I feel like I write this statement a lot, but I’m going to write it again: MLB is awash in money.
It’s spilling in from every possible angle. MLB just re-upped with Fox Sports for 7 years and $5.1 billion. That’s $24.3M per season for each team, starting in 2021. This doesn’t even account for the deals with ESPN and Turner Sports, which will also be re-negotiated soon as they’re both through 2021. So much for the supposition that the TV bubble is going to burst any time soon. Live sports are still a draw, no matter how many cords are cut.
Each MLB team is also now the proud recipient of $10M per year for the next three years, courtesy of a deal that MLB completed with DAZN. I’m not familiar with DAZN, because I’m not into MMA or apparently live in Canada or Europe.
This is to say nothing of the fact that each team got an unexpected present in Q1 wrapped in Mickey Mouse ears. Each team got $50M from the sale of more shares of BAMTech to Disney in August 2017. It appears that teams are not re-investing that money back into payroll for potentially reasons that Ethan laid out in an article last week.
The Pirates are not only not re-investing the BAMTech money, but it appears as if they are reducing payroll in the wake of 2018’s attendance figures that plummeted precipitously. If the Pirates are so blatantly tying their payroll to attendance, even with all the other revenue streams that they can draw from, this is where I have the biggest qualm with the non-use of BAMTech monies.
If the Pirates want to claim that the BAMTech payment came in too late for them to adjust their budget mid-stream, then use the $50M ($22.5M to payroll on the 45% rule-of-thumb) as a ‘budget smoothing’ technique. This is periodically used during shocks to a budget, in this case the attendance drop in response to the trades of McCutchen and Cole, so as not to disrupt the whole operation.
The Pirates opened 2018 with an $86M payroll per Cots Contracts, keeping them squarely in the bottom 5 in MLB. Now if the rumors are true, a $75M payroll will be comically low. One thing to keep in mind is that inflation exists in baseball, too. It’s not really talked about as much as in the real world, but saying the Pirates should have a $100M payroll doesn’t really mean as much in 2018 as it used to.
I was discussing this in a Slack channel with David Slusser and Nate Werner (two young men who very well may in a baseball front office one day) and David compiled the following research from 2010 to 2018. Here’s the total sums of MLB payrolls from 2010-18:
- 2010 — $2,808,369,246
- 2011 — $2,876,676,553
- 2012 — $3,010,668,965
- 2013 — $3,183,572,547
- 2014 — $3,430,046,397
- 2015 — $3,757,838,898
- 2016 — $3,903,750,767
- 2017 — $4,100,091,926
- 2018 — $4,068,836,950
In economics, the Consumer Price Index (CPI) is a way of tracking prices and, by proxy, inflation over a designated time period. The base year is set at 100 and everything is scaled appropriately off of that. So in this case, David constructed a ‘Baseball Price Index’ (BPI) by setting 2010’s payroll summation as the 100 level.
Here’s the summaries of the BPI from 2010-18:
- 2010 — 100.00
- 2011 — 102.43
- 2012 — 107.20
- 2013 — 113.36
- 2014 — 122.14
- 2015 — 133.81
- 2016 — 139.00
- 2017 — 146.00
- 2018 — 144.88
So now using David’s BPIs, we can calculate the inflation rate in baseball as it relates to payroll. The difference in BPI from any given year to 2010 is then divided by 100 to get the inflation rate.
- 2010 — 0.00%
- 2011 — 2.43%
- 2012 — 7.20%
- 2013 — 13.36%
- 2014 — 22.14%
- 2015 — 33.81%
- 2016 — 39.00%
- 2017 — 46.00%
- 2018 — 44.88%
The change in payroll, or the inflation if you will, is 44.88% over the 2010-18 time period. Between the nine seasons, that’s roughly an average of 5% increase per year.
In the ‘real world’, David also calculated the standard Consumer Price Index over the same 2010-18 timeframe:
- 2010 — 100.00, 0.00% inflation
- 2011 — 104.00, 4.00% inflation
- 2012 — 105.00, 5.00% inflation
- 2013 — 106.00, 6.00% inflation
- 2014 — 108.00, 8.00% inflation
- 2015 — 108.00, 8.00% inflation
- 2016 — 109.00, 9.00% inflation
- 2017 — 112.00, 12.00% inflation
- 2018 — 114.00, 14.00% inflation
While national real world CPI has increased 14%, baseball’s BPI has outstripped that by an additional 31% to be 45% inflated from 2010-18. Using David’s payroll totals, the average team payroll in 2010 was $93.6M. To no one’s surprise, the Pirates were well below this average at $39.1M (41.8% of the average). Now in 2018, the average payroll was $135.6M while the Pirates clocked in on Opening Day at $86.3M (63.6% of the average).
It’s obviously too early to know the full 2019 payroll sum totals, but if we use the 5% year-on-year average, the average MLB payroll in 2019 would be $142.4M. If the Pirates truly dock this ship at $75M on Opening Day as rumored, their payroll would only be 52.6% of the MLB average, a full 11% drop than just last year.
The Pirates local TV contract is up after 2019 season. For them to not be willing to re-allocate the one-time BAMTech sum of money towards the 2019 budget is an incredibly short-sighted business decision. Why would you not want to make your product as appealing as possible to fans, to get them both into the stadium and watching on TV, on the cusp of negotiating a new deal?
Even if they cynically only made the Pirates good in 2019 and then dropped salaries in 2020 after the ink was dry on the new deal? I’d be fine with that. I’d at least understand that as someone that is drenched in cynicism.
The Pirates continue to make me wonder if there is truly a long-term vision from ownership. Paying down debt or just absorbing the BAMTech as a pure profit or some other nebulous use of it is short-sighted with this team on the precipice of being a playoff team AND a new TV deal looming.