2017 Outlook

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NewMexicoLobo
Posts: 107
Joined: Thu Oct 27, 2016 11:53 am

2017 Outlook

Post by NewMexicoLobo »

6347535B5E320 wrote: I read somewhere, do not remember where, that the new CBA may have a salary floor in the agreement if agreed to. If so hopefully it will be high enough to cause some payroll changes and force the team to spend more!


What frustrates me the most about the Pirate ownership is that spenders like them need a rule like what you heard about.  It might be something that players may go for but the owners, well I doubt it. 



Unless perhaps there is some kind of revenue sharing where at least TV revenues are shared pretty equally.  Unfortunately that is a dream that has about as much chance of flying with ownership as does Pirate ownership paying top $$ for a great starting pitcher.  For baseball to succeed and to become more competitive where teams don't have to wait 71 years to make a WS appearance it needs to level the playing field and to me revenue sharing and a salary cap would seem to be a way to consider.



I agree that the whole system would have to change in the way that you say for something like a salary floor to happen. Until or unless it does the Pirate financial model and way of trying to sustain winning for multiple seasons has to continue.



Being a small business owner for the last thirty years I can tell everyone that managing money and cash flow in ANY business is similar to doing it in your own household, except that fluctuations in revenue make it even scarier. And when ownership's financial personal guarantees are probably sprinkled throughout it's easy understand why financial conservatism rules the day. In the Pirates' case, the financial model they must follow for sustained success is going to backfire from time to time from the standpoint of positive results for any single season. That being the case I'd really think they'll look at this season's failures from the standpoint that they'll probably have to risk a negative fluctuation in cash flow in the form of increased payroll (starting pitcher?) in order to maximize their chances of winning next year, which in theory will generate more revenue. If that fails there will be a sell-off. Just look at Kansas City as an example of what a small-market team must do if they fail to win with a higher payroll than what they can afford.



Related to all of that a business's bottom line is not some pot of gold or lump of coal that is realized at the end of the fiscal year or rainbow (if successful fiscally). It is spent, saved, or absorbed little by little as the year unfolds. For this reason, trust me in that this money is not going lump-sum into Nutting's pocket. And also related to that, every successful business is forced to retire long-term debt by virtue of payment schedules, for which ownership is usually personally at risk (the aforementioned personal guarantees). And what's misleading to the bottom line is that reduction of the principal IS NOT booked as an expense. It is only the interest portion that is an expense (what most would call a "write-off"). So a company could technically be profit-rich and cash-poor. And even being profit rich would probably constitute no more than a 3% to 5% bottom-line profit. I would turn hand-springs if my company had been able to do that from one year to the next on a consistent basis.



Finally, a traditional-style business (and certainly no sports team) is going to be a cash cow for ownership. You just hope to maximize opportunity and minimize risk as you operate from year to year. If your business is successful and there is a market for the product, the real money is made when you sell. In the traditional capitalist society this is the potential reward for having taken the risks and employed many people over the years and contributed to their well-being as well as to your own family's.



So all of this is what the Nuttings are doing and as fans it will be very interesting for all of us to see what Bob Nutting does going forward. After all, the market value of a business can fluctuate wildly from what the so-called book value is.




Although I appreciate your insights into small business ownership and the difficulties presented in such an endeavor I would like to point out some significant differences between small business and the business of Major League Baseball ownership.



First, of course a MLB franchise is not a small business. Nor is it fraught with much of the uncertainty (which you've mentioned) that small businesses face. It is in fact a closed shop monopoly permitted by a federal antitrust exemption-about as close to a definition of "cash cow" as exists. The Pirates have virtually no uncertainty regarding revenue. They are guaranteed $25M yearly in TV revenue until 2020 when that figure will likely double to the MLB average of small market teams. They are guaranteed recipients of revenue sharing from the 'luxury tax' in MLB. They have no serious doubts regarding attendance stability as they have been gifted by taxpayers with one of the showcase venues in all of MLB, PNC Park, as their home and drew well even in a year when they didn't have a winning season. Other sources of revenue have been consistently on the increase for all teams in MLB for the past decade. The Pirates ranked 18th out of all MLB teams in revenue with $244M. Their payroll ranked 25th at $104M. 



Forbes magazine has ranked the Pittsburgh franchise as the 18th most valuable of 30 teams at an estimated value of $975M. The Nutting ownership purchased the franchise for $98M. That places the equity in the business at roughly $780M after the 10% franchise debt has been settled. You make the assertion that "managing money and cash flow in ANY business is similar to doing it in your own household." I would agree. As such if I had a house that was worth more than 7 times what I paid for it I would consider a home equity loan to finance anything that I might not have the proper cash flow to deal with at a particular point in time. This equity is leverage for running a business and a safety net for any unexpected expenses or crises. Pirate ownership pleading poverty regarding payroll (which NH has already done after the season ended) is simply absurd. There is enough equity in the franchise to sustain a much higher payroll for more than just a run at a championship. Evidence from other MLB teams suggests that a team with $244M in revenue can sustain a payroll of ~$130M without going deep into the red. With the equity built into their business Pirate ownership should be looking to spend up to their limit when the chance for a championship is a reasonable possibility.



Finally you point to KC as an example of what a small market team has to do if they fail to win with a higher payroll. Somehow I don't consider winning a World Series Championship as KC did any kind of failure. The fact that their ownership decided to go for seconds with a higher payroll the following season was a reasonable risk. Reasonable not only because they had already won one championship but reasonable because any MLB team can mitigate subsequent payroll excesses through trades and youth development in the natural course of the business of MLB. If KC operates in the red for a couple of years before they can balance the books they'll have the increased value in the franchise that a world championship brought them in 2015 that will likely more than make up the deficit.



The Pirates ownership is well beyond a reasonable definition of fiscal conservatism. They are demonstrating a seemingly unethical disregard for the essence (sports competition) of the business they have chosen to participate in. 





I appreciate your point about "as close to a cash cow". I think you're right about that. I also think that, even with that, it is not close to a cash cow. Trust me, the month to month operation is a roller coaster. To that end every successful business operates to some degree via a bank line of credit (or for larger business multiple lines of credit). Most are renewable on a yearly basis pending decent enough financial performance, but ALL are at the personal risk of ownership. If any of those is not renewed then the bank demands payment IMMEDIATELY and the legal "fun" begins. So I don't think we should be so quick as to judge Bob Nutting on a moral or ethical basis. He's trying to stay fiscally operational -- not such a bad thing. I do think, however, that in highly visible situations like theirs appearances are important. That's why the Liriano salary dump looked bad with regard to how it was done.
Bobster21

2017 Outlook

Post by Bobster21 »

6C485C54513D0 wrote:

Finally you point to KC as an example of what a small market team has to do if they fail to win with a higher payroll. Somehow I don't consider winning a World Series Championship as KC did any kind of failure. The fact that their ownership decided to go for seconds with a higher payroll the following season was a reasonable risk. Reasonable not only because they had already won one championship but reasonable because any MLB team can mitigate subsequent payroll excesses through trades and youth development in the natural course of the business of MLB. If KC operates in the red for a couple of years before they can balance the books they'll have the increased value in the franchise that a world championship brought them in 2015 that will likely more than make up the deficit.


Actually, KC didn't go overboard in their payroll increase from 2014 to 2015. It was about a 20 million dollar increase that only moved them from 19th to 16th in MLB payroll. By MLB standards, 20 mil is not outrageous. It enabled them to sign Kendrys Morales, Edinson Volquez and Chris Young, who had big years for them and useful players like Ryan Madson, Alex Rios, Joe Blanton, Kris Medlen and Franklin Morales. They also traded for Cueto and Zobrist in July. Contrast that to the Pirates who followed up on a 98 win season by reducing payroll by about 3 mil for 2016 and giving away prospects just to further reduce it. Seems like KC offered a model they could have followed. Instead, it looked like they freaked out at the cost of assembling and keeping a championship caliber team. 
Quail
Posts: 835
Joined: Sun Jul 03, 2016 2:48 pm

2017 Outlook

Post by Quail »

7D505D4C4B5A4D0D0E3F0 wrote:

Finally you point to KC as an example of what a small market team has to do if they fail to win with a higher payroll. Somehow I don't consider winning a World Series Championship as KC did any kind of failure. The fact that their ownership decided to go for seconds with a higher payroll the following season was a reasonable risk. Reasonable not only because they had already won one championship but reasonable because any MLB team can mitigate subsequent payroll excesses through trades and youth development in the natural course of the business of MLB. If KC operates in the red for a couple of years before they can balance the books they'll have the increased value in the franchise that a world championship brought them in 2015 that will likely more than make up the deficit.


Actually, KC didn't go overboard in their payroll increase from 2014 to 2015. It was about a 20 million dollar increase that only moved them from 19th to 16th in MLB payroll. By MLB standards, 20 mil is not outrageous. It enabled them to sign Kendrys Morales, Edinson Volquez and Chris Young, who had a big years for them and useful players like Ryan Madson, Alex Rios, Joe Blanton, Kris Medlen and Franklin Morales. They also traded for Cueto and Zobrist in July. Contrast that to the Pirates who follwed up on a 98 win season by reducing payroll by about 3 mil for 2016 and giving away prospects just to further reduce it. Seems like KC offered a model they couild have followed. Instead, it looked like they freaked out at the cost of assembling and keeping a championship caliber team. 




Bobster- I agree with everything you've said. I was actually referencing KC's increase in payroll from 2015-2016 ($132M to $145M according to spotrac.com), but your point about KC in 2014 to 2015 is more poignant with regard to Pirate ownership's behavior.
Quail
Posts: 835
Joined: Sun Jul 03, 2016 2:48 pm

2017 Outlook

Post by Quail »

0B203208203D2C262A092A272A450 wrote: I appreciate your point about "as close to a cash cow". I think you're right about that. I also think that, even with that, it is not close to a cash cow. Trust me, the month to month operation is a roller coaster. To that end every successful business operates to some degree via a bank line of credit (or for larger business multiple lines of credit). Most are renewable on a yearly basis pending decent enough financial performance, but ALL are at the personal risk of ownership. If any of those is not renewed then the bank demands payment IMMEDIATELY and the legal "fun" begins. So I don't think we should be so quick as to judge Bob Nutting on a moral or ethical basis. He's trying to stay fiscally operational -- not such a bad thing. I do think, however, that in highly visible situations like theirs appearances are important. That's why the Liriano salary dump looked bad with regard to how it was done.




I'm sure some businesses can be roller coaster-like in terms of their liquidity. I happened to work for 17 years in management for a large corporation that was intentionally cash rich with the expressed intention of avoiding just such monthly drama. Having said that my employer did not have the business advantage of a monopoly upon which to rely such as exists in MLB.



As for being fiscally operational I will use the known figures of revenue, operational income, debt, and franchise valuation as the basis for my reasoning concerning the behavior of Pirate ownership. In addition I will confine any business model comparisons to those within the closed system of MLB, essentially comparing apples to apples. By doing that I find that in the context of his environment Mr. Nutting is acting in a way that is unlike his peers in his lack of payroll investment. If he is unable to manage his business in a way that allows him the liquidity to be competitive with payroll he's in the wrong business. If he's simply maximizing profits from a federally sanctioned monopoly then he's acting in an ethically questionable manner by having reneged on the implied contract with fans of the franchise to deliver a sufficiently competitive sports experience. Either way I view his handling of ownership to this point as unacceptable.
rucker59@gmail.com

2017 Outlook

Post by rucker59@gmail.com »

Whatever the realities may be of owning and operating a MLB team, I see absolutely zero reason that the rules would be different for the Pirates than the rest of MLB.



The Royals and Indians have exposed the Pirates. I trust that the owners of both teams are every bit as concerned for sound business practices as Bob Nuttting. Frankly, after the travesty of this past season I have a hard time understanding any possible defense.



Lastly I'd say this. Owning a major league franchise is indeed unlike owning any other "small business". It's a legal monopoly. If's one of 30. It asks for local governments and the community to support its monopoly. My suggestion is that if Mr Nutting is unwilling to operate as the rest of his peers, he call up Mark Cuban and cash out to the tune of $800,000,000.
NewMexicoLobo
Posts: 107
Joined: Thu Oct 27, 2016 11:53 am

2017 Outlook

Post by NewMexicoLobo »

7B7C6A626C7B3C30496E64686065276A6664090 wrote: Whatever the realities may be of owning and operating a MLB team, I see absolutely zero reason that the rules would be different for the Pirates than the rest of MLB. 



The Royals and Indians have exposed the Pirates.  I trust that the owners of both teams are every bit as concerned for sound business practices as Bob Nuttting.  Frankly, after the travesty of this past season I have a hard time understanding any possible defense. 



Lastly I'd say this.  Owning a major league franchise is indeed unlike owning any other "small business".  It's a legal monopoly.  If's one of 30.  It asks for local governments and the community to support its monopoly.  My suggestion is that if Mr Nutting is unwilling to operate as the rest of his peers, he call up Mark Cuban and cash out to the tune of $800,000,000. 

What KC and the Cleveland Indians exposed is that the Pirates made what turned out to be bad decisions during one off-season and the season that followed. Nothing more, IMHO.
Quail
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Joined: Sun Jul 03, 2016 2:48 pm

2017 Outlook

Post by Quail »

4A617349617C6D676B486B666B040 wrote: Whatever the realities may be of owning and operating a MLB team, I see absolutely zero reason that the rules would be different for the Pirates than the rest of MLB. 



The Royals and Indians have exposed the Pirates.  I trust that the owners of both teams are every bit as concerned for sound business practices as Bob Nuttting.  Frankly, after the travesty of this past season I have a hard time understanding any possible defense. 



Lastly I'd say this.  Owning a major league franchise is indeed unlike owning any other "small business".  It's a legal monopoly.  If's one of 30.  It asks for local governments and the community to support its monopoly.  My suggestion is that if Mr Nutting is unwilling to operate as the rest of his peers, he call up Mark Cuban and cash out to the tune of $800,000,000. 

What KC and the Cleveland Indians exposed is that the Pirates made what turned out to be bad decisions during one off-season and the season that followed. Nothing more, IMHO.




Well there is no doubt some bad decisions were made by NH regarding the Pirates' starting pitching (having lost Happ, Burnett, and Morton they brought in Niese and Nicasio, and promoted Locke to the #5 spot which he had lost at the end of 2015). Don't know how the Indians or Royals exposed bad decision making. NH also made some great acquisitions in the off-season such as Joyce, Freese and bringing back Sean Rodriguez. What seems exposed is that the Pirates didn't spend the money to retain (Happ) or bring in (David Price or Johnny Cueto) a quality starter which would have been a more rational approach for a team striving to improve on a 98 win season.
Bobster21

2017 Outlook

Post by Bobster21 »

052E3C062E33222824072429244B0 wrote: What KC and the Cleveland Indians exposed is that the Pirates made what turned out to be bad decisions during one off-season and the season that followed. Nothing more, IMHO.


KC showed that when you get close, you can go further if you're willing to spend a little more (and it wasn't an exorbitant amount from 2014 to 2015). The bad decisions the Pirates made last off season were the result of deciding to spend less rather than more money. Going into ST expecting Vogelsong to be in a starting rotation that still included the very problematic Locke represented 2 very bad decisions. Even if Niese had been adequate they would have had 2 bad pitchers in the rotation. And thinking Glasnow and/or Taillon would/could bail them out at mid-season was not a sound strategy. And settling for Jaso at 1B didn't worry anyone in the NL Central. These bad decisions were directly related to the team's decision to cut spending after the 98 win season. So I don't think it is strictly a case of decisions that were poor. And I'll give them a pass on Niese since no one expected him to be so bad. It is the fact that the decision to reduce spending left them with very few options and rendered them unable from the start to compete with the improving Cubs.
rucker59@gmail.com

2017 Outlook

Post by rucker59@gmail.com »

446F7D476F72636965466568650A0 wrote: Whatever the realities may be of owning and operating a MLB team, I see absolutely zero reason that the rules would be different for the Pirates than the rest of MLB. 



The Royals and Indians have exposed the Pirates.  I trust that the owners of both teams are every bit as concerned for sound business practices as Bob Nuttting.  Frankly, after the travesty of this past season I have a hard time understanding any possible defense. 



Lastly I'd say this.  Owning a major league franchise is indeed unlike owning any other "small business".  It's a legal monopoly.  If's one of 30.  It asks for local governments and the community to support its monopoly.  My suggestion is that if Mr Nutting is unwilling to operate as the rest of his peers, he call up Mark Cuban and cash out to the tune of $800,000,000. 

What KC and the Cleveland Indians exposed is that the Pirates made what turned out to be bad decisions during one off-season and the season that followed. Nothing more, IMHO.




Bobster and Quail are right on point and I won't restate their points but add a couple - whatever you think of the offseason, doesn't the trade deadline kind of come very close to proving "something"?  According to Dejan the league was even concerned. 



Further, it's not just one off season. Going into 2015 there were a number of posters here begging for one more higher-end starting pitcher.  They won 98.  But if one more SP had been added a division championship very likely would have followed.  And maybe a pennant. 



The fact they did great in 2015 doesn't excuse not doing everything reasonable to be the best team possible.  That, they did not do. 



I really think the FO was sure the Pirates were going to be among the best for many years to come.  Now, I think it's hard to argue that the Pirates are any better than a .500 team.  Point - when the opportunity to win a pennant comes along, owning a baseball team should automatically mean you will do all that is reasonably possible to maximize your chances.  With the Cubs and Cardinals in our division it's going to be extremely hard to do anything other than hope for a WC into the foreseeable future, and that's not going to be easy as there are a number of teams that are building to win. Precious opportunities missed, sting.
IABucFan
Posts: 1728
Joined: Wed Oct 12, 2016 3:36 am

2017 Outlook

Post by IABucFan »

I've enjoyed reading and following this thread. It's clear that many of you are more well-versed on business models than me, so I'm simply not going to comment on an area why I have no expertise. As the wise proverb says, "Better to leave one's mouth shut and be thought a fool than to open it and remove all doubt."



Regardless, the overarching question I have is the same question I had prior to the 2013 season. Can we compete? Because, frankly, I've got far better things to do with my time than watch the Washington Generals of baseball. If we're always going to be the bridesmaid and never the bride, well, I'm just not all that interested in that.



As it pertains to the process, I've always maintained that we can and should build from within, allow guys to move on when they get too expensive, and promote from within to replace them. My view on that hasn't changed. But if what Bobster and VAPirate are saying, that as things currently stand, we simply can't compete, then, to be frank, I'm finished with the team. Life is simply too short to invest six months out of every year to follow a team that will always be second fiddle.



Looking ahead to next year, I see a team that, on paper, can compete with the rest of the league as a whole. But, on paper, can't compete in their own division. As I look at things, we just don't match up with the Cubs, but I think we match up favorably with the rest of the NL.



So, I judge what we should do here based on two things: internal evaluation and external additions. Internally, NH needs to decide if the whole team collectively regressed, or if they collectively had down years. If it's the former, then it's time to blow it up. If the latter, then keep the core together for another run. Unless of course, we determine that whatever we do, we can't match up to the Cubs. Then in that scenario, perhaps we need to blow it up anyway.



Externally though, I agree with VA and bobster. Ownership let the fans down in the offseason and again in season with the Liriano give away. I see no reason to expect this to change this year. If by some fluke, we acquire an A grade player, someone who can really help, then fine. The question is answered. But if not, as we all expect, then there are two primary reasons why (because no honest observer could possibly look at things as they are and say we can compete): we either CAN'T sign for/trade for a grade A player, or we WON'T sign for/trade for a grade A player. In either scenario, I see no reason to continue on as a fan of this team. If they will give me no reason to hope, then it's time to let go.



OK...that was a lot of rambling. Here it is in summation.



1. Did everyone have a down year or did everyone regress? If everyone had a down year, then keep it together. If everyone regressed, then blow it up.



2. If everyone had a down year, then can we compete with the Cubs? If yes, then keep it together. If no, then blow it up.



3. Will the Pirates bring in a QUALITY player from outside the organization? If yes, then great. We have hope. If no, then why? We can't? Or, we won't? If we can't, then we are without hope, and I see no reason to continue as a fan. if we won't, then likewise, I see no reason to hope and thus no reason to continue as a fan.



In short, the organization is at a major crossroads, possibly a crossroads that will define them for the next decade or so. NH has tons and tons of questions to answer this offseason. Frankly, so does Bob Nutting. Hopefully, they give us all a reason to hope.
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