Pirate(s) Finances - Gladwell's Law #0001

post from 2 think good on 26 October 2009 11:26:00 PM. © 2 think good

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.

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.
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]?
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.
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?
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.
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 team's 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.

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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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ALCS Field Celebration and Champagne Party
Photos!

post from Zell's Pinstripe Blog on 26 October 2009 11:14:22 PM. © Zell's Pinstripe Blog

Here are pictures from the Yankees clubhouse and stadium field after they won their 40th American League Pennant. Enjoy! (Photos Courtesy of Newsday, Getty Images, Associated Press, New York Post, NY Daily News)Posted in Nonsense, Yankees Postseason Tagged: '09 MLB Postseason, AL Pennant, ALCS, Champagne Party, New York Yankees, World Series [...]

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Daily Box Score 10/26: Guess Again

post from Beyond the Box Score on 26 October 2009 11:02:00 PM. © Beyond the Box Score

It is the sovereign right of every sports fan to question--loudly, if need be--the decisions of those who are lucky enough to coach professional teams. For the same reason I have little sympathy for celebrities who complain about the paparazzi even as[...]

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Those famous Fall Classic quotes

post from Zell's Pinstripe Blog on 26 October 2009 10:40:58 PM. © Zell's Pinstripe Blog

As the World Series approaches, I thought I would take a look back at some of those classic quotes from World Series past. Some of them are classic, and some are just hilarious. Let’s hope we make a few more of them come late October. Take a look:1996 World Series Quotes“They [the Braves after taking 2?0 lead [...]

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Quick Notes

post from Nick's Twins Blog on 26 October 2009 08:00:00 PM. © Nick's Twins Blog

Just some brief jottings on a couple different topics for today...
* Last week I was featured as part of the "Blogger Nine Innings" Q&A series for Jesse Spector's Touching Base blog at New York Daily News Online. I made sure to take advantage of the opportunity to be profiled in a New York publication by preaching the need for a salary cap in baseball and labeling Derek Jeter the game's most overrated player.
* Participating in the Venezuelan Winter League, Twins catching prospect Wilson Ramos is currently hitting .407 with five homers, six doubles, a triple and 21 RBI in 54 at-bats for the Tigres de Aragua. Before you get too excited, it's worth noting that hitters tend to dominate this league, but Ramos does lead all qualifying VWL batters in home runs (tied), RBI and OPS. Quite encouraging, but not quite enough so to make me very comfortable heading into the 2010 season with an unsigned Joe Mauer.
* Speaking of Mauer, Joe Christensen reports that the catcher was named Twins MVP yesterday by the local chapter of the Baseball Writers' Association of America. File that under "Unsurprising." Hopefully this is just a prelude to the real deal, which will be announced in late November.
* Make sure you check out our friend Andrew Bryz-Gornia's new Twins blog, Off the Mark.

* And, for good measure, my World Series pick: Yankees in six.

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http://www.nickstwinsblog.com/2009/10/quick-notes.html

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Boom Boom in the Zoom Zoom Room

post from Jim Walewander's Blog on 26 October 2009 07:40:23 PM. © Jim Walewander's Blog

I’m listening to Blondie’s Boom Boom in the Zoom Zoom Room wishing I was in New York drinking espressos at midnight while talking to an artist who’s smoking clove cigarettes about Pollack, and Warhol and Sid’s suicide and the Velvet Underground and where I can get some decent vegetarian food in the village at midnight.

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Let's Hope Bill James Projections for Astros
Pitching is Wrong

post from The Crawfish Boxes on 26 October 2009 07:31:00 PM. © The Crawfish Boxes

More photos » by Pat Sullivan - AP

Former Houston Astros' pitcher Shawn Chacon isn't expected to be around the Astros for any future seasons. In fact, he has his own problems in Las Vegas right now. This is a 2008 AP photograph from Chacon's short stint with the Astros.

Browse more photos »

HLP or DQ may be planning a more comprehensive preview of the Bill James Astros' player projections for next year. But I will make a quick hit here on some Astros' pitcher projections. And let me preface this with my own personal reservation: I am skeptical of projection systems' forecasts for young players who have limited track records. This is a common sense observation based on the fact that all projection systems use some form of extrapolation from known major league stats and, for younger players, minor league stats. The more limited data on young players makes the projections less reliable for them. And the Astros are likely to rely on some young pitchers next year.

First, the following Astros' rotation looks like a disaster, if the James' projections are right:

Oswalt 205 IP 3.60 ERA

Wandy Rodriguez 212 IP 4.12 ERA

Bud Norris 107 IP 5.05 ERA

Paulino 130 IP 5.19 ERA

Moehler 163 IP 5.08 ERA

Oswalt's projection is a reasonably decent result. Wandy's ERA would increase by more than a full run per game over 09; apparently some of Wandy's past inconsistency still factors into the projection. The Norris and Paulino projections are significantly worse than their x-FIP results last year. But, since both are young pitchers, a high ERA like that isn't out of question. The Moehler projection is probably about right.

As for the bullpen, two young pitchers whom most of us are hoping can be late inning stalwarts don't project out very well.

Fulchino 93 IP 4.94 ERA

Arias 33 IP 4.65 ERA

Both results wiould represent a major disappointment. Again, I think the spotty track record for both pitchers is the reason that the good performances last year have been discounted by the projection. Arias has great stuff, but he hasn't pitched a lot in the majors prior to last sason. Fulchino has a good fastball and picked up a splitter this season, which seemed to make a big difference in his results. But Fulchino has been erratic in the big leagues in the past season. And, if we want to be honest, it's always possible that he could regress toward his past record.

For closer....Hawkins or Valverde?

Valverde 67 IP, 38 Saves, 3.22 ERA

Hawkins 63 IP, 3.29 ERA

I left out Hawkins' projection of zero saves, since it is based on an assumption that he is used as set up man.

The projections are kinder to another key bullpen arm, Chris Sampson. Again, I think this comes down to a better track record for Chris. Chris Sampson....35 IP, 3.86 ERA. Well, hold on there...only 35 innings pitched. That's like projecting an injury.

It will be interesting to see if we get some better outcomes on the ZIPS and CHONE projections for these players. Any thoughts?

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http://www.crawfishboxes.com/2009/10/26/1102131/lets-hope-bill-james-projections

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Looking At What Exactly is Angels Baseball

More photos » by Kathy Willens - AP Los Angeles Angels pitcher Scott Kazmir was not brought to LA for his defense. [...]

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What You May Have Missed

video details and more

video details and more

video details and more

(hat tip to slidingintohome)

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http://adiehardyankeesfan.blogspot.com/2009/10/what-you-may-have-missed.html

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Latest Headlines

The Yanks could add Brian Bruney and Eric Hinske to the World Series roster according to the NY Post. ?You could see us with 12 pitchers and you could see us change our roster,?? GM Brian Cashman said. "We will talk about that again.?? Rosters must be in by 10:00 a.m. on Wednesday morning. Both could be really useful. Bruney when he's on none can touch him and Hinske got pop off the bench.
Newsday is reporting that tickets for the World Series games in Philly are going for more money than Yankee Stadium tickets on the secondary market. So far 10 percent of tickets sold on StubHub for Yankee Stadium games have gone to Pennsylvanians; only 5 percent of tickets for the games in Philadelphia have gone to New Yorkers. What a bummer.
Charlie Manuel had this to say during the postgame festivities last Thursday: "Let me tell you," Manuel told 46,214 delirious fans at Citizens Bank Park. "We've got one more step, and we're gonna get it." Hah, well action speak louder than words!
According to the NY Post the Phillies wanted to face the Yankees. They better be ready.
Torii Hunter threw his support to the Yankees for the series:

"You're up against the Beast of the East," Hunter said in the quiet of the Angels clubhouse. "They are definitely that. Those guys are tough to beat. Philly is a good ballclub, but those guys are beasts over there."

"Maturity," Hunter said is the key. "They have a lot of experience. A lot of seasoned guys. A lot of smart players over there, and they know how to execute and play the game. That's what beat us, a little more experience. Those guys beat our pitchers down, 3-2 counts.

"Some of my favorite players are over there," he added. "I promise you I will be rooting for those guys, keep it in the American League. It will be a mountain to climb to try to get past those guys."

Senators Charles Schumer of New York, and Kirsten Gillibrand of Pennsylvania have made a wager on the series. If the Yankees win the Senators from New York will receive a supply of Philly cheesesteaks, and if the Phillies win Pennsylvania Senators would receive New York cheesecakes from Junior?s.
Cuban pitcher Aroldis Chapman was in the Bronx for last night's game six, and met with Brian Cashman and other Yankees officials. A source told Jorge Arangure that meeting went well and they "had good conversations."
Last night's ALCS game beat the Giants-Cardinals game on NBC in the ratings. Game six did an 11.4 to the NFL's 10.4. In the New York area it was much worse, with the Yankees doing a 26.4 rating while football did a 9.3.

Read The Full Article:
http://adiehardyankeesfan.blogspot.com/2009/10/latest-headlines_26.html

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