BPro: Twins Are Not A "Small Market" Team

[Nick Nelson]

There's a new piece on Baseball Prospectus today titled The Minnesota Small-Market Con, in which the author Jack Moore argues against the team's commonly applied label as a small-market club, which he argues is "nothing short of con artistry."

 

It's a good article, with interesting notes on the Twin Cities' relative population and media market size, as well as the contraction talks of 2001, which is where he suggests that this mislabel really gained traction. 

 

Personally, I've always thought of the Twins as a mid-market club, and their recent spending has basically reflected that. What are your thoughts? 

[drjim]

Do people still really call them small market? I would put them slightly below median (15-20 range), and payroll generally reflects that.

[drjim]

I would also add that from the mid 90s (time of baseball strike) until the recent explosion of tv contracts (about the time of Target Field), baseball revenues was driven primarily from stadiums. In that sense, the Twins were a small market team in the Metrodome, with the need for a new stadium to no longer be.

 

And Pohlad saying he didn't want to lose money on the team strikes me as a reasonable position for an owner to take.

[gunnarthor]

Yeah, I'd say mid-market.  It's stupid to expect them to compete financially with the Dodgers or Yankees but I'm not sure if market-size is as important now as the TV contracts.  

[Sir_Eugene11]

Here's Colin Cowherd ranting on why the Twins are not a "small-market" team shortly after the 2010 season. One of my favorites and a great listen!

 

[Vanimal46]

I agree with you drjim that it's a reasonable position for an owner to not want to lose money on the team. However, I think the big con out of this is the fact that every year the team is so payroll-strapped. Where $113 million seems to be the absolute limit that the team can spend. The whole sales pitch for building Target Field is they need a new environment to compete with the large market teams. Other than going after 2nd tier starting pitching the last couple of years, I still have not been convinced that ownership is keeping up with their end of the deal. 

[DaveW]

None of this is a surprise, nice to see a national publication point it out though. The Pohlads have long conned the residents of Minnesota. Hopefully they can sell the team to a better owner sometime in the next couple decades.

[drjim]

 

I agree with you drjim that it's a reasonable position for an owner to not want to lose money on the team. However, I think the big con out of this is the fact that every year the team is so payroll-strapped. Where $113 million seems to be the absolute limit that the team can spend. The whole sales pitch for building Target Field is they need a new environment to compete with the large market teams. Other than going after 2nd tier starting pitching the last couple of years, I still have not been convinced that ownership is keeping up with their end of the deal. 

 

I don't recall them ever saying they are payroll strapped since they moved to Target Field. I think they absolutely were payroll strapped in the mid aughts.

 

I do agree they haven't spent to their capability.

[Brock Beauchamp]

They're definitely a mid-market team but probably on the small side of mid-market. The Twins population coverage is pretty good but IIRC, its population skews on the low side of cable subscribers relative to its population (a flaw in the first half of this article, as it only mentions "television homes", not "cable subscriber homes"). The second half of the article is spot-on, though.

Given how much money comes from television contracts, that's a significant thing to note*.

*in no way is this a defense of the Twins' current payroll

[Mike Sixel]

I can't see any way they aren't making tens of millions every year right now. I have no issue with that, other than we subsidize the heck out of them and their millionaire employees.

[tobi0040]

 

And Pohlad saying he didn't want to lose money on the team strikes me as a reasonable position for an owner to take.

 

To me, this is the farce. 

 

Pohlad bought the team for $44M in 1984.  The value Forbes has as of 10 months ago is $895M.  

 

If you own a rental house worth 200k and "lose" 2,000 one year between expenditures and rent received, but the value of the home rises 10%, did you make or lose money?

 

I think you made $18,000, or 9%

[Vanimal46]

 

I don't recall them ever saying they are payroll strapped since they moved to Target Field. I think they absolutely were payroll strapped in the mid aughts.

What year would you like for examples? Going into 2015? Going into 2013? Going into this year?
 

It's seemingly the same song and dance every off-season. Except for 2014 when even TR and ownership knew they had to do something about the starting pitching, otherwise the fans would have completely stopped showing up. 

[Brock Beauchamp]

 

To me, this is the farce. 

 

Pohlad bought the team for $44M in 1984.  The value Forbes has as of 10 months ago is $895M.  

 

If you own a rental house worth 200k and "lose" 2,000 one year between expenditures and rent received, but the value of the home rises 10%, did you make or lose money?

Yep, though it's fair to point out that value is only seen if the team is sold. If the Pohlads hang on to the Twins forever, their "profit" is zero (assuming they spend every dollar they acquire in revenue).

[USAFChief]

The big mystery* is, why were they able to survive on around $70M covering all expenses, plus a profit, over and above payroll in the dome, but now need ~$120M?

 

If $70M was enough to pay for their minor league system, all other employees, travel costs, marketing, etc etc etc in 2009, why do they need so much more now?  None of those other expenses doubled in 2010 with the move to Target Field.

 

*it's not really a mystery...the Pohlads borrowed** the money for their portion of the costs of Target Field, and are using TF revenues to pay off that note.  So they haven't actually put a penny of their own money into building TF, even though they "pledged" $150M or whatever it was.  That's why payroll isn't $150M, which their income stream would seem to support.

 

**they probably borrowed the money from their own banks.  If so, they not only didn't put a penny in, they are actually realizing a profit on the borrowed money via interest paid to themselves.

 

[tobi0040]

 

Yep, though it's fair to point out that value is only seen if the team is sold. If the Pohlads hang on to the Twins forever, their "profit" is zero (assuming they spend every dollar they acquire in revenue).

 

It is apart of their net worth whether they sell or not.  It impacts their credit, available financing, etc. 

 

If they were cash strapped in 2005 they could have sold 2% of the team to someone and raised $4M.  Today they could do the same transaction for $18M.

 

And a team value is only going to go up over time. It is front row seats at the Laker games. The prices are irrational because most years you have new billionaires who are eager to show off their wealth.

[Brock Beauchamp]

 

It is apart of their net worth whether they sell or not.  It impacts their credit, available financing, etc. 

 

If they were cash strapped in 2005 they could have sold 2% of the team to someone and raised $4M.  Today they could do the same transaction for $18M.

 

And a team value is only going to go up over time. It is front row seats at the Laker games. The prices are irrational because most years you have new billionaires who are eager to show off their wealth.

No arguments here. As I said in an earlier post, in no way am I defending the Twins' payroll, just pointing out some of the nuances of the argument.

 

I think most of us can agree the payroll has been unacceptably low over the past several years. I didn't have a big problem with it when the Twins were a terrible team but now that they're coming off an 83 win season, it's time to open the ****ing wallet and pick up some good players to push for a playoff spot.

[Mike Sixel]

Don't worry Vanimal, next year is the year they'll spend money (on the worst FA class in years).....

[tobi0040]

 

No arguments here. As I said in an earlier post, in no way am I defending the Twins' payroll, just pointing out some of the nuances of the argument.

 

I think most of us can agree the payroll has been unacceptably low over the past several years. I didn't have a big problem with it when the Twins were a terrible team but now that they're coming off an 83 win season, it's time to open the ****ing wallet and pick up some good players to push for a playoff spot.

 

They claimed Mike Strong and Buddy Boshers.....what more do you want?

[drjim]

 

What year would you like for examples? Going into 2015? Going into 2013? Going into this year?
 

It's seemingly the same song and dance every off-season. Except for 2014 when even TR and ownership knew they had to do something about the starting pitching, otherwise the fans would have completely stopped showing up. 

 

None of those links have direct quotes by management (the first comes close), it is all speculation by the authors.

 

In fact, the 2015 article by Phil Miller has this quote by him:

 

 

Still, that means the 2015 payroll is likely to be much closer to the $86 million the Twins ultimately spent in 2014 than the franchise-record $113 million they paid out in 2011.

 

Which was actually not true. It ended up within $10 million of 2011, about $20 million away from 2014.

 

I agree that the payroll is too low, but I don't think it is crunched like it was in the aughts. They would be willing to add several million in the right situation, but they are hesitant (for better or worse) to add big money for 3, 4, 5 years. I think they could be more creative, but I think these are more baseball than money decisions (such as the Bastardo decision).

[Nick Nelson]

 

The Twins population coverage is pretty good but IIRC, its population skews on the low side of cable subscribers relative to its population (a flaw in the first half of this article, as it only mentions "television homes", not "cable subscriber homes"). The second half of the article is spot-on, though.

This is the key point that is overlooked by the article. I can't remember where I saw the numbers, but the Twin Cities have a relatively low cable subscriber rate compared to similar sized metro areas, and the big cable contracts are where so much of the money rolls in these days.

 

I've seen people suggest that the Twins are getting screwed or negotiating poorly when they end up with an FSN contract that pays so much less than the big multi-billion dollar deals we're seeing elsewhere, but I assure you that they're getting what they can.

 

In retrospect, as much of an ugly fiasco as it was at the time, this organization would have benefited hugely if Victory Sports 1 would've taken off. 

[Mike Sixel]

 

None of those links have direct quotes by management (the first comes close), it is all speculation by the authors.

 

In fact, the 2015 article by Phil Miller has this quote by him:

 

 

Which was actually not true. It ended up within $10 million of 2011, about $20 million away from 2014.

 

I agree that the payroll is too low, but I don't think it is crunched like it was in the aughts. They would be willing to add several million in the right situation, but they are hesitant (for better or worse) to add big money for 3, 4, 5 years. I think they could be more creative, but I think these are more baseball than money decisions (such as the Bastardo decision).

 

If you won't do the years, you might as well not spend money, because it takes years to get great players. 

 

there is always a rational reason for not spending money (just as there are rational reasons to spend money). Just once I'd like them to go for it. 

[Brock Beauchamp]

 

In retrospect, as much of an ugly fiasco as it was at the time, this organization would have benefited hugely if Victory Sports 1 would've taken off. 

I've had the same thought many times over the past decade or so.

[spinowner]

 

To me, this is the farce. 

 

Pohlad bought the team for $44M in 1984.  The value Forbes has as of 10 months ago is $895M.  

 

If you own a rental house worth 200k and "lose" 2,000 one year between expenditures and rent received, but the value of the home rises 10%, did you make or lose money?

 

I think you made $18,000, or 9%

The thing to remember is that the value of a team is based on its ability to make money for a prospective buyer. A team can be a consistent winner but if the owner isn't able to break even while doing so the franchise will not appreciate in value.

[drjim]

 

If you won't do the years, you might as well not spend money, because it takes years to get great players. 

 

there is always a rational reason for not spending money (just as there are rational reasons to spend money). Just once I'd like them to go for it. 

 

Enjoy your wait. They aren't going big on a FA, but they'll go big on their own guys.

 

And this has nothing to do with big/small market, it is org philosophy.

[Brock Beauchamp]

 

The thing to remember is that the value of a team is based on its ability to make money for a prospective buyer. A team can be a consistent winner but if the owner isn't able to break even while doing so the franchise will not appreciate in value.

I don't think that's true at all. Every professional sports team in every sport has seen their franchise value skyrocket over the past few decades. Many of those teams lost money over short periods of time. Some have even lost money over long periods of time.

 

We live in a world where American soccer franchises are valued at $150m+.

 

Owning a sports franchise has been very lucrative for many years.

[Mike Sixel]

 

Enjoy your wait. They aren't going big on a FA, but they'll go big on their own guys.

 

And this has nothing to do with big/small market, it is org philosophy.

 

Like Torii Hunter or Johan Santana? 

 

Really, Mauer is it, right? In their whole history, who have they signed to a 5-7 year deal for elite money?

 

 

[DaveW]

 

They aren't going big on a FA, but they'll go big on their own guys.

 

 

They have only gone "big" once on one of their own guys (Mauer) every other top guy they developed they have let walk away: Santana, Morneau, Hunter, etc

[Vanimal46]

 

None of those links have direct quotes by management (the first comes close), it is all speculation by the authors.

 

In fact, the 2015 article by Phil Miller has this quote by him:

 

 

Which was actually not true. It ended up within $10 million of 2011, about $20 million away from 2014.

 

I agree that the payroll is too low, but I don't think it is crunched like it was in the aughts. They would be willing to add several million in the right situation, but they are hesitant (for better or worse) to add big money for 3, 4, 5 years. I think they could be more creative, but I think these are more baseball than money decisions (such as the Bastardo decision).

I'd like to see any owner in baseball or sports that opens up about their ability to spend money for players. These authors are around the team, and reads between the lines, because they're not going to get the truth from TR or others when it comes to anything financially. 

I agree with your premise that they are hesitant to add big money on a long term contract. That is pretty obvious. I'd like to know who is leading that train of thought... Is it TR's conservative approach? A message from the owners that TR has to oblige by? It's someone in the organization that has that mind set, and it's not feasible to recruit high end talent to sign with this club. 

[Brock Beauchamp]

Also, let's not forget the shady book-keeping that exists in sports. Franchises are notorious for hiding profits by creating multiple corporations that handle parking, concessions, merchandise, etc. So while it appears the parent corporation is making, say, $300m per year, there could literally be hundreds of millions of profit hidden away in other corporate entities.

[DaveW]

 

Also, let's not forget the shady book-keeping that exists in sports. Franchises are notorious for hiding profits by creating multiple corporations that handle parking, concessions, merchandise, etc. So while it appears the parent corporation is making, say, $300m per year, there could literally be hundreds of millions of profit hidden away in other corporate entities.

Yeah, the Pohlads are raking in the cash every year. Which is fine, but don't strong arm the city/state to make them pay for your stadium when that money could be used in much better areas: schools, substance abuse help, welfare, etc