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.
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.
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.