The Pittsburgh Pirates Profit Through Defeat

Most professional baseball organizations spend money to make money; a few keep their money and profit from revenue sharing. Either method can work, as evidenced by the Pittsburgh Pirates’ financial success during the 2010 MLB season. Unfortunately for the Pirates, records detailing their finances were leaked earlier this year, and the contents were upsetting to many fans.

Pittsburgh’s opening-day player payroll was the lowest in the league in 2010 ($34,943,000). All but eight of the 30 MLB teams had payrolls that were double that amount, but by keeping spending to a minimum, the Pirates managed to bring in a profit of $29.4 million from 2007 to 2009.

“If they increased their payroll to improve on the field, then they would not be profitable, because their costs would go up by more than their revenues,” said University of Alberta sport economist Brad Humphreys, the associate editor of the International Journal of Sport Finance.

Their success may have been better-received by baseball fans if it didn’t seem to hinge upon the team’s failures. But the Pirates’ most recent win-loss record of 57-105 makes this their 18th consecutive losing season—an all-time record in the history of major American professional sports leagues.

The Pirates say they have gained the flexibility to make better future investments by trading All-Star players such as Jason Bay, Matt Capps, Freddy Sanchez, Jack Wilson, and Jose Bautista, who led the majors with 54 home runs in 2010. The Pirates were led by the 21 home runs of Garrett Jones.

Pittsburgh’s assertions about investments would make more sense if the team were not in the habit of trading players when they develop into budding stars, replacing them with minor league prospects or even more youthful players. From an outsider’s perspective, it seems as though instead of trying to field a competitive team, Pittsburgh is intentionally fielding a cheaper, non-competitive team composed of untested players.

To be fair, the Pirates’ reliance on young talent and a low payroll has been a philosophy implemented by other teams, including some who have enjoyed success. The San Diego Padres have the second-lowest opening-day payroll in 2010, but they were only one victory shy of making the playoffs. That’s certainly atypical success for low-payroll teams, however—“Teams with low payrolls can only succeed in MLB if they make very good personnel decisions or [are] very lucky,” Humphreys said. “The Pirates have been neither.”

So how has Pittsburgh profited despite dwindling attendance and multiplying losses? MLB sources such as revenue sharing, league merchandise sales, and network TV deals provided nearly half the organization’s income; these funds should, according to MLB revenue-sharing rules, be used to make the team competitive. Although the Pirates have been anything but competitive for nearly two decades, Rob Manfred, MLB’s executive vice president for labor relations, told The Associated Press, “The Pirates have fully complied with the Basic Agreement requirements for the use of revenue-sharing proceeds.”

One Pittsburgh Pirates fan decided that since his favorite team is profiting from losing, he may as well cash in on their losses, too. During the 2010 season the fan placed $20 bets against the Pirates every game, and at season’s end he walked away with a profit of $324.

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