A Look At The Pittsburgh Pirates Payroll In Context

Editorial: The Pittsburgh Pirates are a small market team that will always have their high years and low years.  They’ll run a low payroll, one that’s near $100 million the last few years, and they’ll rank in the bottom third of the league.

In September of this year, Bill Brink of the Pittsburgh Post Gazette wrote a piece titled As Pirates Payroll Stalls, Margin For Error Shrinks.  He writes about the Pirates and how much value a player gives relative to their pay, in other words, the amount of surplus that each player provides.  But it’s this point that really sticks out:

“Even as the Pirates payroll increased from $44.1 million in 2010 to $99.9 million last season, it has ranked no higher than 23rd out of 30 Major League Baseball teams, despite other clubs in similar market sizes — St. Louis, Milwaukee, Cleveland, Kansas City — fielding payrolls between $100 million and $153 million. A drastic reduction in attendance bodes poorly for the 2018 payroll.”

The Pirates, despite essentially doubling their payroll in less than a decade, have yet to rank in the upper third.  I’m not sure what source Bill used in his piece – and it appears he is using the opening day payrolls – but Baseball Prospectus does not have the Pirates season ending 40 man payroll ever ranking higher than 21st (2001), and never higher than 24th in the Bob Nutting era.

In December 2016, Travis Sawchik, who now writes for Fangraphs, wrote a piece on the Pirates’ competitive edge vanishing for the Tribune, in which he details how the cost of pitching on the open market has increased at a much faster rate than the Pirates payroll has.  In the piece, Sawchik cites these numbers on the Pirates payroll and MLB payroll:

Pirates’ opening day payroll:2014: $71,929,3332015: $90,053,0002016: $99,945,000Pct. increase 2014-16: 38.9 %MLB average opening day payroll:2014: $121.6 million2015: $135.5 million2016: $145.5 millionPct. increased 2014-16: 19.7 %

The Pirates increased their payroll at a higher rate than the MLB average, which is good!  The Pirates are adding more money each year than the average team, but what about compared to the average playoff team?  They won’t be able to compete in terms of the amount of payroll, but they need to be able to compete against the rate at which the other teams increase their payroll, and the Pirates need to be increasing their payroll at higher rates than those teams.

For example, if the Cardinals payroll is $150 million and they increase their payroll five percent, their payroll is $157.5 million.  If the Pirates payroll is $100 million and they increase their payroll five percent, the new payroll is $105 million.  The two teams went from a $50 million difference to a $52.5 million difference despite increasing their payroll at the same rate.  This is why the Pirates need to increase their payroll more than the league does on the average.  That is what this article will, therefore, focus on: the Pirates real payroll and the percent increase, those increases compared to the league, and the Bucs payroll per their revenue.

Pirates Payroll.

Like Sawchik, I’ll be using Cot’s Contracts (Baseball Prospectus) as the source of payroll information.  I’ll also be using the opening day payrolls as the value.  To begin, this is the payroll changes under Bob Nutting, who became the Pirates principal owner in January 2007.  Below is the Pirates opening day payroll and their percent change, with dollars being in millions:

2017

The Pirates in 2017 have increased their payroll 149 percent when compared to when Nutting took over, and the Pirates increased their payroll every year from 2010-16.  But due to inflation, the value of the dollar in 2007 is not the same as the value of the dollar in 2010, so I also took a look at the percent change in 2017 dollars.

To do so you need to calculate the deflator, which is each year’s consumer price index – which can be found on the Bureau of Labor Statistics website – divided by a base year’s CPI, in this case, the base year is 2017.  You then proceed to divide the payroll by the deflator to get the real payroll, which is in 2017 dollars in this case.  Below is the real payroll in millions, or the payroll adjusted for inflation and what it equates to in 2017, along with the percent change:

The actual rate in which the Pirates have increased their payroll is lower than when looking at just their unadjusted percent change.  From 2007-17, the real payroll change is 111 percent, which is much lower than the unadjusted increase of 149 percent.  The front office can point to how much they’ve increased their payroll, but part of that is inflation and the increasing cost of pre arbitration eligible players.  By adjusting for inflation, a more accurate look at how the Pirates have increased their payroll can be seen compared to the raw measure each year.

The rest of this article will look at how the Pirates compare to the league in real percent change in real payroll and in payroll per revenue.

League Payroll Changes

Taking the individual teams from Baseball Prospectus and summing them gives the total league payrolls and dividing by the deflator gives the total real payroll for all of Major League Baseball.  It appears that Sawchik used Spotrac for his league averages, which leads to a different value than what I calculated, as the league average 2014-16 percent change summing Baseball Prospectus’ payroll data is 12.43 percent compared to Sawchik’s 19.7 percent.  That is unadjusted for inflation though, and below is the year-by-year percent change for the real payroll:

As seen above, the Pirates have primarily been above league from 2011-2016, with the only year being below league average in percent change is from 2013 to 2014.  The Pirates were coming off their first playoff appearance since 1992, and although they increased payroll, they did so at a rate lower than the league as a whole.  This is rather discouraging, so I decided to look at the teams that made the playoffs from 2012-15 and how they changed their payroll.

I took the teams that made the playoffs in 2012 and looked at how their payroll changed from 2012-13.  Then I looked at the 2013 playoff teams and looked at how they changed their payroll from 2013-14, and so on.  I took the average of all teams after subtracting the Pirates for the years they made they made the playoffs, and got the results below.  Note that the percent change in 2012 is the percent change from playoff teams in 2012 to 2013, the percent change in 2013 is the percent change from the playoff teams in 2013 to 2014, and so on.  The league real payroll is the average payroll of the teams that made the playoffs in that season are in millions.

Using one of the earlier tables, we can see that the Pirates real percent change from 2012-13 was 26.78 percent, 2013-14 was 5.95 percent, 2014-15 was 25.05 percent, 2015-16 was 9.60 percent, and 2016-17 was -5.74 percent.  From 2012-13, 2014-15, and 2015-16, the Pirates increased their payroll at a higher rate than those that made the playoffs in the 2012, 2014, and 2015 seasons.  However, they increased their payroll at a lower rate from 2013-14 than the other playoff teams, and after the 2016 season, they decreased their payroll by 5.74 percent while the playoff teams increased their payroll by 6.66 percent.  For the most part, the Pirates did increase their payroll higher than the league for the past half-decade, which is one positive.

However, as the big market teams have started to hire the really smart front office members from smaller market teams, such as Andrew Friedman going to Los Angeles after years in Tampa Bay, those teams have created an additional edge to go along with their pocketbooks.  This has led to these teams making the playoffs more consistently and going deeper, as seen this past postseason with the four largest cities in America reaching the championship series.  The average opening day payroll for the postseason teams continues to increase to a point in which the Pirates have not yet competed at.  The average payroll of the 10 playoff teams in 2012 was $119.37 million, but the average payroll of the 10 playoff teams in 2016 was $161.19 million, a 35 percent increase.

The only way for the Pirates to compete is to increase their payroll at a higher clip than they have in the past, and feasibly they should be able to do so.  In fact, despite the club increasing their real payroll at a rate higher than both the league average and the average playoff team, they still are below the league average in spending per their revenue.

Payroll per revenue

Back in 2016, Kevin Creagh of The Point of Pittsburgh wrote this piece on the Pirates 2016 opening day payroll per and 2015 revenue.  He writes about how the Pirates could have allocated money and it’s a very excellent read on the business side.  Using Forbes data for revenue, a similar analysis can be made for all years of the Nutting era.

Matt Swartz, who is an economist and consults for a MLB team, has wrote about payrolls and revenues in the past, Creagh even cited this in his piece.  In that piece, Swartz shows that salaries per payroll were around 50 percent up until the mid-2000s, and over the last ten years has been near 40 percent, noting that “Most other major sports leagues have salaries close to half of the league revenues.”  Below are the Pirates payroll and their revenue using Baseball Prospectus and Forbes data, with dollar amounts being in millions.  The chart is read as “in 2017, the Pirates payroll was 36.15 percent of their 2016 revenue ($265 million),” and a reminder that this is the opening day payroll.

This is where the complaints about the Pirates can really be seen, especially in the early years of the Nutting era where they were below 30 percent.  Despite the Pirates increasing payroll at higher rates than the league, they’re also having lower payrolls per revenue compared to the league.  Using the 40 percent mark that Swartz shows, the Pirates could (and should) be spending more money given their revenue.  This is a real valid complaint and should be talked about more often than just the payroll amount.

2014

The 2014 National League Central came down to the final day, but that ultimately ended with the Pirates unsuccessfully capturing the division crown and playing in the wild-card game.  Andrew McCutchen and Neil Walker both had injuries in August which contributed to players such as Michael Martinez, Brent Morel, and Jayson Nix combining for 124 plate appearances.  The club also did not make any moves at the deadline, which also could have played a reason for missing out on the division, but I would venture to guess the injuries played a much larger role.

The biggest additions the Pirates made in the 2014 offseason and spring training were trading for Chris Stewart, signing Travis Ishikawa and Edinson Volquez, bringing back Clint Barmes, and grabbing Vance Worley off waivers.  Three of the five played important parts in making the postseason, as Stewart was an excellent backup catcher, Volquez started the wild card game, and Worley had a 2.85 ERA in 17 starts and 18 games.  Clint Barmes had a 79 wRC+ and 0.3 fWAR, but he was a backup shortstop and was a well-regarded teammate in his three seasons as a Pirate, so his value might not really be quantifiable.

However, they could have still added more in free agency.  Given their opening day payroll was approximately 35 percent of their 2013 revenue, an additional five percent bump to get to that 40 percent is an extra $10 million.  That said, they still likely could spend more.  Given the size of recent TV deals, especially in big markets, the average is likely skewed, as large market teams can only spend a certain amount of their payroll before reaching the luxury tax.  We don’t have an inside look at the Pirates book, but I suspect there’s no reason they can’t support a 45 percent to 50 percent payroll to revenue ratio like the teams in other sports do.  Below, in millions, is what the Pirates payroll would look like if they spent 45 or 50 percent of their revenue on the payroll (note this is not adjusted for inflation):

If the Pirates spent roughly 50 percent of their revenue on payroll, they could compete at a much higher rate, and in 2017 they would have had similar payrolls to the Cardinals, Royals, Rockies, Astros, and Indians.  Each of those teams had payrolls between $120 and $150 million and had 2017 opening day payrolls/2016 revenue of 48, 58, 52, 42, and 46 percent respectively.  The Pirates can easily compete with those teams in terms of payroll, and they should (maybe not as much Houston).  Even if they don’t want to go to 50 percent, and they may have good reasons not to, but spending 45 percent of the previous season’s revenue on the next season’s payroll still should be a reasonable target for the club.  This is where the Pirates should be, not the 35-40 percent they have been in the past.

Keep Boosting Payroll

The Pirates have increased their payroll at rates that are higher than the league, along with rates that are higher than what the playoff teams have increased their payrolls by.  This is important for the Pirates to keep doing, and is something they have done well in the past.  However, the true problem with their opening day payrolls is that they don’t spend enough compared to their revenues.  Competing below average to average in payroll per revenue is a huge problem, especially with the league average (likely) being skewed because of large market teams receiving a ridiculous amount due to their television deals.

Next: Chad Kuhl's Curveball

The club could produce a 2018 opening day payroll of around $115 million by spending around 45 percent of their 2017 revenue according to Kevin Creagh.  After years of only spending around the 37-38 percent, they have over the last five years, increasing their payroll/revenue to a competitive rate would be a nice surprise.  Having a larger payroll gives the Pirates a larger margin for error and also the ability to compete for more for free agents, which is really important as Sawchik noted that they’re losing their competitive advantage on undervalued pitchers.

Final Thoughts

It’s easy for the Pirates front office to point towards how they increase payroll every year and the amount they increase it by because it’s a true statement.  However, it is much harder to point to the amount the team spends on their payroll from a revenue standpoint because it would force them to give an inside look into their books, and could (and likely) show that they are underfunding their payroll.  This is not something a front office would like to admit, but when looking at the data from Forbes and Baseball Prospectus, this is where the stem of complaints should come from.  It’s the not the raw total that is a potential problem, it’s the percentage of their previous season revenue they spend on the opening day payroll that is a potential problem, especially as they’ve had two down years following a three-year playoff stretch.

*All data from Forbes and Baseball Prospectus