Pittsburgh Pirates: An Update to Inflation In Baseball

An update to the role of inflation in the game of baseball and a look at teams Opening Day payrolls and previous year revenues.

Earlier in the year and during the offseason, I helped Kevin Creagh from The Point of Pittsburgh in calculating inflation with respect to payroll in the game of baseball and then looked at the Pirates payrolls from 2010-2018 and compared the inflation adjusted numbers between the Pirates and the rest of the league.  In April, Forbes released their business of baseball numbers which provides a quick look into a team’s revenue, costs, and profits.  It’s an estimate, but it’s the best publicly available estimate that there is.

When originally looking at inflation, I simply created a market basket of opening day payrolls and created an inflation rate based off of that.  I looked at two different approaches in adding payroll to the mix:

1. Adjusting a payroll market basket and a revenue market basket with base year 2018 (payroll ends in 2018 so keep everything in those dollars)
2. Take the difference between the revenue and payroll (essentially an expenditure) and use that in creating the inflation, again with dollars in 2018

The results gave an average, in 2019, of 41 percent payroll/revenue and 40.6 percent payroll/revenue.  The results were similar, and number two does make some sense, but as revenue has increased faster than payroll (thanks BAM), I decided to go with number one as the basis.

Adding in 2019 to the data, we get the following Pittsburgh Pirates payroll’s in 2018 dollars:

The Pirates payroll of $74.8 million is a payroll of $75.5 million in today’s dollars.  We already knew the low totals and the Pirates reasoning of their arbitration class, but here’s their respective revenues (note, the year is year+1 so 2010 is the revenue from Forbes in 2009):

The team has seen a decline in their revenue, in part because of their decline in popularity and attendance leading into each season.  Decline in revenue equaling a decline in payroll makes sense financially, but let’s look at payroll as a percent of revenue:

The Pirates decreased their payroll per revenue by 2.3 points this season and are down 6.5 points since 2016, and that drives a main problem.  The long run average is 41.0 percent over this decade period, and the Pirates high is 36.2 percent, 4.8 points below the average.  This season the club is 11.3 points, having the second lowest percentage (ahead of only the Tampa Bay Rays).  Over the last decade, the Pirates average rank is 26.7th in payroll/revenue, certainly looking to be underfunding the team compared to the league.

Since the front office always refers to “market appropriate resources” let’s compare the bottom five teams according to the MLB CBA and their 2019 Real Payroll/Revenue:

The Pirates are below every team in the bottom five of market score, and among the four other teams, only the rebuilding Royals are below the average number of 41 percent.  This team, with the amount of players being pre arbitration eligible and being arbitration eligible for the first time in 2020, is the time to build and spend on free agents.  In a couple of years this group will be expensive and payroll will artificially grow from the raises each player will get.  But for 2019, the club looks to be underfunded, especially when they look to compete for the playoffs.