Wednesday, January 07, 2009

Of Budget and Betrayal

Why is the Twins Payroll Shrinking?

That the Twins are fiscally conservative isn’t a news bulletin to any baseball fans, locally or nationally. This is the team that has consistently ranked in the bottom third of MLB payroll, ordered payroll slashed to the bone in 2000 and volunteered for its own demise in 2001. Telling Minnesotans that the Twins are cheap is like telling them that snow is cold.

But previously, Twins fans could take solace that the fiscal “responsibility” was the result of a larger imbalance in Major League’s Baseball’s revenues. The Twins claimed that they simply worked within a budget, and that their payroll was determined as a percentage of their total revenue. There was enough evidence to give them the benefit of the doubt. The budget level was understood by those fans paying attention, and steadily grew, or at least remained steady.

For instance, here are the Twins Opening Day payroll levels according to USA Today from 2000-2007:

But the 2007 season provided more than just the highest payroll level ever for the franchise. That was also the season where the Twins broke ground on their brand new taxpayer-funded stadium, which the Twins estimated would increase revenues, and thus raise payroll $20-$30 million per year.

It also corresponded to the beginning of an increase in revenues and payrolls across the board for Major League Baseball. Payrolls for major league teams increased 8% between 2007 and 2008. Unless, that is, you were the Minnesota Twins:

Twins payroll decreased 8% between 2007 and 2008, despite the highest attendance levels since 1992. (For the other payroll geeks out there, the answer is yes, the decreased payroll level for 2008 above does includes the signing bonuses paid to Justin Morneau and Michael Cuddyer.)

And in 2009, coming off their highest attendance since their last World Series honeymoon and just one year from playing in their new revenue-producing stadium, it appears payroll will shrink again (see Appendix). Currently the Twins project to have a payroll in the low $60 million range, five million dollars less than last year, 10 million dollars less than 2007, and roughly $25-30 million less than would have been anticipated two years ago.

And it’s not just in overall dollars, either. The Twins have also spent less compared to their peers in Major League Baseball. In 2007, the Twins ranked 18th in payroll spending. Last year, it was 25th. And this year? We won’t know the exact rank until opening day, but with the current team, payroll is likely to go down another $4 million.

The lack of spending is not for lack of options. This year’s offseason produced a relative bumper crop of free agents, certainly better than last year or next year. What’s more, there were solid options available where the Twins have needs, like third base (Casey Blake), shortstop (Rafael Furcal) and middle relief (Joe Nelson). There was also the oft-reference right-handed bat to plug between Joe Mauer and Justin Morneau (Pat Burrell).

Not only did all of those players sign with other teams, but they also signed at bargain prices. Because of that, not only could the Twins have afforded any one of them, they could have afforded all four of them and stayed with a budget of $90 million. And they still could’ve claimed to have spent their money wisely.

Minnesotans are accustomed to kvetching about the hometown nine’s pernicious ways, but this spending (or lack thereof) is something new. For the second year in a row, against a tide of rising MLB and local revenues, the Minnesota Twins payroll is shrinking. And against a backdrop of a new stadium, it smells less like budgeting, and more like betrayal.


Appendix: Approximage Anticipated Payroll for 2009


SethSpeaks said...

The only argument is that there are so many making $0.45 million in 2009 that have to and deserve to play. They do have three players over $10 million. They just have so many players under three years of experience. That has to be accounted for. These numbers can go up quickly when more of them hit arbitration.

trevor said...

I agree with Seth. The Twins have a good-young-cheap team which may become a great-experienced-costly team. I'd rather hang on to Slowey, Baker and Liriano than have to trade one or more because we signed an aging Furcal and Blake.

Nathan said...

My issue with this is that there are needs that cannot be easily filled internally. Joe Nelson is one good example, and Frucal is a huge upgrade over Punto, and he was had cheaply. Burrel is a similar situation. I agreed with not giving Blake a 3rd year, but why haven't they done a 1 year deal with a guy like Crede or traded for Beltre or Michael Young? I understand saving up some cash for guys like Baker, Liriano, Slowey, etc who are all above average and will get expensive, but this team has a few big holes that aren't getting filled internally anytime soon that had FA options available to them for a dirt cheap price relative to previous years. I know the bad economy has everyone guessing, but with 09 being the last year in the domine and 10 being the new year with the stadium, two year deals shouldn't kill this team economically.

John said...

Guys, thanks for the comments. I'll address them more fully tomorrow. ust to keep the comments coming, here are some quick replies:

1) Payroll does go up in future years if you crunch the numbers, but it's not like the bank is going to be broken.
2) There are plenty of other ways to cut salary without losing your top three pitchers.
3) The primary value of this quality young pitching staff is that they they save a lot of money. But that value is wasted if you don't spend the money on something else. If you don't spend that $30 million on something else, does it really matter whether those guys each cost $.5M or $6.5M? Not to the fans. The only person it matters to is the guy who keeps the $30M.

Anonymous said...

If one was of a skeptical orientation one might come to believe that the Twins were using operational savings to eat into the amount pledged to contribute to the stadium. To such a skeptic one year of reduced payroll might be chalked up to an aberration. Two, however, is more than coincidental for such a person.

A skeptic could also expect that, regardless of what is spent in 2010 or what kind of team is put on the field, the Upper Midwest's sheep will flock into the new stadium. This skeptic could see a scenario where real payroll increases aren't seen until 2012, maybe 2011 in order to further reduce the "real" contribution from the Twins to the new shrine.

Of course, this is just how a skeptic might see it. There is no historic experience that shows the Twins acting conspiratorially or with less than transparent motives. Oh wait!

mike said...

I personally would like to see BS spend the money not on free agents, but rather on signing current twins (Mauer, Kubel, some pitchers nearing arb) to longer-term deals. Frankly, we have a ridiculously young team full of potential and actualized talent. I see the current twins roster (+ a few current minor leaguers) being the team to beat in 2010, 2011, and 2012, if the team is still all together then.

Anonymous said...

I think it's very reasonable to assume Twins' revenues have increase over the past 2 years as well, making the picture even uglier.

The Twins new radio deal with KSTP allows them to keep all ad revenue (a change from the 'CCO days) as well as an up front payment from KSTP.

The national TV deal with FOX (2006) includes escalating rights fees each year.

Twins ticket prices have increased in each of the last two years, right? So even with fairly steady attendance, revenue would be up a bit. FYI...average Twins ticket prices are to go from $21 to $33 in 2010.

MLB Advanced Media (MLBAM) paid for itself a couple years ago (teams funded the startup in 2000, and have since gotten their initial investment repaid), and last year revenue reached $450M, up from $370M in 2007, so it's safe to assume whatever the Twins share of that is, it has gone up significantly over the past few years. MLBAM projects increased revenues for 2009, as well.

Jesse H said...

In regards to the article from Joe C, the Twins have 5 guys (Cuddy, Morneau, Mauer, Punto, Nathan) under contract for $50 million. 11 guys are up for arbitration and the remaining 8 players are locked up under rookie contracts. Some of the arbitration guys are people like Bonser, Crain, Gurrier, Redmond, and Harris who are not all that important to our team and/or can be kept cheaply. Other guys like Baker and Liriano will be just entering arbitration and will have low numbers. My best guess is that the entire team of 2009 can be kept for 2010 for $70-75 million which still leaves the team $25-30 million under the payroll they should be at considering the new Stadium revenue, increased MLB revenues, and the fact they will be pocketing anywhere between $40-50 million in unspent payroll from the 2008-2009 seasons. This is absolutely a betrayl of the fans and state by the Twins organization and I applaud the Twins Geek for stating it so clearly.

trevor said...

I guess I'm hoping (maybe beyond hope) that in 2011 or 2012 when the current core is in the middle of their prime and they may be forced to choose whether to keep the core together and go over their salary threshold or trade away some pieces, that ownership will look to the 2008-2010 period and all the millions they saved and agree to keep it together.

As fans we'll have more of a persuasive argument to doing so if we can point to a time, like now, where the team was saving money...and just maybe ownership will be forced to see it this way.

John said...

OK, looks like the responses to the comments will need to wait until Monday, and the current points to address look like this:

1) Wasting the value of cheap pitching
2) Building from within versus filling needs externally
3) The skeptic view
4) Why long-term contracts don't really impact the amount spent
5) Increased Revenue expectations
6) Expected payroll level in 2010 if this team is kept together
7) Why money saved in one year isn't rolled over in future years

If anyone has anything else they would like to see, please keep adding comments and I'll see what I can do...

JimCrikket said...

The original post reflects many of the same thoughts/opinions I've come to have over the course of the off season, as well.

The issues raised in some of the comments are legitimate to discuss and I look forward to John's responses.

There are a couple of other "extenuating circumstances" that come to my mind that might also be worth considering. "Anonymous" pointed to a number of anticipated revenue additions, but I wonder if there are also potential revenue reductions.

I keep seeing contradictory opinions concerning how the luxury taxes that the Yankees have been paying works. I've read that it isn't really spread among the remaining teams any more and I've read that the Yankees will be able to offset the penalties for a while, starting in 2009, by costs related to the opening of their new stadium. Any chance the Twins' revenues take a hit by losing Yankee dollars?

In addition, of course the wild card today that didn't exist 2 years ago (or even last year) is the economy. There's no arguing that since 2007, revenues have increased and payroll has decreased, but is it reasonable for the Twins to proceed cautiously until there's a bit more certainty concerning revenues in 2009?

I do still expect that the new stadium will generate all the anticipated new revenues, almost regardless of the economy (but ask me again in a year). In the mean time, I'm not so sure the last year in the Dome... with people largely cutting back on unnecessary spending... will continue to generate revenues comparable to last season.

Yeah... I still want a RH hiter with some pop and a decent set-up man... but I'd like to understand the revenue streams better than I do.

Anonymous said...

The Elephant in the room is the "National Economy" which is worsening.

Maybe you have inside info, BUT I suspect that season tiket sales are at best soft. If the economy continues to weaken, EVEN with a TOP team, can/will attendance drop 5/10/15/20%?

Maybe saving now can allow purchasing these perfect players at lower prices.

Under the current environment, it is possible that they are already at 50-50% of projected revenues.

It's a new world out there, not the 2007 revenue projections I suspect.


the Dragon

Jesse H said...

I actually sent Bill Smith an email last year after the Santana trade regarding the payroll shortage. His response was that the only reason payroll decreased was that they had budgeted to keep Torii and also thought that Santana was going to be on the team. I wonder what his excuse will be this year.


Dear Jesse:

Thank you for your e-mail this afternoon and the interest you have in the Twins.

You are reasonably accurate in your payroll assessments, and at this time, our payroll WILL decrease from last season. This is a result of what has happened this off-season, and not a result of any budget plan. It is not related in any way to the stadium issue that you referenced.

As we closed the 2007 season, we were projecting a payroll increase for 2008, including the possibilities of keeping Hunter, Silva and Santana.

The first thing that affected the budget was the loss of Torii (we budgeted around $15m) and the trade for Delmon Young. Delmon is wonderfully talented, but does not yet have the seniority to command the kind of salary that Torii does.

With the loss of Silva and Santana, our payroll will decrease, but just because there is more allocated in the budget, it would be foolish to rush out and spend it on some of the available free agents who do not merit that kind of salary.

We have included some significant signing bonuses in the contracts for Morneau and Cuddyer, and we are looking at available free agents and players in trades who may help us during the coming season.

Thank you again for your interest in the Twins and passion for the ball club.

This has been a challenging off-season. While disappointed to lose Hunter, Silva and Santana, we think you will like the players we have received in return. We are looking forward to the focus being on the players ON the field and not the negotiations off the field.

Pitchers and Catchers report in 13 days!

Best regards.

Bill Smith

From: Jesse.H
Sent: Monday, February 04, 2008 5:16 PM
To: Smith, Bill
Subject: 2008 Twins Payroll

Hello Mr. Smith,

Thank you for taking the time to read this email. I am writing in regards to what I see is a fairly dramatic payroll reduction taking place this off-season. By my count (which I have attached as an Excel Spreadsheet) it appears to me that the Twins will have only $58 million in payroll commitments for the year 2008. This is a $14 million reduction from last year and $20 million off what fans were hoping would be a $78 million payroll this year. As a fan who has stood by this team both as a ticket buyer at the stadium and a person who supported the public involvement in building a new stadium I am extremely disappointed in this development, especially as it comes the same year that a new stadium was approved and began being built. I have a couple of direct and honest questions about this:

1. Will you be investing the remaining $14-20 million in the team this year, either as signing of free agents or accelerated payment of future contracts?

2. Was this payroll reduction dictated to you as a result of cost overruns during the construction of the stadium?

I am not going to question the baseball decisions you have made this off-season but I think fans have a right to know why the team has chosen to dramatically reduce its investment in the on the field product. Thank you for your time again and I look forward to a response.

Jesse H

by jiminy said...

Regarding the effects of the economy on payroll, sure, I think it's fair to take that into account in anticipating future revenue. But being tightwads threatens future revenue too. In fact, I would argue that a much bigger threat to future ticket sales than the economy would be to field a cheap, short-handed team when they're flush with money.

And after hitting up tax-payers for a stadium, the PR debacle of pocketing the revenue from it, instead of spending the extra money on players as promised, should only magnify the fans' anger, threatening ticket sales even more.

One bit of conventional wisdom I've always wondered about was the idea that 2010 was the year they were building for, since they'd want to have a good team in the first year of the new stadium. That was why we should expect to sit through a couple years of rebuilding with cheap young players in 2007, 2008 and 2009 (instead of, say, adding the missing pieces to take advantage of Santana and Hunter before they left--or resigning Santan and/or Hunter).

But what if that's not true? What if they think 2010 is the one year they DON'T need to field a good team, because everyone will want to come see the new stadium regardless? Losing usually doesn't start turning fans away for at least a year, maybe even two or three.

Looking at TG's graph, one interpretation is that the time to spend money, if you're looking it as an investment in future revenue, is BEFORE a stadium is approved.

If the team's salary was $30M and they sucked, would they have gotten a new stadium? No way.

But now that they've gotten their $350 million gift, what leverage do we have left? None.

Maybe that graph is exactly what we should have expected.

Anonymous said...

How MLB does "Revenue sharing" is publicly available information. Each team pays 31% of local revenues into a central fund, then that money is evenly split among the teams. That means a team like the Twins, with low revenues, shows a net profit through revenue sharing. See links below:

MLB revenues have gone up every year since 94, reaching $6.075B in 2007 (latest year I can find data on.)

A separate and distinct feature of the latest MLB basic contract is the "luxery tax." This money (which affected only the Yankees last year) goes to the same fund.

Baseball also has a 'central fund' that collects money from such sources as national TV contracts. This money is distributed to the teams in such a way that low revenue teams get a larger chunk of the pie than higher revenue teams. Much of this money comes from long term contracts that will not be affected by a recession, at least until it comes time to sign a new national TV contract.

While nobody can predict the effect of the economy on revenues, a couple things are clear:

1. Twins revenues were clearly higher in 2007 and 2008 than previous years, even though payroll was significantly lower.

2. A team like the Twins, which depends less on local revenues and more on revenue sharing and central fund payments, is a bit less likely to take a significant hit in revenues in 2009. Even if MLB takes a 10% hit on revenue in 2009, to say $5.4B, the Twins portion of that loss (in fewer revenue sharing dollars) isn't a large amount.

3. In 2010, the Twins open a new stadium, which for a couple years at least should be fairly 'recession proof.' So local revenues won't be going down, in fact they'll be going up enough to offset any potential revenue sharing loss, and then some.

SO that leaves us with "Where's the money going?"

It's going to pay down the team's stadium costs. There's no other explanation.

bucaguy said...

This is typical cheap Twins baseball. Did anyone really think that things would change for this team. When was the last time this team signed a bit time free agent? We go with the bottem of the barrel players and hope they have a big year. I know we all wished and hoped with the new stadium things would change and we would make a splash at some point. But yet again we just stand pat and hope to sneak into the playoffs... Sure it is nice to make the dance,but it sure would be nice to be around for the 2nd song.

Michael said...

John: Can you please send me your email so I can send you a press notice for or upcoming hot stove league banquet. Thanks! Sammy/Ballpark Tours/

Anonymous said...

Whistle past the graveyard all you want, but the Twins are shrinking their geographical fan base, and putting a small outdoor park next to a giant garbage burner will invite lawsuits from 'exposed' employees and fans. Citing these reasons, they'll pack up and leave at first opportunity.

SpineyNorman said...

The thing I want to see (and realize I probably never will) is a graph showing payroll as a per cent of revenues over the years. Then I want that graph for all other teams. THEN, I want a graph showing each teams position Relative to the Mean. Then and only then will I be able to reach any kind of reasonable conclusions.

jjswol said...

I think there are a number of reasons for the decrease in payroll but I think the main reason is GM Bill Smith.

Anonymous said...

They are being frugal and fiscally responsible. They have been successful as a result of putting the money into scouting and player development instead of wasting good money on free agents that generally will not be worth the money spent. In addition, many do not want to come to a smaller market team. If you want to see them keep putting a winner on the field stop with crying about not bringing the big dollar players. Granted they could spend alittle more to bring in a needed player if need be during the pennant run, but why spend money they do not need to so that they hae no future flexibility because they overspent to bring in an oerpaid player. As others have mentioned we have alot of players that will need to be signed in the near future with large increases to retain them and keep the team competitive in the new stadium

DL said...

Looks like they have plenty of money available for international scouting and above-slot draft bonuses. A team this bad at signing free agents should probably focus the money on expanding their scouting org. There is also a big pot of money available for trade this summer if some other team has to dump salary.

DL said...

Looks like I owe some anonymous person a coke.

Bernie said...

The dramatic change in payroll has everything to do with Carl Pohald's seriously declining health and then death. The estate was divided primarily among the three sons and the ownership of the Twins has apparently devolved to Jim in combination with his brothers but he is certainly the main face of the ownership now. No matter how you cut it, he does not have the financial resources of his father.

There is no reason to believe that Jim Pohlad is any different than his father. He will be primarily concerned about controlling costs which above all means tight limits on the the major league payroll.

The Twins will never, ever come close to a $90-100 million payroll because they can compete with $65-75 million and like his dad, Jim Pohlad wants to win, but only if the price is right.