Tuesday, August 24, 2010

Pirates Profitable with Last Place Teams

The Post-Gazette reported yesterday that the Pirates have had a $34.8 million profit over the last three seasons. Additionally, the Pirates paid out $20.8 million to the team's ownership group in 2008. Approximately half of that covered taxes on profits and the other half was interest on a loan made by the Nuttings to the Pirates. I realize that some of this money was used to pay taxes and reduce debt, but when you combine these two figures the Pirates have actually managed to make $55.6 million in three years with last place teams. Now here’s my first question, should Bob Nutting and the Pirates organization be faulted for running a business well? Would you rather see that they are just scrimping by and spending every dollar they have on the team or does it comfort you to know that they will not have a gun to their head any time soon to unload a player like they did with Aramis Ramirez.

Here’s the next question, what is the motivation for the Pirates to compete if they are making huge profits with a last place team? It’s common sense that trying to win is a much greater financial risk at this point. A reasonable salary range that a Pittsburgh Pirates fan could hope the team would spend is about $70 million. This will not happen next year, but it should happen in the next few years if management has any confidence in their plan.

Another way of thinking about this (and I know this has been said many times before), is you can build a winning team with less than $80 million. Look at the Padres ($38.2 million, 2nd lowest), Rangers ($55.2 million, 5th lowest), and Rays ($72.3 million, 12th lowest). These teams are pretty much locks to be playing this postseason and there is still a month of the season left. It’s obvious that this CAN be done, but the Pirates just don’t seem to be able to have the same results. Now look at the Cubs ($146.6 million, 3rd highest), Mariners ($86.9 million, 14th highest), and Orioles ($81.2 million, 17th highest). All of these teams spend a lot of money and all of them are atrocious. How are these teams able to waste so much money on players that aren’t helping them win games? In fact, that might be a better question. What is worse for baseball, the payroll habits of the Yankees or the Pirates? In a recent poll on ESPN.com, it looks like people feel that they are each pretty bad for the game. This is kind of a hidden poll so it only has 1300 total votes so far, but the Yankees received 52% and the Pirates received 48%. I really think each side is very troubling. The Yankees spend insane amounts of money each year to do their best to put a winning team on the field (they have contributed over 95% of all luxury tax payments since it began in 2003). I’m sure they also look at their bottom line, but it comes second to winning. The Yankees are putting their hard earned money right into Bob Nutting’s bottom line (he doesn't accept a salary so I can't say his pocket), which is not the intention of a luxury tax. On the other hand, how are the Pirates supposed to compete with teams that put up $10 million per year for an average pitcher? The Yankees have signed a few busts to large contracts over the last decade, but take Jason Giambi’s contract for example. If the Pirates signed a player to a 7 year, $120 million deal and he hits like crap, it would set our franchise back ten years.

This is my message to Pirates ownership. You have a marketing strategy this year with the theme of, “Pride. Passion. Pittsburgh Pirates.” This accurately describes what the Pirates once were. From Honus Wagner to Roberto Clemente to Willie Stargell to Barry Bonds, some of the greatest players in MLB history have worn a Pittsburgh Pirates jersey. That was then and this is now. Is anyone in Pittsburgh proud to be a Pirates fan right now? I know I’m not. The Pittsburgh Pirates have an amazing 123 year history. They have accomplished many things that few other teams have. But for the last 18 years (14.6% of their history) they have been an embarrassment. Put a winning team on the field or sell the team. It’s that simple. The people of Pittsburgh deserve a team that we can be proud of as fans. Respect the game of baseball and stop running a fireworks and bobbleheads business.

DVE Morning Show - Hey Pittsburgh Pirates


  1. Greg, I could be wrong, but I thought the $20.8 million paid to debt and on taxes was part of the $34.8, not in addition to.

    I like the fireworks and concerts. Can't we have winning teams and fireworks and concerts? Why do they have to be mutually exclusive?

  2. Greg, thanks for burying my post. I had the top of the site for what, 3 hours?


  3. Rickel - This is from Dejan's article yesterday:

    "The Pirates' exact profit -- or net income -- for last season was $5,409,087. The profit for 2007 was $15,008,032, and the profit for 2008 was $14,408,249. No ownership dividends were paid in that time, and Mr. Nutting took no salary or management fee, but the 2008 books include the $20,443,000 distribution made to general ownership in the 2008 books."

    The profit is your bottom line. This is the money that your company has made after every single expenditure that is involved in running a business. EBIT is a term used to describe the earnings before interest and taxes, but this term was never used in any article I read. I could be wrong, but I'm almost positive that when they say, "the 2008 books include the distribution" that this is before the profit.

    As for the fireworks, I guess they don't have to be mutually exclusive. I just feel like we're similar to a minor league team entertainment wise. Every inning break, "Look over here! The Pirates probably aren't entertaining you casual fans, so we'll play Press Your Buc!"

    Joe - I almost delayed posting this because I felt bad about that, but I decided just to put it up because I was writing about the worst team in baseball until 330am after going to see them get pounded by the Cardinals 10-2 in front of about 10,000 people. My bad. You can re-bury mine if you wish.

  4. Oh man I wish I were still around to debate this with you because I feel we could go all day on this. I'm going to defer to you on the business/money side of this because we both know you you're much more knowledgeable about that than am I.
    But for me, I see that $20 million still as a necessary expenditure and shouldn't be included in your profits figure. Any good business practice would agree that you pay down debt in good years to cover you in bad years (or thinking optimistically, in years where you have less to pay out becauase it is going into an increased major league payroll). Long story short, if the owners don't do that, the Pirates would be going through what the Texas Rangers just finished up with.

    To follow up with the baseball aspect, you kinda got away from the point I thought you were trying to make, when I read that last paragraph. I took the piece as the Pirates have a good plan in place to spend when they're ready. But in that last one, I got they need to spend a ton of money immediately as well to bring in a big name guy or just sell the team outright.

    I think that's unfair because Bob Nutting has only been the principle owner for about 3 years, along with the current management group. What else would you have them do in the past three years? Use that profit to sign people? Since the Pirates made 34.8 million over the last 3 seasons, that's about 11.6/season. Who could they have signed and how much of a difference would that make? If you put all that in one guy, you could overly-optimistically expect ~4 WAR, having the Pirates be nowhere close still to respectable. I'd like to read what you think on all that.

  5. I agree with Zanic. If you're not trying to pay down debt in good years, you end up being run like the Penguins of the 90s that had to be rescued by Lemieux. Who by the way, was owed something like $30 million by the team and buying them was one way for him to get what was owed to him.

    I didn't read anywhere that combined the $20 million with the $34.8 million, that's why I thought one was a part of the other.

  6. First off, I want to clarify the last paragraph because I see how it can be easily confused. I am not asking that the Pirates spend all profit each year on free agency for the following year. I just want them to win. For 15 years they didn’t have a plan of any kind. They had no core. It took a long time to figure this out, but I agree that the new management has come in and implemented a very good plan, BUT the next phase of this plan (I'm guessing 2012 or 2013) MUST be to add more upper echelon MAJOR LEAGUE talent through a trade or via free agency. I hope this happens, but I have lost all trust in this organization’s ability to put a winning team on the field.

    Another thing about spending profits on the team – it’s easy to look at the $11.6 million per year the Pirates could have spent on a free agent, but when the time is right the Pirates cannot just stop there. They also need to take on more debt to increase their payroll. If you do it in the right way it will lead to increased revenue that helps you pay off the debt.

    I caught a little bit of Dejan Kovacevic on Mark Madden today and I'll definitely be looking for the podcast of that tomorrow because it was very informative. The Pirates debt level was described yesterday to be “manageable,” but Dejan seems to think that it is very close to “unmanageable.” He was talking to local accountants and they pointed to the fact that the Pirates' debt has been escalating lately each year. I think it comes down to one simple fact; the Pirates' ownership does not have enough money to support a Major League Baseball team. In this business you need to have an owner that is willing to risk losing money in the short run to win more games, which is something that the Pirates do not have.

  7. The copies of the actual financial statements are on deadspin.com. We need to contract out the CPA we know (code name is Swan right?) to look it over and figure out what's going on.

  8. I agree. I couldn't really find any indications of debt on the Deadspin financial statements. I was regurgitating Dejan's interview in that part.

    This was an interesting article that I just found: http://www.google.com/hostednews/ap/article/ALeqM5g16QZVBjA71LTTXciSEvcLbcR97QD9HQ2ROG1

    Yesterday Coonelly wouldn't disclose how much debt the Pirates have. This article makes is seem like it's a fact that they have $120 million. Very confusing.