Fuzzy Math, Revisited:
That dreadful term, "budget constraints", has already been tossed around by a few sources with regards to the Mariners' '04/'05 offseason plan. Howard Lincoln has said that the team's going to take a financial hit next year, and that he's willing to accept that in order to build a competitive team, but he's just flapping his lips - the team is in no danger of losing money in 2005.
With the help of the late Doug Pappas and the unexpectedly-extraordinarily-useful
Forbes MLB Valuations, I decided to take a look at just how the Mariners have been taking in and allocating their money, as compared to the league.
All raw numbers are in millions. Time to explain the categories:
- Revenue and Operating Income values are taken from Forbes' data collection. The latter refers to, in their words, "earnings before interest, taxes, depreciation and amortization."
- 2003 and 2004 Opening Day payrolls include ~$7.6m to cover health and pension benefits, medical costs, worker's comp, etc. This value fluctuates by a few thousand dollars each year, which we may consider to be negligible.
- "Diff.Payroll" refers to the difference between the 2004 and 2003 team payrolls. A positive value means the team spent more on the roster, while a negative value means that the team slashed its budget.
- "Diff.Exp.Payroll" refers to the difference between the team's 2004 payroll and where we could expect it to be based on its 2003 payroll and operating income. This is a very rough approximation, but it suggests to what extent a team's ownership was willing to spend money in order to build a more competitive team.
- "%Payroll/REV" is another rough estimate of how much the team spent on its roster, relative to how much money it brought in the previous year.
In 2002, the Mariners were in the upper quarter in the league in terms of making money, and this translated into the seventh-highest payroll and a near miss of the playoffs. Still, the team made more money in 2003 than they did the previous year, so what did the ownership do?
That's right, slash payroll by 6%. Despite making more than all but two teams in baseball, Seattle's 2004 Opening Day payroll was tenth in the league, behind such organizations as Philadelphia and San Francisco. In 2003, the Mariners had the highest net earnings in baseball while the majority of other big-market teams lost money, yet they decided to cut payroll to a level that just barely qualifies them as an upper-third team.
Let's take a look at a related chart, showing team rankings:
Here, "%DiffEx/Payroll" refers to how much more money the team spent than expected, as a function of the organization's 2003 payroll. Essentially, it normalizes spending to the team context. For example, look at the Devil Rays: they spent $2.4m more this year than you'd think, given their 2004 payroll and 2003 payroll/operating income, while the Astros spent $6.1m. However, if you expect the team's 2003 payroll to be a ballpark approximation of how much ownership is willing to spend on the team, then Tampa Bay spent a greater
percentage more money than Houston.
What do we find? The Mariners rank in the bottom third in all three categories, committing just over half of its revenue to the team and spending far less than they
should be, considering their previous payroll and operating income. They've been making money at obscene rates each year and pumping less and less of it into roster construction. While to my knowledge Forbes hasn't published the 2004 numbers yet, if we assume that the Mariners had a similar operating income this year than they did in 2003 (a reasonable assumption, given that lower attendance was roughly negated by a lower payroll), then Lincoln could put $105-110m into the team while still breaking even. Of course, this ignores the team's Scrooge McDuck-like vault containing previous earnings, some of which could easily be added to the payroll without putting any of the owners out on the streets.
Look at the teams who put a lesser percentage of total revenue into the payroll this year:
- Florida
- Texas
- Baltimore
- Detroit
- Cincinnati
- Tampa Bay
- Pittsburgh
- Milwaukee
- Cleveland
Several of these teams are, or expected to be, in a rebuilding stage, bracing for a lower revenue by cutting costs, along with putting together a roster of younger, more inexpensive players. Some of these teams added big-name free agents over the winter to a roster otherwise made up of cheap, inexperienced rookies or replacement-level talent. Only one of them could have entertained reasonable hopes of contending before the year started, and even the defending champs looked like a pretty average team, having lost a few key pieces during the offseason.
The point? The Mariners were a very good team in 2003 who made a lot of money, and who expected to compete again in 2004. Problem is, you have to spend money to win games. Take a look at how this year's playoff teams rank in terms of revenue put into the team:
- Anaheim (2)
- New York (3)
- Boston (4)
- Houston (6)
- St. Louis (7)
- Los Angeles (9)
- Minnesota (11)
- Atlanta (13)
Even the tiny-market Twins spent more of its revenue on the team than Seattle, this despite losing money in 2003. Another competitive small-market team, Oakland, ranked #14.
What's the lesson here - does spending as much money as you can guarantee success? Well, no, look no further than the Phillies - they missed the playoffs after pumping 88% of its 2003 revenue into the roster and upping the payroll despite losing a significant chunk of change last year. Spending doesn't ensure anything, but it gives you much greater odds of succeeding than stockpiling your riches and putting just enough money into the team to be able to claim that they remain big-market. The Mariners seem prepared to throw around a lot of cash this winter, but Lincoln & Co. have already begun their annual overtures on budget constraints and profit margin, so I implore you all to temper your expectations.