Reaction To Pirates Finances

As you probably know, the Pirates revealed their balance sheets yesterday for 2007-09. The team made $34.8 million in profits over the three years.Apparently everyone is supposed to be shocked and outraged that this for-profit enterprise in fact turned a profit. The whole reason an MLB team is worth hundreds of millions of dollars is the ability to make money each year.

On $140 to $150 million a year in revenue, the Pirates are making an average 8% profit per year. This is in line with what any business makes. The average corporate profit margin for the S&P 500 for the last 30 years is 8%. Unless your owner is Mark Cuban, the team's goal is going to be 8% profits or more.

Now, clearly this 2010 Pirates team is horrendous and major league payroll needs to increase to achieve success. To contend in 2011 the Pirates would need to add - at a minimum - established everyday players in right field and shortstop, two starting pitchers and a couple relievers, including at least two stars among that total. This would probably cost around $40 million.

But the problem is not the profits, it is the revenues. Gate receipts are averaging around $35 million a year. That amount is definitely bottom ten and probably bottom five in the league.

The Yankees can spend over $200 million on salaries because they make over $200 million on tickets. Throughout Major League Baseball the ticket revenues mirror player salaries. Those are the two main variables in the balance sheet.

Super low salary winners like the current Padres or '08 Rays are basically a one- or two-year fluke where every key player is still young and cheap. To consistently contend it takes good management and payroll of $75 to $80 million a year.

To do this profitably the Pirates would have to double their gate revenues based on a combination of increased attendance and increased ticket prices. And for that to happen the Pirates would need at least one winning season. I don't think it would actually take a championship but it would take at least an 86 win contending team. Maybe it would require a playoff spot. But it is possible. The Penguins certainly have doubled their ticket revenue from the days when anyone could go buy a ticket on the street for ten bucks.

Basically ownership needs to bite the bullet and lose money for a year in order to get a contending a team that increases fan interest. Then attendance will go up and the Pirates can cease to be a laughingstock.

Until then, enjoy your $9 seats.