Monday, August 23, 2010

In defense of the Pirates (sort of)

By Finesse


In America, people don't go into business to lose money.  Today we woke up to the news that the Pirates' financial statements from the past 3 season had been leaked to the press and the statements showed that the Pirates' made $15 million in 2007, $14.4 million in 2008 and $5.4 million in 2009.  For some Pirates' fans and a "sports economist" to be discussed later, this was unacceptable.  After all, how could Pirates' ownership allow themselves to make money while simultaneously allowing the major league team to be a complete embarrassment for 18 years?  After the jump, I tell you why I don't have any problem with the Pirates making money but I have a serious problem with the Associated Press...


Let's compare how this story was covered in two separate places - the Post Gazette and the Associated Press (via ESPN.com).  The PG reported the news the proper way - it started with facts and quotes from the actual people involved in making the news.  That's called journalism.  The AP, on the other hand, appeared to be writing as if it was outlining discussion points for an afternoon-drive sports-talk radio program.  After the AP reveals in the third paragraph that it "wasn't invited" to owner Bob Nutting's press conference discussing the financial statements, it quotes David Berri, a "sports economist," who says: 
The numbers indicate why people are suspecting they're taking money from baseball and keeping it -- they don't spend it on the players.  Teams have a choice. They can seek to maximize winning, what the Yankees do, or you can be the Pirates and make as much money as you can in your market. The Pirates aren't trying to win.
This is an unprofessional presentation of the story.  First, what is a "sports economist?"  Sounds made up.  Second, why is this opinion presented before the actual news?  The news, like I said earlier, is the finances and what Nutting and Coonelly had to say about the finances.  Maybe the AP feels that because they "weren't invited" to the press conference that they can't quote Nutting, but the entire second half of the article summarizes what Nutting was saying at the press conference.  That's amateur hour.

GTOG, the internet's hottest news magazine, could spend hours critiquing the journalistic integrity of the media, but let's focus instead on the Pirates.  According to Nutting and Coonelly, the team paid $20.4 million in profits to its ownership group over the past 3 years and this was to pay taxes and pay back the interest on a loan.  I'm not a financier, but I don't see anything wrong with this.  The Pirates have had to go to their ownership group several times over the past dozen years to ask for more money and these owners often ponied up.  At some point, aren't they justified in at least getting some money back to help cover taxes?  And think about the last time you owed someone money...were you willing to wait around forever for it to be repaid?  Didn't think so.






Some people just want the Pirates to "spend more."  I ask, to what end?  The Pirates made $15 million in profit in 2007.  Let's say that they invested that entire amount into the major league roster in 2008.  That's a drop in the bucket.   $15 million buys you a journeyman starting pitcher and an average left fielder.  If the Pirates had two guys like that, how many more games would they win.  5?  6?  Ok, so they win 73 games instead of 68.  Big deal.  Those 5 wins will not sell a single extra ticket and, even if it would, it isn't going to come close to $15 million more in revenue.  So if you own the Pirates, there is no reason to do that.

The other problem I have with the Nutting-bashers is that it is a false comparison to compare the Pirates to the Yankees.  They're both in the MLB, but for all intents and purposes they aren't in the same league.  Berri, our "sports economist," decries the Pirates because they don't invest in winning "like the Yankees."  I'm really tired of this argument.  The Yankees can have an unlimited payroll because they play in New York, sell tickets at 10 times the price of PNC park (at minimum), have their own TV network, and have ESPN in their pocket to constantly promote them.  The Pirates don't have this.  If the Pirates reinvested their $15 million in payroll, they'd still be about $150 million behind the Yankees.  Big difference that would make.


The Yankees don't spend money because they are trying to win.  They spend money because they can get a return on that investment, not in the form of winning but in, you guessed it, more money.  The Pirates don't have this luxury.  Unless the team gets an owner who is willing to hemorrhage money for the sake of winning, they can't afford to spend more money.  Without a salary cap, the Pirates have no chance to come at all close to what the bigger market teams can pay.  And if the Pirates did start spending more, wouldn't that just drive salaries up across the board, thereby giving the advantage right back to the Yankees?  (To our Yankees' fans out there - I don't begrudge you for spending money.  I'd want my owner to do it.  Just know that you are competing in a league with about 10 other teams, while the other 20 serve as your farm system).


Of course this is the point where you could look to the other teams who have been moderately successful with lower-end salaries.  Tampa Bay, Minnesota, etc.  They have done a great job, but they are also operating with no margin for error.  If Tampa signs Javier Vazquez and he stinks, the team suffers for years.  If the Yankees do sign Vazquez and he stinks, they trade for someone else and pay Vazquez to go away.  I know San Diego and Cincinnati are doing well this season, but wake me up when they win the World Series.


I'm not absolving the Pirates of blame for sucking for 18 years.  Quite the opposite.  The Pirates have sucked for 18 years and that has meant 18 very high draft picks with nothing to show for them (save for some guys from the past couple of years).  The team is horribly managed.  They can't draft and develop players.  When they spend money, they spend it on Matt Morris (the second worst trade of all time behind the Louisiana Purchase).  When they have a good player, they trade him (Aramis Ramirez).  So yes, I'm with you, the Pirates are awful.  


But awful as they may be they have a right to make money, or at least not lose money.  If you don't like it, don't go to the games.  Actually, you aren't going anyway.




5 comments:

  1. I can guarantee you would feel differently if Bob Nutting owned the Penguins.

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  2. Maybe. I'll openly admit that I don't care all that much about baseball and maybe that colors my analysis.

    But the difference is that the NHL has internal controls to prevent owners from being as cheap as the Pirates - a salary cap and a salary floor. I'm not saying that Nutting is a good owner by any means. The team has sucked for a long time and has had almost zero decent players come through the organization - that failure starts at the top.

    I'm just trying to say that I don't blame him for not spending to a point where he will almost certainly lose money. It is Major League Baseball's fault for having a system in place where a small market team has to either be perfect in its drafting (and still get lucky) or have an owner with deep enough pockets that he or she is willing to take enormous financial risk.

    Here's another problem with baseball that makes it less attractive to own a MLB team than a team in the NHL or NBA - the playoff structure. If the Pirates spend a lot more money and improve significantly, they may get to 90-95 wins but there is no guarantee that would get them in the playoffs because only 4 teams in each league make it. In the NHL and NBA, 8 out of the 15 teams in each conference make the playoffs. If you improve a little bit, you'll probably make the playoffs. This is a huge difference financially because the playoffs are basically free money - you sell tickets, advertising, tv, etc. but don't have to pay the players more.

    From a competition standpoint, maybe people like the baseball system better where mediocre teams aren't making the playoffs. But from a financial standpoint, the fact that the Pirates could spend $40 million more and still probably not make the playoffs would rightly make the owner wonder, "what's the point?"

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  3. Setting aside the "economics of baseball", think of the way Nutting runs the Pirates in the same way you'd think about a real estate investor who's a "slum lord". A slum lord buys property, maximizes income (rent), does only the barest (or none at all) maintenance, takes the depreciation tax break, and then argues with the property tax assessor that the assessment should be less because the property is in such bad shape all while devaluing the surrounding buildings. (Look up the name Sam Rappaport sometime for a real life example).

    This is pretty close to Bob Nutting's business model. The Pirates are just another business to be soaked with minimum investment like his newspapers and Seven Springs. Fielding a winning team isn't necessary for him to make a nice, steady profit.

    The "economics of hockey" are perfect for Bob. Nutting would take full advantage of the salary cap by hovering near the cap floor every season. He might have drafted Crosby and Malkin, but when their EL contracts expired, they'd be traded for "prospects" (think the Jagr to Washington trade). There would be no deadline deals to bring the likes of Marian Hossa on board. There wouldn't be AHL or ECHL development teams. It would be like the old days where prospects were scattered around other team's minor league affliates. Because so many teams can make the playoffs, Nutting would only have to field a team that competed for the 11-8 spots to satisfy the fans. That could be done fairly easily on the cheap. Even better for Bob, he gets to keep all the revenue from home playoff games. The Penguins would be a bigger cash cow for Nutting than the Pirates are.

    Be very thankful the Nuttings were already financially involved with the Pirates when the Pens were in financial trouble in the early 2000's and need infusions of cash.

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  4. If you're trying to insinuate that I would accept the business model of a slum lord, then you are being offensive and irresponsible. Slum lords take advantage of people who are economically vulnerable and deny them of a basic human right - the right to shelter that is in livable condition.

    The Pirates are a baseball team. No one has a right to have a good baseball team in their city. If Nutting is taking advantage of you as a baseball fan, then find something else to occupy your time. Make it so it is so completely unprofitable for him that he has no choice but to sell. I'm with you on this. I hope he does sell it to someone who, while not willing to lose money, is at least willing to take some more financial risk than Nutting to put a better product on the field. I'm not a Nutting apologist - I just don't think it's totally fair for people to expect him to lavishly spend on a team that probably won't bring him a return on his spending.

    When you compare a baseball team to a slum housing project, it serves no other purpose than the shock value of saying something outrageous. It's what people on Fox News and MSNBC do. GTOG is a news magazine.

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  5. You are overreacting. I did not compare the Pirates to a slum housing project. I compared the WAY Nutting operates to the WAY the kind of person who owns
    dilapidated buildings or houses does. It's all about maximizing revenue and minimizing costs.

    The point is Bob Nutting owns the Pirates to make a profit, period. They are just another business to him to take as much money out of as he can for as long as he can. If he could break even (0 profit) and field a better team, he would not do it. It would be a bonus if somehow he caught lightning in a bottle and the team was competitive ala 1997, but it's not necessary for his ownership business plan to succeed.

    The box Nutting has built for himself is that he has claimed the team is too poor to spend on MLB payroll over the years. Obviously when you take 20M+ in profits that is not true. That is why people are angry.

    BTW, I don't patronize PNC Park or the Pirates. I like baseball and I have found it's just as fun to go and watch my local high school and American Legion.
    FTR, I'm also a long time Steelers and Penguins fan.

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