Highly questionable or in the tank?

Graphics by G. Costales

Dan Le Batard’s recent column makes various assertions about the finances of the Miami Marlins which echoes what Jeffrey Loria would have us believe. I don’t know when Le Batard would ever reach the point of skepticism about his Marlins sources, but his patience is impressive. While he is critical of Marlins management on non-financial issues, what he accepts as fact about their finances just doesn’t add up. He wrote:

The team overspent assuming we’d fill the ballpark [#1], which we didn’t, and that meant losing about $40 million [#2] in that calamity of a season…. Unlike Micky Arison, who lost money every year he owned the Heat except last year, Jeffrey Loria doesn’t have enough money [#3] to keep losing $40 million a year even as the ballpark appreciates his and the franchise’s value [#4].

  • #1 – Depends on the meaning of the word ‘fill.’ Marlins stadium capacity is 37,442. To have sold it out, or filled it, would have meant drawing 3 million fans. David Samson is on record with ESPN’s business reporter Kristi Dosh noting that they expected attendance of 2.7 million [89% capacity], or about 500,000 higher than the 2.2 million [73% capacity] it turned out to be. Noting 89% vs 73% capacity may not be sexy, but it sure is more useful for the purposes of determining expected revenues.
  • #2 – The lower than anticipated attendance would not even come close to accounting for a $40 million loss. It is misleading to imply that the 1st year attendance is to blame for dramatically altering the Marlins business model in year 2 of the stadium. Here’s why.

Marlins revenues from gate receipts, as per Forbes, averaged between $15.1 & $16.3 per fan [gate receipts divided by attendance] between 2007 and 2011 [click on spreadsheet within blog post]. Assuming a healthy 25% increase in per fan revenue to $20 per fan in the new ballpark, multiplied times the missing 500,000 fans, equals a nice round $10 million in missing revenue. A more accurate description of what had to occur to make up for the missing fans was to dump Heath Bell’s contract.

On the positive side, its good to know the Marlins are back to discussing the results of their yearly operations. Let’s hope it’s not a 1 year thing, given that 2013 is looking a lot like 2006 through 2009.

  • #3 – Sloppy and misleading. Does Le Batard know how much money Loria has? Does ‘money’ refer to cash flow as opposed to assets? When exactly would Loria run out of ‘money,’ given the assumed losses? Answering any of those questions would be useful information. Or is Le Batard suggesting that 1, 2, or even 3 lean years would affect the net profitability of Loria’s MLB investment, given the Revenue Sharing fat years which preceded it and the new ballpark which came after? Here’s what is known:

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Miami Marlins Stadium Agreement: What Went Right

David Samson has lied so often with his public comments about the Marlins finances, he is understandably ignored even when making a good point. David meet Aesop, he no Hee-seop [Choi].

Here are Samson’s comments as reported in Juan C. Rodriguez’s post in the SunSentinel about the issue of property taxes on parking garages:

“That really has nothing to do with the team. It’s really between the city and the county. It’s a city-owned garage. I don’t know if the city pays property taxes on all its other garages or not. These are the same. It’s being run by the Miami Parking Authority. The only thing we are is tenants who are agreeing to buy a lot of spots. It’s like when you pull into a garage in any downtown office building and buy a spot for a day. You don’t pay property tax.”

This is what the actual agreement entails, again from the Rodriguez post:

The Marlins are buying all 5,700 spaces for the 81 home games at $10 each [for next 15 years]. The City of Miami annually will receive $4,617,000 from the Marlins for those spots, whether they are sold or not. What the Marlins in turn charge fans for those spots is up to them.

In a recent Miami Herald article [copied in its entirety below], it was reported that Miami-Dade County is attempting to charge the City of Miami property taxes on the 4 parking garage structures built around the new stadium. The County’s reasoning is that since the Marlins have discretion in pricing the parking spaces [all of them] leased from the City, the garage is “controlled by a for-profit enterprise,” and as such should be subject to property taxes. Having to pay property taxes on the garages was not something the City anticipated and would cost City taxpayers up to $2 million annually.

The initial public reaction is probably best captured by Carl Hiaasen’s opinion column [copied below] in Sunday Herald. While Hiaasen made good use of the red meat he was tossed–the 800 word column used the following adjectives; outlandish, foul, breathtaking, boondoggle, dysfunction, incompetence, fiasco, bombed [as in drunk], outfoxed, harpooned, Sucker Ball and an allusion to “law degrees purchased online from Nigeria”–the column made the following specific points.

  1. “In the two years since financing was approved, the numbers are looking more dismal than what was feared.”
  2. “There is nothing public about those garages. They might be owned [and operated] by the city, but they’ll be controlled by the Marlins, purely for profit. The county is absolutely right to treat them as commercial property.”
  3. “On the bright side, the City did get the Marlins to cough up $10 whether or not the parking space is used…. If the Marlins start [I’m sure he meant continue] losing, there will be a drearily familiar abundance of empty seats and empty parking spaces.”

Point #1 – My reply to Hiaasen’s “numbers looking dismal” claim

  • Leaving the parking garage property taxes aside, given that it may not be an issue, it’s hard to figure out what exactly Hiaasen is referring to. There were two big contingencies associated with the new stadium: potential construction costs overruns with a franchise whose finances were uncertain and whether Miami-Dade County’s Hotel [or Bed] tax receipts would bounce back after the financial crisis.
  • The stadium itself apparently did not have cost overruns. [My links are to my own blog posts where I always copy the article being referenced at the end of the post.] There were structural issues with at least one of the garages which raised construction costs from $94 to $101 million for the garages.
  • County Hotel taxes were the biggest concern at the time of the Stadium Agreement was approved. In effect, the anti-stadium advocates stated that tourism could not be counted on to recover. Miami-Dade argued that they would.
  • The results are in, or about 3 years worth of data. Tax receipts fell by 15% for the fiscal year ended [FYE] 2009, rose 9% for FYE 2010 and rose 15% for FYE 2011. For the first time since the financial crisis, the tax receipts for the fiscal year which ended this past June 30th [FYE 2011], exceeded those in the year [FYE 2008] before the financial crisis. Miami-Dade’s bond payments were structured to account for a growing tax receipts following the recovery from the financial crisis.
  • Here are the comments of George Burgess, Miami-Dade’s county manager at the time: “Our belief is the slowdown will last two or three years and then rebound,” he said. “Is it reasonable that we’ll be flat-lining for six or seven years? It is not.” So far so good on that prognosis.
  • In April of 2010 there was concern that the City of Miami would not be able to issue bonds due to an SEC audit, but that was resolved.
  • Another development was the Deadspin release of the Marlins financials, but that revelation is positive news from the point of view of the stadium deal, since it meant that the Marlins would be able to meet their construction costs obligations.
  • Also, the terrible economic environment since the financial crisis has translated into good news for local governments ability to obtain financing with lower interest rates.
  • If Hiaasen was a Monty Python character, he’d be calling for a draw at this point.

Points # 2 & 3 – My reply to “garage is commercial property”

  • Here I would repeat Samson’s point. What is done at the other comparable venues? While it’s interesting that a columnist would take such a definitive position on an intra-governmental legal issue — by stating that the garages should be treated as commercial property — actual reporting about the why would have been useful.
  • Hiaasen is relying on reputation to get away with writing that ‘…there is nothing public about parking garages that happen to be owned [and operated] by a city government…’ Ownership and responsibility for running the four garages ain’t nothing.
  • I think Hiaasen’s 3rd point [Marlins unlikely to sell out parking spaces, especially in the long run] counters his 2nd point [garages are commercial property because the Marlins might profit from the deal]. If profitability is the key to who is controlling the garages, what happens to that analysis if the Marlins start losing money on the garages after year 2?
  • Bottom line, the City of Miami has outsourced the responsibility for selling parking spaces at the new stadium for the next 15 years. Hard to imagine that would cost them their tax-exempt status.
  • Mr Hiaasen, Malcom Gladwell on line 2 for you.

All articles referenced are copied in full at the end of the post.

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How Loria Took Money For Personal Use

The Miami Herald on Sunday, in an article by Charles Rabin and Adam Beasley, did a good job of summarizing the issues surrounding the web site Deadspin’srelease of the financial statements for various MLB teams. In addition, they got the Florida Marlins team president David Samson to admit the following:

  • “Some” of the money [5.4 million over 2 years] reported as a ‘Management Fee – Related Party’ to the company Double Play, covered expenses for architects and engineers. This also then means that “some” of the monies represented actual management fees paid to Loria. This is in direct contrast to Samson’s assertion earlier in the week – see Jeff Passan’s column – ‘that not $1 had gone into Loria’s pocket.’ What are the odds that if the portion of the $5.4 million which had gone to expenses represented all or most of the $5.4 million, that Samson would have failed to note that?
  • That Loria collected $16 million from the team in the past 2 years in repayment of loans [interest was not noted, but probably should have been]. My own attempt to quantify the monies which Loria had collected from the Marlins through Double Play came to $14.2 million — see my earlier blog post.
  • Samson refined his ‘not $1 in Loria’s pocket’ defense to “Loria has never taken money from the team for personal use.”

Given Samson’s track record, it would not be unreasonable to try and analyze that assertion. Other than having enough money to donate $20 million to Yale in March 2007, not much is know of Loria’s wealth as far as I can tell.

Why Management Fees = Taking Money For Personal Use

We don’t need any special insight to know that any monies paid to a company Loria controls, like Double Play, should be considered funds that are at his disposal, net of any expenses. As such, almost by definition, whatever amount “some” of the $5.4 million in management fees paid to Double Play which were not being used to cover expenses [architects and engineers] amounted to, those funds would end up at Loria’s disposal, or for his personal use.

Left unexplored is why any necessary stadium related expenditures would be handled through an owner controlled company instead of the Florida Marlins themselves. Lack of transparency is not some unfortunate by-product here, it is likely the main purpose of involving Double Play.

Here is how the Marlins will respond. When Samson said “taken” he did not mean to include Loria’s management fees [payments to an owner], which likely is most of the $5.4 million. Neither did he mean to include the $16 million of loan repayments and interest earned on those loans. He only meant the net earnings [or surplus in the case of a partnership] from the Marlins themselves.

Then let Samson and the Marlins say that — with all the caveats which that entails — rather than making cynical statements which imply that their owner has not benefited [income and cash flow well into eight figures] personally from the team’s finances during the two years exposed. The truth is that one of the purposes of a company like Double Play is that it allows owners to take monies from the main business, without appearing to be taking the money directly.

More left unexplored is how many owners of franchises preparing to build stadiums can use that time to pull monies out of their team instead of having to invest in a project which will substantially increase the value of their investment. Loria’s behavior is especially egregious when you factor in that the franchise increased in value by about $70 million during the two years covered, as per Forbes valuations, which have an excellent track record. No wonder respected MLB writer Buster Olney has called for a government investigation of the Marlins.

One of Miami’s best know journalists remains neutral on this issue. Elsewhere in the Sunday Miami Herald, it took Dan LeBatard about 1,300 words to conclude that this issue is really complicated. As evidence, he noted that he received unsolicited input from CPA’s which defended Samson. One was quoted as writing:

Few people understood then, and understand now, how poorly capitalized Loria is.

Unless that CPA was privy to Loria’s personal financial statements and or those of his company Double Play, the released Florida Marlins financials would not tell you how well or poorly capitalized Loria was or is. They tell us how leveraged the Florida Marlins were, not Jeffrey Loria, an important distinction. The fact that Double Play lends the Florida Marlins money, is evidence that Loria keeps his money elsewhere. The one concrete observation about Jeffrey Loria’s personal finances which can be made after reading the Florida Marlins financials [and the Rabin and Beasley article], is that his cash flow increased by at least $16 million [plus “some” management fees] during the two exposed years.

Maybe it’s time for some solicited opinions?

Even more left unexplored. How does a team with operating income of $134 million [according to Forbes – hey, we’re done with the whole Forbes just makes it up spin no?] since Loria purchased the team in 2002, end up in debt with a partners’ deficit? Just think of it this way, if 2008 and 2009 resulted in a total of $52 million in operating income, what would make 2006 and 2007 any different in terms of profitability? What makes 2010 that much different [in terms of baseball operations]? Same bottom of the league payroll and same revenue sharing agreements in place since 2006. Where did all the operating income go? The amount of management fees paid to Loria during that time is probably a good place to start. At least we know the profits are not in the bullpen.

This whole issue reminds me of Malcom Gladwell’s observation on the need for journalists to be smarter [about accounting and statistics]. I would add that a willingness to go outside comfort zones could easily compensate for any industry specific or technical issues.

The Rabin and Beasley article referenced is copied in full at end of post.

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Marlins saved millions in revenue-sharing deal
BY CHARLES RABIN AND ADAM H. BEASLEY
crabin@MiamiHerald.com

The Florida Marlins reaped more from Major League Baseball’s revenue sharing than the team paid for player salaries the last two years — a disparity fueling the $52 million in operating income the franchise pocketed in that time, previously secret financial records show.

The team secured its profit — which exceeded that of five other franchises whose books have also been leaked — as it won hundreds of millions of dollars in public money for its new stadium, the records show.

Critics chide the team for lobbying for $487 million in public money for its $642 million stadium as its own financial health was robust. The Marlins tell a different story: That the bottom line represents sound financial footing allowing the team to contribute $155 million to the structure rising in Little Havana.

Either way, there’s no disputing the bottom line:

“The Marlins are running a shoestring budget so they can turn a profit,” said Neil deMause, a Brooklyn-based journalist who co-authored the 1999 book Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit.

The previously confidential information came to light last week when the sports website Deadspin.com released the private financial statements of the Marlins and five other teams: the Tampa Bay Rays, Pittsburgh Pirates, Seattle Mariners, Los Angeles Angels of Anaheim and the Texas Rangers.

The documents covered the 2007 and 2008 seasons for the Pirates, Rays and Mariners, and 2008 and 2009 for the Marlins, Rangers and Angels.

While that makes it impossible for an apples to apples comparison, the records provide the first comprehensive look at MLB’s financial doings.

And, they show how the Marlins separated from the pack in the amount of money it collected from revenue sharing and income it earned:

• The Marlins reported the largest operating income over a two-year period, at $52 million. Next came the Pirates at $38 million, the Rays at $36 million, the Angels at $23 million and Mariners at $6 million. The Rangers were the only team to record a net operating loss, of $8 million.

• The Marlins also collected the most net income, at $33 million, followed by the Pirates at $29 million, Angels at $18 million, Rays at $15 million and Mariners at $13 million. The Rangers, meanwhile, were $23 million in the red.

• The team secured its largest financial advantage in revenue sharing, in which big-market teams share their wealth with smaller franchises.

In the two years, the Marlins received $92 million in revenue sharing, enough to cover the team payroll in that time with close to $20 million left over to go toward ballpark construction or other costs. Earlier this year, MLB called into question the team’s payroll practices.

The Rays collected $75 million from revenue sharing, the Pirates $69 million, and the Rangers $29 million. The other two franchises paid more than they pocketed, with the Mariners reporting a loss of $24 million and Angels $31 million.

The numbers also show the Marlins were last in concession sales and next to the bottom in television and radio revenue, ahead of Tampa.

On the flip side, the Marlins — who have remained competitive on the field despite being at or near the bottom of payroll in baseball — devoted the largest share for player development, at $60 million, according to the sports business website BizOfBaseball.com. The Pirates were next closest at $44 million.

Ultimately, the records reveal a franchise turning a healthy profit.

“It should come as no surprise — and, in fact, a great comfort — that the team’s balance sheet reflects the wherewithal to honor its commitments,” County Manager George Burgess wrote Friday.

Of the Marlins’ share of stadium costs, $120 million will be a direct contribution and $35 million a loan the team will repay the county through yearly rent. Bond deals are bankrolling the public end of financing, and interest costs could ultimately send the tab above $2 billion.

“The deal is so one-sided, it’s really sad to see this community obligated for 30 years,” said art collector Marty Margulies, who campaigned against the use of public money for a stadium set to open in 2012. “At the end of the day, the people who voted for this . . . are to blame.”

In March 2009 the Marlins won a decades-long battle to secure financing for the stadium now reaching skyward and visible miles away.

Team owner Jeffrey Loria landed the deal through commission votes in Miami and Miami-Dade, beating back a lawsuit from billionaire auto magnate Norman Braman and a legal effort to show the public its books.

Loria and Marlins President David Samson said the information was proprietary, convincing a judge local government didn’t need to see the records to award the money.

Though the team never released its financial records, Samson said it allowed elected leaders to speak with the Marlins’ bankers.

Some county and city commissioners are trying to reopen negotiations over the stadium and parking contracts, citing the franchise’s bottom line.

“Now, Mr. Samson on the record says that at the time, city officials in Miami knew everything about their finances — and yet on the record before the city commission they refused to disclose their records,” said Miami Mayor Tomás Regalado, who voted against the stadium as a commissioner and is trying to get the parking deal restructured.

Whether that will happen is yet to be seen, but Samson said city and county leaders were aware of the team’s financial shape. “You may disagree on how we run the team. But I didn’t lie. The documents are right there,” he said.

The president also said Loria has never taken money from the team for personal use.

That may be so, but in 2008 and 2009, the Marlins paid $5.4 million to Double Play Company, whose partners are Loria and Samson. Samson said some of that money covered expenses like the hiring of architects and engineers.

Also, the documents show Loria collected $16 million from the team the past two years. Samson said that represented repayment of a loan Loria provided the team to help with stadium costs.

“The team needed money,” Samson said. “Jeffrey lent the team money and the team has to pay him back.”

Samson said the ballclub used revenue sharing to shore up its bottom line so lenders would feel more comfortable that the franchise could cover its end of the stadium cost.

When the revenue-sharing system was adopted in 1996, broad language was written into the collective bargaining agreement between the union and baseball owners that allowed a team to use the proceeds “to improve its performance on the field.”

The Marlins received a public slap on the wrist earlier this year from Major League Baseball and the players’ union. Though the league never said why, it’s been reported the team wasn’t spending enough on payroll. The team later signed All-Star pitcher Josh Johnson to a multi-year contract.

Still, the position of MLB Commissioner Bud Selig is that, over time, the franchise has been in compliance with the use of revenue-sharing.

“It is always possible to take a club’s financial statements in a given year and make an argument that they spent less on payroll than they could have,” said MLB executive vice president for labor relations Rob Manfred.

“But with a lower-revenue club, you have to look at it over a number of years.

“When you think about the revenue sharing system, you have to focus on the system as a whole, and it has been very successful in improving the level of competitive balance.”

The Marlins have won two World Series, most recently in 2003 when the club toppled the big budget Yankees — ironically, a team contributing a share of Miami’s payroll.

Since then, the ballclub has jettisoned accomplished players, including Miguel Cabrera, Dontrelle Willis and, this year,Jorge Cantu and Cody Ross.

Opening the 37,000-seat, retractable-roof stadium will strengthen the Marlins’ long-term financial health, said MLB’s Manfred. The roof is sure to draw fans wary of rain or scorching heat.

And, the Marlins will reap more from concessions as the contracts stipulate the team collects almost all the revenue from a new ballpark.

Read more: http://www.miamiherald.com/2010/08/28/v-print/1797179/marlins-saved-millions-in-revenue.html#ixzz0y1J5HAsl
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Pittsburgh Pirate finances and Gladwell’s Law

Malcolm Gladwell’s Law – Journalists need to have a better grasp of financial figures in order to truly understand some of their subjects.

A good place to analyze how a better understanding of finances could impact a journalist’s work is an article by Rob Biertempfel of the Pittsburgh Tribune-Review back in April 2008. As someone who was been scouring the web for clues about MLB finances for the past two years, I can tell you that this article represented a real opening in the secretive world of MLB finances. I wrote this post shortly afterwards. Mr. Biertempfel got the Pittsburgh Pirates President Frank Coonnelly to disclose the following items which few teams ever publicly admit or even discuss:

  • Amount expected to be received in Revenue Sharing for 2008 – $35 million.
  • Team had debts which exceeded $100 million and the interest payments were between $5 and $7 million yearly.
  • That the CBA language as to the use of revenue sharing monies — “to be used to improve on field performance” — would not preclude the Pirates from using those monies to pay down team debt.
  • Although Coonnelly states that the “Forbes numbers are never right,” Coonnelly does not take issue with Forbes estimate of the Pirates operating profits for 2006 [$25 million], given that he agrees that it was the “highest [operating] profit recent season” for the Pirates and that he “didn’t expect to be seeing $25 million in operating profits [in the future].”

How a financial background could have affected the questions or focus of this article.

  1. Coonelly states: “Team is paying down debt and reinvesting in the club, not spinning off money to ownership.” It matters greatly the source of the debt being paid down. If the debt being paid down was incurred as part of the purchase of the franchise, then paying down debt is an indirect way of enriching ownership.
  2. What does Mr. Coonnelly mean by ‘spinning off?’ Selling off interest in the franchise or the owners salary? What is the owners salary? Is it tied to performance [a little sarcastic in the case of the Pirates, but still a legitimate question]?
  3. Coonelly states: “When interest, taxes, depreciation and amortization are thrown into the mix, said the Pirates rank 27th in revenue.” Those non-operating expense items [interest, depreciation and amortization] would affect net income, but not revenues or even the operating profits. Forbes does not disclose net income.
  4. Given that Forbes employs the same methodology yearly, how likely is it for Forbes to have materially erred on determining operating profits in 2007, given that 2006 was accurate?
  5. The article glossed over the fact that the team purchased for $92 million in 1996 was now estimated to be worth $292 in 2008. The fact that their investment in the team had tripled in value — largely due to the fact that a new stadium was built for them with a minimal investment by the franchise [net of $14 million] — means that the team literally has been handed house [or PNC] money to play with.
  6. How reliable are Forbes estimates? The less complicated the finances of a franchise, the more accurate Forbes can be. Franchises who don’t own their RSN’s [like the Pirates and Marlins] are easier to calculate. Forbes estimate of the Marlins worth was 97% accurate when compared to the value ascribed to the franchise in the Marlins stadium agreement deal with local governments in early 2009.

OK, this is the fun part. $100 million in debt? From where?

Keep the following in mind:

  • Team purchased in 1996 for $92 million.
  • Team assumed debt from the URA totaling $29 million initially and an additional debt of $11.5 million in 2000. However, that is a debt which does not have to be repaid unless the team moves. The URA writes off roughly $2 million of that debt yearly.
  • Technically, the Pirates still have to disclose that debt on financial statements until it is actually written off, however it is clearly misleading to include that amount when disclosing debt, while ignoring the fact that the debt does not have to be repaid.
  • $100 million in debt and interest payments between $5 and $7 million would indicate that the team pays between 5 & 7% in interest rates, which is reasonable.
  • But if they are including the URA debt in the $100 million figure, then the reported $5 to $7 million in interest payments makes no sense, since the URA debt does not require interest payments. The interest is added to the principal and will be written off as well.
  • The Pirates operating profits since 1998 total $98 million. Only one year in that period showed an operating loss.
  • The Pirates net contribution towards the stadium was a net of $14 million, since naming rights were used to offset scheduled team contributions.

Bottom Line: The Pittsburgh Pirates use of revenue sharing monies to pay down team debt is very likely an indirect method of enriching ownership, when a part [or a majority] of the $100 million in debt could only have originated from the team’s purchase.

Pretend that a generous neighbor on your block gave you $10,000 yearly to “improve the look” of your home. Imagine further that you turned around and paid down the principal on your mortgage instead of fixing up your property. Could you convince that neighbor that his monies didn’t go into your pocket? If you could, you are ready to be a MLB executive.

Click on the spreadsheet to enlarge or print

The Biertempfel article referenced is copied in full at end of post.

—————————————————————————-
Profitable Pirates to pay down huge debt
By Rob Biertempfel
TRIBUNE-REVIEW
Friday, April 18, 2008

The Pittsburgh Pirates turned a profit in 2007 — the franchise’s fourth consecutive year in the black — and will do so again this year, regardless of how many games they win or lose.

Team President Frank Coonelly said the profit will be used to pay down the franchise’s debt, which will help field a better team in the future. The Pirates have endured 15 consecutive losing seasons.

According to Forbes Magazine’s annual team valuations, the Pirates’ 2007 operating income was $17.6 million. That ranks 18th among the 30 major league clubs. Forbes estimated the team’s value at $292 million, putting it at No. 28 among the 30 major league clubs.

“Their numbers are never right,” Coonelly said Thursday. “But, we are profitable.”

Coonelly said the Pirates’ actual profit is much lower, taking into account annual interest payments of “over $5 million, maybe approaching $7 million” on the franchise’s $100 million-plus in debts.

When interest, taxes, depreciation and amortization are thrown into the mix, Coonelly said the Pirates rank 27th in revenue.

The Pirates expect to receive about $35 million this year through Major League Baseball’s revenue-sharing system, Coonelly said, adding that it’s incorrect to believe that money must be used only to increase player payroll.

“The revenue-sharing plan says you have to use those proceeds to improve your performance on the field,” Coonelly said. “That’s written extraordinarily broadly, and we did that on purpose. Paying down debt can help you improve on the field. You can’t get any better while you’re taking a (huge) interest hit on all the debt you have. You can’t be building an academy in the Dominican Republic. You can’t be improving Pirate City. You can’t be spending on major league payroll.”

This year, the Pirates broke ground on a $5 million baseball academy in the Dominican. The club contributed $2 million of the $30 million necessary to renovate its spring training complex in Bradenton, Fla.

Coonelly denied that principal owner Bob Nutting is pocketing the Pirates’ profits.

“We’re paying down debt and reinvesting in the club, not spinning off money to ownership,” Coonelly said. “If the Nutting family wanted to get into a business that would just spin off money, baseball would not be that business.”

The sport is not necessarily a loser for owners, though. According to Forbes, Major League Baseball’s profits increased 7.7 percent last year to $5.5 billion. The magazine estimates the average team is worth $472 million, a one-year hike of 9.5 percent.

The Forbes estimate means former owner Kevin McClatchy’s purchase price of $92 million in 1996 was $200 million below its current value.

Where is all that money going? Not necessarily to the players. According to Forbes, player costs in Major League Baseball (salaries, bonuses and benefits) have fallen over the past five years from 66 percent of revenue to 56 percent.

In 2003, 16 teams lost money. Last year, only Toronto, Boston and the New York Yankees posted operating losses. But, Boston and New York recouped their losses with the dividends from their cable television deals.

Last year, Forbes reported the Pirates made $25.3 million profit in 2006, the year PNC Park hosted the All-Star Game.

“It was the highest-profit season in the recent past for the Pirates,” Coonelly said. “I don’t expect us to be seeing $25 million operating profits. I expect (growth), although I don’t want to promise it.”

Rob Biertempfel can be reached at rbiertempfel@tribweb.com
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