Baseball Prospectus - Chat with Doug Pappas

Chat: Doug Pappas

Welcome to Baseball Prospectus' Tuesday March 09, 2004 8:00 PM ET chat session with Doug Pappas.

Doug Pappas is an author of Baseball Prospectus.

Doug Pappas: Hi! Thanks for coming. Let me start with a few of the questions in the queue...

Brian (Los Angeles): The Cardinals ownership says that the new, privately funded stadium will not hurt their payroll. Do you buy this?

Doug Pappas: Sure. If the economics didn't work, they wouldn't be investing the money to build it. There's nothing structurally wrong with Busch, and the Cardinals draw exceptionally well for their market. The only reason the owners are willing to construct a privately
funded park is that they think they'll make more money with it than without it.

Charles (San Francisco): Doug, thanks for all your excellent work with BP and SABR's Business of Baseball Committee. Will SBC Park ever see an All-Star game? Has it not happened yet because (a) the Giants don't need an All-Star game to sell season tickets, or (b) Selig and other owners are a bit ticked at Magowan for privately financing a ballpark?

Doug Pappas: SBC has only been open since 2000. The three NL-hosted ASGs since then (Atlanta in 2000, Milwaukee in 2002 and Houston in 2004) have all gone to other new parks. I think it's a little early to be worried. And yes, I suspect your first reason may be playing a role. The Giants would be better off getting the ASG when they need it to sell tickets.

Scott Simon (New York): Hi Doug. Thanks for chatting. Since Commissioner Bud (only 1027 days!) hasn't taken a stand on Wrigley Field Premium, do you think other teams will adopt the Cubs' scheme, or will they be too frightened of possible lawsuits?

Doug Pappas:
Anti-scalping laws vary from state to state, so it's difficult to predict whether other clubs would face similar legal trouble. More to the point, the Cubs' scheme works only for a club that sells a very high percentage of its tickets. Imagine the Devil Rays or Tigers trying to charge the premium that would make this worth doing?

I suspect Bud's not too thrilled about WFP -- it seems all too obviously intended to let the Cubs report the face value of their tickets to MLB for revenue sharing purposes, while putting the scalper's premium into another pocket. Tribune Company should be used to this -- they've done it with WGN for all these years...

Tom J (Burke, VA): What's the latest with the Expos move? Is there any realistic chance MLB will move the team prior to the 2005 season? If Bud Selig really wanted to move the franchise wouldn't MLB already done so? Thanks.

Doug Pappas: In order: (1) God only knows; (2) No (the MLBPA has to approve the schedule and wouldn't tolerate any more juggling); and (3) Yes, since MLB has known for years that people in Washington/northern Virginia have both the money to buy the Expos and a place to put them while a new park is built. MLB's determined to extract the last possible dollar.

Chris Hartjes (@TheBallPark): Doug, are the Blue Jays *really* at a financial disadvantage because of differences between the Canadian snow peso and the US doller, or can that be made up by being smart with your investments and staying the course with the player development principles that J.P Ricciardi brought with him?

Doug Pappas: Any time a club gets most of its revenues in one currency and pays most of its expenses in another, it assumes the risk of currency fluctuations. The Blue Jays estimated that every one-cent change in the exchange rate was worth $400,000 (CDN) to the club.

But Toronto's a solid market, and Ricciardi is showing that it's possible to field a competitive team without spending as much as the Goliaths of the AL East.

Scott Simon (New York): Can you tell us a little bit about the business of Baseball *Prospectus*?

Doug Pappas: We're doing well enough that Frank McCourt probably couldn't buy us without taking out a loan.

Neil deMause (Brooklyn): MP/MW is a fascinating tool, but I'm wondering if it could use some fine-tuning. There are especially weird results at the low end of the win scale - was it really more efficient, for example, for the 2002 Royals to spend $47 million and lose 100 games (marginal rate: $3.1m) than for the 2002 D-Rays to spend $34 million and lose 106 games (marginal rate: $4.3m)? Is it worth considering that the value of marginal wins might not be linear, especially for very bad teams, or for very good teams in weak divisions?

Doug Pappas: MP/MW measures efficiency (dollars per win), not profitability. You're absolutely right that the value of marginal wins probably isn't linear.

I suspect that if you took the 54-game difference between a really bad (54-108) and really good (108-54) team, and measured the increase in revenues in nine-game intervals along this line, the first nine-game improvement would be worth essentially zero. If the second was worth 1 unit, the third (from 72 to 81 wins) would be worth two, the fourth (81 to 90) three to four, the fifth (90 to 99) four to five, and the sixth (99 to 108) only about three more. Winning attracts fans, and getting into the playoffs increases revenues even more.

Frank Marziano (New Jersey): I think the place to put a major-league team in New Jersey is not in the Meadowlands, but rather in central Jersey. The Meadowlands works for the Giants & Jets because New Yorkers will go to see them, given their New York heritage - & there are no football teams in NYC. It hasn't worked for basketball & hockey because New Yorkers don't care about the New Jersey teams, they have their own teams. To be successful a team would have to be a NEW JERSEY team, accessible to residents of the entire state. This could also possibly get around the issue of territorial rights, being outside of both the New York & Phillie territories.

Doug Pappas: You could put a team around Edison/New Brunswick, where the Turnpike and Garden State Parkway cross, but (a) traffic before a game would be even more horrendous than usual, (b) it's not really convenient to either of the population centers, and (c) nobody's stepping forward with a plan to build a stadium.

Then there's the media problem. New Jersey is entirely within the NYC or Philadelphia media markets -- who's going to air their games?

Scott Simon (New York): In the next twenty years will teams be forced to share revenue from proprietary broadcast systems (e.g., YES, TBS, NESN)?

Doug Pappas: They certainly should be. I'll believe that MLB is serious about revenue sharing as something other than a way to drive down salaries when teams of MLB auditors descend on all the clubs that hide revenue in related-party stadium and broadcasting businesses. It's been a wink-and-a-nudge situation for years.

According to Jayson Stark, Bud may audit YES, but if he ignores the Braves, Cubs and Red Sox while targeting the Yankees, the resulting lawsuit will be very bloody indeed.

ama3lee (Silicon Valley, CA): First off, thanks Doug for your useful website on the Business of Baseball, Roadside. My first question is, is there any book or books that you would recommend to me to read in order to better understand the business of baseball? My second question is, many Giants fans berate the team for not spending more since they are selling out the stadium. Do you think that is a fair criticism or do you think they are spending as much as they prudently can (i.e. are financially responsible)?

Doug Pappas: I've got an entire list of recommended books on my Website -- http://www.roadsidephotos.com/baseball/biblio.htm -- but a few books that jump out:

Andrew Zimbalist's Baseball and Billions (early 1990s) and its sequel from 2003, May the Best Team Win.

Michael Lewis's Moneyball, for a sense of MLB's insular, anti-innovation culture.

John Helyar's out-of-print Lords of the Realm, for a look inside the owners' meetings (it's not a pretty sight!).

Allan (Milwaukee): This revenue sharing thing isn't really working, is it? What's your solution for evening things out, Mr. Smarty Man with a Spreadsheet?

Doug Pappas: Smarter management. Less nepotism. Owners and GMs who realize that signing the likes of Jeffrey Hammonds to multiyear guaranteed contracts is throwing money away.

John (Chicago): How close is MLB to finally selling the Expos? And where will they eventually be playing?

Doug Pappas: Your guess is as good as mine. MLB has promised a decision on the Expos by the 2004 All-Star break, but we've heard that before.

The Expos SHOULD wind up in DC/northern Virginia, but WILL eventually be sold to the highest bidder -- with the amount a bidder can pay heavily dependent on the size of the public stadium subsidy he receives.

Kriv (MStPl): The Twins get no credit compared to the A's. Is it the scouting focus? What approach has been more successful in the free agent era, building from within or finding 'misfit toys'?

Doug Pappas: Remember, Oakland has been successful for twice as long -- the Athletics were making the playoffs when Carl Pohlad was offering the Twins for contraction. It would also help if Minnesota figured out what to do with all the talent they've developed: turning some of their six or eight OF/1B/DHs into middle IFs or pitchers, for instance.

Historically, building from within has been more successful. Young players are always a club's best investment: they're cheap and likely to improve from year to year.

JamesBailey (Washington DC): Doug, Thanks for the useful review of the 1977-79 seasons; I now look forward to reading your 1995-2003 analysis, as well as the forthcoming 1980-1994 analysis. My question is: do you plan on evaluating pre-free agency seasons? For example, it would be interesting to look at the 1950s Yankee empire - we all know how many marginal wins they had - and see how those teams looked on your models. If you are planning on doing the pre-free agency seasons, are the team salary data easily accessible and are there other important factors that might make analysis less useful compared to your 1977 to present work? Thanks very much!

Doug Pappas: I only have reliable payroll data for the seasons since 1977. The analysis wouldn't be as useful for earlier seasons, because salaries were much more seniority-based. When the owners were underpaying everyone, veterans came the closest to getting what they were worth.

Scott Simon (New York): How accurate is the clock at http://roadsidephotos.com/baseball/bbblog.htm?

Doug Pappas: It's a Javascript applet. How accurate is the clock on your computer?

The Bud Selig Countdown Clock will hit zero at midnight Eastern time, December 31, 2006, when his current term expires.

Stephen (Pittsburgh): Thanks for doing a great job. My question: Do you have any plans to extend your Marginal Payroll/Marginal Wins analysis to include other baseball related team costs, such as money invested in the minor league system, in draft signings, etc.?

Doug Pappas: I'd love to, but the necessary information's not available. Moreover, on the minor league level I think nonfinancial factors play a much larger role: the team's approach to handling young pitching arms, for example, or its ability to produce certain types of players. As I noted a few questions ago, the Twins are absolutely overrun with OF/1Bs, while my Mets haven't produced a decent prospect at either position in years.

Jordan Lyall (Orange County): Will we ever see a salary cap in Baseball?

Doug Pappas: No. The current structure is likely to persist, with modifications from time to time, for the foreseeable future.

Increased revenue sharing automatically works as a form of salary cap. If a club thinks that Player X can improve the team enough to bring in $10 million more revenues, at 34% revenue sharing it can't pay him more than $6.6 million. Under the 20% sharing of the old CBA, it would be willing to pay him up to $8 million, and if the owners can ever hit their target of 50% revenue sharing, that player would be worth only $5 million to his club.

Bryan (N.California): Doug, I really enjoy your work and visit your web site regularly. After a very disapointing off-season for the Giants, I am trying to understand where all their money goes. You indicated previously they had revenues of approx $160-170mm and were among the highest in baseball. Given a payroll of $80mm, $20mm in stadium debt, and $17mm in Expos/ revenue sharing there should still be a lot left over to sign SOMEONE to hit behind Barry. How much do teams overhead/administration and minor league systems cost on average? What other expenses am I missing? Thanks for the info.

Doug Pappas: Don't forget that the Giants are also responsible for maintenance and upkeep, which runs a few million/year. Player benefits are also over $7 million/season.

MLB's 2001 financial disclosures showed the average club spending about $55 million on non-player expenses, with the Giants at about $60 million exclusive of stadium debt.

surfdoc37 (st louis): Doug, what do you think the chances are that MLB will gradually shift to non-guaranteed contracts with large signing bonuses similar to the NFL? It seems so sensible from the ownership side that the MLBPA must have something to say about it.

Doug Pappas: The NFL's contract structure is a result by the league's salary cap. It encourages teams to pay big money upfront that can be spread out over many years for cap purposes, and to tear up and restructure contracts every offseason.

I think the long-term trend in MLB is toward shorter contracts, possibly with option years that would have the effect of a nonguaranteed contract.

Scott Simon (New York): I remember reading that the Yankees' payroll, as a percentage of all MLB payroll, has remained virtually unchanged over the past 25 years. If that's true, why the sudden outrage?

Doug Pappas: Because the Yankees are winning again. There was plenty of outrage 25 years ago, too. Nobody minded when Steinbrenner was wasting his money on Dave Collins or Omar Moreno, or trading Fred McGriff plus cash for Dale Murray.

Scott (New Haven): Are you worried about the increasing concentration of payroll in the top two teams--Yankees and Red Sox. Through the 90s, the Yankees ran spent about 20% more than the team with the third highest payroll. This year that number will be 60% or more. That is a staggering difference, isn't it?

Doug Pappas: I'm not particularly worried. It's not as though the Yankees and Red Sox are winning 110 games/year, with no one else over 95. The Yankees, in particular, have a lot of money tied up in long-term, back-loaded contracts with players who are already in the decline phase of their career.

One more...

Pierre (Italia): Doug, you're into economy and stuff like that, so tell me how I'm supposed to convince my parents to buy me BP 2004 and to suscribe to BP Premium (for a total of 60 bucks of, erm, articles about baseball)

Doug Pappas: Because your $60 buys you 600 pages of solid analysis in BP 2004, plus hundreds of articles on BP Premium. BP 2004 and BP Premium probably cost less than $1/hour for all the time you'll enjoy them.

Okay, one more real question...

Dr. C (Mobile): Great work, Doug. With your research, it looks like "small market" should be thrown in the dustbin of vocabulary. Is there a better term for dividing the haves and the have-nots?

Doug Pappas: I think there's a place for the term "small market," but it should never be used as a substitute for "low revenue," "low payroll" or "bad" team. It should be used to recognize that some clubs have a smaller pool of fans to draw on than others -- and in an ideal world, MLB would share revenues based on market size, not actual revenue. There's no reason the Cardinals should be paying money to the Tigers when they get more revenue from fewer people.

In MLB as it exists now, the haves tend to be the smarter clubs, the have-nots, the dumber ones.

Thanks for all the questions - sorry I didn't get to them all. I'll be back later in the season!

Doug Pappas: See you in a few months...