Lost in the noise about how much money the Pirates, their owners in general, and the Nuttings in particular "made" in the wake of the leak of the Pirates' 2007-2008 financial documents is a larger question: Can the Pirates afford to win? More precisely, do the Pirates' financials support the ability to add sufficient payroll for them to sustain a competitive team over the long term?
In 2007 and 2008, the Pirates earned $15M and $14.4M on revenues of $138.6M and $146M, respectively. Their expenses for player salaries were about $51M each of those two years. According to the always-excellent PiratesProspects, the estimated 2010 player payroll is $42.4M. All other things being equal, that means the Pirates could reasonably expect to support adding $23.6M of payroll: $51M of 2007/2008 payroll plus $15M of net income allotted to payroll gives $66M; less the current $42.4M leaves room to add $23.6M.
All other things aren't equal, however. Presumably, a competitive team would have higher attendance, generating higher gate receipts and concessions. On the other hand, as the Pirates generate more revenues themselves, their revenue sharing will go down. Taking these factors into consideration, what kind of payroll can the Pirates sustain?
In their first year at PNC Park, the Pirates drew 2.46M customers to watch a team that went 62-100. Obviously, the park was the draw, not the team; but that gives us a benchmark for the number of people in Pittsburgh that are willing to pay to go to a baseball game. So let's assume an annual attendance of 2.5M.
Based on the financial documents and the attendance linked above, the average net home game receipts for 2007-2008 was around $20. The Pirates have kept ticket prices flat from 2008 through 2010, and given the team's performance this year, it's reasonable to expect them to do the same into 2011, and maybe even into 2012. Even with improved performance in 2011 and 2012, it's hard to see ticket prices increasing by more than about 10% in 2013-2014, so let's assume an average net home game receipts of $22. That would increase net gate receipts to $55M, from $32.1M in 2008.
Average concession commissions per attendee were $5.15 in 2008 and $4.08 in 2007. That's a 20% annual increase, but it's hard to discern a long-term average from only two data points. Let's assume that this figure increases another 25% from 2008 to 2013-2014, to about $6.50. That (along with the increased attendance) would increase concessions to $16.25M, from $8.3M in 2008.
Local broadcast revenue grew from $16.5M in 2007 to $18.7M in 2008, a 13.6% increase. Projecting that growth to continue is perhaps optimistic, but projecting half that growth rate, or 6.8%, over five years sounds reasonable. That would kick the local broadcast revenue to $26M.
National broadcast revenues averaged $22.1M in 2007-2008. Given the national broadcast contracts run through 2013, let's assume that number stays flat. It's likely to go up, at least when the next contract is signed, but we'll be conservative.
The formulas for revenue sharing are deep, dark secrets. From 2007 to 2008, the Pirates' piece of revenue sharing went from $30M to $39M, as their local revenues (gate receipts, concessions, local broadcast revenues) actually went up by $1M. Let's be pessimistic and say that revenue sharing drops to $20M.
While we could do puts and takes on all the other revenue components (e.g., ballpark advertising signs, MLB Advanced Media, MLB Licensing, luxury suites, etc.) and expense items (e.g., player development, team operations, game operations, marketing, PR, G&A), they honestly don't move the needle significantly. So if we assume that they net out basically flat from 2008, we end up with about $87M available for the Pirates to spend on player salaries, assuming the team has a net income of $0. Could be as low as $80M, could be as high as $100M.
So by this analysis, a successful Pirates team could add $40M-$50M in annual payroll. That certainly leaves room to lock in two or three arbitration-eligible players to reasonable (not Ryan Howard-esque, but $10-$15M/year) long-term deals and sign one or two second-tier FAs - but the Pirates will have to continue to have eight to ten of their 14 key players (8 starting field players, 5 starting pitchers, and a closer) coming out of the ranks of players in their first six years of ML experience. The team's key success factors will be (1) deciding which two or three players to extend in years 4-5 of team control; (2) getting the most value from the one or two FA signings that they can afford, and (3) continuing to develop young talent to slot in to the other eight to ten starting slots.
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