Pirates' books reveal flaw in revenue sharing
By Rob Biertempfel and Bob Cohn,
Published: Tuesday, August 24, 2010
The Pirates' recently revealed financial books reflect on principal owner Bob Nutting as a no-nonsense businessman, rather than as either a saint or a scoundrel.
Sports business experts contacted by the Tribune-Review agreed the team's books -- along with financial info for four other major league teams, which was leaked Monday -- are an indictment of Major League Baseball's revenue-sharing system. The records also appear to show the Pirates are sticking to their grassroots plan to restore the franchise to respectability.
"I've never felt that Bob Nutting is cheap," said Maury Brown, founder of the Internet-based Business of Sports Network. "I felt that what might be happening is that they're cutting margins to allow for profitability in some way, shape or form. But, lately, there's been more spending going on."
Nutting confirmed Sunday that the Pirates made $34.8 million in profit over the past three years. Nutting revealed selected financial information in advance of an Associated Press report on the team's leaked audited financial statements.
Yesterday, financial statements for the Los Angeles Angels, Seattle Mariners, Florida Marlins and Tampa Bay Rays were leaked by Deadspin.com.
In 2008, the Pirates spent $23.1 million on player development. That was more than two so-called "big-market" clubs, the Angels ($16.3 million) and the Mariners ($15.5 million) and on par with the Marlins ($29.9 million) and Rays ($21.9 million).
"The Pirates' spending is in line with other teams, as far as the development of players," Forbes editor Mike Ozanian said. "But they spent a lot less than other teams for their major league payroll. It's a great illustration of why the revenue sharing system doesn't work."
Under MLB's revenue-sharing plan, every team contributes 31 percent of its local revenues to a pool, which is divided evenly among all the teams.
Revenue-sharing money must be used for baseball operations, a purposely vague term which covers more than just the salaries of players on the 40-man roster. The cash also may pay for signing bonuses for draft picks, scouting and player development, improvements to the farm system.
The Pirates in 2008 had a $51 million payroll and were last in the NL Central. Aided by a $39 million payout from revenue sharing, they turned $14.4 million in profit.
The Angels, with a $142 million payroll, won 100 games and placed first in the AL West. They paid $14.7 million into the revenue-sharing system and finished with only $7 million in net income.
The Rays had a $56 million payroll and made it to the World Series. Despite getting $35.3 million from revenue sharing, they made only a $4 million profit.
Despite a $119 million payroll, the Mariners had the worst record (61-101) in the American League. They paid $16.1 million into revenue sharing and lost $4.5 million overall.
The Pirates made $34.8 million in profit over the past three years, although the team had just a 197-288 record during that span. Nutting said ownership has taken none of the profits, other than a $20.4 million distribution to the partners in 2008 to pay taxes and interest on a loan to the Nutting family.
According to president Frank Coonelly, retaining the profits has enabled the Pirates to boost their budgets for draft and international signings, build an academy in the Dominican Republic and buy the Single-A Bradenton Marauders franchise.
"A 'rainy-day fund' is not a bad way of thinking of retaining cash in the club," Coonelly said. "It has been a major objective of ours to keep cash in the club both for long-term investments and also for anything that comes up."
The profits dropped from $14.4 million in 2008 to $5.4 million in 2009, partly because of the sluggish economy. Coonelly added that buying the Marauders and renovating the Pirate City complex also drained the Pirates' profits.
|By the numbers|
|A look at the financial figures released by Deadspin.com that detail some noteworthy income and expense categories for the Pirates, compared to four other Major League Baseball franchises for the 2008 season:|
|MLB revenue sharing||$39,046,312||($14,747,000)||$47,982,000||$35,345,277||($16,174,000)|
|MLB central fund||$20,306,730||$27,191,000||$31,298,000||$19,778,648||$28,132,000|
|Profit (after taxes)||$14,408,249||$7,088,000||$29,462,000||$4,016,163||($4,533,000)|
|*Includes parking revenue|
"I don't think (the Pirates' profit levels) are outlandish, when you look at what they spend for player development," Brown said. "If you can develop talent and keep that talent, you have something to build on.
"The real problem in Pittsburgh is, you have 18 years of futility going on. When do you start turning the corner• What's it going to take• Any little bit of profit will be looked at as, 'Could that have been better spent?' "
Gary Gillette, a former co-chair of the Society for American Baseball Research's business of baseball committee, said the Pirates likely are better served by putting their profits into player development.
"The underlying issue is one of trust in the ownership and management of the team," Gillette said. "Even if they spend an extra $20 million this year, there's not a player out there who they could get who would make a difference. And given how they said they want to build through the draft, it would almost seem irresponsible to do that. But the average fan doesn't want to hear that."
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