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Money, Money, Money

It seems like every conversation about the Pittsburgh Pirates these days involves the assumption that the Pirates’ owner Bob Nutting is rolling in the cheddar.  However, according to Frank Coonelly in the Post-Gazette article by Dejan Kovacevic today, the Pirates’ bottom line seems to be a little lactose intolerant.

That brings up two things that always puzzled me.  First, I always thought lactose intolerant was actually “lack toast intolerant”, which totally made sense to me, because I have no tolerance for people who are without toast.  It was only years later that I found out the truth, thanks to the fact that my stomach can’t handle the extreme spices brought on by a big bowl of ice cream.  I don’t think I’ll ever understand the second thing, and that’s the obsession Pittsburgh fans have with the Pirates’ finances.
Whether it’s a crazy loon with an agenda against Bob Nutting that can’t be altered by any form of logic, or it’s a casual fan who wonders why the Pirates don’t spend more on their payroll, the topic of finances is present in every fan.  Why do you think I keep track of the finances on this site?  It’s something people want to know.  The most popular pages in the almost one year history of this site include the following topics: the draft, prospects, finances, and Dave Kerwin.  I don’t think I’m wrong if I would guess that those are the four topics that are on the mind of most Pirates fans (especially that last topic).
In the last few weeks, the topic of finances has gained popularity.  Scott Boras started it off by throwing out some claims that certain teams were rolling in profits, claiming that the Pirates received $80-90 M before selling a ticket.  Boston Red Sox owner John Henry added fuel to the fire by claiming that “over a billion dollars have been paid to seven chronically uncompetitive teams, five of whom had baseball’s highest operating profits”.  It’s not hard to imagine how people linked that statement with the Pirates.  You Google the phrase “chronically uncompetitive” and you’ll find a link to the Pittsburgh Pirates’ home page.  (Actually, you get a ton of results for John Henry’s quote, but I’m pretty sure the Pirates are a few pages deep in the search results)
The key thing to keep in mind here is that Boras and Henry are talking about revenue.  That’s only one piece of the puzzle.  In the article linked above, Dejan Kovacevic calculates that the Pirates received $71 M in 2009 before selling a ticket, and that’s from the revenue sharing money, plus their local media contract.  The problem with throwing a revenue figure out there is that people take that figure, take the known expenses (payroll, draft) and make the following type of statements:
“They received $71 M before a ticket was sold, and spent $48 M in payroll and $9 M on the draft.  Where did the other $14 M go?!” (Note, I just made this up.  Any similar claims that come out in forums, blogs, or web sites are purely coincidental…and predictable)
As Kovacevic points out, there are expenses beyond payroll, mostly operating expenses.  Throwing the revenue figures out there, then looking at the known expenses like payroll, is kind of like watching the first five minutes of a movie, leaving for popcorn, coming back 15 minutes later, then walking out 20 minutes later and writing a review on the movie.
In 2004 the Milwaukee Brewers were audited by the public.  In that audit, the following figures were revealed:
Shared Revenue
(This is the revenue received from MLB’s media contracts and revenue sharing, and doesn’t count ticket sales, local media contracts, or any other local revenue)
1998 – $26.5 M
1999 – $29.2 M
2000 – $26.6 M
2001 – $23.1 M
2002 – $34.1 M
2003 – $54.1 M
As for the public payroll figures:
1998 – $32.3 M
1999 – $42.9 M
2000 – $35.8 M
2001 – $45.1 M
2002 – $50.3 M
2003 – $40.6 M
With just the shared revenue figures, and the payroll figures, we’d come up with the following profit estimates (A loss in parenthesis):
1998 – $(5.8 M)
1999 – $(13.7 M)
2000 – $(9.2 M)
2001 – $(22 M)
2002 – $(16.2 M)
2003 – $13.5 M
Fortunately we know the real figures:
1998 – $(2.2 M)
1999 – $(22.3 M)
2000 – $2.0 M
2001 – $6.7 M
2002 – $30.4 M
2003 – $2.2 M
Looking at the shared revenue and the payroll, one would draw the conclusion that the Brewers were in the hole about $53.4 M during that time span, at least before tickets were sold and before any other expenses.  They’d also assume that 2003 saw big profits, since the revenue sharing went up, and payroll went down.  The truth is that the Brewers made $16.8 M during this time span when you calculate all revenues and expenses (although Milwaukee lost $44.8 M from 1994-1997, so overall they were still in the red).
Back to the Pirates’ situation, the $80 M revenue sharing figure has been thrown out, but without knowing all of the expenses and additional revenues, there’s no way to know the actual profits.  Fortunately, Frank Coonelly provided those numbers in the PPG article today, as well as details on where the money is being spent.  Now the question will be: do you believe those numbers?
There will be some who don’t believe them, and who will say “open the books”.  Would that really help?  If you don’t believe them when they throw out their profit figures, why would you believe any other figures that they release?
Personally, I believe them.  I also don’t care much for the issue.  Spending money doesn’t guarantee success.  Just look at the Royals.  They spent $70 M in 2009 and finished with a 65-97 record.  The extra $22 M spent by Kansas City bought them three more wins than the Pirates.  In order to have success, you need to add talent, not payroll.  You can add talent by adding payroll (Akinori Iwamura), but that’s not to say that you need to spend money to get talent (Garrett Jones).
There is one main reason why I believe them: I don’t have a reason not to believe them.  The popular conspiracy theory states that Bob Nutting pockets profits and takes money out to fund upgrades to Seven Springs.  That assumes a lot, most notably:
-It assumes that the rest of the MLB owners sit back and let Nutting take money out of the business to fund other business ventures
-It assumes Seven Springs doesn’t make any money to pay for it’s own upgrades
-It assumes Frank Coonelly left an important job in the MLB Commissioner’s office to take a position deflecting blame from Nutting, which kind of seems like a step down from his previous job
That last one is the big one for me.  If the conspiracy theory of Nutting pocketing profits was true, why would Frank Coonelly (who would have had access to the Pirates’ figures, and would have known what was happening) decided to leave his job overseeing the MLB Draft slotting system to take the position as CEO for the
Pirates?  If the conspiracy theory is true, that makes the Pirates’ CEO position a glorified Public Relations job.  I find any theory hard to believe based solely on Coonelly’s presence in the Pirates’ front office.
Overall I thought the article in the PPG was great, of course I expect nothing less from Kovacevic.  I can understand why the Pirates felt the need to come forward with the information.  All we need to do is take a quick look at the Tiger Woods story to see that people will jump to conclusions based on any information, even if that information doesn’t tell the whole story.  In this case, there were several claims that the Pirates were receiving a large amount of revenue, and people were going from that to the assumption that the Pirates were making large amounts of profits.  The Pirates could either be silent, and let that assumption on the profits gain steam, or they could go public with their profits.
I don’t think it will make much of a difference though.  There are certain people who will complain the Pirates are pocketing profits, no matter what facts get in the way to suggest otherwise.  There are people who don’t care about payroll, but just care about adding talent, even if that talent is a cheap Rule 5 addition.  This revelation won’t change their minds, because they didn’t care much to begin with.
Then there are the people in the middle, who are just looking for the Pirates to address the issue.  Maybe the statements will sway them to one side or the other, but the fact is that this revelation won’t have a major impact.  The important thing is the Pirates winning.  Even if people do accept the claims by Coonelly to be true, I don’t think anyone is going to claim success knowing that the Pirates aren’t pocketing profits.  The only thing that will change the mood of the fan-base is winning.  All you need to do is look across the parking lot to see the truth there.  When was the last time you heard an outcry over the amount of profit the Steelers were making?
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Tim Williams

Tim is the owner and editor in chief of Pirates Prospects. He started the site in January 2009, and turned it into his full time job during the 2011 season. Prior to starting Pirates Prospects, Tim worked with AccuScore.com, providing MLB, NHL, and NFL coverage to various national media outlets, including ESPN Insider, USA Today, Yahoo Sports, and the Wall Street Journal. He also writes the annual Prospect Guide, which is sold through the site. Tim lives in Bradenton, where he provides live coverage all year of Spring Training, mini camp, instructs, the Bradenton Marauders, and the GCL Pirates.

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