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Thread: Slate: The Pittsburgh Paradox

      
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    Default Slate: The Pittsburgh Paradox

    Here is an excerpt from an article at Slate that is not bumper-sticker-deep in its analysis of the Pirates finances from the leaked documents:

    "The Pittsburgh Paradox
    Should the Pirates spend money to win ballgames?
    By Phil Birnbaum
    Posted Wednesday, Aug. 25, 2010, at 3:58 PM ET

    ...So, which is it? If we assume that Pirates ownership is at least somewhat rational in trying to maximize its profits, we have to conclude that each extra win brings in less than the $5 million it costs—otherwise, it would have already spent the extra money. But how much less?
    Let's start with a quick back-of-the-envelope calculation. Suppose the Pirates buy 20 more wins, for an additional investment of $100 million. According to the Deadspin docs, the club makes around $40 million each season from ticket sales and concessions. In order to stay in the black, they'd need to increase that to $140 million. That would mean going from 20,000 fans per game to 70,000—which would be difficult, because PNC Park holds just 38,500 paying customers—and/or raising ticket prices. Would total box office revenues more than triple just because the team went from terrible to average? Doesn't seem likely.
    The situation is even worse than it looks: We haven't accounted for the fact that, if the Pirates suddenly double their ticket sales, MLB will substantially reduce their revenue-sharing income. The effective clawback rate is somewhere around 31 percent, which means that for each additional dollar in ticket sales, the Pirates will receive 31 cents less in revenue-sharing "welfare" payments from the league. So it wouldn't make sense for the Pirates to spend $100 million on salaries unless they could see an increase in revenues of about $145 million. (And that doesn't even take into account the similar clawback on "MLB Central Fund" income, which is the Pirates' share of earnings from sources such as mlb.com.) Clearly, if the Pirates started spending significant money on free agents, they would quickly wind up in the red...."
    http://www.slate.com/id/2265068/pagenum/all/#p2
    Last edited by tocchet92; Aug-27-2010 at 03:03 PM.

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