Article: $200 Million is the New $100 Million

[Jon Marthaler]

Forbes.com reported today that Major League Baseball league-wide revenues jumped from $8 billion in 2013 to $9 billion in 2014, mostly due to the league's new national TV contracts and revenue from MLB Advanced Media, the online streaming arm of MLB.

 

This continues a trend.A look back: In 2001, revenue was $3.6 billion; adjusted for inflation, $4.66 billion in today's dollars, according to Forbes. That year, three MLB teams had payrolls over $100 million; the Yankees led the way with just over $112 million. Sixteen more had more than $50 million in payroll that season.

 

Since then, revenue has doubled, more or less. The Dodgers had a $235 million payroll last year, and the Yankees nearly cleared the bar to $200 million as well. 14 other teams had payrolls of at least $100 million.

 

$200 million is the new $100 million, when it comes to payroll. $100 million is the new $50 million.

 

Since Target Field opened in 2010, the median MLB payroll has gone from $85 million to $107 million - right in line with revenue, which, just like the median payroll, has jumped 25% in that five-year span. During that same period, the Twins' payroll has declined, from $98 million to last year's $85 million. Don't let the Twins fool you; they will try to tell you that they've spent plenty of money. They haven't.

 

Remember this the next time Terry Ryan or Dave St. Peter talks about being "fiscally responsible." Remember this the next time your neighbor complains about Joe Mauer's contract being the problem with the Twins. Remember that MLB's revenue explosion, and the great gobs of taxpayer money that funded Target Field, mean that the Twins are making more money now than they ever have before - indeed more money than they could ever have dreamed of.

 

They're just pocketing it, instead of spending it on improving the team.

 

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[Twins Fan From Afar]

I rarely comment on articles anymore, but I actually logged in to my account just to say "well done."

[BK432]

Great read. And very accurate. If the Twins aren't spending yet because they plan to add significantly once the kids are up, fine, then you have a plan. But they have the money - I don't want to read anything about "small markets" or "budgets tapped out". This team could afford a lot more salary.

[spanman2]

Unfortunately for us as fans the Pohlad's have in past are in present and will continue to in the future operate this a "business".  By that I mean  not spending over 52% or so (whatever that magic number is)of revenue on payroll is paramount in their world.  From time to time they may deviate from it but that seems to be their pet peeve.  I am not saying they need to spend 175 million on payroll or anything like that.  What I as a fan and former season ticket holder would like to see is a commitment to putting out a competitive ballclub.  The last 2 years especially we knew going in that the seasons were a lost cause.  That is disappointing.  There is no reason why this organization can't be in the 125 or so range each season in my opinion.  Draft/develop well sign your core guys to long term contracts and pick up a solid free agent from time to time.  Is that too much to ask???

[kab21]

One thread complains about not spending enough and the other complains about who they spent on.  Confusing.

 

There's no reason that the Twins shouldn't be operating in the 125+M range.  In the short term it's hard to spend that much money w/o overloading the roster with aging vets but the Twins have a massive amount of room to work with when it comes time to giving out big extensions to the arb eligible players in a few years.  It shouldn't be a surprise that payroll is down so much since the Twins have not needed to give out any big extensions to these types in the last few years (Perkins is the exception). 

[Brock Beauchamp]

On a slightly-related note, MLBAM (Advanced Media) is becoming a real powerhouse in digital media and is going to make MLB a ton of money over the coming decade.

 

HBO is using MLBAM streaming tech for their new service that releases early next year. CBS uses it for a variety of things. ESPN uses it a ton.

 

MLBAM's revenue has gone from $300m per year in 2006 to $620m in 2012. I think it's going to keep doubling every few years for the foreseeable future.

[amjgt]

What were pre-arbitration salaries back in the early 2000s?

[Mike Sixel]

Since TR has never been turned down for money......I think this is about Ryan, not the owners. That's what they all say, every time money comes up.

[Trevor0333]

Great article! The Twins lack of payroll given their revenue combined with their roster building methods have completely crippled the team from success.

 

Spending 20% of the payroll on the Corriea, Pelfrey & Duensing's of the world doesn't lead to success on the field.

[Parker Hageman]

MLBAM's revenue capabilities is downright breathtaking. It truly is.

 

I posted this comment originally over at Jon's blog post but here is a re-post:

 

if accurate, the Twins should be making an estimated $86M on TV revenue (their own + MLBAM revenue sharing) in 2015. That would have covered their 2014 payroll. There is definitely money to spend this year. Depending on what their estimates are for revenue at Target Field this year, there should definitely be room for a payroll of $100-$130M without flinching.

 

 

That's JUST TV REVENUE, not Target Field revenue.

 

Here's the link to the 2013 article: http://awfulannouncing.com/2013/how-mlb-splits-your-tv-dollars.html

 

Are the Pohlads just pocketing money?

 

The one thing I do agree with the Twins on is avoiding long contracts. Those have a tendency of souring. I'd rather they overpay three times over for 2-3 year contract than try to sign a Jon Lester to a six-year deal.

In the end, the Twins probably are in the situation where they may leave payroll money on the table that goes back to ownership. It is unappetizing but I do not think it is malicious or a money grab.

 

 

I don't think it is as malicious of a money-grab as some commentors like to believe.  Dave St. Peter addressed some of this issue on our podcast a few weeks ago -- http://twinsdaily.com/_/minnesota-twins-news/podcasts/no-juice-podcast-27-dave-st-peter-r3169. I should also add that he is attending our second Twins Daily Winter Meltdown as a speaker again so you will be able to ask him payroll questions in person.

 

https://twitter.com/nojuicepodcast/status/527468288511856640

[Otto von Ballpark]

What were pre-arbitration salaries back in the early 2000s?

$300k in 2003, compared to $500k in 2014:

 

http://www.statista.com/statistics/256187/minimum-salary-of-players-in-major-league-baseball/

[jharaldson]

Are the Pohlads just pocketing money?

 

I don't think it is as malicious of a money-grab as some commentors like to believe.  Dave St. Peter addressed some of this issue on our podcast a few weeks ago -- http://twinsdaily.com/_/minnesota-twins-news/podcasts/no-juice-podcast-27-dave-st-peter-r3169. I should also add that he is attending our second Twins Daily Winter Meltdown as a speaker again so you will be able to ask him payroll questions in person.

 

My recollection of the interview is that Dave St. Peter confirmed that revenue was going towards the debt servicing the Pohlads assumed when they paid for their part of Target Field.  In simpler terms, the Pohlads are not paying anything towards Target field, they are using the extra revenue to pay it off.  The other part of the extra revenue is going towards incremental improvements to Target Field and to Minor League operations.

 

While I wouldn't call it evil or malicious I certainly don't think the Pohlads publicized prior to Target Field that their net contribution was actually going to be $0 and instead of directing all revenue to the team they would divert a good chunk to the mortgage.

[Jon Marthaler]

Follow-up, now that I'm a little less peevish today.

 

I get that the Twins don't want to give out ridiculous Jon Lester-style contracts. There are a ton of examples of terrible long-term deals out there, and giving somebody an eight-year, $200 million contract and then watching him stink from years 3-8 is not great business. And I get that youth development is probably much, much more important than free agent signings.

 

All I'm asking is for the Twins brass to be honest. Tell us that you didn't see the value of the big signing. Tell us that the plan is to have money available for up-and-coming youngsters that you think are going to break out. Tell us that there's a plan.

 

Just don't piss on our heads and tell us it's raining. "We made competitive offers, but so and so wanted to sign with a contender." Well, I don't see the Cubs and White Sox struggling to give away money. And worst of all, please don't cite Josh Willingham, Kendrys Morales, or - now - Torii Hunter as evidence that the team is really breaking the bank. Quit trying to tell us that money is actually being spent and "boy, we had a really competitive payroll." It's not. It's really not.

[James]

Ahh.  A good payroll conversation again, huh?  

 

There are arguments for both sides, spend or don't spend.  I agree that I would like the Twins to me a bit more open and honest about contracts, but there are some things they can't say in public, because they still do need to maintain a relationship with other GMs, so I can see why they tend not to say much about other deals.

 

The argument that I hate to hear is, "The Twins don't spend money and that's why they're losing".  We all know this isn't the reason they are losing, because if all it took was to spend money, we would have seen a Dodgers vs Yankees world series last year, and the Phillies wouldn't have spent almost $100 million dollars more than the Twins to win 3 more games.  I'm not saying that I agree with the way that the Twins have been spending their money, I'm saying that they payroll isn't the main cause of the Twins problems.

 

The one argument that is not valid at all is people complaining that "The Pohlads are operating the Twins as a business."  I really hate to break this to those people, but the Twins are, in fact, a business.  In fact, all 30 MLB teams are, in fact, businesses.  If you expect the owners to run their teams as anything other than a business, then your setting yourself up to be disappointed. 

[Parker Hageman]

My recollection of the interview is that Dave St. Peter confirmed that revenue was going towards the debt servicing the Pohlads assumed when they paid for their part of Target Field.  In simpler terms, the Pohlads are not paying anything towards Target field, they are using the extra revenue to pay it off.

 

 

I guess I'd prefer that to what is happening in Milwaukee with their debt service repayment program: http://www.jsonline.com/news/miller-park-stadium-district-increases-operations-budget-b99389028z1-282365821.html

[TheLeviathan]

The one argument that is not valid at all is people complaining that "The Pohlads are operating the Twins as a business."  I really hate to break this to those people, but the Twins are, in fact, a business.  In fact, all 30 MLB teams are, in fact, businesses.  If you expect the owners to run their teams as anything other than a business, then your setting yourself up to be disappointed. 

 

I would suggest it's bad for business to essentially pocket money from your shareholders.

[DaveW]

I would suggest it's bad for business to essentially pocket money from your shareholders.

I'm not sure why all of my prior posts are being deleted for pointing out that this is nothing new from the Pohlad family.

 

Anyways, fans aren't shareholders, the Twins will continue to make millions upon millions from the TV deal alone, yes attendance and all that helps, but the real money just like the other leagues comes from the massive TV deals.

 

At least it isn't a Marlins situation (previous to this year at least). It still IMHO is very possible to compete with a 90-100 mil payroll in this day of age. While I blame the Pohlads for being cheap, the Twins shouldn't use this as an excuse for their pathetic results the past 3 or 4 years.

[James]

I would suggest it's bad for business to essentially pocket money from your shareholders.

Vodka Dave is right.  The fans aren't shareholders.  They're customers.  Pocketing money from customers is exactly what businesses do.  

 

My point was payroll isn't the biggest reason for the Twins losing in recent years.  I also agree that the Twins management shouldn't be avoiding free agents just because payroll doesn't win games.  

[diehardtwinsfan]

I think it comes down to the fact that there's a public subsidy that people in the state paid regardless of fandom. In that aspect of things, I get where Levi is coming from. I don't have too much problems with the Pohlads using extra revenue to aggressively paying down debt, that's not bad for the long term of the business. Payroll won't win games. It can help. I'm a huge advocate of smart payroll moves.

[DaveW]

Vodka Dave is right.  The fans aren't shareholders.  They're customers.  Pocketing money from customers is exactly what businesses do.  

 

 

See: Jet Blue

[Mike Sixel]

I don't read anyone saying that spending guarantees anything.....I see people suggesting that having a payroll under the median, year after year, while revenues are skyrocketing, right after getting a new stadium (that was sold as a way to stay competitive), all while NOT being competitive, well, that raises a question.....would they be more likely, or less likely to be competitive, if they had a median payroll?

 

How "crippled" would they be right now had they spent on 3-5 year deals 3-5 years ago, for example?

[James]

I don't read anyone saying that spending guarantees anything.....I see people suggesting that having a payroll under the median, year after year, while revenues are skyrocketing, right after getting a new stadium (that was sold as a way to stay competitive), all while NOT being competitive, well, that raises a question.....would they be more likely, or less likely to be competitive, if they had a median payroll?

 

How "crippled" would they be right now had they spent on 3-5 year deals 3-5 years ago, for example?

I think the problem is that they payroll hasn't gone up while the team has been bad.  I don't think people would really be complaining about the payroll at all if the Twins were still winning games.   

 

I agree with you Mike, it probably wouldn't have crippled the team to add contracts 3-5 years ago (besides Willingham).  I actually think that 3-5 year deals tend to be about perfect lengths for contracts.  

 

The problem with arguments about payroll is that they end up trying to correlate losses with lack of payroll, which logic would follow that higher payroll must mean more wins.  But we all know that this isn't true either.  Which must mean that there is some other independent reason that is causing them to lose. 

 

And all this ranting as the Twins add to the payroll by agreeing to a deal with Ervin Santana that fits in that 3-5 year range.  

[Mike Sixel]

No, it doesn't mean "must".....it means likely, probably. If you are decent at drafting, and add players in FA, you are probably better than if you don't add players (or let good players walk). 

 

I think you are confusing "odds" and probability with certainty.

[James]

You're right, it doesn't mean must.  I generally don't speak in absolutes like that.  Confidence intervals are usually my thing.

 

What I was basically trying to get at was that wins aren't strongly correlated to dollars spent.  Is there some correlation?  Probably.  To do this topic just would take some statistics that could be done, I just don't have the time at the moment.  

 

My argument is more that since the correlation isn't a strong correlation, payroll isn't a very good predictor or wins or losses.  

 

Most of the payroll arguments that I read are trying to connect the Twins lower payroll with the cause of the Twins losing.  I'm trying to say it's more a by-product of the Twins losing (and replacing players with younger, cheaper player) rather than the cause. 

[TheLeviathan]

Vodka Dave is right.  The fans aren't shareholders.  They're customers.  Pocketing money from customers is exactly what businesses do.  

 

My point was payroll isn't the biggest reason for the Twins losing in recent years.  I also agree that the Twins management shouldn't be avoiding free agents just because payroll doesn't win games.  

 

Except, in many ways, we are shareholders.  It isn't a perfect analogy, but there isn't one for this situation because professional sports operate outside many normal business rules and scenarios.  The closest thing to what the Pohlads are doing, in my opinion, is pocketing things behind the backs of shareholders.

 

Having a higher payroll does not mean winning more games by and large.  But with 100% certainty I can tell you that the Pohlads pocketing money does NOTHING to win more games. 

[James]

Except, in many ways, we are shareholders.  It isn't a perfect analogy, but there isn't one for this situation because professional sports operate outside many normal business rules and scenarios.  The closest thing to what the Pohlads are doing, in my opinion, is pocketing things behind the backs of shareholders.

 

Having a higher payroll does not mean winning more games by and large.  But with 100% certainty I can tell you that the Pohlads pocketing money does NOTHING to win more games. 

But not adding payroll doesn't necessarily lose you games either.  That's what I'm trying to say.  It might in some cases, but payroll overall isn't a good predictor of wins/losses. 

 

Moot point as the Twins just bumped up the payroll.  Hopefully it's more tolerable and a better product.

[TheLeviathan]

But not adding payroll doesn't necessarily lose you games either.  That's what I'm trying to say.  It might in some cases, but payroll overall isn't a good predictor of wins/losses. 

 

Moot point as the Twins just bumped up the payroll.  Hopefully it's more tolerable and a better product.

You just set a Twins Daily double negative record and I think you lost your own point in it. You can do nothing and hope to get better but it's far less likely than actually trying to add assets to get better.

[whydidnt]

I think the problem is that they payroll hasn't gone up while the team has been bad.  I don't think people would really be complaining about the payroll at all if the Twins were still winning games.   

 

I agree with you Mike, it probably wouldn't have crippled the team to add contracts 3-5 years ago (besides Willingham).  I actually think that 3-5 year deals tend to be about perfect lengths for contracts.  

 

The problem with arguments about payroll is that they end up trying to correlate losses with lack of payroll, which logic would follow that higher payroll must mean more wins.  But we all know that this isn't true either.  Which must mean that there is some other independent reason that is causing them to lose. 

 

And all this ranting as the Twins add to the payroll by agreeing to a deal with Ervin Santana that fits in that 3-5 year range.  

Actually, I disagree. I think there is a pretty strong correlation between high payroll teams and winning. Spending more doesn't guaranty that you will win the world series or even make the playoffs. However, it does give you a better chance at winning. That's not to say you HAVE to spend the most to win, but payroll is a factor. That's not to say, you spend just to spend, like the Phillies have seemed to do recently, just that to artificially limit what you spend in the market will likely make you worse than you could be. 

 

I can't seem to find the article, but there was one on Fangraph's or the Hardball Times a couple of years ago that showed that teams in the top 10 in spending were much more likely to make the playoffs than teams in the bottom 10. To me that's a strong correlation. 

[by jiminy]

I would just add that if their revenue doubles, and they double their payroll, their profit STILL doubles. And they're not even doing that!

 

I was never a big fan of just accepting as an axiom that payroll = half of revenue. To me that just means, give us a subsidy, and we'll pocket half of it, and MAYBE we'll consider spending some of the rest on the team. But our cut is 50% minimum. And everyone usually confines their kvetching to the unspent part of the "available" 50%. But why? I would like to think that if we subsidize a private business, that money should at least go into the team, not straight into the bank.

 

Seriously. I would have much rather seen a bond initiative to just go out and sign free agents, and give them to the Twins. If you really wanted a new stadium,  make the subsidy contingent on the Twins  building a new stadium with their own money. You'd get more for your money that way. I hate no-strings-attached giveaways. You sign the check, you call the shots. (Otherwise it's like giving  banks billions of dollars so they'll lend money to people, but never actually requiring them to do so! Oh...)

 

But think of how much more fun a direct subsidy would have been. You could require a new vote each year, to keep the pressure on the Twins to spend their own money too, or we walk.

 

You could vote for shadow GMs to decide how to spend the money: nominate your favorite blogger!

 

Or if you wanted to let Twins management decide who to sign--they after all know more about building a team than we do--we could say, the state will match every dollar you spend on payroll over $100 million. I'd vote for that! At least, I'd choose that over just giving them a stadium, and hoping they spend some of the new revenue on players, and then watching them make record profits instead.

 

By the way, I love the use of the verb "pocketed" -- one of may favorites when talking about moneybags types.

[whydidnt]

I couldn't agree more with the original post. The most frustrating thing to me is that the Twins have obviously pulled back from the supposed 52% of revenue number over the last few years and have just pocketed the money. We don't get to see the number's but with the new TV money, combined with the new stadium windfall, 52% of total revenue was likely somewhere north of $125M the last three years. Instead of investing that in the team, the owner's decided to keep it for themselves.  That is certainly their right as owners. But counter to that, it's my right as a fan to vote with my own dollars, and chose to spend them on other forms of entertainment, which is what I have done over the last couple of years. My attendance at Twins games has dropped from a high of 23 games to 2 last year. 

 

Maybe if the Twins showed a little more willingness to put together a winning team, they wouldn't have to keep overpaying for middle of the road Free Agents and elite players would want to play here.