Pujols’ Departure Could be Win for All

Dan Schindler, Tax Associate

After overcoming their emotions about Albert Pujols’ departure, I believe that St. Louis Cardinals fans will realize that Albert’s signing with the Angels could be a “win” for all parties involved. 

 Albert Pujols. Albert now boasts the second largest contract in MLB history behind Alex Rodriguez.  In fact, with his new $254 million contract, Pujols will now be earning $68,493 per day for the next ten years.  Signing with the Angels will also allow Pujols the opportunity to play for another competitive team while giving him the option to become a designated hitter later in his career.  Additionally, Albert will now be spending most of his playing time in California’s favorable weather conditions.

Los Angeles Angels of Anaheim.  Angels owner Arte Moreno should see plenty of benefits both on and off the field thanks to his new $254 million investment in Albert Pujols.  In addition to acquiring a player that should be one of the game’s best for the next few years, signing Albert should bring more value to the franchise than ever before.  According to Forbes, the Angels franchise was valued at $184 million when Moreno purchased the team in 2003.  The franchise’s current value of $554 million will probably continue to increase significantly in the years to come thanks to additional memorabilia and apparel revenue as well increased media rights, corporate sponsorships, and advertising rates.

 St. Louis Cardinals. Most Cardinal fans would agree that it will be difficult to replace a player like Albert Pujols.  However, I believe that most Cardinals fans would also agree that it would have been very difficult for St. Louis to field a competitive team while paying Albert such a large contract.  After all, in the next few years some of the Cardinals other stars such as Wainwright, Carpenter, Molina, Freese, and Craig will all be up for new contracts.  In some of the larger markets, it may be possible for one team to support so many expensive contracts.  However, for teams like the Cardinals who play in smaller markets, maintaining such a high payroll is often not an option.

All in all, Albert got his big payday with a competitive team, the Angels have obtained a new face of their franchise, and the Cardinals have allowed themselves the financial capability to stay competitive for years to come.

David Freese’s Big Payday

Brent W. Robbs, Tax Associate

$$$  

That’s what I’d be seeing if I were David Freese and I had just fulfilled my childhood dream by winning the World Series with the St. Louis Cardinals and being named MVP of the NLCS and the World Series.  But not so fast, let’s take a look at how Mr. October, I mean Mr. Freese, stands to be compensated for his recent baseball heroics. 

First the good news.  Freese was paid $416,000 in 2011 before his share of the bonus for winning the World Series.  The bonus will most likely be $350,000-$375,000.  Nothing like doubling your salary by working an extra month, eh? 

And now for the “bad” news.  Freese has only two years of Major League service time which qualifies him as a pre-arbitration player for 2012.  That means that the St. Louis Cardinals either trade him or keep him and pay him whatever they want as long as it’s more than the league minimum and at least 80% of the prior year’s compensation.  Freese has no say in the matter. 

Let’s look further into the future.  From 2013 to 2015 Freese will be considered an arbitration-eligible player.  During this time Freese and the team will negotiate and try to come to an agreement regarding his salary.  If they cannot reach an agreement, both sides develop their idea of a “fair” salary and an arbitrator will decide.  “Fair” is determined based on service time and performance. 

In 2016 Freese will finally be a free agent.  If the next few years go as well as the 2011 post season, then Freese may finally get his big payday as teams start a bidding war over one of the best players in baseball. 

There’s no rest in Freese’s future.  He needs to be at peak performance over the next few years to try to land that big contract and ensure a happy retirement.

Calculating the Bonuses of World Champions

Brent W. Robbs, Tax Associate

With the 2011 World Series Championship fresh in our minds, let’s take a minute to answer a question I seem to hear every year about this time.  What kind of bonuses do MLB players get for playoff appearances and how are they determined? 

Each year MLB develops a bonus pool.  This bonus pool is made up of 60% of the ticket sales from:  (1) the first 3 games of each Division Series, (2) the first 4 games of each League Championship Series, and (3) the first 4 games of the World Series.  Why only those games?  Because MLB wants to encourage teams to play their best baseball, not to throw a game or two in hopes of earning a bigger check. 

The bonus pool is divided as follows:  36% to the World Series Champion, 24% to the runner-up, 12% to teams losing in the League Championship’s, 3% to teams losing in the Division Series’, and 1% to the four second place teams in each division that did not make the playoffs (36+24+12+12+3+3+3+3+1+1+1+1=100, in case you’re counting). 

Next, teams hold player-only meetings where players get to vote on how the bonus is divided.  Players for the team at any point during season, healthy or injured, as well as coaches, trainers and other staff members are eligible for a share. 

So how much will a share of the St. Louis Cardinals 2011 World Series Champion share be worth?  Based on prior year data, I expect it to be in the range of $350,000 – $375,000.  Not a bad payday.

Cost to Make the Playoffs in MLB

Douglas D. Mueller, CPA/PFS, Tax Partner

The playoffs are underway after arguably the most exciting last day of the season in history.  Let’s look at team payrolls for those who made it:

• The Philadelphia Phillies had an extraordinary year and they paid for it with a team payroll of $170,000,000. 
• The Cardinals clawed their way in with a great September with a payroll of $114,000,000. 
•  The Tigers are close behind at $106,000,000. 

Texas spent only (?) $89,000,000 to get there, which is only slightly more than the Brewers at $87,000,000.  Arizona accomplished a lot with a payroll totaling $54,000,000.

In a comparison almost equal to the surprising last month of the season, New York spent $192,000,000 to get to the playoffs, while Tampa Bay did it spending under $38,000,000; the second lowest payroll after the Royals.

 Of the top ten spending teams, only 4 made the playoffs – only 2 of the top 7!  Maybe money really doesn’t buy happiness…

Can St. Louis Support its 3 Professional Sports Teams?

The St. Louis Business Journal recently posted a blog entry about whether St. Louis can support the Cardinals, Rams and Blues.  http://www.bizjournals.com/stlouis/blog/2011/08/st-louis-among-most-overextended.html

The article is based on a report from On Numbers.  On Numbers analyzed 85 metropolitan areas in the United States and Canada to determine if they have the financial ability to support professional teams in baseball, football, basketball, hockey and soccer.  Their analysis indicates we don’t have the personal income to support all three of our teams.

They estimate that a city needs a minimum income base to support a professional team.  Their minimum income bases were estimated to be $85.4 billion for MLB, $37.6 billion for the NHL, and $36.7 billion for the NFL.

A few questions quickly popped into my head: 

1. Did they adequately capture the entire St. Louis metropolitan region?  I’ll give On Numbers the benefit of the doubt on this one.
2. How do they factor in the relative popularity of a team, i.e. the popularity of the Cardinals in this area compared to the popularity of the Florida Marlins in Miami?  I don’t think they tried, understandably.
3. Did they factor in “crossover popularity”, i.e. are the same St. Louis fans going to Cardinal games and Rams and Blues games?  I don’t think they did.  It appears from a very quick glance that the purpose of On Numbers analysis was to gauge the capacity of a city to support a NEW team, either from expansion or relocation, not an established team with a rabid fan base.

I remain convinced that St. Louis can and will support all three of our great professional sports teams and don’t read too much into On Numbers analysis.  Take it for what it is – an expansion and relocation study.

Let the Games Begin

Adam Prest, CPA, Tax Supervisor

According to multiple news sources, NFL players and owners have finalized a new 10 year labor deal that will end the work stoppage that began in March.  

As part of this new deal, players will now receive approximately 47% of the roughly $9 billion in annual league revenues while the owners will receive approximately 53%.  This differs from the previous collective bargaining agreement under which the revenue was split nearly 50/50 between players and owners. 

In addition to determining how annual revenues will be divided, players and owners have reportedly also agreed to the following terms:

 -          A $120 million (per team) salary and bonus cap for 2011

-          At least $120 million (per team) salary and bonus cap for 2012 and 2013

-          An initial salary floor of 99% of the salary cap that drops to 95% and then 89%

-          A salary system to “rein in” spending on first-round draft picks

-          Unrestricted free agency for most players after four seasons

Now that a deal is finalized, free agency will soon officially begin and teams will be able to negotiate agreements with rookies and free agents. 

Due to the fact that free agency is getting such a late start, this week could be very hectic for the teams, the players, and the players’ agents, attorneys, and accountants.

MLB Team Efficiency

Doug Mueller, CPA/PFS, Tax Partner

Back again with more mid-year info from  www.baseballplayersalaries.com.  What teams do the most, with the least?

The most efficient team on a cost per win basis, with slightly more than half the season gone, is the Tampa Bay Rays at $772,814 per win.  The next 4 are the Royals, Pirates, Indians and Diamondbacks.  Before you think this is skewed by low paying, but losing teams, read this shocker:  of the 5 teams, only the Royals are under .500 at the All Star break.  Can they all keep it going for the rest of the year?

The least efficient list can be misleading because of the huge payrolls involved.  In fact, numbers 1, 3 and 5 on the list of least efficient teams are the Yankees, Red Sox and Phillies – all of which have a stellar record of over .600 so far.  However, the other 2 are the Cubs and White Sox who are both under .500 – what is it about Chicago baseball???  Blogger’s full disclosure – I’m a Cardinal fan

Pitcher Wins and What They are Worth

Doug Mueller, CPA/PFS, Tax Partner

Back again with more mid-year info from  www.baseballplayersalaries.com.  Let’s look at what many feel can be a misleading stat – pitcher wins.

Whiles wins can be misleading due to lack of run support, or massive run support for the lucky ones, through the mid-point of the season, the cheapest wins were from Josh Tomlin of the Indians at $41,720.  Next in line were Tommy Hanson, Jake Arrieta, Daniel Hudson and Ian Kennedy.  Again, not surprisingly, all of these hurlers are paid pretty close to the league minimum.

With regards to the most expensive wins, keep in mind that missed starts and time on the DL will have a major affect on this list and it probably isn’t fair…  That said, here we go:  Weighing at $8,500,000 per win is Joe Blanton of the Phillies – how would you like to be compared to Roy Halladay and Cliff Lee every day!  In his defense, he has only made 6 starts this year.  After Mr. Blanton, the list includes starters Barry Zito, Jon Garland and Jake Peavy.  Barry’s actually pitching very well since coming off the DL, which is a common theme among these pitchers.

Next up – team efficiency.

Home Runs and What They are Worth

Doug Mueller, CPA/PFS, Tax Partner

If you read my last blog entry, you know I like to look at www.baseballplayersalaries.com  to see their determination of the value of certain things in baseball.  Let’s look at what everyone loves to watch – home runs.

Through the mid-point of the season, the cheapest home runs were from Mike Stanton of the Marlins at $23,111 for each long ball.  Next in line were Mark Trumbo, Danny Espinosa, Freddie Freeman and my favorite dual career star, Carlos Santana.  Not surprisingly, all of these sluggers are paid near the league minimum which results in their value.

The list of most expensive home runs isn’t really a fair comparison as many players making large salaries don’t hit home runs and aren’t expected to, i.e. Ichiro.

Next we’ll look at pitchers’ wins.  Thanks for reading…

Baseball Players – A Mid-Season Look at Relative Values

Doug Mueller, CPA/PFS, Tax Partner

Now that the All Star game has come and gone with all the related hoopla/controversy, let’s take a look at the business side of the top players.  Which ones produce the most “bang for the buck”?

Obviously, none of these statistics are official, but intended as an interesting way to look at things.  I found a website, www.baseballplayersalaries.com that employs a fairly simple philosophy to look at relative value of the players.

Using their methodology, the player with the most value to his team, relative to his cost, is Andrew McCutchen with the Pirates.  In fact, it’s not even close.  The rest of the top 5 include:  Jhoulys Chacin, Alex Avila, Gio Gonzalez and Gaby Sanchez. 

Now to the dark side.  The players with the worst value to their team in this simple, financial-only glance, are: John Lackey, Adam Dunn, Aubrey Huff, Magglio Ordonez and Justin Morneau.

This obviously doesn’t value any intangibles, but is an interesting way to look at things.  In future posts, I’ll go through the cost of home runs, wins and the most efficient teams.