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Financially Speaking, The Best Time For Nutting To Sell Is After This Season

You’d be laughing too if you had a $1.3B asset like Bob Nutting.

I’m writing this article with the following disclaimer:

This article has nothing to do with any personal feelings towards one Robert Nutting, current owner of the Pittsburgh Pirates.?? It is purely from an asset and financial management standpoint.

And I’m well aware that 85.4% of the people that see this headline will just start frothing at the mouth and miss the point of this article.

For some people, the??Forbes valuation of MLB franchises are great, as they cement their preconceived notions of the inherent cheapness of the Nutting ownership.?? For others, they are bunk that amount to little more than??Forbes guessing wildly at numbers, reinforcing their notion that the Pirates are doing the best they can under market conditions.

As with most things in life, the answer is somewhere in between.?? Aside from leaked audited financials on Deadspin around a decade ago on the Pirates, we’re operating in the fog of war when it comes to the true financial wherewithal of the Pirates.?? And anyways, the financial landscape is vastly changed since a decade ago.

In??Forbes’ most recent look at MLB franchises, they also included some historical perspective on how various metrics have changed over the years.?? I highly recommend taking a minute to read the linked article one sentence prior to this, then coming back to TPOP.?? Don’t worry about me, I’ll put on some Mingus and have a cup of Earl Grey.

If you read the??Forbes article, you could see by hovering over various years how Franchise Value and Revenue have changed since 2010.?? Here’s the graph (without the hovering), but keep in mind that 2019 is on the left and 2010 is on the right:

The 2019 Franchise Value of the Pirates is a stunning $1.3B.?? That’s comprised of four factors:

  • Sport ($551M) — the health of MLB, in general, as determined by the revenue shared
  • Market ($430M) — the standing of the city and market size
  • Stadium ($170M) — the value of PNC Park
  • Brand ($124M) — the status of the Pittsburgh Pirates as a brand

The Franchise Value has been essentially flat since 2017 at $1.3B.?? There have been two jumpsteps this decade — the Pirates were valued at $975M in 2016 and $572M in 2014.?? Keep in mind that the Pirates were only valued at $289M in 2010.?? So in this decade, the Pirates have increased in value by 350%.?? Aside from owning Amazon stock, there haven’t been much better investments this decade.

The jumpsteps have been fueled by the growth and sale of the MLB Advanced Media offshoot, BAMTech, to Disney over the past couple of years, plus their general revenue attraction from developing online media for other companies.

For the Pirates, specifically, revenues have been in a fairly tight band since 2016 — between $244M and $258M.?? So even though the Franchise Value has increased by 33% since 2016, revenues have essentially been static.?? They dropped last year because of the drop in attendance, which triggered Nutting to set the 2019 payroll at a comically low level of $75M to open the season after trading for Chris Archer and Keone Kela and appearing to be on the cusp of contending for the playoff again.

Here’s the key factor for why it would be in Bob Nutting’s best??financial interest to sell after this year — the local TV contract with AT&T SportsNet is up after this year.?? I was hoping that the Reds’ recent re-up would have leaked by now, but it hasn’t, so the best case I can assume for the Pirates is a modest bump over their estimated $25M/year that they currently receive.?? Back in 2016, I created an equation based on market size that projected $41.4M/year.?? I’m not even sure they can get that now.

Pittsburgh isn’t growing rapidly, the revenues have basically been flat, the local TV contract isn’t going to be a panacea that cures all ills, and there’s no great innovation on the horizon to juice Franchise Values like BAMTech did.?? In essence, this may be as good as it gets.

Owning a MLB franchise is a license to print money in this day and age.????Forbes estimated the Pirates’ operating income (essentially profit, in the accounting world) was $39M.?? That’s not to say that all $39M went directly in Nutting’s pocket — maybe it did, but it probably didn’t.?? It could have paid down debt, been re-invested in Operations.

But you know what’s better than getting $39M every year??? Getting $1.3B in one year, with virtually all of that ‘white meat’ profit off of Nutting’s presumed investment of around $120M in 2007 to get controlling interest of the team.

I know that Nutting has said (threatened) that he intends to pass the Pirates on to his children.?? That’s all well and good, but if I were the kids I’d be saying, “Hey Dad, about that 1 billion….”

Something else to consider, as it is something that I’m sure Nutting and other MLB owners are considering, is that the current Collective Bargaining Agreement with the players is up after the 2021 season.?? As things stand now, a strike sure seems like it is on the horizon and could be lengthy.?? There are significant gulfs between the players and owners about revenue distribution and playing conditions.

If Bob Nutting has developed enough hard bark to withstand the withering criticisms from the vast majority of the fanbase, he probably won’t care about the static nature of Franchise Value, the results of the next TV deal, or even if a strike wipes out the 2022 season.?? He may be in it for the long haul.?? But a perfect escape hatch exists after this season.

I’m sure a few people would be happy to open the door for him.

Nerd engineer by day, nerd writer at night. Kevin is the co-founder of The Point of Pittsburgh. He is the author of Creating Christ, a sci-fi novel available on Amazon.

8 Comments on Financially Speaking, The Best Time For Nutting To Sell Is After This Season

  1. Another guy with zero understanding of business. The $39 Million is more tax, if it is accurate. You can get a portion is being spent on the team in an attempt to lower taxes and increase equity which isn’t taxable. The remaining is being taxed by the state, IRS and probably city and county.

    • Kevin Creagh // June 5, 2019 at 1:20 PM //

      In the world of accounting and finance, operating income is synonymous with EBIT (Earning Before Income & Taxes). Both of these terms are a measure of a company’s profit margin.

  2. Please sell the Pirates and give the city of Pittsburgh and the Pirate fans a chance at fielding a team that can win at a high level and actually compete for a championship.

  3. Nice write-up, Kevin. You present a reasonable argument for him to get out. I highly skeptical that he???s ever going to sell and I???m not sure a new owner would help increase payroll all that much anyhow.

    The estimated $39 million is that pre-tax or post-tax?

    • Kevin Creagh // June 5, 2019 at 8:47 PM //

      It’s pre-tax. Operating income is synonymous with EBIT (Earning Before Interest & Taxes).
      Post-tax, accountants make every operation look like it’s losing money with loopholes…

  4. No Kevin, not all for even most businesses seem to lose money due to accountants finding loopholes. And please don’t regurgitate what Amazon does. Just an injection and I’ll informed statement, thus my earlier comment as well.

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