Madden originally reported Middleton citing the losses at nearly $2 billion.

I thought this was about MLB as a whole but the Daily News story actually has this correction. Oopsie.

CORRECTION: A previous version of this story incorrectly stated the Phillies had a $2 billion deficit in the 2020 season.

Obviously uncertainties surrounding 2021 revenues are an issue, but you often see teams saying things like "we don't have enough money" to sign a player. And this never made much sense to me.* If the player's contract has a positive expected value - that is, if the expected outcome of signing him involves more revenue generated by having him on the team than it would cost to sign him - then the state of the team's finances shouldn't have anything to do with whether or not you can sign the player. An investment that yields more revenue than it costs isn't a cost. If the team lost a ton of money in 2020, you'd think that the thing to do would be to sign players who are going to make a profit for you in 2021. To do otherwise is just to turn down money.

Now, Realmuto may not be the guy who is going to make a profit for you in 2021. Given the uncertainty involved in projecting revenue streams in this particular year, maybe the thing to do is not sign him, or even not sign anyone. But if so, it's because you suspect that players are not going to pay for themselves, not because you lost money last year.

*Except in the case where other teams are expected to bid up a player's services to the point that he no longer has a positive expected value to your team.

Does anyone claim to know when a player’s contribution to net revenue will be positive or negative?

#3 The impact of marginal wins on revenue is reasonably well understood. The impact of player contribution to wins is reasonably well understood.

I guess this makes Bryce Harper the Chan Ho Park of the Phiiles. Or maybe the Chris Davis.

So the owner who bragged he would spend money stupidly last off season now doesn’t have money to spend? Color me surprised.

#2 More agree than disagree but of course, unless Realmuto is willing to sign for one year, it's about more than 2021. And while Realmuto might make a net profit, that doesn't mean there's not more profit (or better rate of return) by going with a cheap C and/or spending the money elsewhere. But all that said, the real money in baseball ownership is franchise valuation which suggests winning may be more important to long-term value than short-term profit.

The profit-revenue calculation is also thrown off by revenue sharing and all the tricks that might be used to shield revenue. Just under half of all locally-generated revenue goes into the pool that then gets divided evenly by 30. The Phils (when they're competing at least) are in the top half so a bit of their profit disappears in the setup. So maybe Realmuto generates $32 M in revenue (at a cost of $24 say) but $16 of that $32 goes into the common pool of which the Phils get back (WAG) $12. So Realmuto is generating $28 M in revenue for them, a net of just $4 now. Still a profit obviously but if that's year 1 .... Of course a similar calculation goes on for the cheap guy but if they're paying him minimum then he need only produce a net $4.5 in revenue so mabye about $5M total which is relatively easy in theory.

The Phils (when they're competing at least) are in the top half so a bit of their profit disappears in the setup. So maybe Realmuto generates $32 M in revenue (at a cost of $24 say) but $16 of that $32 goes into the common pool of which the Phils get back (WAG) $12. So Realmuto is generating $28 M in revenue for them, a net of just $4 now.

Acknowledging that your numbers were a WAG to begin with, I wouldn't credit Realmuto with 100% of the marginal revenue taken from the common pool to replace Philly's contribution to said pool from the revenue he generates. Assuming that revenue is equally spread among all 30 teams, then only 1/30 of that actual amount would come back to the Phillies; they get the rest regardless of Realmuto. (Actually, assuming he generates the same amount of marginal revenue wherever he plays, they get the same amount of Realmuto-based common-pool-sourced revenue either way, so only what they would keep initially matters to their profit calculation.)

Cot's projects the Phillies at $122 mil for payroll right now (plus $15 mil for benefits/etc) for 2021 vs $207.6 for 2020 (not adjusted for 60 games of course). Could they try to trade Harper, McCutchen, or Wheeler? Those are the biggest 3 contracts still on their books ($20+ mil each). Sportrac has them at $127 mil right now. Boy their fans must be getting pissed with so much coming off the books that they still won't try for a great player to stay while other teams like Toronto are drooling over him despite having a decent group of young catchers.

‘A source’ tells the Associated Press that the Phillies lost $145M last season. That’s a significant sum, but if Covid vaccines become widely available in 2021, it’s not a multi-year or long-term problem. Seems like not over-reacting would be the smart move, but pleading poverty has long been the go-to-move for many MLB teams.

. So maybe Realmuto generates $32 M in revenue (at a cost of $24 say) but $16 of that $32 goes into the common pool of which the Phils get back (WAG) $12. So Realmuto is generating $28 M in revenue for them,

I dont get this. Are you saying Realmuto is the only player generating money that goes into the common pool? Not Harper et al? Cause you cant be saying that can you?

#3 The impact of marginal wins on revenue is reasonably well understood.

for those of us who don't know. Can you provide us some insight?

[12] Yes, please. The idea that there even is such an established value, given so many other variables, seems far fetched.

CORRECTION: A previous version of this story incorrectly stated the Phillies had a $2 billion deficit in the 2020 season.

Not 2 billion, but the pandemic has cost me a lot of money. I used to buy a lottery ticket about once a week, when I went to 7-11 before work to pick up my donuts and pepsi breakfast. Since then I have not set foot in 7-11, thus no ticket. There have been 5 powerball jackpots in that time that I could potentially have won for about 600 million. On the plus side, I saved $74 from not buying the tickets for the last 37 weeks. So it’s cost me $599,999,926.

#12/13 It started with Baseball and Billions and people (including me) built from the work that Zimbalist did. I haven't worked on this for nearly two decades but Zimbalist demonstrated that revenue can be broken down into fixed and marginal (ie dependent upon team quality).

I don't even have my work but I had models that got a standard error of revenue estimates (using the Forbes numbers) of around $10 million. Can't give you the precise numbers any longer.

We used to talk in terms of $/win. Over time we came to understand that there a lot more going on. For instance, simply having Realmuto leave will result in a revenue hit (perception of team quality is about twice as important as actual team quality in explaining marginal revenue. That perception always takes a hit when a high priced free agent leaves. This is also why fire sales are usually revenue disasters). And that not all wins are created equal.

The math on free agent signings has always been tricky. Best I can tell the signing only really make financial sense if the player is the difference between making or missing the playoffs. Players who are free agent eligible are overpaid quite a bit as a group (Zimbalist get about 30% and nobody's work has produced a very different result). I think what's going on here is that most decision makers for teams kind of have to take an optimistic view of their playoff chances and that increases the value of a win quite a bit)

This is obviously the short form. If you're really interested you can start with Zimbalist's work (which still correlate reasonably well with revenue estimates -- plausably better now since marginal revenue is a smaller piece of the pie and that's the hardest part to model) and then just play around with other factors.

I dont get this. Are you saying Realmuto is the only player generating money that goes into the common pool? Not Harper et al? Cause you cant be saying that can you?

No, I'm saying the Phils sign Realmuto for $24 AAV (marginal investment) in the assumption/hope that he will generate $32 M in marginal revenue. If the Phils with Realmuto generate $32 M extra local revenue than the Phils without Realmuto (or spending that $24 M on equally useful pieces) then they contribute $16 M of that $32 M into the pool losing the $4 M WAG. If Harper is also producing $32 M in marginal revenue relative to a Harper-less Phils, then $16 M from him is also going into the pool.

Forbe put the Phils' 2019 revenue at $392 M. That is already net of revenue sharing and stadium debt service. So about $200 M of that would have come from shared and common revenue. So that leaves about $192 M as 52% of local revenue so about $370 of local revenue total. If Harper was responsible for $32 M of that $370 then nearly $16 of that went into the pool. If Realmuto wwre added that, in theory, would increase local revenue to $402. (Lest it look like the Phils are making money by contributing 48% of $192 and getting $200 back, remember the $200 includes the commone revenue like MLBAM, national TV contracts and merchandising that is split evenly by team.)

#8 makes a good point. In theory the Phils get their cut of any player's shared revenue produced no matter where that player plays so the marginal bit is just the half retained. Which makes it even crazier to sign an FA from a financial point of view.

The math on free agent signings has always been tricky. Best I can tell the signing only really make financial sense if the player is the difference between making or missing the playoffs. Players who are free agent eligible are overpaid quite a bit as a group (Zimbalist get about 30% and nobody's work has produced a very different result). I think what's going on here is that most decision makers for teams kind of have to take an optimistic view of their playoff chances and that increases the value of a win quite a bit)

This seems like a far cry from "reasonably well understood."

If the Phils with Realmuto generate $32 M extra local revenue than the Phils without Realmuto (or spending that $24 M on equally useful pieces) then they contribute $16 M of that $32 M into the pool losing the $4 M WAG. If Harper is also producing $32 M in marginal revenue relative to a Harper-less Phils, then $16 M from him is also going into the pool.

But you said in post no. 7:

$16 of that $32 goes into the common pool of which the Phils get back (WAG) $12.

Why would the Phils get back $12? Wouldnt it be 16/30 teams, or $530k? That would be 1/30th of what Realmuto contributed. And same for Harper if he in theory contributed $32M, then half goes in that's 16M and it gets divided by 30.

Or look at the first sentence of post 8. Something's not quite right.

#17 Depends on what you think of models that start with a standard error in the general range of $10 million per team.

It's slightly less precise (in terms of adjusted R squared) than our understanding of how to model team runs scored from team counter stats.

Or now that I think about it, the models I could come up with in terms of signing free agents were in the general range of the accuracy of Win Shares. Make of that what you will.

But that was nearly two decades ago. I haven't stayed current but would like to think that in that time they've tightened up the models. Though the best models probably are not publicly available.


Also, found an old post (that references an older post)

For those interested, here are the results of Zimbalist's study on the pure economic sense of player signings.

Zimbalist breaks players into 3 broad categories. Apprentices, Journeymen and Masters. (Players with no arbitration rights, players with arbitration rights and free agency rights respectively)



Zimbalist made an estimate of revenue contribution for the player. (While more recent methods give more precise estimates of player contribution no study I'm aware of gives very different general conclusions)

Exploitation is the percentage of players whose MRP (Marginal Revenue Produced) was greater than their salary. High exploitation is the percentage of players whose MRP was at least double their salary. [And I didn't choose the category names]

Rate of return is MRP/salary

Zimbalist's study showed that ability explained only about 30% of the variation in the salary of "masters" (this hadn't changed when I last checked). Veteran players are uniformly over-paid. Curiously, service time explains salary better than talent (again, was true the last time I checked).

I should also note, that other studies showed a better rate of return for very good players when signing free agents.

And again, other studies demonstrated the financial hit that losing big name players causes. It's not huge but it's worth taking into consideration when contemplating a fire sale.

The math on free agent signings has always been tricky. Best I can tell the signing only really make financial sense if the player is the difference between making or missing the playoffs.

Which is not knowable in advance. Particularly with a $10 million error bar, no team would make this kind of decision on the basis of revenue projections tied to a single player.

#20 Which turns the whole signing decision into a probability issue. IOW if make the playoffs is worth 10M ( it's more than that ) and one given signing increases your chance by 30% (plausible if you're in the sweet spot and have a hole) then the signing is worth $3M plus the value of the random wins the player contributed. Obviously these calculations get trickier the longer the contract on offer.

And since GMs kind of have to be optimistic on this, it helps explain why free agent class players are uniformly paid more than they're objectively worth. Zimbalist noted that this kind of thing is a completely predictable in what amounts to closed auctions in any case.

Also there's evidence that free agent signing function as very effective advertising (obviously a one year thing). It's that whole perception thing again. In any case, as much as 30% of the value of the contract in the first year comes directly back in revenue. (sharply diminishing returns for any signing after the biggest one)

Now I stopped doing this work quite some time ago (lost my data collections in a computer move. I'd spent a lot of time building it up and was mighty discouraged) but nothing I see suggests major changes. Marginal revenue is a smaller percentage of overall revenue as best I can tell, but it's still pretty substantial/

Two matters that would be weighing on my mind, in connection with long term contracts:

1. The last time there was a shortened baseball season played, it took 4 years to get back to the total attendance levels before the shortened season. Yes, the first shortened season was player/owner dispute related (as opposed to if I go to the stadium, i could get sick and die), but think of new habits and patterns having been formed in the marginal fan, in 2020. Also, I think the last thing to come back in America post vaccine will be big crowds at events. Strangers screaming (and thus spewing spittle) in the row right behind you is a sporting event thing (shoot, crowd noise and energy is probably a big part of going to a live event-the communal experience). If one is timid about covid, it is going to take one a while to dive back into that.
2. Overall baseball attendance in 2019 (pre-covid year) of 68,494,845, was the lowest since 2003, and 2018 and 2019 were the only years since 2003 that have dipped below 70 million (so no, 2019 wasn't some anomaly). That pretty clearly signals that something is wrong, and whether you believe it is teams' tanking; too much talent aggregation on too few teams; too many alternatives to watching sports; pace of the game; or whatever, nothing has been fixed to address the reasons for the decline.

So if I am an owner, betting on an ever increasing value of WAR every year (or whatever metric one wants to use), I would want to see some stabilization on the revenue side of the equation before I committed to expensive long-term contracts.

Overall baseball attendance in 2019 (pre-covid year) of 68,494,845, was the lowest since 2003, and 2018 and 2019 were the only years since 2003 that have dipped below 70 million (so no, 2019 wasn't some anomaly). That pretty clearly signals that something is wrong, and whether you believe it is teams' tanking; too much talent aggregation on too few teams; too many alternatives to watching sports; pace of the game; or whatever, nothing has been fixed to address the reasons for the decline.

MLB Attendance
2003: 67,650,873
2019: 68,494,845

Put another way, across nearly two decades MLB attendance has basically remained steady. This despite smaller stadiums, the rise of mobile computing and other individual-focused forms of entertainment, the development of tanking as a strategy, and some years with poorly run large-market teams (LA with McCourt, Wilpons, Moreno, etc.).

Far more importantly, attendance as a source of revenue is less important to teams. Other revenue sources, notably content rights and merchandise, have exploded over the same time. This is an oversell, but noting an attendance decline as an ominous sign is a little like saying Apple is in trouble because the Mac is less important to their business than it once was. If MLB has reasons for concern—and the demographics of its customers are what stand out as a flag to me—attendance is not likely the indication "[t]hat pretty clearly signals something is wrong."

MLB Attendance
2003: 67,650,873
2019: 68,494,845

or MLB attendance
2007: 79,484,718
2019: 68,494,845

USA population:

2007: 301.23 million
2019: 328.24 million

I would acknowledge your narrative points above as correct (there are other sources of revenue), but I do view the drop in attendance as an ominous sign that bears watching, and were I the owner of a team with a franchise in that business, I would be concerned. You would not, and that is okay with me.

I do note that the issue of fannies in the seats is a big concern with owners. I know the god of sports (NFL) is very concerned with this issue. The Falcons put $100 million in technology at the fan/seat/suite level in their new stadium, because they recognize that going to a game was, by their own measures, becoming less attractive, and that if the trend continued unabated, they would wake up with a fan base with habits and courses of action that took revenue from the owners in large quantities.

I compared 2019 to 2003 as that was the years you specifically referenced. Plus, I'm not certain those intervening years make for a good comparison when attendance was at all-time highs. It would be a little like judging Mike Trout against his peak years when he becomes just a 5-WAR player. I'm not sure MLB attendance has dropped more so than leveled off in the upper 60M numbers. Many teams took the approach with their new stadiums of fewer seats and loads of ways to earn more money from the stadium. I mean, do we really think the Yankees make less money from stadium attendance now that their new stadium has about 9,000 fewer seats?

As for the US population, that's a good point as I see it, but ties in to my point concerning demographics. The US population typically goes up nowadays through immigration, not a birth rate above replacement rate, and immigration here doesn't usually increase the number of older white males.

(I don't follow the NFL, but I heard the other day the Falcons only sell season tickets, no individual-game tickets. Is that so? I know NFL tickets tend to cost more than MLB ones, but that seems like a dangerous move to only make the well-off an option as in-person customers. We could disagree all day about MLB attendance, but most people could afford to attend a game if they want and are near enough to a team.)

The reference I heard to the Falcons not selling individual game tickets was in this Planet Money podcast episode, rebroadcasted from 2018, focused on the different approach the team took to concessions, notably lowering costs to increase sales. Just 20-minutes long, if you're inclined.

Hot Dog Hail Mary

Ron thanks for taking the trouble to explain all that.

I do note that the issue of fannies in the seats is a big concern with owners.

Although there are fewer fannies, our fannies have been increasing significantly in size, so it all probably evens out, right?

Although there are fewer fannies, our fannies have been increasing significantly in size, so it all probably evens out, right?

Only if bigger fannies have a correlation with more disposable income. If you go strictly by the Kardashians, that most certainly is true.

(I don't follow the NFL, but I heard the other day the Falcons only sell season tickets, no individual-game tickets. Is that so? I know NFL tickets tend to cost more than MLB ones, but that seems like a dangerous move to only make the well-off an option as in-person customers. We could disagree all day about MLB attendance, but most people could afford to attend a game if they want and are near enough to a team.)

I don’t think it is selling season tickets that is making the NFL tickets only for the well-off. Just look at the ticket prices for single games on sites like Hub Stub (of course, you can’t right now, but in normal times).

If a football team can sell out with only selling season tickets at prices that are unaffordable for the average fan, why should they change their model?

Only if bigger fannies have a correlation with more disposable income. If you go strictly by the Kardashians, that most certainly is true.

Hell, for the Kardashians, there's statistically significant causality.

If a football team can sell out with only selling season tickets at prices that are unaffordable for the average fan, why should they change their model?

The only threat I can imagine from that model is the size of a team's fan base being diminished. Whether that would actually happen, or even if there's an effect on the number of fans that doesn't correspond to hurting the bottom line, I have no idea. But I'd bet you're correct just because of the teams that have had the decades-long waitlists for season tickets.