The Incremental Value of a Fan
The 2011 Pittsburgh Pirates are starting to stir up long-dormant feelings amongst the populace of the Pittsburgh metropolitan area. When you walk around town, you see more people wearing Pirate hats and shirts. People are actually talking about the Pirates in positive terms in mid-June for the first time in a long while. The play of the Pirates, especially Andrew McCutchen, Joel Hanrahan, and the starting pitchers are starting to captivate the imaginations of people who may have become disinterested in the team during their 18 year-long odyssey through the desert.
These people are showing their approval with their paychecks, as attendance is up an average of 2,710 people in 2011 versus 2010 at the same point through 33 home dates (20,788 to 18,078). But how much of a revenue increase is that for the Pirates based on a typical fan?
Let’s say a fan orders ahead and get a nice mid-range priced seat – the outfield reserved section 140 for $17 (the average weighted ticket price at PNC Park is $17.07). He has one of the best seats in the house, with the city and the river at his back, and all the action of the field right in front of him. The smell from Manny’s BBQ is emanating from just a few feet behind him, so he eventually breaks down and buys a Pulled Pork BBQ Sandwich, a bottle of water, and some Dipping Dots (let’s say $20 total). The Pirates win, so he wants to commemorate this great night by getting a T-Shirt in the Pirate store at PNC for $15. He then heads back to the General Robinson Parking Garage where he parked for $10. A great night for the fan, but was it a great night for the Pirates’ coffers?
The Pirates don’t release much information publicly of course, but there are some nuggets that can be gleaned from the webosphere. Most baseball teams keep around 90% of their ticket sales. Additionally, the little bit of information out there estimates that teams keep between 40 to 48% of the concession and merchandise sales (the rest goes to Aramark, the Pirates’ concessionaire). But as for parking, that is available specifically for Pittsburgh. As per the Sports and Exhibition Authority’s website, they did not want a repeat of how Three Rivers Stadium became a “white elephant” on the North Side, so:
In order to incentivize the teams to develop the Option Area’s surface parking, unlike what occurred with Three Rivers Stadium, the teams are given only limited parking revenue. Instead, certain parking revenue is placed in a development fund that is accessed only when a parcel is developed. The teams hired Continental Real Estate Companies as developer of this land, which consists of twelve parcels. The Stadium Authority oversees this development according to the terms of the Option Agreement.
The scope of this article does not include the estimation of what the Pirates’ development rights are for the various office buildings and hotels created on these 12 parcels. But for the purpose of this article, let’s assume that “only limited parking revenue” is 0%.
Using our newly enthused fan example:
Ticket — $17 x 90% = $15.30 to the Pirates
Food — $20 x 40% = $8.00 to the Pirates
T-Shirt — $15 x 40% = $6.00 to the Pirates
Parking — $10 x 0% = $0.00 to the Pirates
Total = $29.30 to the Pirates
If you extrapolate that out for the 2,710 additional fans per game this year, the Pirates have generated an additional $2.62 million dollars so far over the same time period as last year. If the Pirates can finish with the same 2,710 additional fans per game over the whole 81 game schedule, that would be an increase of $6.43 million dollars. All right, let’s buy some free agents!
Not so fast. A couple of things to look at first. Here’s the average home attendances per game since 2008 in the Coonelly/Huntington era:
2008 – 20,113 (28th in league)
2009 – 19,479 (28th in league)
2010 – 19,918 (27th in league)
As of right now, the Pirates have just returned back to the 2008 level of fans. Even if you say that attendance will go up more in the summer with school out and we keep the 2,710 additional fans per game, the full season average attendance figure will be 22,628. That will put the Pirates around 22nd in the league.
The unofficial, unspoken word about the Pirates’ payroll is that there is a $50 million dollar cap based on current revenue streams. If we assume those numbers are based on the typical 20,000 fans/game, what would the additional revenue look like for:
25,000 fans per game (20th in league) = 5,000 fans/game x $29.30/fan x 81 games = $11.87 million additional
30,000 fans per game (15th in league) = 10,000 fans/game x $29.30/fan x 81 games = $23.73 million additional
You can start to see that the payroll cap could go from $50 million to $62 million to $74 million in a hurry with the additional attendance.
But here’s the fly in the ointment — revenue sharing. If the Pirates’ revenues start to go up, the revenue sharing component, which is factored in to their current payroll estimates, will go down. The business of baseball blog, It’s a Swing and a Miss, did some nice research and explanation on the current Collective Bargaining Agreement’s Revenue Sharing Plan.
If you boil it down to its most basic components, for purposes of this article, the Revenue Sharing plan is as follows:
Local Revenue = gross revenue from ticket sales, food, merchandise, parking, local TV
Central Revenue = gross revenue from national TV and radio
Actual Stadium Expense = leases, debt payments, upkeep of physical stadium
Net Local Revenue = Local Revenue – Central Revenue – Actual Stadium Expense
Then each team takes 31% of this Net Local Revenue and pays it to MLB. This pool is totaled and then equally divided by 30 teams. However, MLB then calculates what if each team put in 48% of their Net Local Revenue and that giant pool was split among 30 teams. This is called the Central Fund Component. You would think it is just the 17% difference between the two, but the wording is very difficult to understand and is not worded that way. MLB adds in what are called Performance Factors, which assign negative values to payors (Yankees, Red Sox, and the like) and positive values to payees (Pirates, Marlins, Rays, and the like). Oh, and by the way, it is also calculated on how each team have done versus the average revenue sharing amount over the past 3 years. Confused yet?
The moral of the story is that just because the Pirates increase their Net Local Revenue, they may actually be decreasing the amount of Revenue Sharing they receive, which may cancel out (or worse) the gains made from the increased attendance. It is a very tricky and complicated process.
None of that should matter to the fans, though. If you like the team, go out and support it. Increasing attendance should never be considered a bad thing. Let the bean counters in Central Office and Federal Street figure out the rest.