No Bad Analogies Needed for Baseball Economics

Let me tell you a little story about a friend I have.  This friend is a chef that owns his own restaurant.  Unfortunately he’s not a very good chef, and for that reason, his business struggles.  Customers always ask him to improve his product, but he simply replies that those customers need to support his business before he’ll make any improvements.

That behavior is not really a surprise.  In fact, it’s probably inherited.  The father of this same friend owns a pretty major car manufacturing company.  This company has fallen behind some of the top car manufacturers in recent years, due to the poor quality of the cars.  Yet for some reason, my friend’s father refuses to invest money in making better cars, instead saying “I’m not going to make better cars until people start buying these lower-quality cars”.

I do have one confession to make here: I made that story up.  I don’t have a friend who is an unsuccessful chef, and none of my friends have fathers who own car manufacturing companies.  That said, those stories might sound familiar to you.  If so, then you’ve probably been reading some of the bad analogies that always seem to float around every time a quote is made about how the Pittsburgh Pirates can eventually get to a point where they are spending $70-80 M.  Like, for example, the quote from our interview with Pirates president Frank Coonelly on Monday:

Kevin: Would the Pirates be able to afford a $70M to $80M payroll, in present-day worth, if this current group of players were competitive enough to merit additional outside free agents?

Frank: Today, no but we will be able to support that payroll very soon if our fans believe that we now have a group of players in Pittsburgh and on its way here in the near future that is competitive.  We need to take a meaningful step forward in terms of attendance to reach that payroll number while continuing to invest heavily in our future but I am convinced that the attendance will move quickly once we convince our fans that we are on the right track.

It’s natural to see a comment like that, and try to apply it to real world examples to see if that’s how a business should be operated.  The problem with comparing baseball to any other business is that baseball isn’t like any other business.  Baseball teams compete on the field, but financially, they aren’t competing with each other.  If a car company goes bankrupt trying to improve their product, the competing car companies don’t feel the impact, and actually see a benefit by having one less competitor.  That’s because car companies, restaurants, and any other business you can think of are all independent companies.

By comparison, baseball teams are a franchise.  Major League Baseball is the business here.  Major League Baseball is the car company or the restaurant, and they’re competing with other sports leagues.  An individual baseball franchise is like an individual car dealership, or an individual chain restaurant.  The only difference is that baseball’s product is all about competition between the franchises.

I’ve never really understood why people try to make the comparison of a baseball team’s business habits with incomparable real world businesses.  There are plenty of examples within baseball to use as a comparison, and the best part is, they’re actually valid comparisons, since comparing a baseball team with a baseball team is an equal match, and not something far fetched like comparing a baseball team with a restaurant.  So let’s look at some of the examples from the baseball world.

Milwaukee Brewers

First we have the Milwaukee Brewers.  The Brewers have averaged an $80 M payroll over the last three seasons.  They’ve also averaged almost three million fans a year.  And they’ve been somewhat competitive, making the playoffs in 2008, but finishing third in the NL Central in 2009-2010.

The common theory is that the process should be: Spend Money -> Improve the Product -> Increase Attendance.  The comment above by Coonelly draws a lot of criticism because people think this is what the order of events should be.  However, this order is wrong.  It’s not how things actually are.

Milwaukee spent $80 M a year over the last three years, and they had a large attendance.  But look at how they got there.  In 2003-2004, they averaged about 1.9 M in attendance, and spent an average of $34 M.  They also finished with 67-68 win seasons.  In 2005 they spent just under $40 M, but finished 81-81.  They drew 2.2 M fans.  In 2006 they bumped the payroll up to $57.5 M, and drew 2.3 M fans, finishing 75-87 (thanks to a late season slide).  Then, in 2007 they bumped the payroll up to just under $71 M, and finished 83-79, with just under 2.9 M in attendance.

Milwaukee posted a .500 record, saw an increase in attendance, and then increased the payroll.

Tampa Bay Rays

The Rays are a similar story.  They spent $72 M in 2010, and $63 M in 2009.  They drew just under 1.9 M fans in each year.  They also have been one of the best teams in baseball from 2008-2010.  But like Milwaukee, the Rays didn’t spend money first.

Tampa Bay was drawing anywhere from 1 M to 1.4 M fans a year leading up to the 2008 season.  They were also posting horrible records along the way.  Then, in 2008, with a $43.8 M payroll, they finished 97-65, and lost in the World Series, all while drawing 1.8 M fans in the process.  In 2009 they bumped the payroll up to $63 M, drew just under 1.9 M fans, and finished with an 84-78 record.  In 2010 they spent $72 M, drew just under 1.9 M fans, and finished 96-66.  Then, this off-season, they saw Carl Crawford and Carlos Pena walk, traded Matt Garza and Jason Bartlett, and cut their payroll to the $40 M range, due to the fact that they couldn’t afford to sustain a $70 M payroll.

Pittsburgh Pirates

The idea that the Pirates need an attendance increase before they can spend is in line with what other small market teams have done.

Aside from the bad analogies, one thing that is often said when you hear about how the Pirates need attendance to spend $70 M is “they want the fans to support a losing product before they’ll put a winning product on the field”.  That’s not the case.  The Pirates, just like Milwaukee and Tampa Bay, are attempting to put a winning product on the field with their limited resources.  In fact, if we look at Kevin Creagh’s feature on small payroll baseball (Twins, Rangers, Rays, Padres), we can see that this is what small market teams have to do.

Most Pirates fans feel that the Pirates should take a different approach, spending to become a winner.  Part of this is due to the losing streak.  The Pirates have lost for so long that fans are desperate.  They don’t want to rebuild.  They want immediate success.  They see the other local teams competing, and they want the Pirates to do the same (ignoring the fact that the NFL and NHL are built to give a team in Pittsburgh a fair shot at being competitive, unlike Major League Baseball).

I’ve always felt that the losing streak should mean absolutely nothing in terms of how the Pirates build a team.  Maybe that’s due to watching Dave Littlefield put together so many teams aimed at being competitive for just one year.  A team’s approach to building a winner should be the same whether they’ve had one year of losing, or how ever many years the Pirates have had (honestly, I care so little about the losing streak that I don’t even know off the top of my head how many years it’s been, which doesn’t reflect well on the losing streak, but does reflect how irrelevant I feel it is to future plans).  If a certain approach is the correct approach after one year of losing, then it would also be the correct approach after 10 years of losing.

The Pirates have seen their biggest improvements the last few years come from small market moves.  There was Andrew McCutchen and Ross Ohlendorf breaking out in 2009.  2010 saw Pedro Alvarez, Jose Tabata, and Neil Walker break in to the majors, with James McDonald acquired via trade.  They aren’t going out and spending $10 M on free agents.  They’re building a team like the Rays did, like the Twins did, and like the Brewers did: through the draft, trades for unestablished players, and low-key free agent moves.

Forget the restaurant and car manufacturer analogies.  All you need to do is look at other small market teams to realize that the Pirates can’t just go spend $70 M and hope that attendance and winning will follow.  The Pirates need to build a winner first, see attendance rise, then use the additional profits to keep that winning team together.  That’s how it’s done.  It may not be what people want to hear, but it’s the truth.  The idea that the only way a team can build a winner is to spend X amount is uninformed.  Milwaukee and Tampa Bay are just two examples that teams can build a winning team without spending $70-80 M.  In fact, most small market teams only spend $70-80 M to keep the team together, or to add to a winner.

Look at the question again, and look at what Coonelly said.  The question specified “if this current group of players were competitive enough to merit additional outside free agents”.  If the Pirates are competitive, it shouldn’t be an issue.  If the Pirates are competitive, I expect fans to show up and increase the attendance from the current 1.6-1.7 M a year range.  It’s almost the wrong question to ask.  The right question would be to ask the fans “would you go to more games if this current group was competitive”?  I’d assume the answer would be yes.  Then, the next question would go to the Pirates, in the form of “if the team was competitive and attendance increased, would you spend more to keep the team together”?  I can’t imagine the answer would be no.

To sum it all up, the Pirates aren’t doing anything out of the ordinary for a small market baseball team.  The approach is only criticized because it’s popular to assume that everything the Pirates do is wrong.  However, all you have to do is look at the real comparable examples, as in the other small market teams, to see that the approach of “Win, Attendance, Spend” is the normal approach.  If you can’t see that, then you’re either blinded by desperation over ending the losing streak, or blinded by an agenda.

Tim Williams

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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  • Anonymous

    You are blinded by being a homer.

  • Anonymous

    I love the Pirates, but you are blinded because you are a homer. Don’t deny the past.

  • Anonymous

    Are you joking buddy? The proof is right here in this article. I have a feeling you are one of the guys who wrote one of those “car dealership business” articles. He’s not being a homer, he’s stating clear evidence of how a small market team needs to be developed. There is no other way. Where do you expect the Pirates to get the funds from? They need the attendance to increase first which will come when these young players grow and more players from the minors come up through the system.

  • Anonymous

    No matter what facts are put in front of people they just can’t wrap their heads around the fact that the Bucs aren’t the steelers. You should be able to do blah blah in no time.
    I understand the pessimism because this rebuild should have startedin 93 by trading Van Slyke instead of letting him leave for 0. Then to follow with bad FA SIGNINGS

    • http://www.piratesprospects.com Tim Williams

      I always say people are looking for affirmation, not information.

  • http://pulse.yahoo.com/_4W4CT4H5GA7Q5CMG3LPIIPFLSM Chaz

    Tim,

    Great article. I was wondering if we could think of any examples where a team did SPEND first, and how it failed. I know the Cubs have been competitive, but for the most part haven’t actually got anywhere. And they spend a ton. Of course they continue to sell out during rough times. And obviously there’s teams like the Yankees, but there’s only a few owners that can infuse that kind of money.

    Thanks again for all your information!

    • http://www.piratesprospects.com Tim Williams

      I can think of the 2010 Seattle Mariners, as one recent example. Also the Orioles and Nationals often take this approach. In 2003 or 2004 the O’s signed Miguel Tejada, Rafael Palmeiro, Javy Lopez, and Sidney Ponson to big deals, trying to buy a winning team. Didn’t work at all.

      A lot of credit goes to the Nationals for signing Werth, but he just replaces Dunn, who they signed to a big deal two years ago, and we see how that worked.

  • Anonymous

    Not to mention the poor no horrendous drafting and the ridiculous callup of 19 year Aramis Ramirez who was not ready or needed. If they hand waited even 1 more year they wouldn’t have been forcedto give him away for nothing. Then the bums they kept on the 40 man roster while Jose Bautista and others were plucked away in rule 5 only to be included in a trade later.
    None of these unforgiveable misgivings were perpetrated by the current mgmt team. They may not have made the best deal with every move. But if you don’t live in a vacuum and you see the rest of the league most teams have about the same success rate. Quick who’d tje Twins get for Johan Santana or the Indians for CC.

  • Anonymous

    Just 1 more cuz I’ve heard it all day on terrible local talk radio. Bob Nutting should sell. Why? And what would another owner do different? Ya they’ll just go individually bankrupt to overpay Jayson Werth Adrian Beltre and Carl Pavano just to go 82-80. I really love the spend $ spend $ argument. On who? Like the whole league is available at anytime and everyone wants to come play here regardless of situation. Baseball isn’t football also its not hockey though the Pens were the worst team in hockey for a 4 year stretch and that’s the only reason they’re good now. What a waste of my breath sorry!

  • http://pulse.yahoo.com/_SZV7OVH3TD3V5WUYDVKZHMWCEQ Jeff

    Tim, you’re missing the point. Coonley’s reply clearly states that the impetus for increased spending isn’t the competitiveness of the team (which is what you asked) but instead attendence.

    That is not what the FO has said before, and — assuming Coonley didn’t “misspeak” — it’s akin to blackmail.

    As fans, we should not have a RESPONSIBILITY to add revenue to this club. If the club is a viable business run by viable businessmen, then certain actions such as … you know … winning will invariably RESULT in increased attendance and other revenue drivers.

    But for Coonley to suggest the fans need to take the first action is either malcious or stupid.

    • Anonymous

      Why wouldn’t the impetus be on increased attendance? If the team raises payroll and attendance doesn’t increase, the Pirates could be forced to take drastic measures to get back in line. That’s exactly what happened in 2003 when they traded Aramis Ramirez.

  • http://pulse.yahoo.com/_SZV7OVH3TD3V5WUYDVKZHMWCEQ Jeff

    BTW, your “anti-analogy” was worse than the original analogy.

    I don’t think this is about “HEY, THE BUCCOS NEED TO SPEND MORE TO WIN!” Personally, I understand that strategy doesn’t work. But it is disconcerting to hear from the president of the team that increased investment in the franchise is not based on fielding a winning team, but rather by the extent to which fans show up.

    Let’s keep something in mind: it’s been 18 years since the Pirates had an opening day with a reasonable chance of winning. What if the fan base’s elasticity (it’s ability to spring back to being active fans) has been damaged? In that narrow window that can be created with a small payroll in which a low-payroll team can win with young, inexpensive players, if fans do not IMMEDIATELY respond and flood PNC, Coonley is essentially saying “Tough ****.” We aren’t going to spend more.

    And the cycle will begin again.

    You asked Coonley a softball. Why couldn’t he have stayed on message and said “When the team is in position to win, we’ll make the resources available to bring a championship to Pittsburgh”? I think that’s all we want.

    Maybe he was being truthful. If so, I’ll give him credit for doing something new.

    • http://www.piratesprospects.com Tim Williams

      Three points here:

      1. What was my “anti-analogy”? Are you talking about the Brewers and Rays?

      2. People are making this in to something it’s not. It’s not the Pirates saying “we’re doing nothing until the fans show up”. That’s just something you say to get people fired up. It also ignores the last line of the quote: “I am convinced that the attendance will move quickly once we convince our fans that we are on the right track.”

      3. I think the softball talk is funny. I know Smizik called the question a softball, which is probably why you’re calling it a softball. Smizik called it a softball after mentioning that every Pirates fan was asking the same thing, and stating that the Pirates have ducked the question before. That doesn’t seem like a softball to me.

      • http://pulse.yahoo.com/_SZV7OVH3TD3V5WUYDVKZHMWCEQ Jeff

        Your anti-analogy was your analogy of your friends who don’t actually exist. Just bizarre writing.

        When did I claim the Pirates were “doing nothing”? My comment was — and this is what Coonley said — that increased investment in the team is contingent on how many fans show up.

        Look, I agree that we need to build from within. I agree that signing 30-year-old FAs to huge contracts isn’t going to create a winner. But I also know that the likelihood of the Pirates winning a WS and/or sustaining a winner for more than 2 years cannot happen without spending more than a <$50mm payroll. It is disconcerting to me that, after 18 years of losing and endless promises, that the contingencies for the FO to open up their purse strings isn't simply based on fielding a winner, but it's also contingent on fans showing up.

        But, regardless of that argument, what a stupid and un-fan-friendly comment Frank made! For a guy in his position, surely you can agree he needs to be smoother than that!

        As for the softball, I didn't mean to offend you by that. But, honestly, the question you asked has been asked 1,000 times by the reporters in Pittsburgh. That qualifies as a softball because Frank's PR people probably have that exact question written for him in his briefing book. It's shocking to me that he would get tripped up on a question like that.

        But, you're right, he answered the question for and did so … well, provocatively … so perhaps I was wrong for referring to it as a softball.

        • http://www.piratesprospects.com Tim Williams

          “Your anti-analogy was your analogy of your friends who don’t actually exist. Just bizarre writing.”

          Those aren’t my analogies. Those were some of the analogies that were going around. The point was to show that they were bad analogies.

          As for the softball comment, I was actually amused by it, mostly because it followed a statement about how the Pirates ducked the same question previously.

          And to the general point, you and I agree on the state the Pirates are in with baseball’s economics. The problem is, people are so focused on payroll that they’re ignoring the key point here. Why shouldn’t a spending increase be contingent on the fans showing up?

          We asked the question because that’s the question people want an answer to. However, the real question goes to the fans. Would you show up more often if the Pirates started winning? I can’t imagine the answer would be “no”. From that question, the follow up would go to the Pirates: “if the Pirates started winning, and attendance increased, would you increase payroll”. And I think they’ve answered that already.

  • Anonymous

    The analogy that I like to use is restoring an abandoned old house. The old house is in horrible shape ,the interior walls have holes in them and the whole house needs painted the floors are terrible and needs carpeting and tile ,the plumbing needs work as does the electrical system and the roof. What do you do first? Fix the walls and paint them and then put in new flooring and a new kitchen and baths and all new furniture? Well the house would certainly look great but how long would it last when the roof leaked and the pipes burst and the bad wiring caught fire.

    That is what the Pirates were when the new administration took over. They have been doing all the work that doesn’t show up right now in PNC, but when the new furniture goes in there it won’t be there until the first rain.
    Signing an expensive free agent would look great and make everybody feel good but until there is a support team around him it is just fresh paint on the walls of an old house that was abandoned for 15 years.

  • Anonymous

    I would just love for somebody who thinks “the Pirates need to spend money to make money” give just ONE example where that worked for a team in the Pirates’ situation.

    There’s not a single example I can think of. Both the Marlins and the Diamondbacks won World Series titles by doing that, but both had to dismantle the teams shortly thereafter, and in fact, the Diamondbacks’ owner lost the team because he put them in such a financial hole in doing so.

    We keep hearing from these sports geniuses that the Pirates’ business plan is “backwards”. Yet, we don’t hear them pointing out any team that has done it “the right way” (according to them) successfully.

    • http://pulse.yahoo.com/_4W4CT4H5GA7Q5CMG3LPIIPFLSM Chaz

      I could be wrong with this, but didn’t the Marlins win they’re second world series with MOSTLY young cheap talent? Dontrelle, AJ, Beckett, Cabrera, Penny were all young guys that were just out of the minors. Not trying to put a hole in your argument, just saying.

      • Anonymous

        You might be misunderstanding me. I’m not saying you can’t win with mostly young cheap talent.