Payroll
Dave · October 22, 2004 at 10:57 am · Filed Under Mariners
The always solid Jeff Sullivan lays out some good information about the Mariners payroll relative to revenue the past few years. Even as we encourage optimsm that the M’s will actually spend money this offseason, it is important that we keep pointing out just how often the Mariners have lied about their economic standing in the game. The team is a cash cow, and will still be a cash cow even if they drop $30 million on the roster this winter.
Comments
45 Responses to “Payroll”
Seriously, why all the deception? It’s not like we, as fans, wouldn’t understand that they’re in this for the money. We KNOW their priorities. They know we know. Why the smoke screen? Is there something I’m missing?
FWIW, I have seen the M’s 2003 and 2002 tax returns. IIRC, I don’t think the 2003 Revenue number is right. If he means Net Earnings (as he uses the term in the paragraph above the 2nd chart) then that number might be right.
The Operating Income of $17M appears consistent with what I recall. Again, it depends how it is defined.
Dave,
What is your evidence for your description of the M’s as a cash cow?
PS I love USS Mariner. You guys do a great job.
The 2003 Revenue figure is the one cited by Forbes last April.
They sure won’t be raking in cash hand over fist with another 63-99 season, that’s for sure. Even a decent improvement that leaves them under .500 (say, to 79-83, 16 games) isn’t going to do much. The term “killing the goose that lays the golden eggs” comes to mind- Lincoln’s hardass attitude on payroll in 2001-2003 may prove to be the undoing of the team by the end of 2005 in a sort of penny-wise, pound-foolish sense. As the current Sonics and the 80’s Mariners have shown, Seattle’s perfectly willing to forget you exist if you don’t put a winner on the field.
If EBITDA was $17M in 2003, wouldn’t adding $30M to the opening day payroll (resulting in a payroll about $25M greater than last year) result in an $8M loss before taxes (and other income-statement charges that some argue are less important), assuming the non-payroll cost of revenue is the same? It looks like the team has pretty high operating costs. It’s expensive to keep covering and uncovering the fans’ bricks.
and FWIW, it’s not like they are the only professional team to hedge in public about the earnings/payroll/etc….
Re: Comment #4: What is most disturbing to me is that we, the fans, were screwed either way coming into this season (which I wrote about on some message board sites). Simply put, if the Mariners had done “well” this season, winning 85 games or so, the brass would see it as vindication of their business model and roster construction. The payroll would stay the same, and we’d be hoping the Mariners might bring in an innings eater like Radke, a guy with “playoff experience” like Koskie, etcetera. Instead, the absolute failure of 2004 will be used as an excuse to further cut payroll or, at the absolute best, to maintain the status quo of remaining “in the top ten.” Lincoln has already discussed this, even while talking about getting top free agents, by talking about the ownership group’s “willingness to take a loss” in 2005. We’re not looking at a real overhaul and change in philosophy this offseason, just some attempted patchwork of throwing money at a few guys. As others have stated, a willingness to “take a loss” in 2005, even if true from a strict revenues/expenses standpoint, ignores the increase in the owners’ equity in the club. This post has been desultory but hopefully it gets the point–utter frustration, bordering on disbelief–across.
Are things like insurance payments included? Some teams had almost 20 mil total in insurance payments received for injured players ie Mo Vaugn. Also does revenue include monies from related subsidaries, YES network, TBS, related ad agency comps, etc… revenue is often hidden in those areas. These may be as good as it gets to “clean” numbers but large revenue teams who have limited restrictions on acct. disclosure due to being private or open debentures in public financing will be able to hide more revenue than other teams. Either way the M’s have cash to spend. They should spend wisely and realize it may be needed to prevent a BIG dip in revenue. So it works from a business standpoint as well. Thats opposite of their situation in the 90’s. Will they be able to break old habits?
This post has been desultory but hopefully it gets the point–utter frustration, bordering on disbelief–across.
Yeah, but in reality, the M’s are in a pickle, and they know it. The examples of what happened to the Seahawks under Behring and the Sonics the last few years can’t be lost on them- and the problem is the cheapest way for them to build a winner, the farm system, is pooched right now and has been for a while, as a result of Gillick’s preoccupation with blowing first round picks on craptastic free agents and not offering arbitration, and Mattox’s bizarre drafting strategies. The M’s had to import their best prospect, Reed, and while he’s pretty good he’s somewhere between Darren Erstad and Tony Gwynn as a hitter. You’re not winning a pennant if that’s your most talented young player, unless you dump in a good chunk of free agents.
At best, if you figure this year’s and next year’s draft will begin to salvage the farm system, you’re still looking at 2-3 years before you start getting the productivity you need out of it. By that time, you run the risk of being the new Milwaukee Brewers/Pittsburgh Pirates, in a nice park with 15,000-20,000 fans showing up, and mired in old school thought and stuck on $40 million in payroll.
In light of that, going for the Clements, Beltrans and Beltres of the world is the only sane strategy- get players who are young enough to be contributing in a few years when the farm system kicks in some talent. and see if you can spend $90 million or so to build a team around what talent you CAN eke out. If you do it right, you might pull off a 90 win season with the right decisions in a year or two.
The only question is whether or not Bavasi can execute. Screw up, and you have boat anchor contracts AND a bad team…
The Milwaukee/Pittsburgh outcome is by far the most likely. This organization’s inherent conservatism and tightfistedness will always prevent them from being a big free-agent market player. The talk of spending this offseason is just that, talk. I had a graduate school professor years ago who used to say that the best predictor of future behavior is past behavior. He was right.
Right, except there’s no big revenue stream any more that way. So that’s why they are going to try and pull in some FA’s, and why Dave is probably right- if they don’t try and pull in some young talent, there’s no Safeco Field opening to save their asses later.
The interesting thing will be if they whiff on Beltran/Clement/Beltre and the FA’s that are left are the older ones like Delgado, whether they’ll panic and sign whoever for whatever, or they’ll be creative and find ways to get better fits in.
For all the talk of how “corporate” things are run in the FO, some people sure forget pretty quickly that the guys running the show are no idiots. They may have no idea WHAT went wrong or WHY (even USSM predicted a winning percentage closer to .500 for 2004, so I think it’s fair to say the total collapse was unforseeable to this degree), but any successful business person can recognize when something HAS gone wrong.
With thier minds squarely on profits, they KNOW they ahve to put butts in seats. At this point, there’s no certainly reason to predict 100 wins next year, but it’s equally as foolish to think the M’s have just turned into the Devil-Rays-West.
Management has let the product age past it’s due date, but they’re also the same people who had success (mostly) from 1995-2003. It’s way to early to abandon ship.
It’s enlightening that the team that spends the least as a proportion of total revenue is…
The Milwaukee Brewers.
Surprise, surprise. Selig’s a crook.
Paul: I have seen the M’s 2003 and 2002 tax returns. IIRC, I don’t think the 2003 Revenue number is right.
You can’t rely on the income tax statements. Much of the gross income figure is diluted by depriciation. i.e. they buy a lawnmower two years ago and knock off $10k from the annual profits for the next 7 years. (assuming a $70k lawnmower – but you get the idea). As such for a real picture of how much they’re taking in tax records are not the place to look.
Not to mention that nice 1/2 trillion dollar stadium we built for them, you won’t see that on any income statements.
I hope that the Mariners spend wisely some major money to field a competitive team, but I think they will talk big, and do little, and ask the fans to give Hargrove a chance. The reality of course is that they must actually change their ways in order to field a competitive team. I will make a small bet that it will be business as usual….lots of talk, little action, and a plea that fans suspend belief and hope that they will be able to compete. Remember, it is still Lincoln and his cohorts who run the show, and they have to get out of the “spin zone” and actually produce….sorry, but little chance of that happening.
RCC you are right on target!! The FO has done this to us year after year. Forget the first tier players like Beltran and Beltre, we will be lucky to get the likes of Glaus, Drew, etc.
I’d like to personally feel optimistic about the prospects of the M’s ponying up the money for big free agents, but I just can’t. I’ve held on to hope and optimism in that regard for too many years. I’m resigned to a “I’ll believe it when I see it” mode regarding the front office’s intent on signing impact free agents.
My other major concern is that the M’s end up spending a large sum of money, but do not spend it wisely (ala the NY Mets). I see either Scenario A (signing mediocre FA’s) or Scenario B (paying big money to the wrong FA’s) playing itself out.
>>I’d like to personally feel optimistic about the prospects of the M’s ponying up the >>money for big free agents, but I just can’t.
I post this just because I hope the front office reads this: I feel exactly the same way, and it’s a bummer.
This information is interesting, but I really think (hope?) that this way of running the team is in the past. Keep in mind that we have seen a big turnover in the front office, and many of Gillick’s old regime are gone. There was a very good discussion about this change of philosophy on the USSMariner. Lets just hope that the figures that Jeff Sullivan was using are a thing of the past.
The thing that pisses me off is how the press and front office rhetoric keep talking about how the M’s will be spending only 20-22 million. I don’t know how this works.
However, Lincoln, in a press conference, promised to keep the payroll at 95 million for 2005. Even if they do use the most convenient definition of ‘payroll’ (including all of the 40-man roster’) this still leaves them a lot of money. I think that this is the best information we have about where the payroll figure will be. If we include 7 million for ‘contingency funds’ the M’s will still have a lot of cash to spend. Even if they don’t move any payroll in trades, they will still have around $25 million to spend.
I hope that the Media gets involved in this. This is an topic where the press could really pressure the Front Office to stop the creative budgeting and to follow through with their promises. I would think that the data that Sullivan used would make for an interesting critical report on the M’s financial practices. The local press does seem to be pretty forgiving of the team, but if the local sports writers starting calling out Lincoln for this BS, it would be the most effective way to get them to spend money.
To add to the comment above, I think that the press really needs to make some waves about this. Public perception is crucial to a team in the M’s situation, where the percieved direction of the team will be more important that the teams record in keeping fans attention. The M’s will be hard pressed to improve to .500 next year, so they have to rely on big-name free agent signings and convince the fans that they are improving. If the public becomes skeptical that the team is not doing everything it can, it would be really bad for the team.
Regarding plublic opinion of the front office’s commitment to getting the team back on the right track, the press has a lot of power. An article in the Seattle Times or the PI outlining how little the team is investing in the M’s, and how Lincoln has cited misleading information in his arguments that the team has less financial resources than they really do, would be really damaging to the team. Especially since the public has contributed so much money to Safeco field.
If there was a negative story in the press about Lincoln’s financial rhetoric, and how the organization has not done everything it can to invest in the team, it would put the front office in a bad situation. I think that this could be the best way to force Lincoln and the owners to invest the same amount of money as other teams. The team keeps making public promises that they are doing everything they can. A critical article outlining the Front Office’s actual profit margins and financial situation would preclude them from continuing to pull this crap. It would shift the burden to Lincoln and the owners to REALLY invest in the roster to avoid more public outcry. The team made a promise to the City of Seattle to invest money in the team as part of their bid for public money in the construction of Safeco field. Thus, it would look really bad if the public didn’t think they were holding up their end of the bargain. The only way that this will become known to the general public is through the media.
Maybe we need to write some letters to the Times and PI.
I have actually been impressed in the way some of the writers have been coming around lately, especially Thiel in his interview with Lincoln. I think if writers were made more aware of the payroll issues and the fans’ dissatisfaction with the FO, they’d pick up the issue. So, WRITE LETTERS!
I wrote a cover story for Seattle Weekly last spring on the stathead’s reality-based take on the 2004 Mariners, and am thinking about pitching another one on this particular topic. I’m doing some research to get up to speed. Stay tuned.
Have at it Jim. Plenty has been written by knowledgeable people in the blogs this last year. I’m not talking about couch potato fans, but people who know what they’re talking about. Do you research here and at Top Forum (can I say that here?). They’re antagonists but both will give you a lot of good material for your story. There’s a rat here for an enterprising journalist with courage and a platform.
I would love the local media to challenge the front office about their books, but I doubt it will happen. Can you imagine Finnigan writing such a piece? He’s one of their biggest propogandists. Like clockwork, he constantly argues that the team doesn’t have as much available money as people think (eg, the Kaz Fund, this coming offseason). Meanwhile, Lincoln et all will continue to promote their financial spin through the local papers and radio with little fear of being challenged.
With that said – could one of you at USSM send these figures to your media contacts? Maybe someone like Theil would actually respond to it.
I love that Lincoln speaks about a $95M payroll as a huge financial sacrifice for this team. As Sullivan’s article and other 3rd-party reports have shown, the Mariners are one of the Top 5 richest sports franchises in the US. According to Deloitte & Touche, the M’s are #4, behind only the Yankees, Redskins and Red Sox.
I have written to several local sports writers, and just sent an email about Sullivan’s research in particular. I think that it can’t hurt. I have gotten responses to most of my attempts to contact local press guys, especially John Hickey, Art Thiel, Larry Stone, Bob Finnegan, and Larry LaRue. These guys are in trying to write things that the fans are interested in, and it never hurts to tell them what you are interested it. It the media knows that the fans care about this type of stuff, they will start to address it in columns. And if the front office think that the public cares, they will perhaps quit trying to spin the information to argue that they are doing all they can, when clearly they are not.
Obviously, the earlier this information gets out the better. If the local newspapers get 1 or 2 letters, it might not matter. But if they get 20 or 50 letters, it might help.
Seattle fans have a reputation as being casual and uncritical. Lets try to change that.
The M’s had better go all-out, or it’s all going to blow up in their face. I know I’ve come close to writing them off more than once over the last couple of years, and if they start pleading poverty again, I don’t think I’ll be able to take any more.
Side note: according to ESPN Insider, folks around baseball think Bora$ could push the bidding for Beltran as high as 6 years and $90 million. I have to say, if I thought there was any way we could pull a Wistrom on this one, I’d make sure Beltran’s first visit was here and offer him a 6-year, $90-million deal as soon as he walked through the door.
Re: #1
Sports teams have an incentive to hide thier profits for several different reasons. First, in dealing with the local government, when a team shows a “loss” (or just smaller profits) it gives them more leverage in saying that they need tax dollars to help build a stadium (or any other subsidy to the team owner). Second, in dealing with players, when a team is showing a “loss,” it can give them a little more leverage in negotiations. A team says something like “we really want you to play and this is all that we can give you” (agents like Boras would never believe anything like this). Third, teams always want to give the impression to fans that they are spending as much as they possibly can on players. They want fans to think that they are willing to “take a loss” in order to field a team (so they should feel like they need to support the team).
Related Side Note: Andrew Zimbalist wrote an artice in the New York Times (October 18, 1998) about a situation similar to this. Wayne Huizenga, the ex-owner of the Florida Marlins, claimed that the team lost $30 million during the 1997 season. After taking a closer look at the financial information, Zimbalist found that Huizenga acually had a profit around $13.8 million.
Teams always have incentives to understate their profits.
TAM, I agree. It’s sort of hard not to after seeing that NLCS. Problem is, the Mariners “have 3 outfielders” (even though any halfway creative GM could fix that).
Ancient Mariner,
I was a little surprised by that estimate in ESPN. That only comes out to 15 million/year. I have heard other estimates that he could go as high as 18-20 million. That seemed really high to me in this market, but I guess that a bidding war between the Yankees, Cubs, and Astros could get out of hand like that.
After seeing Beltran play a lot in the playoffs, I was very impressed with him. What was the most impressive thing about him was how many different ways he was helping his team: taking walks, stealing bases, getting key hits, hitting homers left and right, and playing good defense. He is really a complete player.
However, I am not sure if any player is worth that much. If he was available for 15 million/year on a longer contract (like 8 years) it might be worth it. Still, that is a whole lot of money to invest in one guy. But if he is going to cost 17-20 million, that would be a really bad move. For just a little more money, they could sign Beltre AND JD Drew. Basically, you are deciding between picking up a #3 and a #4 hitter, or just Beltran and a role player (a reliever, perhaps).
JD Drew has had some problems with injuries, but he is healthy now. He can play CF or RF at a high level. He might not have the range of Beltran, but he has a far better arm. Plus, if you look at Beltran’s and Drew’s numbers, they are pretty comparable:
Drew: .305 AVE, .436 OBP, .569 SLG, 1.006 OPS, 31 HR, 93 RBI
Beltran: .267 AVE, .367 OBP, .548 SLG, .915 OPS, 38 HR, 104 RBI
Beltran has a bit more power, but Drew’s other numbers are better. Particularly the OBP. Having a guy like Drew hitting #3 is going to help any team score a lot of runs. I admit that Beltran is the safer bet. He is improving every year, is a better baserunner, and probably a better CFer. But if Beltran is going to be getting 18 million dollars next year, and Drew can be signed for 9-11 million/year on a shorter contract, you have to go for Drew.
All things considered, I would rather have Drew and Beltre. The M’s have so many holes, I think that it is wiser to spread the money between two excellent players than go get one top-5 player. With Drew and Beltre, you improve the biggest holes in the lineup (#3 and #4 hitters) and two defensive weak spots.
1) On a 6-year $90-million contract, Beltran would average $15 million per and probably make around $12 million next season. With those numbers, we could still get Beltre.
2) I’d prefer Drew also, except for one thing: health.
The M’s have so many holes, I think that it is wiser to spread the money between two excellent players than go get one top-5 player.
I would agree with that in a perfect world, but the problem is whether the team will be able to sign two (or, even better, three) above-average players this offseason. There’s a lot of competition every year, and if George has an itch in his diaper it will be even harder. Basically, I think the team needs to approach each player as an individual. Negiotiate with all of them, and if the deal is right sign it…not approach it as “well, write off Beltran and we’ll just sign Beltre and Drew”. What happens if you have a good deal on Beltran but pass, and miss on one of those two? Or even worse, miss on both?
The only thing guranteed in baseball is holding onto a minor leaguer when he’s first called up. Free agent signings are filled with uncertainty, confusion, and doubt.
Problem is, Matt, the M’s are just that cautious. They will make an offer to their 1st choice, and, only after that doesn’t pan out, will they make an offer to their 2nd choice.
Think Guillen. They wouldn’t even dream of taking on a new contract until they unoaded him. In the end, when they were on the verge of signing Aurillia, they rushed to give him away to avoid any possibility of getting saddled with both contracts.
Matt,
You are right about hedging their bets. But I would think that they would go at it with multiple plans. Infortunately, with a situation like the M’s will find themselves in, they will have to make either/or decisions about position players. They can’t put offers down on both Beltre and Beltran, because, realistically, they won’t be able to afford both. If you are at an auction with $100, you can’t put bids down on two items worth $80 and just hope that one comes through. I hate to say this, but it is sorta nice that Boras is representing about 75% of the good players. At least they don’t have to worry about one agent getting antsy while they are bidding on another player. With the position players, I hope they try to sign two good hitters. In that case, they will need to come up with alternative plans because you can’t really mix and match free agents that easily. I would hope that they set out alternatives like this:
Plan A: Drew and Beltre
Plan B: Beltran and Glaus
Also, the M’s are probably going to make at least one or two trades. If they can fill the hole in CF with a blockbuster trade, maybe with a player like Andruw Jones, Vernon Wells, Alfonso Soriano (I think he would be good in CF), Corey Patterson, or someone else, they could focus more on 3B or 1B in free agency.
With starting pitching, they can pursue whoever they like or can afford, with less regard to making things fit. I like Clement, Perez, and Matsuzaka, or perhaps a trade for someone like Zito or Vazquez.
Regardless, there are some quality players that would fit really well with the M’s. I can’t wait for the winter meetings.
Jerry baseball negotiations are not like an auction though. You can put offers on the table and aren’t obligated to pay them until there are signatures on paper. They could negotiate with all of them and try to work out deals, and if they get a good deal on Beltran cut things off with Beltre, or vice versa. I’m pretty sure players would understand if they were offered a deal, waited too long to take it, and another player signed and scuttled it.
I, too, would like to see the Mariners make a big splash in the Free Agent market, but I’m skeptical.
AN ANALOGY: If I refuse to spend more than $15 for a ticket, and refuse to sit in the bleachers, I stay home–unless I change my “principles”
If the Mariners refuse to pay a salary of more than $15 million a year, and refuse to sign a contract of more than five years, they stay home.
Hopefully, they’ll change their “principles.”
Agreed. You are correct that nothing is final until the paperwork is signed. My point is, I think that it is better to spread around the cash than to go out and sign Beltran at all costs. And I also think that it is best to come into free agency with a plan and do everything you can to follow through. Things do change and bargains may present themselves. And there is always the possibility that a few major needs can be met through trades. But I just think that there are better options for the M’s than Beltran.
He is a good player, but the M’s have a lot of holes to fill. If it comes down to years, Beltran is a good risk for a long-term contract given his age and skills. But even if he is available for 15 million/year over 8 years (a low estimate), it would really limit what the M’s can do on other fronts. I think that 3B is more of a pressing need than CF give how good Jeremy Reed looked. I still think that Beltre and Drew is a better bet than Beltran and someone like Corey Koskie. However, I would be very happy if the M’s could really break the bank and sign Beltran and Glaus. That would be great. I would love Beltran and Beltre, but that is not likely.
Here is a link to a recent article at Foxsports.com about Beltran’s situation in free agency: http://msn.foxsports.com/story/3099408. The author comes to the conclusion that Beltran will probably be overpaid this year. I think that he is probably right. Beltran is the best free agent period, and is exactly what the M’s need. But the competition to get him and his soaring price make other options look a lot better.
Besides, if Drew and Beltre can come close to repeating their 2004 stats, I think that both of them are better hitters than Beltran.
The only problem I see is that Beltre will probably get a contract close to Beltran. Beltran has a better track record, but this year Beltre was better and a few years younger. My wild guess is something like $17M/year for Beltran, $14-15M for Beltre. But Drew will cost a lot more than Glaus and a whole lot more than Koskie who is perhaps a $2M player.
Yeah, they might well get those averages, but if that’s what they average, they’ll be making somewhat less than that next season, which is something we need to bear in mind.
Fledermaus – I know that there will be differences between the tax return and the Forbes numbers. I know about depreciation; I’m a CPA! What I would try to do, time permitting, is reconcile the numbers provided in the article with what I have seen on the returns. If I can’t reconcile the numbers, my gut says to rely on the returns for reasons I won’t write about now.
The econ guy – I agree that there are incentives to keep income low. But, there is a STRONG disincentive to hiding income – an IRS audit. I don’t know the chances that the IRS would audit an MLB team but I think the M’s would not risk it.
So basically when people describe the M’s as a cash cow I suspect that they are referring to revenue only. (Or, they refer to the owner’s seeminly endless ability to meet capital calls.) Dave, for one, has not offered support for his assertion so I’m left to guess. I don’t think they are aware of the expenses.
From what I recall that revenue number is low and that Net Income number of $17M is high. But I will do a little more digging and try to reconcile the numbers.
I would not spend 17 million per year on beltran OR 15 million per year on beltre. If those numbers are the market for these players, its time to take a good look at guys like drew, glaus etc.
This thread is dead but I want to make a few more comments. (I’m crazy that way.)
The $17M net income (EBITDA) appears consistent with what the tax return shows. I hope to reconcile these two numbers further at a later date.
But, if $17M is correct then that means every team but the M’s had a loss for tax purposes in 2003. And that does not sound right to me.
Then the Yankees loss of $26M can’t be right. The YES revenue must not be included. I suspect YES is reported separately for tax purposes. A true accounting by Forbes should have YES included.
Let us not forget that the amount of payroll is only one factor in the success of a team, and perhaps is least important in comparison with FO talent (which included player evaluation), minor leagues (coaches, investment in operations), and scouting.
Where does a schmuck like me get the M’s tax returns? Are they online for my lazy persusal?
They are not publicly available.
I was able to view them legally. I won’t give details as some might feel that I have violated my profession’s standards. I’m a CPA so you might guess how.
In a daring midnight burglary, you scaled the exterior of the M’s offices, picked the roof access lock, disabled the security system, and then made your way to the accounting department, leaving a trail of unconscious security guards sleeping soundly behind you, dreaming of ether?
The story is not that fanciful.
I worked as a temp for an accounting firm. I hope to work for them again so I won’t reveal any details of the return (at this time.) 😉
PS USSM beats the competition (although there is no need to compare.)