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Pittsburgh Pirates Financial Info Shows Everything from Revenue-Sharing to TV Money and More PDF Print E-mail
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Written by Maury Brown   
Sunday, 22 August 2010 21:52

Information detailing the 2008 and 2007 financials of the Pittsburgh Pirates have been leaked, and with it, a rare glimpse into how much money flows in and out of the coffers of a Major League Baseball team has been revealed. Everything from revenue-sharing, gate receipts, television and radio revenues, Central Funds, and the amount pulled in from MLB Advanced Media are detailed within them.

At the heart of the documents, when calculating Net Income – the “bottom line” – for the club, the Pirates pulled in sizable profits of $14,408,249 for 2008 and $15,008,032 for 2007. Frank Coonely, the president of the Pirates claims that club made a profit of $5.4 million in 2009, a sizeable discrepancy from the amounts within the Consolidated Statements of Operations leaked for 2007 and 2008.

Player salary totaled $51,040,233 and $50,871,186 for 2008 and 2007 respectively while revenue-sharing of $39,046,312 (2008) and $30,302,652 (2007) flowed in to the organization, a difference of just $11,993,921 for ’08 and $20,568,534 for ‘09

Player development totaled $23,182,677 for 2008 and $21,166,850 for 2007. Some clubs that have higher payrolls have lower player development costs, while others are close to, or slightly higher. The cost of player development is allowed as a use of revenue-sharing funds, according to the collective bargaining agreement. However, as The AP notes, “To cut payroll, the Pirates have shed former All-Stars Jason Bay, Freddy Sanchez, Nate McLouth and Jack Wilson in trades, along with nearly every other player who was arbitration eligible—or close to it—or free agency: Tom Gorzelanny, Ian Snell, John Grabow, Xavier Nady, Adam LaRoche, Damaso Marte, Nyjer Morgan, Ronny Paulino and Sean Burnett.”

Showing that a failing product on the field has dinged attendance, gate receipts for 2008 were $32,129,368 and $34,422,311 for 2007. By comparison broadcasting (both television and radio) drew in more revenue for the Pirates accounting for $39,007,164 in 2008 and $40,326,222 for 2007.

The Pirates also continue to pull in revenue via their naming rights deal with PNC Bank. Ballpark and other signage revenues accounted for $10,459,674 in 2008 and $10,022,326 in 2007.

In a sign that concessions are not as profitable as they are often seen to be, the Pirates pulled in $8,283,870 in 2008. That year, the club drew attendance of 1,609,076, meaning the Pirates averaged $5.15 per fan on concessions.

The document also shows the Pirates received $2,001,529 in Central Fund monies for 2008 while paying $5,216,911 in 2007.

The Pirates (just as every other club in the league) received dividend checks from the lucrative digital rights arm of the league, MLB Advanced Media, receiving checks of $2 million in 2008 and $1.6 million in 2007.

To add, The Associated Press story said that they had “obtained a check stub of a payment made from a Pirates account to settle a bill with Seven Springs ski resort, which is owned by the Nutting family. The check bore a Pirates logo, which at first look suggests a financial transaction between the two operations, but the team says it came from a since-closed joint advertising account.”

Coonelly said, “"I can tell you for certain there has not been a dime that has left the Pirates organization to fund any other business of any of the partners of the Pirates."

The Pirates, clearly upset that such sensitive information has been leaked sent out a lengthy press release stating:

Someone with access to the Club's financial statements has breached his/her fiduciary obligation to the Club by providing a copy of the Club's audited financial statements for the 2007 and 2008 seasons to the Associated Press. The Club is a private company that has no obligation to publically report its financial results and, like most private companies, has consistently declined to do so. This is an appropriate approach that we will continue. Given the unfortunate breach of fiduciary duty to the Club, however, it is important to explain exactly what payments the Club has made to Club partners.

While we have not publicly announced financial results, we have said that, after a period in which the Club incurred large losses, the Club has operated on a sound financial basis over the last several years, generating positive net income. This is a very good development for the organization and our fans as this sound financial footing has allowed us to make the type of long-term and short-term investments in the Club necessary to return winning baseball to Pittsburgh. We all remember the very dark days when the Club was forced to trade valuable players like Aramis Ramirez in order to come into compliance with Baseball's Debt Service Rule. Because we have turned around the Club's financial picture, we have been solidly in compliance with the Debt Service Rule and able to make significant investments in players, our scouting and player development resources and in top-of-the-industry baseball facilities in Florida and the Dominican Republic.

We have also said that ownership was not taking money out of the Club but instead that the revenues generated by the Club are being reinvested back into the Club in both long-term and short-term investments needed to completely overhaul and rebuild this baseball team. The Club has paid no dividends to its partners. Moreover, while it is quite common for a Chairman of the Board of Directors of a partnership to draw a salary, Bob Nutting has never received any salary. And, the Club pays no management fee to any entity related to an owner. We have said that the only distributions the Club has made to its owners were to pay a portion of the income tax obligations that the Club's partners incur as a result of their ownership of the Club and to pay interest due on an obligation stemming from a capital infusion made at a time when the Club was in financial distress. Distributions to pay taxes incurred by partners as a result of their ownership and the payment of interest accrued on a note held by a partner and are neither unusual nor in any way inappropriate.

The Pirates, like virtually all sports franchises, are operated through a partnership. The income of the partnership is, for tax purposes, allocated to its partners, even if the Club does not in fact distribute cash to them. The Pirates, however, has never distributed income generated by the partnership to the partners in cash in the form of a dividend. In recognition of the obligation of the partners to pay taxes on money they did not receive, the Club made two separate payments in 2008 totaling $10.8 million to cover a portion of the taxes partners were required to pay for the 2006 and 2007 tax years. The Club has not made any distributions to partners to cover taxes incurred relating to the 2008 or 2009 tax years. The individual partners are responsible for paying the taxes on the income of the partnership based on their ownership share, even if no cash is distributed. Had the Club been a corporation, the Club would be obligated to pay all of the income taxes due on any income before any distribution is made to shareholders. And, it is common practice for a partnership to distribute cash to allow partners to pay the taxes incurred as a result of their interest in the partnership.

The payment of interest on a note held by a partner is equally routine and appropriate. After years of suffering significant losses, the Club in 2003 was unable to meet its operational needs, including making its payroll, without a significant infusion of cash. The Club sought additional equity from its partners in the form of a convertible note. This significant capital contribution in 2003 allowed the Club to meet its obligations and put the Club in a position to move towards compliance with the new Debt Service Rule added to the Players' Collective Bargaining Agreement in 2002. As is standard, the partners who participated in the convertible note were due accrued interest the Club. Two interest payments totaling $9.6M covered interest accrued in 2007 and 2008 and were both paid in the 2008 fiscal year.

The total of $20.4M in distributions made in the 2008 fiscal year looks significant simply because, as a result of the timing of Board votes, two separate interest payments and two separate tax payments associated with three different years were all made in one fiscal year. Had the four distributions been made over the three years to which they related, there likely would have been little interest in these standard and appropriate distributions.

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Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to FanGraphs and Forbes SportsMoney. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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