MLB

More Analysis of the Pirates and MLB Financials

| by David Berri

This weekend I was a guest on NPR’s All Things Considered to discuss the recent revelation that the Pirates – despite years of losing – are still able to earn a profit.

As I have noted in the past, a radio or television interview is similar to taking a test. Except unlike the exams my students face, your answers must begin the moment the question is asked and many people (instead of just one professor) are going to judge your answer.  

This interview was actually a bit harder than the other radio interviews I have done in the past. Normally I do interviews in my office. And while I am talking to the reporter, I am able to look up information as I talk (which makes taking the test easier). NPR, though, wanted me in a radio studio; and Cedar City didn’t have anything that could connect to NPR’s studio in Washington D.C. But they did find a studio that would work in St. George. Although going to St. George wasn’t difficult, it did mean I was going to do the interview without a net. Consequently, I had to spend extra time studying.

In my time studying I learned that Pirates story is hardly new. Consider the following quote from John Henry of the Red Sox, which came out last December:

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Last December, Red Sox owner John Henry said in an e-mail to the Boston Globe that the current system for revenue sharing needed to be overhauled.

“Change is needed and that is reflected by the fact that over a billion dollars has been paid to seven chronically uncompetitive teams, five of whom have had baseball’s highest operating profits,” the Globe quoted Henry as saying. “Who, except these teams, can think this is a good idea?”

And then there is the financial data from Forbes.com, which revealed before the leak that the Pirates were indeed making a profit. The Forbes data, though, has been frequently dismissed by observers. And that dismissal — as Dave Zirin at Huffington Post notes – has allowed owners to secure even more funding from politicians.

Zirin’s story receives an assist from Jeff Passan (at Yahoo) and Neil deMause (editor of fieldofschemes.org).  Here is excerpt:

But the worst story to emerge from the documents is that of the Florida Marlins, owned by multimillionaire art dealer Jeffrey Loria. The Marlins have secured funding for a new 400-million dollar, publicly-funded stadium, all while lying about their bottom line to max out their corporate welfare potential. As Yahoo sportswriter Jeff Passan wrote:

The team fought to conceal the $48.9 million in profits over the last two years because the revelation would have prompted county commissioners to insist the team provide more funding. Loria, an art dealer with a net worth of hundreds of millions, wouldn’t stand for that. He wanted as much public funding as possible — money that could’ve gone toward education or to save some of the 1,200 jobs the county is cutting this year.

As politicians begin to rev up their shock and outrage, it’s worth asking why this is a story at all. As with Afghanistan, where for years independent, unembedded media has been raising critical questions about the US military intervention, it should hardly shock us that public funding of stadiums is a sham, and the owners of teams simply lie their way to the bank.

Neil deMause, editor of www.fieldofschemes.org, wrote to me:

The remarkable thing to me about the leaked MLB documents is how much of this we already knew: Forbes has been reporting for years that franchises like the Marlins and Pirates were turning profits despite dismal teams, and the leaked documents show that their estimates were generally right on target. It shouldn’t come as any surprise that if you’re eligible for a cut of league revenue and don’t spend anything on payroll, you’re going to make money — does anyone really think it costs that much to paint in the batter’s box every day?

He’s absolutely correct. The numbers have been there for years but politicians simply took owners at their word that Forbes was simply wrong. Politicians now either look incredibly naive or utterly complicit. They were dupes or participants in what has been a Ponzi scheme of lies and organized theft. Passan was absolutely correct in writing, “The swindlers who run the Florida Marlins got exposed Monday. They are as bad as anyone on Wall Street, scheming, misleading and ultimately sticking taxpayers with a multibillion-dollar tab. Corporate fraud is alive and well in Major League Baseball.”

The words of Zirin, Passan, and deMause suggest this story is about more than just baseball.

But for those interested in just the baseball story, I wanted to close with one more observation.  People have suggested that the Pirates did the right thing by not spending all the money baseball was giving the team. I think this is true. The Pirates are clearly responding to their incentives. And along the way, they are essentially confirming an observation we made in both The Wages of Wins and Stumbling on Wins.

In both books we observed that payroll and wins in baseball do not have a strong correlation.  Specifically, a team’s payroll only explains about 20% of a team’s wins. This means that it takes more than dollars to win in baseball. And this means that simply taking money from the rich teams and giving it to the poor teams is not going to transform baseball’s lower classes into winners. The Pirates appear to be agreeing with this observation. Rather than spend all the revenue sharing money – which may or may not lead to many more wins – the Pirates have decided to just keep part of this money as profits.  

Of course, all this leads one to ask, why should baseball’s upper classes subsidize the Pirates? After all, isn’t it enough that taxpayers are willing to give this team money?

- DJ