One of the many goals I have laid out for myself is to get a better grip on how baseball’s finances work. I always hear people complain about it and occasionally I complain about it as well but in all honesty I’m guessing very few people know that much about it. Sure they can share with you their opinion on if baseball should have a salary cap or not but can they tell you much about how revenue sharing works? Or even about how much revenue a typical team brings in? Forbes does their annual evaluation of each franchise’s worth and that is a good read but it is really just a snapshot and doesn’t contain too many details. There is some information out there concerning baseball’s finances but it is really difficult to get a grasp on it, so that is my goal to attempt to gain the best understanding of it I possibly can.
All of this is good of course but it raises a question on just where exactly does one begin. I could read the CBA to find out more about revenue sharing or read up on the new mega TV deals, teams like the Dodgers just signed but for me at least to really begin to grasp this concept I need to start with something small and work my way up. Which is exactly what I did by taking a look at what makes a team a small market team or even a large market team for that matter? The easy and technically correct answer is physical market size but I don’t think that tells the whole story. Boston’s population is relatively average in the grand scheme of baseball markets but yet they aren’t just simply an average market. So another factor obviously needs to be considered and to keep things simple it should be fairly straightforward. What is needed is a measure of baseball interest surrounding a particular team. This can be a very difficult thing to measure so to keep things simple I opted for a crude but fairly accurate measurement, revenue from ticket sales. This information as best I was able to search wasn’t readily available but what I was able to find was an average ticket price for each team and an attendance figure for 2012 so by multiplying those 2 together I am able to creat a rough estimate.
The next step was to figure out the best way to combine these two measurements and like I usually do and plan to do a lot doing my attempt to understand baseball’s finances I kept things simple. I rated each team’s ticket revenue and metro population on a scale of 1-5, with 1 being for the highest and 5 the lowest (All numbers are based upon the 2012 season). The scale I used for estimated ticket revenue is 1 – 120+ million, 2 – 80-120 million, 3 – 60-80 million, 4 – 40-60 million, 5 for anything under 40 million. For metro size I used 1 – 8+ million, 2 – 5-8 million, 3 – 3.5-5 million, 4 – 2.5-3.5 million, 5 – for anything below 2.5 million. I then added the rankings up and the team’s with the lowest combine score should be the large market teams, whereas the teams with the highest combine score are the small market teams. The results were as followed
2 – Yankees, Cubs (143 million)
3 – Phillies (175 million)
4 – Mets, Dodgers, Angels, Red Sox (129 million)
5 – White Sox, Rangers, Nationals, Marlins, Giants, Tigers (111 million)
6 – Astros, Blue Jays, Braves, Twins, Cardinals (85 million)
7 – Mariners (82 million)
8 – Athletics, Diamondbacks, Orioles, Rockies, Brewers (77 million)
9 – Padres, Reds, Rays (67 million)
10 – Pirates, Indians, Royals (68 million)
In parantheses I put the average 2012 opening day payroll of the teams in each group. As you can see there is some noise at each end but overall the payrolls start to decrease as you move down the scale as one would expect. It becomes even more evident when you combine the tiers into an upper, middle and lower class.
Upper (2-4) – 140 million
Middle (5-7) – 98 million
Lower (8-10) – 72 million
It should be noted the upper class is actually skewed down some as the Dodgers began 2012 with a payroll of only 95 million and also the Cubs were only at 88 and the Mets at 93 million. Restating the averages with the estimated 2013 opening day payrolls we get:
Upper (2-4) – 153 million
Middle (5-7) – 98 million
Lower (8-10) – 75 million
It should be stated the “middle” includes the Astros and Marlins who have payrolls at ridiculously low levels, removing them from the discussion raise the average of the middle group up to 110 million.
As for how all of this realtes to the Pirates it tells us who their peers are in terms of market. They are the Reds, Rays, Padres, Indians and Royals. Last year that group saw a low of 55 million (Padres) and a high of 82 million (Reds). Realisticly speaking the Reds probably represent the high end of what a team in this group could have realistically pushed their payroll to in 2012. Overall it appears salaries and there by revenues are seeing a slight uptick in 2013 so it is probably reasonable to say that the high end of the Pirates current group is 85 million going forward. All of this doesn’t mean the Pirates payroll can never rise above 85 million though. The Reds are going to surpass that threshhold in 2013 and the Brewers were in the Pirates class just a few years ago and appear to be regressing back to it now. The Pirates if they are successfully and embraced by the city have a chance to rise up from the lower class and into the lower middle class and in that group a payroll of slightly over 100 million for a season or two is realistically possible.
Going into 2013 the Pirates project to have a payroll right around 68 million. That is definitely far below the 85 million max they should be able to sustain for a season or two in their given climate but is perfectly reasonable when compared to their peers. The average projected 2013 opening day payroll of the lower class teams excluded the Pirates is 76.7 million but when we remove the 3 teams who are making a run in 2013 (Orioles, Diamondbacks and Reds) the average payroll of the teams in the lower class is 68.4 million (this includes the Brewers, Rockies, Athletics, Rays, Padres, Indians and Royals). The Pirates are in no position to say 2013-14 is their window (which is essentially what the Reds, Diamondbacks and Orioles are doing) so a payroll just slightly below 70 million feels about right for 2013.