By fortunate coincidence, we don't have to rely on a back-of-the-envelope calculation to see how this plays out in real life. One of Deadspin's other leaked reports belongs to Tampa Bay, for the exact two-year period in which the Rays jumped from worst to first in the American League. Tampa and Pittsburgh are roughly equal in market size—both teams earned between $130 million and $140 million in revenues per year, according to the leaked documents, and receive similar revenue-sharing payments from MLB. While we should be wary of drawing conclusions from a sample size of one, the experience of the Rays is nonetheless instructive.
In 2007, the Rays finished with the worst record in the American League; in 2008, they went 97-65 and made the World Series. If you thought this sudden improvement would have led to a huge jump in revenues, you'd be wrong. Excluding the playoffs, the team's revenues increased only slightly, from $134 million in 2007 to $143 million in 2008.
Why so small a bump? Ticket sales in 2008 jumped by only about $11 million, even though that represented a 40 percent increase. Concessions (including parking) more than doubled, a jump of $6 million. But offsetting those increases was the extra $20 million the Rays spent on player salaries. Yes, that's an amazing return—31 extra wins for less than $700,000 each—but it was enough to wipe out all $17 million in additional revenue. On top of that, the Rays' revenue-sharing and Central Fund payments dropped by $8 million in light of their newfound success.
As a result, Tampa Bay's regular-season operating income declined from $22 million in 2007 to about $3 million * in 2008—which means it cost the team $18 million to transition from cellar dwellers to World Series participants. As amazing as it seems, even after adding in $11 million in postseason earnings, the Rays were more profitable when they went 66-96 than when they went 97-65.
Based on these calculations, it seems unlikely that the Pirates will ever be able to turn a substantial profit while spending significant money on free agents. But as this year's standings prove, you don't need a massive payroll to win a lot of games—the cheapskate Padres, Rangers, Reds, and Rays are all great bets to make the playoffs.
How can you be so successful while spending so little money? Basically, you have to rely on young, cheap players. The Pirates appear to be moving in this direction; they have a significant minor league player development budget, and they don't appear to be shy about spending money to sign their draft picks.
A little luck helps, too. Statistically, in any given season, one out of every six teams will be lucky enough to exceed its talent level by six wins or more. And one team per season, on average, will exceed its talent by as many as 11 wins. (Admittedly, if you're waiting for that team to be yours … well, it could take a while.)
So if you're a little bit smart, and very, very lucky, you could wind up with a few young, cheap players that could lead you to a playoff berth. But it would seem that for small-market teams like Tampa Bay and Pittsburgh, established stars cost too much to pay for themselves.
It would be nice for the fans if the Pirates were willing to lose millions of dollars in order to bring a competitive team to their loyal supporters. But even superrich owners are looking for some kind of return on their investment. In the end, the Pirates can spend a lot of money on player salaries, or they can turn a profit. They can't do both.
Correction, Aug. 26, 2010: This article originally miscalculated Tampa Bay's operating income from 2008. It was about $3 million, not $1 million. (Return to the corrected sentence.)
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