinsfinancials082410

Well, Jeffrey Loria is one rotten human, huh.

Well, yeah, but I thought we all already knew that back when he was willfully ruining the Expos.

[The_Admiral]

Constitutional amendment seems rash, but I would like to see some of these hat-in-hand billionaires turned away when they ask for state-funded private palaces. The Palace of Auburn Hills is one of the best arenas in North America, all paid for in private funds, and it's probably going to be as abandoned as the Silverdome in five years because moving the Pistons downtown will supposedly "revitalize Detroit."

The most disgusting thing about everything in that Loria article is that the team we're talking about is the Florida Marlins! The 75-people-at-a-game Florida Marlins. The trade-your-stars-ASAP Marlins. The lower-total-payroll-than-A-Rod Marlins. The pocket-revenue-sharing-until-even-Bud-Selig-makes-you-knock-it-off Marlins. These cheap douchebags played Stadium Shakedown with Miami and they won? Miami is just as daft as Glendale to subsidize these guys. Should've told him to piss up a rope and make the results into an art installation.