If you’ve been reading TPOP for more than one hot minute, you’ll know that I’m of the belief that the Pirates should make an earnest run at the playoffs in 2018 by boosting payroll to a level commensurate to their generated revenues. I’ve long held to the notion that the Pirates are underfunding payroll by $15-20M, based on revenues estimates that we’ve done and validated by Forbes. For instance, Forbes estimated that 2016 revenues were in the $260M range, yet 2017’s Opening Day payroll was just $95.8M. That’s only 36.8% of revenue dedicated to payroll. The typical rule of thumb used to be 50%, but that’s been trending downward in recent years to the mid-40’s. If you presume 45% of revenue should go to payroll, last year’s total should have been $117M.
I know I could personally think of a bunch of improvements the Pirates could have made with an extra $21M. It’s very easy to say that fans demands are constantly shifting in terms of payroll. Yeah, no kidding. That’s because revenues keep growing, so just saying ‘I want the Pirates to spend X dollars on payroll’ is always going to be relative to what other teams are spending and what a team’s own revenues are. Wanting them to spend $100M means nothing without context to the rest of the league and the Pirates’ balance sheet.
So coming off of a dismal 2017 season that saw fans grow apathetic at the park and with the TV ratings, I’m contending that the Pirates should zag instead of zig and re-invest more money into this team, even though revenues are going to be down. There’s a magic one-time relief fund that the Pirates can use to boost payroll for 2018: BAMTech.
What is BAMTech ? We wrote about it two years ago. It’s essentially a spin-off company from MLB Advanced Media that grew so profitable and prosperous that it formed its own company to handle streaming services for a variety of clients, including HBO Now, The Golf Channel, the NHL, and the WE Network. When the streaming media company was conceived by MLBAM, each MLB team was asked to kick in $4M for the startup costs. One year ago, Disney bought a 33% stake in BAMTech (of which all 30 MLB teams were still owners) for $1 billion. And then this past August, Disney decided to become the majority owner of BAMTech by purchasing an additional 42% for $1.5 billion dollars.
That means that each MLB team is in line to receive a one-time revenue influx of $50M this year. Combined with the roughly $33M from 2016 and that return on investment from the original $4M looks pretty good. Now if you stick with the 45% of revenue to payroll theory, that means that $22.5M could be allocated to 2018’s payroll from the August 2017 purchase alone. That number sure sounds familiar. If it doesn’t, you may want to re-read the first two paragraphs of this article. The one-time boost of cash fits nicely with the narrative I’m weaving that the Pirates should make a valiant effort in 2018 and then re-build if it doesn’t work out. If 2018 is bad, rebuild and you can drop payroll moving forward.
Of course that doesn’t help the looming TV deal coming at the end of 2019 if the Pirates continue to hemorrhage TV viewership and lag at the turnstiles. But for at least 2018’s payroll purposes, the Pirates could finally ‘right-size’ to what they should have been spending these past five seasons.