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Image credit: USA Today Sports

A while ago, I owned a nondescript Subaru station wagon. Great car, especially in the snow. Once a headlight burned out. I went to an auto parts store and bought a new bulb for $10 or $12. I took it home, looked up how to get the old bulb out, and put the new one in. I am not by any stretch of the imagination a do-it-yourselfer, so it took a little time and effort and scraped knuckles. But I got it done.

A while later, a friend of mine had a headlight burn out. She did not drive a standard transmission Subaru. Her car was, let’s say, a prestigious German brand. The headlamps were sealed, so she couldn’t replace the bulb. She had to bring her car to a mechanic. Getting a new headlight cost something like $350. It turns out that on her fancy car, in order to replace the headlamp, you have to remove the entire bumper.

I don’t mean to pick on Pirates owner Bob Nutting. At least not him solely. But his quote above represents a widespread misperception in contemporary baseball: That small-market teams like the Pirates can’t compete with the rich teams in New York, Los Angeles, and Chicago.

Let’s start with this: From 1947 to 1964—that’s 18 years—there were 109 World Series games. Of those 109 games, 45—or 41 percent—were contested between two teams from New York. Another 52—or 48 percent—had one New York team. There were only 12 World Series games over an 18-year span that didn’t include any teams from New York. And if you give New York credit for the California-transplanted Giants and Dodgers, you get 56 games with two current or recent New York teams, 47 with one, and only six games—Cleveland’s 1948 triumph over Boston—that didn’t involve Gotham. Long before free agency, the rich big-city teams absolutely dominated the game.

By contrast, during the 18 years since 2000, there have been only seven World Series games involving two New York teams (and that was back in 2000) and 24 involving one. The domination of baseball by teams in the biggest markets? It just isn’t happening. Look at the numbers if you don’t believe me.

This is not to say that all 30 teams are on equal footing. The Pittsburgh metropolitan statistical area had an estimated 2016 population of 2.3 million. Among MLB franchises, only Cincinnati, Kansas City, Cleveland, and Milwaukee are smaller. So the Pirates can’t draw from a population anywhere near as large as the New York (20.2 million), Los Angeles (13.3 million), Chicago (9.5 million), Dallas (7.2 million), or Houston (6.8 million) MSAs. (Fun fact: Miami is eighth, larger than Boston and San Francisco.) That means they can’t charge as much for tickets, their local broadcast rights are less lucrative, and there aren’t as many people who buy (oops, bought) Andrew McCutchen jerseys as Aaron Judge jerseys.

So yes, a franchise in a smaller community can’t draw on the same resources as one in a large community. But that’s only part of the story.

Pittsburgh receives revenue-sharing payments from teams in the larger markets. I couldn’t find exact figures, but an amount somewhere in the $20-$40 million range annually seems about right. In addition, all 30 teams will receive about $50 million this year from the sale of BAMTech (part of MLB Advanced Media) to the Walt Disney Company. Granted, that’s just a one-time payment (as opposed to the recurring revenue-sharing stream), but $50 million is, you know, like three McCutchens. Want to bet that the Pirates will not commit $50 million in free agent signings this year?

So yes, playing in Pittsburgh creates a structural disadvantage. But baseball has developed mechanisms—revenue sharing, the splitting of gate receipts, MLBAM—to mitigate that disadvantage. Forbes estimates the Pirates’ revenues at $265 million, a little more than half that of the Yankees. A disadvantage? Sure. Commensurate with the size of the respective markets? Absolutely not; not even close. Among the teams with lower estimated revenues than the Pirates are the Twins, Rockies, and Diamondbacks, each of whom snagged a Wild Card spot last year.

More importantly, as I’ve pointed out, buying a baseball team isn’t like other investments. The current ownership group (led by Kevin McClatchy; Nutting has since become the principal owner) paid $92 million for the Pirates in 1996. The owners could’ve done other things with that money. They could’ve built a hospital. They could’ve invested in a basket of no-load mutual funds. They could’ve bought shares of Microsoft.

But they didn’t. They bought a baseball team. You know why? The people who buy a hospital don’t regularly get interviewed by the Associated Press. Investors in mutual funds don’t get to walk through baseball clubhouses with family members and friends, and have famous athletes call them “Mister.” (As an aside, the spectacle of well-paid company employees referring to their employer formally instead of by his first name strikes me as one of the absolute creepiest aspects of sports.) If your shares of Microsoft are the best-performing stock some year, you don’t get to appear on national TV to receive a trophy.

Sports teams are not super investments. If they were, we’d see professional investors, rather than your basic really rich guys, buy them. They’re vanity purchases. You’re sacrificing economic returns in order to gain other benefits. There’s nothing wrong with that. All of us buy stuff we don’t really need because it gives us pleasure: A nice bottle of wine, an HBO subscription, a fancy car, a baseball team. A successful sports franchise can be part of a city’s identity, a real feel-good acquisition. But they’re like luxury cars. You’re buying them in large part for the non-economic intangibles that come with owning them.

For years, the Tigers had one of the highest payrolls in baseball. The Detroit MSA ranks in the lower half of baseball franchises. And the city of Detroit went bankrupt in 2013. You can’t play in a more challenging market than that. Yet the Tigers’ owner, the late Mike Ilitch, kept spending money on his team. He knew he’d made a vanity purchase, and he treated it as such.

Buying a baseball team and refusing to spend the money to make it competitive is the equivalent of buying a luxury car and complaining because it costs more than an $11.99 bulb to replace a headlight. You knew what you were getting into. If you didn’t want to have cash outflows, you could’ve spent your money differently. If you don’t want to pay up for star players, what’s needed is a re-examination of your motivations, not “a fundamental redesign of the economics of baseball.”

Next time, buy a Subaru.

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John Wood
1/17
This is excellent.
Rob Mains
1/17
Thanks John! I appreciate it.
Christopher
1/17
I thoroughly enjoyed this, Rob. Love the Subaru v. German high end car analogy.
Rob Mains
1/17
Thanks Christopher. And the story's 100% true!
Joseph Dolney
1/17
As a long suffering Pirate fan I enjoyed the article. Nutting was asked about the $50M before the trades and said that it would be invested in the team, a general reply that he couldn't be held to in the future. The only item I would disagree with is MLBAM helping close the gap, all teams received an equal payment so the gap remains the same.
Rob Mains
1/17
Yeag, "invested in the team" is pretty nebulous.
Joseph Dolney
1/17
I have watched the Pirates operate as a second rate baseball team for years, the following are a few examples: They signed a 10 year local TV deal and within 12 months rights fees exploded. Then they complain that they are behind other teams with better deals. Trade their best pitcher and best position player (also a franchise icon) two seasons before their bad TV contract expires guaranteeing low ratings and another poor TV deal in the future that they will complain about. Failed to capitalize on Jung-Ho Kang's popularity in South Korea. In 2 years I only saw 1 ad from a South Korean company in PNC Bank. Why not sell adds behind home plate every time he comes to bat? They sell a 6 game ticket plan for people like me who can't commit to 20 or more games (good business). However, they won't sell you a seat in the lower level in the infield. I am trying to give them additional money that they are refusing to accept on the chance that someone is going to come out of nowhere and purchase a season ticket plan later in the off season. This is especially terrible because they never add any significant players that would make an average fan want to purchase a season ticket plan. The owner thinks small and therefore they will always be small. He should sell the Pirates and buy an MLS franchise, although I wouldn't wish that on soccer fans. Thanks for letting me rant.
Rob Mains
1/17
Hey man, you've earned it. If you haven't already, you should read my brilliant colleague Patrick Dubuque's article yesterday on "the saddest 'dynasty' in baseball history:" https://www.baseballprospectus.com/news/article/37115/cold-takes-worst-best-time/
Tim Angell
1/17
Very similar reasoning to a section of David Goldblatt's The Game of Our Lives: The Meaning and Making of English Football - most multimillionaires and billionaires don't buy teams as investments, they purchase them as status symbols and/or they're fanboys. I believe very few of them buy pro sports franchises to be caretakers of entities that are regional/community institutions. As a Cardinals fan, I hated the Pirates trading Cutch, since he's a joy to watch, but I'm surprised the ownership waited this long to trade him. The Buccos' ownership has seemed to be inept for decades, except for constructing and operating a beautiful ballpark which is a almost-perfect place to take in a game, including fantastic food and excellent beer. Rob, to be fair, my recollection is the current ownership group stepped up to purchase the team so it wouldn't relocate - at least they did that. One last point: I think the majority of MLB owners, unlike their NFL counterparts, do see themselves as legacy caretakers and pay attention to community outreach and working with civic groups and organizations to keep their team as a regional jewel for hundreds of thousands of fans, to be handed down from generation to generation.
Rob Mains
1/17
I like the football analogy, Tim, thanks for it! Yes, there was a time when there were a lot of threatened franchise moves; how much of that would've actually happened is open to debate. And your point about teams doing community outreach, yes, that's fair. I'd say that there's room to do community outreach AND spend more on payroll. That's what makes the small-market Cardinals more of a regional jewel than the small-market Pirates.
Tim Angell
1/17
Totally agree re: doing community outreach and spending more on payroll. Cards do that well, arguably.
jfranco77
1/17
I agree - this is a great analogy. I don't really get the Nuttings, though. What fun is it to own a team when everyone hates you? What business sense is there to owning a team where you'd make more money on a billion dollars worth of Apple stock?
Rob Mains
1/17
Well, ownership was better liked when they made the postseason three straight years. As for the business sense in owning a team--yeah, if you want to make money, I think there are better ways.
John Hicks
1/17
Rob, great analogy threaded through your article. This owner is so not right for my Buccos. It doesn’t make me feel any better being stuck with Nutting, but your thinking has really clearly see the disconnect for the first time. I won’t be fooled anymore. Thanks for the insight!
Rob Mains
1/18
Sorry, John, I thought I'd replied to your comment yesterday...I appreciate it.
richard ryan
1/17
I guess I just don't see why owners have an obligation to take a loss each year on a team. Who decided that this was a "vanity purchase". None of us, obviously on a much much smaller scale, would invest into something feeling it was alright to take a loss on it. If this is so obvious and easy then why aren't there rich people buying these teams and operating them at a loss; there is certainly no lack of rich people in the country to do this. The difference in revenues, as shown in the forbes article linked, is the real culprit. Failure to share media revenues equally, as in the nfl, is a big contributor to this. If someone is making an enormous profit while fielding a non competitive team then I would agree that is wrong but I see no reason why an owner should be obligated to take a yearly loss on the team.
Rob Mains
1/17
They bought an appreciating asset. The idea that investments should throw off cash every year is sort of disconnected from reality, right? Most stocks (only a small proportion pay dividends) don't. Land doesn't. Precious metals don't. Hell, freakin bitcoin doesn't. As for teams making a profit while competing a noncompetitive team, per Forbes, only five teams lost money in 2016, and *every* losing team other than the Marlins was profitable.
Kris Higdon
1/20
Sports franchises are not stocks, not land and not precious metals. Sports franchises are an investment and a risk like any other. They may be appreciating assets now, but that is in no way guaranteed. Your article makes a whole lot of presumptions without anything to support them, many of which are incorrect. No one, not me, not you, not those pissed off people in Pittsburgh have an standing to tell another person how they should manage their money.
Rob Mains
2/19
Kris, I'm sorry I didn't respond to this earlier. I wasn't aware of comments left after the 19th or so. I didn't see this until Tuesday, and I was out until today. This is a good comment, and I hope to address it fully in an article. One flippant comment, though: I did, in fact, hold several licenses that gave me standing to tell people how they should manage their money. Of course, they asked first, so it's not the same thing.
dave t
1/21
The issue I have with the brief answer of "it's an appreciating asset" is that there's an inherent contradiction in looking at that independent of a team's profit or loss. Part of the reason that these teams are appreciating assets is because they are, as a rule, profitable. And the ones that aren't making money in a particular year typically can change that by cutting back on payroll. It's true that baseball teams have some "vanity" or "scarce collectible" value, like expensive art, but their total value is a mix of both that value and traditional, financial valuation of a profitable business. More evidence of that can be seen in how teams are bought and sold these days: there's virtually always a significant debt financing component to the purchase price. Of the last six teams sold, five of the transactions have been reported to involve significant debt financing: Astros, Cubs, Dodgers, Marlins, and Rangers. The Padres are the one exception. Debt financing tells you that a team is going to be run, at least to some degree, as an entity that needs to generate annual operating profit to pay debt service. And the ability to use debt financing to fund part of team purchase prices is definitely a factor in why franchise values have increased.
dave t
1/21
And, to be clear, I'm not meaning to defend the particulars of how Nutting has chosen to spend with the Pirates. I think that any reasonable "good owner" should have a balance between annual profitability and trying to field a good team: in other words, I do agree that part of owning a team is that it's fun to compete and win. It's not purely a financial investment, but nor is it purely a vanity purchase. Without knowing how much profit the Pirates have been throwing off each year, it's tough for me to say how much (if any) higher would have been a reasonable payroll.
Rob Mains
2/19
Again, sorry to responding late. Per the Forbes reports--certainly not perfect, but they're all we've got--Pittsburgh's been a consistently profitable franchise.
dave t
1/21
As for Detroit and Ilitch, I think first you're a bit exaggerated on how "small-market" Detroit is. I'm seeing the Detroit Combined Statistical Area (a bit broader area than MSA) as ranked 12th in the U.S., with 5.3 million people. That's about double the population of the Pittsburgh CSA, and Fangraphs estimated the Tigers to have more than double the 2016 local TV revenue of the Pirates ($55 million to $25 million). That said, Ilitch did appear to outspend the Tigers' market/revenue status in recent years, but let's look at the context. It was pretty widely assumed (and maybe even said by him) that he really wanted the Tigers to win a World Series before he passed away. (He died at the age of 87 in early 2017.) Even by the standards of MLB owners, he also had a lot of wealth outside of baseball, as Forbes estimated his net worth at about $6 billion when he died. He'd bought the Tigers back in 1992 for $82 million, so he'd gotten into ownership without paying nearly as much as more recent owners and may well have realized significant operating profits from the team over the years before more recently spending more. (Cot's shows payroll rankings back to 2000, and the Tigers were somewhere between 14th and 23rd every year between 2000 and 2006. It's only in 2008 and later that they vaulted into often spending in the top 5.) Ilitch was also a Detroit native. He actually played minor league baseball for 4 years back in the 1950's. I think it's great for a fanbase to find an owner like that who probably was actually dipping into his pocket to put money into the team for higher payroll in some recent years, but he's also an outlier who ticks just about every possible box of someone who would do that for a period of time. And I don't think that even Ilitch spent on that basis for the first fifteen years that he owned the team. Remember the 2003 Detroit Tigers with a 43-119 record and the 23rd-highest payroll in the league? That was also part of the Mike Ilitch era.
Rob Mains
2/19
Once again, sorry for the late reply: Detroit's a reasonable MSA but it's also gotten significantly smaller and very significantly poorer. But your points about Illitch are all good. For the record, I don't have a problem with a team running a low payroll and losing money if it's part of a rebuilding strategy. I'm objecting to Nutting saying that the current economic structure of the game prevents the Pirates from running higher payrolls than they do now.
Rob Mains
2/19
Dave, I'm sorry I didn't respond to this earlier. I wasn't aware of comments left after the 19th or so. I didn't see this until Tuesday, and I was out until today. This is a good comment, and I hope to address it fully in an article. Thanks.
Rob Mains
1/17
Re sharing media revenues--I am not well-versed on the topic, but on the face of it, what you say makes sense to me, Richard.
dave t
1/21
This may sound harsh, but if you're not well-versed on that topic, then you're not well-versed on a topic that's a big part of what Nutting is referencing. As I say above, the Pirates may well have scope to spend more. Maybe Nutting is more tight-fisted than he should be, but there's an underlying issue of so much revenue disparity in baseball, with a good bit of that driven by local TV revenue. The NFL has lots of revenue sharing, with a big part of that being that all games are part of the national TV contracts, those contracts are huge, and that money is shared evenly between all teams. The NBA does have local team TV deals, though I think the national TV deals (shared equally) are relatively more important there than in MLB. The various complexities of the NBA's soft salary cap and "max contract" rules are also a factor. The NBA's CBA caps the top salaries, with teams being able to offer more money to retain their own free agents. Add it all up, and that combination of revenue sharing and contract rules is how you have situations like Russell Westbrook still signing contracts to stay in Oklahoma City.
Rob Mains
2/19
Again, sorry to be responding late. No question that the Pirates can't draw on the local TV revenues that other teams can. But, as I point out in the article, their total revenues are a little over half of the Yankees. Yes, that's a disadvantage, but it's not as large as the differences in market sizes and local TV revenues would suggest.
Kris Higdon
1/20
"The domination of baseball by teams in the biggest markets? It just isn’t happening. Look at the numbers if you don’t believe me." Sorry, but you are wrong right there. We have seen a sea-change in baseball the past 5-6 years and the future is now. The convergence of the current CBA and the revolution of more numbers based "smart" front offices have changed the game for the worse -- that is, if you are a fan of a small market. The current division favorites and best teams are all from the top markets. You no longer have teams like the Cubs and Dodgers floundering in mediocrity. You have the richest teams in the biggest markets hiring the best people for their front offices. Ownership changes with these organizations (throw in the Yankees with the change in power after George's passing) brought with them a willingness to spend whatever it takes to have the best decision makers making the decisions. The Yankees, who have maybe the best GM in the game, Astros, Dodgers and Cubs have the best teams to go along with the most money. That is a perfect storm for a bleak future for teams like the Pirates and Royals. Sure, those teams can do everything right a fight for a wild card or the occasional divisional title and hey, if things go just right, can make it to the World Series. None of the teams with low self-generated revenue have the hope of competing long term. The model has been set by the Cubs, Astros and the Dodgers. They hire the smartest decision makers, give those men and women the resources to make the best decisions: hire the best developmental and scouting personnel, hire the best sabermetric minds and pay the best players on your team and free agents. The Subaru v. prestigious German brand analogy is non-applicable. These teams aren't Subaru vs. BMW, they are BMW's vs. Porsche. They all have top of the line, some are faster than others. Your use of Detroit as an example is also an abuse of statistics to fit a narrative. The size of the actual city where the team is located is irrelevant. Boston is top 10 MSA but the city itself isn't one of the top 20 in population. Conversely, San Diego is one of top 10 largest cities, but isn't top 15 in MSA. It is true that the population and everything else in the city of Detroit tanked, but the MSA is still top 15 in the country. There are still a lot more people buying jerseys and watching games on TV in Detroit than Pittsburgh.
ofmontreal
1/20
I agree with you on this. Accepted best practice says the Pirates should be spending around 140m on payroll. Which they don't come close to. I think it's pretty clear they need to turn a sizable profit for ownership.
Rob Mains
2/19
Again, sorry for the slow response Kris. Your point here is somewhat similar to the one raised by Mags44 below, which I'll also address in my article. The Astros are a curious franchise. They're in a huge market, and they have a rich owner, but they've been remarkably penurious. You could make a case that in a baseball sense, Houston is a smaller market than St. Louis, which of course makes no sense.
Rob Mains
2/19
And re the Subaru vs. German import analogy: I'll buy that sports teams are all high-performance vehicles. The Subaru in this case would be an S&P 500 index fund or something like that.
Mags44
1/21
Sorry, John, but I see tremendous flaws in this article that render the "conclusion" baseless. For example, you were using the number of games played in the World Series by New York teams over history as some type of proof that NY doesn't dominate like they used to. Well, today's baseball is much different. In the 60's, etc, there would be 1 league playoff series to win - and then on to the World Series. If you had enough payroll, you would cruise to your division title and then have, at worst, a 50/50 shot at the WS. In today's game, you have the Wild Card, then the Divisional series, then the Championship series, before you get to the WS. Easy to get tripped up at any of those levels before the WS. So, that part of the argument is bunk IMHO. The second great fallacy is that owners can spend unlimited capital on their teams. While some can, certainly some cannot. BUT, if you own the Yankees, and you take in double what other teams do, you can certainly spend a lot more on players (they do) than Pittsburgh - and the Yankees will still make money! I don't foresee the Pirates spending up to the Yankees payroll, and taking a yearly $200M or so hit - and lose even more money. Both the NBA and MLB are the poster childs for a non-competitive league that is driven by players and agents. The NFL is the only one that has it right. Do a simple regression analysis over the past 20 years to compare wins to starting salary of each team. You will see the R squared is pretty high. Yes, teams can get lucky, but those who spend the cash have a much higher probability of reaching the playoffs (where, once you do, it is crapshoot) than those who don't. To pretend this is not true is foolish.
Rob Mains
2/19
First, as I've done before, I apologize for taking so long to reply. I didn't know you'd commented until this past Tuesday, and I was away until today. Also, you totally threw me off with the "John" thing--I was scrolling through the comments trying to figure out the "John" to which you're referring. I'm Rob. Anyway, this is a valid point, and I'm going to address it in a future article; thanks for the comment. Two points I won't make in the article: First, I'm not suggesting the Pirates can, or even should, run the Yankees' payroll level. But they don't need to in order to retain the likes of Cole and McCutchen. Second, the NBA is currently dominated by teams based in Cleveland and Oakland, which aren't large markets. But the salary-to-wins comparison is interesting.