With the Pirates back to .500, the argument between the adherents and skeptics of advanced statistics has raised its head again, as exemplified by the first comment in the May 28 game summary:

Some formula somewhere indicates that we lost this game, and fell 8 games below .500

A big part of the problem is a confusion between the two roles of statistics: they describe what has happened, and they are used to predict what will happen. All stats do both - but some are more predictive than others.

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Was it good small-ball strategy?  Was it horribly giving away a valuable out?  Let's figure it out!

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Lost in the noise about how much money the Pirates, their owners in general, and the Nuttings in particular "made" in the wake of the leak of the Pirates' 2007-2008 financial documents is a larger question: Can the Pirates afford to win?  More precisely, do the Pirates' financials support the ability to add sufficient payroll for them to sustain a competitive team over the long term?

In 2007 and 2008, the Pirates earned $15M and $14.4M on revenues of $138.6M and $146M, respectively.  Their expenses for player salaries were about $51M each of those two years.  According to the always-excellent PiratesProspects, the estimated 2010 player payroll is $42.4M.  All other things being equal, that means the Pirates could reasonably expect to support adding $23.6M of payroll: $51M of 2007/2008 payroll plus $15M of net income allotted to payroll gives $66M; less the current $42.4M leaves room to add $23.6M.

All other things aren't equal, however.  Presumably, a competitive team would have higher attendance, generating higher gate receipts and concessions.  On the other hand, as the Pirates generate more revenues themselves, their revenue sharing will go down.  Taking these factors into consideration, what kind of payroll can the Pirates sustain?

In their first year at PNC Park, the Pirates drew 2.46M customers to watch a team that went 62-100.  Obviously, the park was the draw, not the team; but that gives us a benchmark for the number of people in Pittsburgh that are willing to pay to go to a baseball game.  So let's assume an annual attendance of 2.5M.

Based on the financial documents and the attendance linked above, the average net home game receipts for 2007-2008 was around $20.  The Pirates have kept ticket prices flat from 2008 through 2010, and given the team's performance this year, it's reasonable to expect them to do the same into 2011, and maybe even into 2012.  Even with improved performance in 2011 and 2012, it's hard to see ticket prices increasing by more than about 10% in 2013-2014, so let's assume an average net home game receipts of $22.  That would increase net gate receipts to $55M, from $32.1M in 2008.

Average concession commissions per attendee were $5.15 in 2008 and $4.08 in 2007.  That's a 20% annual increase, but it's hard to discern a long-term average from only two data points.  Let's assume that this figure increases another 25% from 2008 to 2013-2014, to about $6.50.  That (along with the increased attendance) would increase concessions to $16.25M, from $8.3M in 2008.

Local broadcast revenue grew from $16.5M in 2007 to $18.7M in 2008, a 13.6% increase.  Projecting that growth to continue is perhaps optimistic, but projecting half that growth rate, or 6.8%, over five years sounds reasonable.  That would kick the local broadcast revenue to $26M.

National broadcast revenues averaged $22.1M in 2007-2008.  Given the national broadcast contracts run through 2013, let's assume that number stays flat.  It's likely to go up, at least when the next contract is signed, but we'll be conservative.

The formulas for revenue sharing are deep, dark secrets.  From 2007 to 2008, the Pirates' piece of revenue sharing went from $30M to $39M, as their local revenues (gate receipts, concessions, local broadcast revenues) actually went up by $1M.  Let's be pessimistic and say that revenue sharing drops to $20M.

While we could do puts and takes on all the other revenue components (e.g., ballpark advertising signs, MLB Advanced Media, MLB Licensing, luxury suites, etc.) and expense items (e.g., player development, team operations, game operations, marketing, PR, G&A), they honestly don't move the needle significantly.  So if we assume that they net out basically flat from 2008, we end up with about $87M available for the Pirates to spend on player salaries, assuming the team has a net income of $0.  Could be as low as $80M, could be as high as $100M.

So by this analysis, a successful Pirates team could add $40M-$50M in annual payroll.  That certainly leaves room to lock in two or three arbitration-eligible players to reasonable (not Ryan Howard-esque, but $10-$15M/year) long-term deals and sign one or two second-tier FAs - but the Pirates will have to continue to have eight to ten of their 14 key players (8 starting field players, 5 starting pitchers, and a closer) coming out of the ranks of players in their first six years of ML experience.  The team's key success factors will be (1) deciding which two or three players to extend in years 4-5 of team control; (2) getting the most value from the one or two FA signings that they can afford, and (3) continuing to develop young talent to slot in to the other eight to ten starting slots.

... even I could do a better job analyzing the leaked PBC financial data than either the AP or the P-G.

1. In 2003, the Nuttings loaned a chunk of money to the PBC.  Based on the average rate for BAA corporate bonds in 2003 (6.76%), I'd estimate that to be somewhere around $25M.
2. In 2008, that convertible note matured.  The Nuttings could have taken their $25M principal repayment in cash; instead, they converted it to equity (a larger ownership of the PBC).
3. At the same time, the Nuttings preferred to take the $9.6M interest due as equity; however, the minority owners required them to instead take it as cash (per the DK article, the Nuttings recused themselves from that vote).

So the Nuttings could have forced the PBC to hand them $34.6M in cash.  Given their choice, they would have taken $0, but the other owners required them to take $9.6M.  And the story is that the Nuttings are looting the Pirates??

Also:

4. In 2008, the board voted to distribute $10.8M in cash to cover the partners' tax liabilities on 2006-2007 profits.  The top marginal tax rate in 2006-2007 was 35%, so you can calculate that the PBC's combined profits in 2006-2007 were about $31M.  According to the article, the 2007 profit was $15M, so the 2006 profit was $16M.

So that gives us the following picture:

Net income (profit)
2006: $16M
2007: $15M
2008 $14.4M
2009: $5.4M

And the story is that the Pirates "win while losing"?  Seems they were "winning" a lot more financially three-four years ago.

Finally,
5. Since 2008, the board has not distributed any cash to cover the partners' tax liabilities (or anything else).

Total net income, 2006-2009: $50.8M
Cash distributions, 2008-2009: $20.4M
Retained earnings (reinvested in the PBC): $30.4M

This figure would have been $39.4M had the minority owners allowed the Nuttings to convert the interest on the convertible note to equity.

So the PBC reinvested 60% of their profits into the club, and would have reinvested 80% had the minority owners not refused to dilute their stakes, and the story is that the Nuttings are just trying to take as much money out as they can??

I weep for journalism.

In 2007, Baseball America projected the Pittsburgh Pirates 2010 lineup as:

C: Ronny Paulino
1B: Adam LaRoche
2B: Freddy Sanchez
SS: Jack Wilson
3B: Neil Walker
LF: Jason Bay
CF: Andrew McCutchen
RF: Xavier Nady
SP1: Brad Lincoln
SP2: Ian Snell
SP3: Zach Duke
SP4: Tom Gorzelanny
SP5: Paul Maholm
CL: Matt Capps

(h/t Vlad, from Charlie's Draft story)

How would those Pittsburgh Pirates have done compared to the ones we're watching now?  Well, thanks to the magic of Baseball Reference, we can take a look.

First, a top-level comparison.

Six position players (Paulino, LaRoche, Sanchez, Wilson, Bay, and Nady) are no longer with the Pirates.  These players have a total WAR of 1.5, with a 2010 payroll of $28.525M.

Three pitchers (Snell, Gorzelanny, and Capps) are no longer with the Pirates.  These three pitchers have a total WAR of 1.0, with a 2010 payroll of $8.55M.

Keeping these nine players would have contributed 2.5 WAR at a cost of $37.075M for the year.

Instead, we have the following (treated as if the players were with Pittsburgh for the whole year, which isn't necessarily the case):

C: Chris Snyder, at $2.25M ($5.25 salary, less $3M received from Arizona in the trade), gives 0.5 WAR

1B: Garret Jones, at $425k, gives -0.3 WAR.

SS: Ronny Cedeno, at $1.125M, gives 0.7 WAR

3B: Pedro Alvarez, at $500k, gives 0.2 WAR. (Walker replaces Sanchez at 2B.)

LF: Jose Tabata, at $400k, gives 1.0 WAR

RF: Lastings MIlledge, at $452k, gives -1.3 WAR.

SP: Ross Ohlendorf, at $439k, gives 1.7 WAR

SP: Jeff Karstens or James McDonald, at $400k, gives about 1.0 WAR (Karstens is at 1.1, McDonald after three starts at 0.6)

CL: Joel Hanrahan, at $453k, gives 0.7 WAR.

The total is a combined 4.2 WAR at a cost of about $6.9M.

Yes, compared to BA's 2007 projection, the actual Pirates prorate to about 2 wins better - and about $31M cheaper.

That doesn't even take into consideration the rest of the talent that was acquired in exchange for the players that are no longer with the Pirates:

Paulino: $1.1M, 0.4 WAR, traded for Jason Jaramillo, $417k, -0.7 WAR.

LaRoche: $4.5M, 0.6 WAR, traded for Hunter Strickland (A+) and Argenis Diaz.($400k, -0.1 WAR in the majors)

Sanchez: $6M, -0.2 WAR, traded for Tim Alderson (AA)

Wilson: $5M, 1.0 WAR, traded (with Snell) for Aaron Pribianic (A+), Brett Lorin (A), Nathan Adcock (A+), Ronny Cedeno ($1.125, 0.7 WAR), Jeff Clement ($405k, -0.7 WAR)

Jason Bay: $8.625M, 1.0 WAR, traded for Bryan Morris (AA), Andy LaRoche ($450k, -1.1 WAR), Craig Hansen (injured, A+), Brandon Moss (AAA)

Xavier Nady: $3.3M, -1.3 WAR, traded (with Damaso Marte, $4M, 0.2 WAR) for Jeff Karstens ($400k, 1.1 WAR), Daniel McCutchen ($400k, -0.7 WAR), Ross Ohlendorf ($439k, 1.7 WAR), Jose Tabata ($400k, 1.0 WAR)

Ian Snell: $4.45M, -1.2 WAR, in AAA, traded with Wilson (above)

Tom Gorzelanney: $800k, 1.8 WAR, traded (with John Grabow: $2.7M, -0.9 WAR, injured) for Josh Harrison (AA), Jose Ascanio (injured, A+), Kevin Hart (AAA).

Matt Capps: Non-tendered.

Even with perfect foreknowledge of outcomes, the only moves that can be considered to have been bad deals for the Pirates are Gorzo and maybe Paulino, who would have both been serviceable starters at reasonable prices.

 - LaRoche is slightly better than the other 1B options, but at 10x the price.
 - Sanchez is replacement level at 15x the price, and would have blocked Walker from 2B.
 - Wilson and Snell - Cedeno is performing the same as Wilson for 1/4 the price, so that exchanges a $4.5M AAA pitcher for three prospects in A/A+ plus Jeff Clement, which is a deal the Pirates should take any day and twice on Sundays.
 - Bay would have been a serviceable RF (assuming he'd move there with Tabata in LF), but again at 20x the price of the other myriad RF options.
 - Nady is 2.3 WAR worse, $3M more expensive, and ten years older than Tabata. Marte is 0.9 WAR worse, $2.6M more expensive, and eight years older than Karstens. Even straight up, that deal is a swindle - and that doesn't count Ohlendorf and Dan McCutchen

Even non-tendering Capps was at worst a net wash and at best a win, as it opened the space to get Dotel, who turned into Lambo and McDonald.

So eight "major decisions" (seven trades and one non-tender involving the players that BA considered to be the Pirates' starting-level talent as of 2010), of which five are wins (one - Nady - huge), one a loss (Gorzo), and two somewhere around washes (Paulino slightly negative, the Capps non-tender slightly positive).

That's not bad management.