With MLB Windfall Coming, Why Do the Pittsburgh Pirates Need Payroll Relief?

Bob Nutting and the Pittsburgh Pirates will be receiving quite a few Bud Selig bucks in the mail soon.

In the worst economic times most of us have experienced, Major League Baseball will see revenues increase in 2012.  The reveues have been flat the past two seasons, which considering the conditions in the country is remarkable.  But the remarkable number is the fact that revenues have grown over 250 percent since the mid-90’s.

So what does increasing revenues in MLB mean for baseball in Pittsburgh?  Thanks to a progressive Collective Bargaining Agreement, what it means is that more money will be coming in the mail for the Pittsburgh Baseball Club.

The Pittsburgh Pirates majority owner, Bob Nutting, talks about having a large payroll, the biggest in history or something.  Well, yeh…shouldn’t the payroll be growing based on these facts?

"The Pirates, as all teams, can look forward to an additional $25 million of annual revenue in 2014 as a slice of MLB’s national TV pie. Club president Frank Coonelly: “We intend to invest all of that back into the team, much of it in the Major League payroll.”"

That quote came from Tom Singer’s blog.  We wanted to try and understand how the money flows from the best and brightest to 115 Federal Street.  We used a few sources in the information gathering and those are noted at the bottom.

In 2014 new national broadcasting deals will add an additional nearly $800 million dollars to the MLB revenue pool-lake.   Baseball is booming.    It would be safe to say MLB gross revenues could reach $9 billion dollars in 2014.  Think about that, NINE.  Billion.

We will attempt to give a broad overview how Major League Baseball will distribute these revenues.   The quick version is there are two plans and the Pirates receive a check from both plans largely based around a Performance Factor in which they currently are ranked 29th out of 30 clubs.

In more detail, there are two plans– a base plan and a supplemental plan.

In the base plan, every team starts with gross revenue.  All of the revenue received from the Pirates baseball operations are added together.  The sales of tickets, concessionares, the contract with ROOT Sports, etc.  The teams then add the 1/30th portion of Major League Baseball generated revenue–the national TV deal, the money from the pathetic MLB.tv, the license deals, etc.

The teams then subtract expenses from the ballpark and 1/30th share of central revenues.  It’s interesting that there isn’t much detail on this that I could find.  We assume that normal accounting practices are used here–so typical expenses are included, not something like a new scoreboard.  Nevertheless, the remaining money after the subtraction of gross revenue is called Net Local Revenue.

Every baseball team contributes 34 percent of their Net Local Revenue to the base plan, which is then handed out to each team in equal shares.

The high performing teams then  put an additional percentage of Net Local Revenue in the supplemental plan (more details below) which is based on the team’s Performance Factor.

The Performance Factor is a formula.  That process is rather detailed, but here is the bottom line.  The Pirates are sucking on the bottom of the Performance Factor chart with a negative 9.3 and negative 8.6 in 2013.  Only the Royals have a worse Performance Factor number.

The low performing teams–i.e. the Pirates, get an additional percentage of this Net Local Revenue, again this percentage is based on the team’s Performance Factor.

As you can imagine, the Pirates receive more than they contribute to the Net Local Revenue plan, and are referred to as one of the Revenue Sharing Payee Clubs.  It’s a scenario that equates to the Pirates getting a nice check when all the math is completed under both plans.

So, using an example in Wendy Thurms’ Fan Graphs article, if the Net Transfer Value of the supplemental plan for 2012 was $50 million just as an example, the Yankees would contribute $13.85 million and the Pirates would receive $4.65 million under just the supplemental plan.

In the upcoming season, big market teams are going to have to cough up a larger portion of revenue sharing monies.  These will be shared among the high performing teams also based on their performance factor.  Also there are details on high-performing teams receiving a perceentage surrounding exceeding luxury tax.  (Not the Buccos, so we are avoiding details.)

Now let’s review how the Pirates (and all teams that receive these checks) are allowed to use the baseball welfare.  The objective is to promote the growth baseball.  The CBA says accordingly, each Club shall use its revenue sharing receipts . . . in an effort to improve its performance on the field.

The Pirates are not permitted to use the money on servicing debt obligations which aren’t related to baseball operations.  The money can’t be used to make payments to individuals other than on-field personnel and those in player development.  The money can’t be used to make payments to entities not involved in improving on-field performance and it can’t be distributed to Bob Nutting.

Frank Coonelly commented at PirateFest that the 2013 payroll will be near $70 million dollars.  It has to be comforting to know that in 2014 a large portion of the payroll can be covered with new tv deal money.  Also factor in that the amateur draft no longer allows the Pirates to spend like drunk sailors and the bank account is receiving a bit of relief. And the Pirates get money for being one of the ugliest girls at the dance.  How fortunte for Bob Nutting.

The increase in revenue sharing isn’t monumental in baseball terms, but it should be enough to assist the Pirates in keeping the players they really feel will help them improve on the field.  The key will be to make good baseball moves.

And making good baseball moves is something that has been a struggle in Pittsburgh the past twenty years.

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Additional notes and references:

Tom Singer’s blog Change for Nickel

The Major League Baseball Collective Bargaining Agreeement, most of the information for this post begins on page 118

From FanGraphs Wendy Thurm article:

This chart was put together by Wendy Thurm and details the Performance Factor for each club in 2012 and 2013.

Starting in 2013, the big market clubs will be forfeiting proceeds and the luxury tax threshold factors will be coming in to play as well.

Kudos to Wendy Thurm for putting the information together in one easy to find location.