For any sports econ nerds out there, this has been a big week. The always-popular sports blog Deadspin got their paws on a mountain of leaked financial data from the Tampa Bay Rays, Pittsburgh Pirates, Texas Rangers, LA Angels, Florida Marlins, and Seattle Mariners. In a Wikileaks-like move, they posted those documents online to give everyone a detailed look behind the curtain of baseball finance.
What do the statements prove? In short, that baseball is a lot more profitable than the league and the owners would like the public to believe—even for clubs that are losing a lot of baseball games and in turn, a lot of gate receipts.
If you’d like a window into how this is happening, I happen to have scoured the internet to find an excellent resource written exactly 1 year ago on this same topic. For a more detailed, wonkish breakout of the situation, I also highly recommend the ongoing series by The Biz of Baseball (starting here).
I’m not going to spend a ton of time sussing out the various financial realities because both Deadspin and The Biz of Baseball—along with numerous articles by the hometown papers of each franchise, which you can find links to in both of the above—do a much better job.
What I want to focus on instead is this question: now that we can be pretty sure that the Dolans are indeed turning a healthy profit on a losing team, should we really give a damn?
I say that we can be almost certain because of the documents leaked on the Pirates. Pittsburgh’s MLB franchise is of course a crap team in a similar-sized market with similar demographics which also has made the decision in recent years to consistently trade away their best and highest paid/arbitration-eligible players for prospects and cash savings. Any of this sound familiar?
In 2007, the Pirates finished in last place with a record of 68-94…and according to the leaked documents, they scored a net income of $15M. In 2008, they defended their last place title by going 67-95…and earned a net income of $14M in the process.
In light of all this, it’s foolish to believe that the Tribe lost somewhere between $12-16MM this past season, as Larry Dolan famously claimed. In fact, it seems probable that their own profits were similar to those of the Pirates’ ownership group.
Again, though, the question is whether or not this really matters.
First off, no one should ever assume that anyone important or rich enough to be worthy of an interview is publicly telling the truth about anything. So if these financial realities somehow make you feel betrayed by the Dolans’ cries of poverty, that’s really your own fault for being gullible. As I’ve said before, running a pro sports franchise is a business, not a charity. If the owners were actually getting killed financially, they’d sell the team. Period. The fact that it’s so difficult to buy a franchise in any sport tells you basically everything you need to know about their profitability.
I imagine that most Indians’ fans wouldn’t react negatively based on moral principle, though. If anything, the most popular gripe seems to be that if ownership is printing money off the poor performance of the team, they owe it to the fans to be pumping that money back into the roster to try to improve it—specifically in regard to re-signing their best players and chasing free agents.
The problem with this viewpoint is that it’s not a smart way to operate a mid-market MLB team. Profitable as the club may be, Cleveland is never going to be in the same league as the Yankees, Red Sox, and Phillies. They can’t succeed on the same business model that those chipped-up major-market east coast teams do.
Consider this: if we assume that the Indians netted $29MM in 2007-8 like the Pirates did, all but $8.5MM of that would’ve gone to pay Kerry Wood for his services in 2008-9. Or, another way of looking at it: the Yankees signed CC Sabathia for 6 years at $140MM, or an average of $23,333,333 per. Was he enough to make the Indians competitive in 2008? Uh, no. At that rate, it’s impossible to argue that he would’ve been anything other than a catastrophe for the team, considering that his contract would’ve put them $17.5MM in the red had all other factors remained the same. And considering that one great pitcher can’t pull an entire team into contention if the rest of the roster is deficient, that seems like a solid assumption to make.
As we’ve argued again and again in the past year, the Tribe needs to spend intelligently, not profusely. Throwing a bunch of money at the problem is far from a solution (see also: Browns, Cleveland, 2008-9). Instead, the only way for them to compete is to stock the farm system with low-priced developmental talent. So if the organization wants to spend money to make the team better, they should pump it into the scouting department. Assuming they get the right types of people to join up, the Dolans’ per-dollar return on that investment is going to be far greater than any they can make on the free agent market.
If you want proof of this, just look at one of the other teams involved in the MLB financial leaks: Tampa Bay. The Rays netted a cool $11MM in 2007 en route to a pathetic 66-96 record. This seeming failure was the final year of the exact same strategy I’m suggesting for the Indians. The following season, the Rays won 97 games and made the World Series. After falling back to Earth a bit in 2009, they are now in 1st place in the AL East and look like they’re poised to compete for years to come.
Did it suck to be a Tampa fan while they slowly built that roster of young players in the several seasons leading up to 2007? I’m sure. Did ownership likely endure the same kinds of pitchfork-and-torches threats from the public as Cleveland ownership has been subject to since 2008? Probably. But instead of caving to fan pressure and doing something stupid, Tampa stuck to the business model that had made their in-state buddies the Florida Marlins two-time World Series champs. Now their fans are thanking them for it.
So it is with the Indians. If we avoid the knee-jerk reaction that it’s offensive and evil for the owners to make a significant profit off of a bottom-feeding team, it becomes clear that the Dolans and the front office—again, assuming the comparisons I’m drawing are accurate—are doing the right thing. So don’t be fooled by the financials alone. If the team is being bolstered in the savviest ways rather than just the most expensive, what’s perceived as the Dolans’ greed can, in fact, be good for us all.
However, if they blow this, I promise I’ll be first in line at the hardware store for the pitchfork and torch sale.
As NFL training camps lit up the map starting this past week, my Twitter account has been flooded by two types of posts from football pundits: first round picks negotiating for seemingly massive contracts, and players going down to injury in drills.
On the Browns side, rookie RB Montario Hardesty will miss “a couple of weeks” thanks to having “twisted his knee” in practice, according to Browns brass. Putting aside for a moment the notion that I didn’t even know it was possible to twist a knee, Hardesty’s injury puts him on a rapidly expanding list of players hurt before preseason games are on the radar. That list includes Cowboys top pick Dez Bryant, Eagles #1 receiver DeSean Jackson, both of the Broncos’ top running backs (Knowshon Moreno and Correll Buckhalter), and several others.
Also on the Browns’ side, rookie DB Joe Haden was scolded by some fans for not signing his contract in time to attend the first day of practice on Saturday. I’ve read plenty of insults hurled at other players, such as the Jets’ Darrelle Revis, for being “unappreciative” enough to hold out for better compensation than their current contract provides.
However, I’m a little blown away by people unwilling or unable to make the connection between the issues of injuries and money.
For plenty of fans and football people, injuries are just a part of the game. That’s true of any professional sport. But the reality is that the NFL is one of the closest things to gladiator combat that we have left in the modern era. (Admittedly, MMA and boxing should also be on the list, but I don’t think that either one of those really approaches the same level of interest as the NFL.)
The recent studies of brain damage linked to football at all levels has created a minor shock wave in the sport, especially as it concerns linemen and linebackers. But players at other positions don’t fare a whole lot better in the grand scheme of things. For instance, running backs over the age of 30 are now viewed as disposable, and the risk of injury in the backfield has become so great that most NFL teams have moved to rushing by committee. The odds say that a single feature back simply isn’t going to survive a 16+ game season.
Either despite or because of this, NFL contracts are only ever partially guaranteed. Owners & GMs retain the right to cut players at basically any point and for any reason. Though it may not be true for star players, plenty of others are unceremoniously fired (in terms the rest of the working world understands more viscerally) without ever reaching the full value of their contracts. Then, at the end of their careers, players are sent packing without any league-provided health care. Enjoy your 40s and 50s, fellas.
With the current NFL collective bargaining agreement set to expire at the end of this season, I find it interesting that I can unearth 10 reports on how any team’s third string looked in training camp today, but nothing on whether or not the Players Association is attempting to negotiate any landmark regulations for player safety or care into the new collective bargaining agreement. Clearly, the game is not working long-term for the people who play it. Shouldn’t that be reflected in the players’ demands?
To objective observers, the answer should be a clear “yes.” But I don’t think the players see it the same way. If they did, I imagine I’d be hearing a lot more out of the CBA proposals about these types of issues. Instead, the biggest point on that front seems to be Roger Gooddell’s attempts to expand the regular season to 18 games—a situation that would only make all the existing problems that much worse for his employees.
As Malcolm Gladwell points out in the article I linked to earlier on the similarities between football and dog-fighting, the players who succeed in the league are the ones willing to sacrifice themselves over and over for their teammates, their coaches, or themselves. They’re wired to fight through pain, to ignore the signals their bodies and minds send them, so they can keep playing, keep putting a product on the field for the fans. In short, they are the people destroying themselves in order to entertain us.
The players also know that part of many fans’ affection for the game comes from the reckless abandon and intensity with which it’s currently played. It’s bad enough that they’re already blasted by supposed admirers for holding out when most players will only be able to sign two or three deals before they can’t even hold a pen anymore. Who among them is going to step up and publicly declare he wants to soften football—America’s TRUE national pasttime—for his own protection?
This means that, barring a sea change, the only way to make the game more sustainable is for league officials to save the players from themselves. Instead, owners and the league are doing the opposite. That’s where the hard incentives lie, after all: more regular season games, more exposure, more cash. And why not? Aside from a few doctors and some retired players too broke to sue on a meaningful level, who’s complaining?
As we’re all bombarded with more reports of injuries in camp and more criticism of players holding out, it’s worth looking at the facts of football. It’s not just a sport; it’s a willing human sacrifice. Most of the men who play it seem not to want to change any of that. This may or may not be the case in 20 years. But In 2010, it’s the reality. So the next time someone you know trashes a football player “acting as if he’s too good to be paid millions of dollars to play a game,” point out that it’s not a game—it’s combat. At the very least, it should get you into a discussion more stimulating than how many laps Mangini made someone run today.
As you may remember, David Stern came out during All-Star Weekend to declare that the league was on pace to lose $400MM in 2009-10. He used this figure to support the idea that the financial structure of the NBA (specifically, player salaries) needs to be dramatically altered in the new collective bargaining agreement so the NBA can continue to exist.
The linkabove leads to an article by CBS Sports’ Ken Berger (@KBerg_CBS for you Twitter addicts) about the Players’ Association’s disputeof thatnumber. Tothem,the $400MM is all smoke, mirrors,andaccountingtricks.
My guess—as you may recall based on our Pinocchio Story series (Parts 1, 2, 3, and 4)—is that the NBPA is totally on point. Anxiously awaiting the final findings of economist Kevin Murphy at my alma mater to find just how on point they are.
Like many teams in the NBA and other American professional sports, the Sacramento Kings are advocating for a new arena to be built in their hometown — with the lingering threat that if this doesn’t happen, the team may be “forced” to move elsewhere.
As I’ve discussed before, the economics of new stadiums basically math out to highway robbery of the public by some of the wealthiest men in the country. The article above turns that statement into an exclamation. It covers a study done by a Sacramento consulting firm (at no cost to the city) that demonstrates that building a new $500M arena would result in a grand total of 229 new permanent jobs for the city, the majority of which (I’m guessing) would be low-level customer service and operations posts like working at vending stands, the team shop, ushering, etc. Not exactly the type of jobs that are going to position Sacramento as a hub of future growth and opportunity in a shifting global market.
Traditionally, the creation of a huge tide of new jobs is one of the primary arguments that franchise owners make for why they shouldn’t have to bear the burden of paying for their own new stadium. As the article makes plain, it’s a completely bogus argument. Good to see that someone telling the truth about it is getting a little pub. (Thanks to ESPN’s John Hollinger for tweeting the link.)
Considering that the Cavs play 3 games in the next 4 days, I figured I’d try to post about one of the other sports tonight. And while it’s not technically Cleveland-related, I saw the ESPN update that the Phillies are on the verge of completing two simultaneous but separate deals: 1) shipping Cliff Lee to Seattle for prospects, and 2) nabbing the much sought-after Roy Halladay as his replacement.
Apart from my continuing affinity for Cliff, the main reason I want to look at this is because it functions as a good reminder that the Tribe is far from the only team in baseball that let economics override the prospect of success.
You’ll remember around the MLB trade deadline last season that Halladay was seen as the huge prize, and when the Phillies traded for Lee instead, there was somewhat of a backlash from their fan base. That said, the backlash was brief, since Cliff went on to be basically dominant for the stretch run of the season and the playoffs.
Fast forward to today. The Phillies essentially decide to trade Lee for Halladay. Is it because he’s a significantly better pitcher than Cliff?
The career comparison is a little skewed by virtue of the fact that Halladay has 12 seasons of experience vs. Cliff’s 8 seasons. And if you look at the year by year break-outs for Halladay (here) and Lee (here), Halladay’s performance has been more consistantly remarkable in all categories for longer (2001-9) than Lee’s. Cliff can really only go toe-to-toe with ”Harry Leroy Halladay” (true full name - thanks Baseball Reference!) the past two seasons.
However, if you isolate the sample size to just those two seasons, Halladay has still been better overall in the categories we care about — but not by leaps and bounds. And statistics aside for a moment, it’s impossible to say that Lee was the reason the Phillies didn’t repeat as World Series champs this past season. So “upgrading” him isn’t necessarily the move that I’d be trying to make if I were running the team.
That said, one thing that has always stuck with me from taking Econ in college was the concept that if you’re presented an opportunity that results in a net gain — no matter how small — you should take advantage of it, no questions asked. So from that standpoint, the Phillies’ “trading up” for Lee is completely defensible.
But since the Phillies are not directly trading Lee for Halladay, wouldn’t the best possible move be to retain Lee for the final year of his contract AND still make the deal for Halladay? That 1-2 pitching combo would instantly become the toughest in either league. Short of a meteor striking their spring training facility, it’s difficult to imagine a set of circumstances that would prevent the Phillies from getting back to the Series in 2010 if they were running those two guys out their back-to-back for an entire season in the weak-hitting NL.
Apparently the obstacle, though, is financial. According to ESPN’s Jayson Stark, if the Phillies were to use the nuclear option, so to speak, their payroll would balloon to something in the neighborhood of $160M. The franchise also has an internal rule to not sign starting pitchers to deals longer than 3 years.
After initial talks with Lee’s agents, the Phillies’ brass came away convinced that it would take a “CC Sabathia”-level deal to keep Cliff after this year. (As a reminder, the Yankees are paying CC 7 years / $161M, or $23M per). Halladay, on the other hand, has made it clear that he’s willing to take a voluntary paycut to come to Philadelphia. Reportedly, an extension of 3 years and $60M will put him in red through 2013, unless the trade breaks down in some other capacity.
This strategy brings up all kinds of questions that I don’t have the wherewithal to siphon through today. I’m most fascinated by the fact that the Phillies are taking a sort of third way between the extremes every other franchise seems to be gravitating toward. They’re apparently willing to spend but with definite caps and only with relatively short term deals.
However, I know this: if the Indians made these two moves I would be pissed. Throwing away a golden opportunity to have arguably the two best pitchers in baseball on your team is inexcusable — especially for a big market team like the Phils. I understand what they’re trying to do, but I don’t agree with it. You can’t make the hunt for the World Series title half of an arm’s race. Either go in and try to win today, or trade away Lee for prospects so you can save money. The middle road doesn’t end in victory.
