The $15,000,000 Question
by, 02-02-2012 at 08:26 AM (567 Views)
Today’s mystery category? Let’s see if you can guess from the clues…
"What are the Twins television revenues?"
"Why is everybody bitching about a $100 million payroll?"
"Why couldn't the Twins sign Prince Fielder?"
If you didn’t get it, don’t be too hard on yourself - it’s a little convoluted. The category is “What questions avoid THE question?”
In Twins Territory, THE question has been: why did payroll go down $15 million following the second year of a publicly funded stadium? But because MLB teams keep their financial information so private, journalists are limited in the information they can dig up. Since that information doesn’t give the whole story - and because they want to share that information that they’ve uncovered - they find other questions so they can still publish the story. Or, they list what they found, and refer to it generally, but offer few specifics.
My pithy intro might suggest I’m being critical of that strategy. I’m not - for two good reasons. First, because these are usually fine questions to answer, and every answer adds a piece to the puzzle. Second, because I‘m about to do much the same thing.
On Friday night, in a Q&A session at the end of the Hot Stove Banquet, Twins President Dave St. Peter answered THE question candidly, if generally. He listed 3 factors:
1) The Twins stretched payroll slightly last year, and so the reduction isn't really $15M over last year's budget.
The last signing of last year's offseason was Carl Pavano, who signed for $8M. At the time, the Twins claimed they stretched a little to make that signing, and before that signing they were still looking into other players, albeit less expensive ones. So let's assume that accounts for $2-3M of the difference.
2) The Twins will need to pay more for draft picks then they did last year.
Last year the Twins paid about $3M for their top draft picks. This year the Twins will have five picks in the top 75. Thanks to the new collective bargaining agreement, we know almost exactly how much those picks should cost: about $11M.
That's $8M plus $2-3M from stretching last year and now the Twins are down ~$10-11M. We have $4-5M left to find.
3) Finally, St. Peter anticipates a drop in revenue. He clarified this a few minutes later when he said that revenues from the ballpark tend to normalize on a per capita basis. In other words, as the novelty of a new ballpark wears off, people spend less on each trip to the ballpark.
(By the way, the Twins also revealed during the media luncheon on Friday that they only anticipate about a 4% decrease in season tickets this year.)
That makes sense. Since payroll is supposed to be about 50% of the total revenue, a $4-5M decrease in payroll would reflect an $8-10M decrease in revenue. That seems high to me, but not totally unreasonable, especially when St. Peter added that they aren't budgeting for 3,000,000 in attendance this year.
(That last note, by the way, could further explain Phil Mackey’s story about Jim Pohlad taking a “wait-and-see” approach. When I read that story, I was outraged: ownership was expecting fans to make a financial commitment but wasn’t willing to make one itself. Reading between the lines, I wonder if the story isn’t a little different. After last year’s disaster, and with so much uncertainty, ownership directed management to use more conservative models for anticipated revenue. The effect is the same, and it’s essentially what Mackey’s sources said, but somehow this infuriates me less.)
This shouldn't be meant to imply that I approve, or even completely understand. For instance, I still believe it is pennywise and pound foolish to not invest and additional $2M in backup plans at two especially questionable roster spots. And it isn't clear to me why some of that decrease isn't offset by increases in shared national revenues, which consistently increase for MLB teams. I still haven’t answered the question.
But it gets us closer, and leads to some good news/bad news. The bad news is that the Pohlads are not the Ilitchs - they run a business as a business, and not as a charitable organization, no matter how much fun it would be to win a World Series. But it also implies that two of those three cuts should be one-time events.
Hopefully so will this payroll reduction. Which may have been the real $15,000,000 question I wanted answered.