How Can the Pirates Compete With These Profits?

For the longest time we’ve heard complaints about the Pittsburgh Pirates pertaining to the MLB payroll.  Fans look at the Pirates, their payroll levels, and then look at other small market teams with higher payroll levels, and ask why the Pirates can’t spend to those levels.  That is usually followed with the assumption that Bob Nutting is pocketing major profits, and cares more about making money than winning.

As I’ve long pointed out, the problem with these comparisons is that people aren’t factoring in attendance.  The reason the Tampa Bay Rays are spending so much right now is because of their increased attendance in 2008 and 2009.  It’s not coincidental that they spent in the $25-35 M range for several years until the attendance went up, at which point they were able to bump the payroll.

The Pirates’ financial documents were released yesterday, showing that from 2007-2009 the Pirates made about $35 M in profits, combined.  That pretty much counters the idea that Nutting is pocketing mass profits, and that the Pirates can be spending $60-80 M a year, although as Wilbur points out, it might not make a difference to some people.  I would have to agree with Wilbur for two big reasons.

First, I never thought that people were interested in seeing the truth in the Pirates’ books.  There are certain people out there who have no lives and spend way too much time trying to expose the evil doings of a professional baseball owner, and that will continue regardless of what happens.  However, for the normal (and normal minded) fan, the previously closed books provided some sort of hope.  The hope was that the Pirates had money available, and all that needed to happen was that the Pirates needed to find a new owner who cared more about spending that money to bring a winning team.  That also relates to my second reason why the profit revelations might not make a difference: the only thing people care about is winning.

The realization going around now is that there weren’t excessive profits available to spend, and even if the Pirates did spend those profits, they’d only be spending in the $55-60 M range.  Since people only care about winning, the new topic I’ve seen thrown around the most is “How can the Pirates ever compete with these profit levels?”  If the Pirates are only making an average of $10 M per year, then how can they raise their payroll to $70-80 M when it comes time to compete?  The answer lies in the attendance.

Take a look at two small market teams who have increased payroll in the last few years: the Tampa Bay Rays and the Milwaukee Brewers.  Both teams had a similar path: years of losing, low payroll levels, suddenly turned things around to win, and the payroll spiked shortly after.  How were they able to pay for the payroll spike?  Let’s look at each team from the last eight years.

*Payroll levels reflect the season ending payroll, via The Biz of Baseball.  Percentages reflect the increase or decrease in a category from the previous season.

Milwaukee had higher attendance levels, which explains why their normal payroll levels were higher than Tampa Bay.  Both teams followed a similar path.  In 2005, Milwaukee posted a .500 season.  In 2006, their payroll went up, although they did trade Carlos Lee to the Texas Rangers that year, which shed some payroll.  In 2007 the payroll took a huge jump, followed by a leap to $90 M in 2008 and 2009.  The big thing to look at was the increased attendance, specifically in 2007, where they fell just shy of 3,000,000.

Tampa Bay had everything happen at once.  In 2008 their payroll jumped to $51 M.  That was also their breakout year in which they posted a .599 winning percentage.  Their attendance also spiked by about half a million fans, a trend which continued in 2009 (which probably allowed them to spend $71 M that year).

The Pirates find themselves in the same situation as Milwaukee, pre-2005, and Tampa Bay, pre-2008.  Their attendance levels are somewhere between the two teams, higher than Tampa Bay, but lower than Milwaukee.  In order for the Pirates to increase payroll, and not take a huge loss, they need to see a spike in attendance, just like Milwaukee and Tampa Bay did.  This always brings up the same questions and arguments:

-Why is it the responsibility of the fans to spend money first before the owner spends money?

-Why can’t the team spend for a winner then gain the profits later when the team wins?

-Why can’t we have an owner who cares more about winning, and less about breaking even or making a profit?

-If the Pirates showed a commitment to winning by spending money, more people would pay see them.

All of these questions/comments can be answered with a simple response.  No owner is going to take a loss year after year.  Like it or not, baseball is a business.  It’s that way for Nutting, just like any other owner.  It’s easy for the fans to say “Why can’t they take a loss to produce a winner”.  The fans aren’t risking millions of dollars for the benefit of people who may or may not show up to support the business.

The Pirates can’t really afford to spend money before they are ready to compete, just like Tampa Bay and Milwaukee.  That’s why attendance has to come first.  We’ve seen how a big financial loss can affect the Pirates’ finances for multiple years (looking at their early 2000’s).  There’s no guarantee that spending will bring in fans, that has been proven in the city of Pittsburgh.  In 2005 the Penguins added Sergei Gonchar, Ziggy Palffy, and John LeClair through free agency, and saw the debut of Sidney Crosby.  However, attendance didn’t increase until mid-way through the 2006-07 season, when the Penguins started winning.

The theory is that if the Pirates show an attempt to win, the fans will come out to see them.  The truth is that the fans only want to see winning.  Fans won’t pay to see losing, even if the Pirates are losing with high priced free agents.  The Pirates also essentially have one bullet in the payroll gun.  If they fire that bullet on a losing season, it could set the franchise back again, meaning no chance of keeping guys like Andrew McCutchen or Jose Tabata once they’re eligible for free agency.

Alvarez will be a key factor in the Pirates increasing attendance in the future.

The Pirates are on the right path towards building a competitive team.  They’ve got three young talented hitters in McCutchen, Tabata, and Pedro Alvarez.  They’ve got some other talented players like Neil Walker, Garrett Jones, Ross Ohlendorf, Evan Meek, Joel Hanrahan, and James McDonald.  Help is on the way from the minors, with the four pitchers at the AA level (Rudy Owens, Jeff Locke, Justin Wilson, Bryan Morris) and Brad Lincoln looking to get another shot at the majors.  The addition of Jameson Taillon, and the potential to get Anthony Rendon in the 2011 draft could also play huge roles in the future.

Looking at the 2008 gate receipts and concessions revenues, the Pirates made a total of $40.3 M.  They also had an attendance of 1,609,076 in 2008.  That amounts to about $25 per fan.  Now it’s impossible to say whether that $25 per fan amount would hold up from year to year, as ticket prices can change, and the Pirates have offered some discounted season tickets since the 2008 season.  However, if we assume the $25 per fan price does hold up from year to year, then simple math tells us that a million additional fans equals $25 M in additional revenues.

The attendance for the Pirates in 2009 was 1,577,853.  They also made $5.4 M in profit that year, and spent about $48 M in payroll.  That means they could have spent about $53-54 M with that attendance, while still breaking even.  I’m sure that a winning Pirates team could draw in 2.5 M fans, although I’d stop there, as the Pirates’ attendance has never been as good as Milwaukee’s, so I wouldn’t assume a 3 M attendance mark like Milwaukee has received.  The 2.5 M figure is almost a million additional fans over the 2009 figures.  The extra revenue from these fans means that the Pirates could spend just under $80 M and break even, with the obvious disclaimer that this is based on a $25/fan figure that might not hold up year to year, and that this doesn’t factor in other expenses.

Knowing that the Pirates would need 2.5 M fans before they could up the payroll to just under $80 M, the question then becomes: when do the Pirates spend?  There are two paths they can take: fire that one bullet they have and hope that the attendance comes, or increase payroll after an attendance increase.  Either solution will require success from their internal core.  The Pirates will need to produce a team that can either win, or that is close to winning, like Milwaukee and Tampa Bay.  They can either spend before the team wins, or after the team wins.  If they spend before the team wins, they had better be certain the team can win, otherwise they run the risk of taking a devastating loss in the books.  Most likely we will see them following the Milwaukee and Tampa Bay approach, spending after the team shows they can compete, and the bulk of that spending will likely go to keeping that contending team together.

The profit levels of the Pirates are small right now combined with a low payroll, but that is to be expected for a losing team with low attendance.  The Pirates can eventually spend like Milwaukee and Tampa Bay, but they will need a similar attendance spike to pay for the spending increase.  That attendance probably won’t come until the team either posts a winning season, or gets close to a winning season.  For those of you wondering why the focus on the Pirates’ minor league system is so important, this is why.  The minor league system is going to have to produce that first winning season, which is the case for every small market team in the majors.  Once that winning season is reached, the attendance will spike, and the Pirates can afford to pay to keep that contending team together, similar to what we’re seeing now in Milwaukee and Tampa Bay.

Author: 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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