Pirates' finances show losses kept to the field

Rob Biertempfel
| Monday, Aug. 23, 2010

The Pirates on Sunday offered a rare peek at their finances, showing the team made $34.8 million in profit over the past three years.

Principal owner Bob Nutting made the unusual disclosure -- releasing limited data on the team's finances -- in anticipation of an Associated Press report based on leaked audited financial statements. The club declined to provide the entire documents to other media.

"The implication that anyone in the ownership group is lining their pockets (with profits) is inappropriate," said Nutting, who does not draw a salary or a management fee. "It's not happening."

The records showed the Pirates had a net income of $15 million in 2007, $14.4 million in 2008 and $5.4 million in 2009. "After a period in which the club incurred large losses, the club has operated on a sound financial basis over the last several years," president Frank Coonelly said.

The team spent $19.7 million on capital improvements, including the $5.4 million academy in the Dominican Republic. Also, in 2008, there was a $20.4 million distribution to the ownership group.

Coonelly said the figures are from the team's audited financial report, which Major League Baseball and the Players' Association have reviewed and approved.

"I really believe we are doing the right things for the club," Nutting said. "I know we're acting honorably. We're making the right decisions that are going to help us create a winning organization."

Of the $20.4 million distribution, $9.604 million went to Nutting's family to pay two years of interest on a 2003 convertible note. The loan -- the Pirates declined to reveal the amount -- from the Nuttings enabled the Pirates to make payroll and comply with MLB's allowable debt-to-equity ratio.

In 2003, the Pirates were forced to slash payroll by trading third baseman Aramis Ramirez and outfielder Kenny Lofton to the Chicago Cubs in a lopsided deal. Coonelly, who was hired in 2007, referred to the period as "very dark days."

Under terms of the loan, the Nuttings could have received increased equity in the franchise instead of cash for the interest. The Nuttings wanted the equity, but the minority owners instead voted for a cash payoff.

In payments made in January and April 2008, the Pirates doled out $10.839 million to satisfy some members of the partnership group, who were upset the team does not use some of its profits to pay the owners' federal and state taxes on team profits.

The Pirates are limited partnership, not a corporation. Each partner is responsible for the taxes on his share of the profit, even though all profits are kept by the team. The 2008 distribution is the only time the Pirates have used profits to meet owners' tax obligations, Coonelly said.

The 2008 distributions may suggest a rift between Nutting, who controls about 75 percent of the team, and some minority partners. The Pirates have declined to identify the team's other owners or say how many there are. Audited financial statements typically go to investors or partners.

"The Pirates have a strong, cohesive partnership group," Nutting said. "There have been changes, and it's not irrational to think there may be people who have other interests from time to time. But there is nothing that will prevent us from moving forward in a cohesive way."

The AP reported:

• The team made money by getting slightly less than half its income (about $70 million) from MLB sources -- including revenue sharing, network TV, major league merchandise sales and MLB's website.

• The Pirates spent $23.2 million in 2008 and $21.2 million in 2007 for player development, in line with other clubs.

• During 2007 and 2008, gate receipts -- more than $66 million -- were barely enough to cover the expenses for ballpark and game operations, public relations, marketing and administration costs, much less payroll.

"The numbers indicate why people are suspecting they're taking money from baseball and keeping it -- they don't spend it on the players," David Berri, president of the North American Association of Sports Economists, told the AP. "Teams have a choice. They can seek to maximize winning, what the Yankees do, or you can be the Pirates and make as much money as you can in your market. The Pirates aren't trying to win."

The leaked financial information comes amid a turbulent season. The team is on pace for 100-plus losses for just the eighth time in 124 seasons, and some fans complain about the practice of trading veteran players.

The team's major league player payroll has dropped steadily over the past four seasons. It went from $51.4 million in 2007 to $44 million this season, the lowest in baseball.

The Pirates continue to pay off debt, believed to be more than $100 million, most of which was accrued while Kevin McClatchy was owner. Yet, Coonelly said the team has put aside enough profits to significantly increase player payroll next season and beyond.

"Our payroll this year is simply the end product of the need to (trade) aging players such as Jack Wilson, Freddy Sanchez and Jason Bay, who were approaching free agency," Coonelly said. "It was not the target; it was the end result of baseball decisions. To see people look at the payroll and say, 'That's got to be Bob Nutting's decision,' that's frustrating."

Nutting also hears his critics.

"I really believe what we're going through is worth it," Nutting said. "If I didn't, there'd be no reason to put up with the agony of the on-field performance and the public lashing."

Two potential suitors -- dot-com billionaire Mark Cuban and Penguins co-owner Ron Burkle, a billionaire investor and supermarket magnate -- have expressed interest in buying the Pirates. Nutting continues to insist the team is not for sale.

"It's not a direction we're pursuing," Nutting said. "It would be the wrong thing for the organization. I believe the organization is moving forward in a positive direction. The last thing we need is a three-quarters executed plan that we back away from and move in a new direction. It would be a disaster."

Additional Information:

Pirates' net income

'Net income' refers to what the Pirates had left after all expenses were paid:

2007: $15,008,032

2008: $14,408,249

2009: $5,409,087

Source: Pittsburgh Pirates

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