Few people are high on the Florida Marlins’s business practices. Since the club’s inception in 1993, it has had three owners who have employed a build-’em-up then tear-’em-down strategy. In addition, the team has consistently threatened to move from the Miami area to another locality unless taxpayers help build a new stadium for the team. Current owner Jeffrey Loria has received much of the criticism for the club’s stingy reputation. And though he can expect a new stadium in 2011, he is keeping payroll low for now.
A new stadium means the notoriously frugal Marlins plan to increase their payroll, but not until the team moves into the new park.
The Marlins’ payroll for 2008 is projected to be around $20 million, the lowest in the league and $10 million lower than last season.
“It’s a function of revenues, and we were not really able to derive any revenues out of this facility,” Loria said of the team’s current home, Dolphin Stadium. “As we get closer to the (new) stadium, those things will change. We need to be in that facility.”
Count Maury Brown as one of those who is disgusted with the Marlins’s current operation.
On the player payroll at $20 million, that would be $5 million less than what the club will receive in revenue-sharing, which is projected to be $25 million. Apparently, a “function of the revenues” is to make a mockery of the revenue-sharing system, and do a good bit of profit making.
Forbes estimated that the Marlins posted $43.3 million in operating income last year. That operating income included earnings before interest, taxes, depreciation and amortization. How did the Marlins rate in terms of operating income – a measure of profit – compared to their other 29 counterparts? They were first with the Dodgers in second at $25.5 million, a difference of 41 percent.
Cut your margins enough (low player payroll) and regardless of whether you have embarrassingly low attendance by rolling out a team of made up with what can best be described as replacement level players, take in a healthy level of revenue-sharing, and what you have is a prime example of Jeffrey Loria and David Sampson living on corporate welfare.
As much as I dislike Loria’s tactics for obtaining public funding, I think he is getting too much blame. After all, though his behavior seems juvenile, it worked: he’s getting a $500 million stadium for a third of the price. Why spend your own money when you can spend someone else’s? It’s the voters and the politicians who deserve the blame for giving in. But this is beside the point.
While the Marlins are not spending great sums of money on their players, they have actually put decent teams on the field. Since Loria became the owner in 2002, despite spending 45% less than the league-average payroll, the Marlins have been a .500 team with a World Series title. Teams with similar average wins over this time include Seattle (81 wins, +20% payroll), Toronto (80 wins, -15% payroll), New York Mets (80 wins, +42% payroll), and Cleveland (82 wins, -27% payroll). In terms of payroll frugality, only Tampa Bay had a lower payroll (-65%) while averaging a league low of 64 wins. Pittsburgh (70 wins, -42% payroll) , Montreal/Washington (76 wins, -36% payroll), Milwaukee (72 wins, -36% payroll), and Kansas City (65 wins, -35% payroll) had similarly-constrained budgets, yet were much less successful than the Marlins. Spending less certainly helps profitability, but you have to give Loria credit for not putting replacement players on the field.
Team % +/- Lg. Mean Mean Wins TBD -60% 64 FLA -45% 81 PIT -42% 70 WSN -36% 76 MIL -36% 72 KCR -35% 65 CLE -27% 82 SDP -25% 79 COL -24% 75 MIN -23% 89 CIN -23% 75 OAK -22% 91 TOR -15% 80 DET -11% 71 BAL -4% 72 ARI -1% 79 CHW 3% 85 TEX 5% 78 HOU 5% 85 PHI 12% 86 STL 17% 91 SFG 17% 85 CHC 20% 79 SEA 20% 81 ANA 24% 91 ATL 26% 92 LAD 33% 85 NYM 42% 80 BOS 64% 94 NYY 139% 99
While some of this might be luck, I think good management explains most of the difference (see Chapter 7 of my book). Some of that money not going to player payroll is going to baseball operations devoted to scouting young talent that is cheap. And because this practice yields substantial savings over signing expensive free agents, then this is a good use of funds. At least the Marlins deserve credit for putting a better team on the field than most teams with similar budgets.
If the Marlins can build a good core with cheap players, why doesn’t its front office fill out its roster with quality free agents in order to make a stronger bid for the post-season? Another point that I want to make is that Marlins fans don’t seem to be as sensitive to winning as other major-league franchises. Thus, buying free agents doesn’t yield the return at the turnstiles like it does for other teams.
The first figure below maps all major league teams’ attendance and wins since the 1994–1995 strike.
The Marlins’s data points are bordered in red and labeled with the year of observation. The graph also displays a linear prediction of attendance based on wins for the Marlins (red) and all other teams (black). The Marlins observations lie below the major-league average and its slope is flatter.
The second figure tracks the Marlins’s attendance and attendance predicted by the typical attendance yielded to non-Marlins teams in the year of observation. That is, I estimated what the Marlins’s attendance would have been if fans had reacted to the games the team won based on the typical response in other markets (Attendance = f(wins, vector of year effects); estimates corrected for serial correlation).
On average, the Marlins took in an average of 869,000 fewer fans than predicted. In 2003, the year that the Marlins won 91 games and won the World Series, the team attracted 1.1 million fewer fans than expected. In 2005, the Marlins increased their payroll by 43%: attendance increased by 8% and still their attendance was 25% below the average attendance for other teams.
In light of the the team’s current on-field situation, fiscal restraint in terms of player salaries seems to be the smart move. The front office looked at the team and felt the chance of this team winning the World Series was slim, so it traded away Miguel Cabrera and Dontrelle Willis for talent that will help the team win in the future. The Oakland A’s did the same thing by trading Nick Swisher and Dan Haren. Dumping expensive veterans for prospects is normally considered a smart strategy. The team’s new strategy is to win back fans with a new stadium and continuous core of farm products to keep the team consistently competitive at a high level.
Based on the low win-sensitivity of Marlins fans, I can understand why the owner does not want to put more into payroll. This isn’t to say that Marlins ownership isn’t partially responsible for alienating fans by holding a fire sale after winning the 1997 World Series and posturing for public subsidies; but, these actions cannot be reversed. The front office has learned that simply throwing money at free agents won’t bring the fans back.
Posted by JC in Business, Economics