First Pitch: Are Teams Really Spending the New TV Revenues?

One of the biggest topics in baseball this year is how teams will be getting $25-27 M per year due to the new national TV revenues. That originally led to a lot of assumptions that teams would go crazy with the new money. As far as individual teams, it led to “they have $18-27 M extra to spend”, with the variance depending on how much you believed MLB was holding back from teams.

I took the same approach early in the off-season. I looked at where the Pittsburgh Pirates ended up last season (around $74 M). I added the $20 M in payroll, plus added revenue from the playoffs and ticket sales, and assumed they could spend up to $100 M with all of the new revenue. That doesn’t mean they should spend that amount. Just because you have money to spend, doesn’t mean you have to spend that money.

Throughout the off-season, I’ve been waiting for the Opening Day payrolls to be released. I wanted to see the difference between what teams spent last year, and what they spent this year, to see how many teams increased payroll. Baseball-Reference has updated payroll charts for every team, which means we can take an early look without having to wait for the payrolls to be finalized.

The figures below will change. There are still guys out there like Kendrys Morales, Nelson Cruz, Ubaldo Jimenez, Ervin Santana, and of course A.J. Burnett. I still plan to take a look at the final figures on Opening Day. For now, here are the projected Opening Day salaries, compared to Opening Day from last year, and the difference. All prices are in millions.

Team 2013 Payroll 2014 Payroll Difference
Arizona

86.3

99.2

12.9

Atlanta

90.0

90.9

0.9

Baltimore

92.2

82.8

-9.4

Boston

154.6

165.7

11.1

Chicago AL

118.9

85.9

-33.0

Chicago NL

106.8

77.8

-29.0

Cincinnati

106.9

105.5

-1.4

Cleveland

80.6

82.7

2.1

Colorado

74.0

90.8

16.8

Detroit

148.7

161.0

12.3

Houston

26.1

46.5

20.4

Kansas City

81.9

90.9

9.0

LA Angels

137.3

147.3

10.0

LA Dodgers

216.8

215.9

-0.9

Miami

50.5

40.1

-10.4

Milwaukee

88.8

95.4

6.6

Minnesota

82.0

82.5

0.5

NY Mets

93.7

84.9

-8.8

NY Yankees

228.1

195.5

-32.6

Oakland

62.0

78.4

16.4

Philadelphia

160.0

159.5

-0.5

Pittsburgh

66.8

70.0

3.2

San Diego

68.3

81.1

12.8

San Francisco

137.0

154.0

17.0

Seattle

84.2

82.4

-1.8

St. Louis

116.8

109.0

-7.8

Tampa Bay

61.9

72.2

10.3

Texas

125.3

129.8

4.5

Toronto

119.3

134.8

15.5

Washington

118.3

130.3

12.0

Average

106.1

108.1

2.0

Median

93.0

90.9

-2.1

So far, on average, teams are basically spending the same as they did last year. There are teams that are spending more. The Pirates are one of those teams. There are 12 teams that are seeing an increase of $10 M or more, and the Pirates aren’t one of those teams. Some of this spending is just normal spending. For example, the Houston Astros were in the $60-70 M range with their payroll. They reloaded the team, dropped to a $26.1 M payroll last year, and saw that increase $20 M this year. I don’t think that has anything to do with the new revenues. The Detroit Tigers have increased their payroll this year, but have taken steps to shed salaries, such as the lopsided Doug Fister trade, and the deal that sent Prince Fielder to the Rangers.

Things can change between now and Opening Day. As of right now, the ideas that the new money would lead to increased spending across the board look to be incorrect. And that makes a lot of sense for several reasons.

1. Why does a team need to spend that extra money each year? The revenue comes in at $18-27 M per year, but do teams have to spend that as it comes in, or can they treat it like any other asset and spend it when they need it?

2. This off-season had a weak free agent market. The only good players required draft compensation, and most of them are still un-signed as a result of that compensation and their high asking prices.

3. The Rockies opened the books on how they would spend this year. In the process they noted that they project less revenue in 2014 than 2013, and would be using part of the money to cover those losses. I’d imagine every team is doing the same. No team is going to take a loss, then give the full amount of the new revenue to the players.

4. Kind of a take on number one, but some teams might be spending the money in future years. The Pirates didn’t add any payroll when they extended Charlie Morton for 2-3 years. The Rays signed James Loney to a three year deal, which pays him more in years two and three. Fans look at budgets one year at a time. Teams look at long-term budgets when planning for an individual year.

5. There could be some cases where teams were spending at an unsustainable rate in 2013, and that rate now becomes more sustainable with the new revenues.

It will be interesting to see what the final numbers look like on Opening Day. For now, I’d imagine people will be surprised that the current projections show almost no increase on the average team spending. There are teams that are increasing payroll due to the new TV revenues, whether that’s small amounts or bigger amounts. But the idea that payroll would shoot up across the league just isn’t happening.

As a side note, if you’ve got suggestions for how to view this process come Opening Day, I’d love to hear it. I don’t think tracking spending is as simple as “2014 payroll minus 2013 payroll”, but that’s pretty much the approach everyone takes. I did try a few different methods (the usual range for a team over the last few years, the average of the last three years, the max over the last three years), but they came up with roughly the same figures. Some of those actually came up with teams spending less on average in 2014 than 2013. Leave any suggestions for this process in the comments.

Links and Notes

**The 2014 Prospect Guide is now available. You can purchase your copy here, and read about every prospect in the Pirates’ system. The book includes our top 50 prospects, as well as future potential ratings for every player.

**We have been releasing our top 20 prospects for the 2014 season, and this week we conclude the countdown with the top five. Today the countdown resumed with #2 – Jameson Taillon.

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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  • CalipariFan506

    A lot of teams are in debt. Perhaps MLB wanted some of them to use this extra money to pay off some long term debt.

    • http://www.facebook.com/stephen.brooks.581 Stephen Brooks

      Excellent point. No team is going to commit dollar for dollar all the new TV revenues for payroll. No business would do so either. In most industries – and the other 3 major sports – payroll is usually a fixed range percentage of revenues, all else being equal. If your business grows by 20M, you might allocate 8-12 of that to payroll, but the rest of it goes toward debt, capital improvements, R&D, shareholder dividends, taxes, rainy day fund, etc. By that standard, we shouldn’t expect to see more than a 9m increase across the board.

      But even that isn’t realistic, for a number of reasons. First, the scarcity of players to spend new money on. This offseason continues a trend of more and more multiyear contracts for free agents, meaning there are going to be even fewer options available on the open market each year. It will take several cycles before all free agents or extension candidates have their day. Second, as long as the minimum salary for a 0-3s or minor leagur free agents remains in check, the prospect/minor league free agent starts looking like a more attractive option than the pricey, fringey 1.0 WAR free agent.

      I would look for these telltale signs:1) higher AAV extensions with smaller home team discounts (that is, closer to free agent market value), such as we see with Kershaw, Lincecum, and Pence and 2) more extensions for trade deadline acquisitions, unlike what typically happens (eg Byrd and Garza.)

  • Andrew

    The idea that teams were going to get a $25-27 windfall in revenue was always absurd, and just because there is additional revenue does not mean the free agents available are worth it.

    The Rockies ownership stated they expected $19 million in additional national television revenue with $5 million going to payroll and another $5 million left un-allocated

    But, we all know Spending = Trust, and Spending = Winning, when will the Pirates realize this is the formula?

    • skliesen

      I disagree spending = trust or winning. Solid management equals trust and winning. A fan base trusts an organization who develops and executes a plan to make the ML team competitive on a consistent basis.

      I will say winning does equate to more revenue, which should be reinvested into player salaries. But sometimes, players only care about which team will pay them the most money, and an organization will lose them despite the wishes of the fans and the organization. I think Pedro Alvarez and Gerritt Cole may be future examples of this for the Pirates and us fans.

      • emjayinTN

        Sk: Agree with your point about management executing a proper long-term plan, such as what the Pirates have done. That point about sometimes only caring about who pays them the most could probably apply to all of us who work for a living.

        The Pirates have assembled a tremendous reserve of young, athletic pitchers who will take us well into the future – some we may be able to keep for 6.6 years (bringing talent up in late May/Jun) and some will leave possibly due to Free Agency, or as a result of trades made prior to the threshhold of FA. The 2013 Draft was possibly the best the Pirates have ever had and includes a large number of Pitchers as well as at least 2 of the best position players coming out of HS, so the number of Top Prospects will continue to populate and progress through the system. There are a few positions that need attention, but we look at the track record of this management team and we need to trust they will provide what we need without giving up too much.

        Tim: The Pirates will get at least $25 mil in increased TV Revenue? Is there any data re Revenue Sharing dollars the Pirates have received in the past 5 years?

        • stickyweb

          MJ, “That point about sometimes only caring about who pays them the most could probably apply to all of us who work for a living.”

          While the sentiment may be the same, I’m not sure the guy taking a $75K/ year job over his $60K/ year job can truly be compared to a ball player taking a $175 mil contract over a $160 mil one. At some point the thought process can be adjusted to take into account other factors, thus the occasional home town discount, security of signing an extension before free agency, AJ limiting his market to only a few clubs, etc. But the majority of players do seem to focus more on maximizing every dollar.

  • jaygray007

    The extra $25 mil is awesome, but it’s not like there were 32 star level players on on the free agent market to spend all of that on. it’s not like Oprah with new cars. “YOU GET A STAR! AND YOU GET A STAR! AND YOU GET A STAR!” It’ll take time for all of the teams to find the right places to spend it. if they wanted to spend it willy nilly, we would have seen nelson cruz sign somewhere for 5/75 and the Orioles sign Kendrys Morales for 4/60. Yeah they’d be adding wins to their 2014 team, but in a really stupid way.

    If teams just spend that willy nilly, we’ll see crappy players getting overpaid. The right opportunity should be waited for. some teams found that opportunity. some didn’t.

    If the pirates sign burnett for a number in the mid teens million dollars, they’ll be right around where they should be as far as payroll. because he is worth it. They reportedly tried to use some of it on Josh Johnson and James Loney. They could have overpaid for them, but to the point that it becomes a stupidly expensive deal.

    I still think that just because they didn’t wanna pay 14 million in december doesnt mean that they wouldnt pay 14 million or more now. Less alternative attractive free agents, and they’re no longer bidding against only themselves. Burnett may not have been optimal use of that money back in December but since the FA market isn’t infinitely big, and because a huge discount in the reported $8.5 mil is definitely out of the cards now (since they’re not bidding against themselves anymore) he now IS the optimal use of that money.

    I’ll be annoyed if they don’t make a competative offer for Burnett. But i can’t imagine that they won’t.

    and i’m tellin ya. Chase Headley or Pablo Sandoval will be the Pirates’ use of a lot of their new extra money in 2015 :).

    • jaygray007

      Why’d I say “32” you ask? i have no idea!

    • jaygray007

      When it comes down to it, all that the QO – i’ll put the word mistake in quotes – “mistake” did was add a few million dollars to his market value. that’s it. The Orioles can keep their #17 pick or whatever it is, so they can now justify a spending a few additional millions. That is the consequence.

      He loves the Pirates and would probably come back as long as the Pirates make a competitive offer.

    • stickyweb

      Jay, I agree that the situation has changed significantly since they didn’t make the QO. And since they didn’t land Johnson or Loney, they COULD pay AJ $14 mil or a little more. But I still come back to the possibility that they really got tired of his act in the last few months of the season, especially with the reaction to the Game 5 decision. They may feel that the total package (i.e. performance and personality) aren’t worth it with the depth options they already have available. Only they know for sure.

      What I don’t want them to do is “save face” and sign him just so another team doesn’t sign him. If they want him at $14 – $16 mil fine, if they don’t, that’s fine too. But just because BALT or PHIL will pay him that, they shouldn’t care. “But they won’t get a comp pick” you say. Well, they were never going to get that pick anyway. Even PHIL isn’t dumb enough to give a first round draft pick and market value for a 1 year contract. Or sign a guy that’s been thinking about retirement for the better part of 4 months to a multi year contract and also give up that same pick.

      • jaygray007

        Yeah I agree on the comp pick. It’d be nice to have, but its value is a little more that of a right handed platoon first baseman with some years of control on a career-worst year (Gaby Sanchez circa 2012) in the trade market.

        The chance at getting burnett at a huge discount must’ve outweighed the comp pick in their heads. They were, after all, competing against themselves.

        and overall i agree. I don’t care if he goes to Balt or TB. I’d be a little upset if he went to philly just since they’re NL, but philly would be really stupid to sign him.

        I dunno how tired of his personality they got or how much that affects a team… All I know is that he is a very good pitcher because we have the stats available to us. I’ll be happy to carry a pitchfork with everyone else if it comes out that they refuse to compete with Baltimore’s offers. I just refuse to do that yet.

  • stickyweb

    Tim, a point that dovetails with your #5 (let’s call it 5b) is that maybe some teams have already spent some or all of that money the last year or two. It wouldn’t be the first time in history somebody spent expected money before it was actually received. Whatever method you settle on to measure salary changes, you may want to somehow account for spending since teams found out they would receive the additional revenue.

  • stickyweb

    So it looks like all of the folks with “Nutting is cheap” tattooed on their neck should become Astros fans, huh? They’ve had the biggest bump in spending this offseason, maybe even spending the entire new TV revenue. Those guys will do anything to win.

  • http://hiddenvigorish.com Hidden Vigorish

    I just want to note there is some hidden spending that BR misses. For example signing bonuses. James Loney only has a $1 million salary in 2014 but received a $5 million signing bonus? BR is not accounting for that. Perhaps Tampa has that on the books under 2013 salaries. In essence it should be considered part of 2014 payroll. I’m sure there are others with signing bonuses unaccounted for. And what about deferred money?

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

      There are a few expenses missing, and signing bonus is one of them. There are also estimates for the remaining players, rather than actual figures. I’ve got the Pirates at $73.8 M, while B-Ref has them at $70 M.

      USA Today is the source for the original figures. They always include the signing bonuses in with the player salaries. They don’t consider deferred money. When those figures come out on Opening Day, it will give a more accurate comparison, since the old figures and the new figures will be comparing the same thing.

  • https://profiles.google.com/101510909979106143098 David Lewis

    The Yankees are getting $25M extra in income and CUT payroll!?! Steinbrenner is cheap! Sale the Yankees!

  • https://www.facebook.com/steve.peipock Bonds Top Hand

    Tim: Without the A Rod suspension, the league wide spending would be up almost another million per team (on aleague wide average) due to that albatross of a contract. Not sure if 3 million per team per year could be chalked up to inflation; but A Rod being suspended and not paid does impact these numbers.

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

      It does for this year. The Yankees might not have spent in other areas if A-Rod is back, but from a league standpoint, the average would go up. I’d imagine the average will go up when/if the remaining top free agents sign. Overall I’m guessing there will be about a $5 M increase across the board for the average salary, and maybe a million or two for the median salary.

  • db33

    You could project the AAV for the remaining free agents contracts and add that to the 2014 projections, not for a specific team but just for the league average and to get a better idea of how much teams are spending this year. Since there are still multiple free agents that could receive 10+MM per year that were being payed in 2013 but aren’t included in the 2014 payrolls yet. This should inflate the 2014 average league payroll closer to what it will be on opening day for the league.

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

      That work will be done on Opening Day. I don’t want to project players now, because I have no clue what they will get. I’m not even sure some guys will sign by Opening Day (Nelson Cruz, Kendrys Morales).

  • Andrew

    Tim were/are you aware of these sites;

    http://mrphilroth.com/mlbpayrolls/
    Great graphics does not really help compare league wide changes.

    http://www.baseballprospectus.com/compensation/index.php?cyear=2014&team=&pos=
    I think Cot’s Contracts has better numbers, it takes Looney’s signing bonus and spreads it over the life of the contract, B-R ignores it, and B-R currently credits the Pirates as paying all $13 million of Wandy’s salary. However, overall the trend is the same.

    I think a three year average is best; the unsigned players are surely skewing the numbers down for 2014.

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

      I’ve seen the first one, but I don’t really like it. It’s kind of hard to read for details.

      Cot’s is good, but you have to estimate the remaining league minimum guys.

      USA Today does the same thing with the signing bonuses, so that will be included in the actual comparison on Opening Day.

      B-Ref does account for the money the Astros are sending. It’s the bottom line of the chart:

      http://www.baseball-reference.com/teams/PIT/2013-payroll-salaries.shtml

      One problem with a three year average is that you can’t use it for some teams. The Dodgers see their total go way down, because they just doubled their spending in 2013 due to the new TV deal. The Marlins see their totals go way up, because they spent big one year, then traded everyone away the following season.

      • Andrew

        Wow I missed the Wandy line, and just assumed that was the $5 million dollar difference. If you overlook the signing bonus issue I guess B-R is better. I still think the current salary compared to three year averages shows you something and if you include the one year change, that is enough of an accurate picture. It puts another column in chart but the payroll story is never as simple as people want it to be.

  • http://www.facebook.com/ryan.mccullough.1848 Ryan

    Remember this money is being added to the system every year. Thinking every team would add 20 million top payroll this year is foolish. This money will work its way into the system over time. We’ve seen Kershaw get extended, this will be followed by more big money contract extensions before the season starts. The average annual values of new extensions is going to affect the arbitration cases of players like Trout and Harper if/when they get to that point. The rising cost of arbitration years will make extending pre-arb players costlier.

    This isn’t a one year story. Increased TV revenues give every team more money, even if they don’t use it this season. As more teams use money to lock up their own star players the pool of talent reaching the FA market will be smaller, this combined with more teams having more money will drive free agent salaries higher based on simple supply and demand. There will always be bargains to be found, but these bargains will be relative to higher salaries overall.

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

      Definitely true. Salaries increase by year, but the new revenues are a flat rate each year. So teams might be spending $5 M extra on average this year. But that number will go up, and eventually it might even pass the $20 M total.

      If they start with a $20 M increase, then they’re going to quickly surpass the new revenues.

      There’s two ways to look at the spending. They could spend $20 M extra each year. Or they could gradually increase spending, to the point where they’re averaging $20 M extra each year. Most teams operate using the latter example.

  • mtw247

    A number of the lower revenue teams that project to be contenders (Oakland, Tampa, SD, Kansas City, AZ) appear to be spending the new revenues, as they are all up approximately $10M to $15M. I know a lot can change in terms of payroll by Opening Day and throughout the season, but based on the list above, the Pirates are 28th in payroll, ahead of only Miami & Houston. That was fine when they were bottoming out and traded out the veterans 4 years ago, but at this point the development cycle, I would have thought they’d have moved up the list some.

    It will be interesting to see the negotiations for the next CBA with the increases in revenues outpacing the growth of player salaries. I believe the % of revenues that go to the players has fallen below that of the capped leagues.

  • piraddict

    There seems to be a general assumption that higher total salary corresponds to a better team. That isn’t necessarily the case. It could be that the team is just relatively older in terms of accumulated MLB service time since salaries tend to escalate the longer a player is in the league.

    Another thing total salary doesn’t capture is how good of a team does the money actually buy. Hard to capture that, but one way would be to compute the following ratio:

    Net Runs / Total Salary

    where Net Runs = Total Runs Scored – Total Runs Allowed.

    This would tell which team’s managements were most effective in generating a difference in runs for the $ spent. Teams with the highest positive number being the best resource allocators while teams with the most negative number are the worst.

    Such a statistic would also be neutral towards whether teams preferred to spend money generating offensive or spend money on pitching and defense since only the net difference in runs matters.

    • piraddict

      For my own curiosity I ran the 2013 numbers and the Top Ten in Net Runs per Dollar were (drum roll please):

      OAK 2.19
      STL 1.60
      ATL 1.56
      BOS 1.27
      DET 1.16
      CLE 1.03
      CIN 1.02
      TB .872
      PIT .853
      TEX .750

      So I hope Billy Beane made money on the book / movie because no way Oakland is paying him what he is worth.

      The Best Management Team in Baseball laurels don’t reside in Pittsburgh yet. Maybe in 2015. But #9 isn’t bad.

      By the way, the statistic gives squirrely results if the net runs are negative, so don’t use it to try to figure out the worst management in baseball.

      • piraddict

        The LA Dodgers didn’t show up probably because of the injuries in 1H2013 and the addition of PUIG.

        • piraddict

          Maybe Wins / Total Salary would be a more direct and better figure to calculate.

      • piraddict

        Should have been net runs per million dollars of payroll.

  • piraddict

    Okay, here is some data on payroll efficiency in terms of Wins per Dollar spent:

    Payroll Efficiency as Measured by Wins per $MM Payroll

    Wins Wins/$MMPayroll

    1 Houston 51 1.95
    2 Oakland 96 1.55
    3 Tampa Bay 92 1.49
    4 Pittsburgh 94 1.41
    5 Miami 62 1.23
    6 Cleveland 92 1.14
    7 San Diego 76 1.11
    8 Atlanta 96 1.07
    9 Kansas City 86 1.05
    10 Arizona 81 0.94
    .
    .
    21 Detroit 93 0.63
    22 Boston 97 0.63
    23 Toronto 74 0.62
    24 Chi Cubs 66 0.62
    25 LA Angels 78 0.57
    26 San Fran 76 0.55
    27 Chi Sox 63 0.53
    28 Phillies 73 0.46
    29 LA Dodgers 92 0.42
    30 NY Yankees 85 0.37

    Houston and Miami should be disregarded since they were in slash and burn mode to prepare for rebuilding and no one cares about you, or will go to see you if you lose.

    It’s nice to see the Pirates in the same realm as Oakland and Tampa Bay.

    As you have pointed out before the big market teams can spend profligately in pursuit of wins, look at the bottom ten in capital efficiency.

    Tim, you are a big fan of the Rays approach, but the Oakland approach seems to work even better. ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE OAKLAND AND TAMPA BAY APPROACHES TO BUILDING A TEAM IN A SMALL MARKET?