Caught Stealing?

The Pirates are poised to hit the city up again for a handout

by Patricia G. Barnes
In Pittsburgh Newsweekly
February 10 – 16, 1994

In baseball, when a bat slices through the strike zone three times, the umpire screams, “Yer Out!” But it’s hard to tell when a baseball team strikes out. After years of reporting losses on paper, the Pittsburgh Pirates say they are up in the bottom of the ninth inning with nobody on base and the pitcher at bat. A sale appears imminent, one that will probably keep the team in Pittsburgh. But what will taxpayers be asked to fork over this time for the privilege of watching Jay Bell and Andy Van Slyke cavort on the carpet at Three Rivers Stadium?

It’s almost an instant replay from 1985, when the city bailed out the Pirates with a $20 million “loan” for which it has never received a dime in interest or repayment. Now, the Pirates are seeking new concessions from the city — the Stadium Authority recently approved a new $4.3 million scoreboard at Three Rivers Stadium and the city is studying reopening its lease for the stadium to offer more favorable terms to the Pirates. Meanwhile, attendance at Pirates games hovers toward the bottom of the National League, and only 4,400 fans bought season tickets last year.

The question is: When does a team strike out?

“When is it going to end?” lamented city Controller Tom Flaherty, one of a small group of local officials who oppose further handouts to the Pirates.

A few voices like Flaherty’s are grumbling over the roar of the crowd. Can a financially strapped city like Pittsburgh afford to continue to subsidize a privately-owned sports team — even a championship team like the Pirates?

Last year, in a magnanimous gesture, City Council did away with the user fee paid by inner-city children at city pools. Council recently was forced to reinstate the fees, which bring in about $130,000 annually, due to a budget crunch. City Council member Christopher Smith says, “Wecan’t have the Pirates making multi-million dollar decisions we have nothing to do with and then asking us to subsidize them.” Council President Jim Ferlo opposes cutting city payroll or services or raising taxes to help the Pirates, adding, “There is no money.” Ken Regal, co-director of Just Harvest, a Pittsburgh anti-hunger advocacy group, said, “The city has better things to do with its resources than to finance baseball team losses… such as helping those in need.”

Still, the crowd yells for MORE!

City Council member Robert O’Connor, Jr., sought, unsuccessfully, last month to form a blue ribbon committee to develop strategies to keep the Pirates in Pittsburgh. Mayor Tom Murphy nixed that idea, saying that he has received assurances from the Pirates corporate owners that the team will remain in Pittsburgh even if it is sold. (Oddly enough, the city isn’t an owner of the Pirates, despite the $20 million unpaid loan to the private consortium that bought the team for $26 million in 1985. Terms of the loan did not give the city an equity interest in the team.)

But Murphy has hired a blue-ribbon law firm, Buchanan Ingersoll, to study renegotiating the Pirates’ lease et Three Rivers Stadium, as well as the degree to which other municipalities subsidize major league baseball teams. This despite the fact that the stadium obviously hasn’t charged enough rent to the Pirates and the Pittsburgh Steelers because it has operated in a deficit for years, requiring the city and county to pay an estimated $1.8 million annually to the Stadium Authority to balance its budget.) Murphy also says the stadium is a candidate for funding as a regional asset under a new county-wide one percent sales tax.

When is enough, enough? “I don’t know the point where the city says no,” said Murphy, who took office in January. However, Murphy has said that. if the team is sold, he wants the new owner to pay back the $20 million loan.

Meanwhile, a local Pirates chealeader, John G. Craig, Jr., the editor of the Pittsburgh Post-Gazette, is actually urging the city to build another stadium to keep the Pirates in town. In a recent PG column he urged local officials to replace the 23-year-old Three Rivers Stadium, citing Cleveland’s recent decision to build a new stadium. Craig failed to note, though, that Cleveland’s Municipal Stadium was nearly 60 years old and structurally unsound.

Pirates President Mark Sauer sang the anthem that prompted the latest frenzy to appease the Pirates earlier this month when he warned that unless revenue sharing and a salary cap is approved for baseball, the Pirates would leave Pittsburgh for greener fields. Under revenue sharing, revenue from large market teams, such as those in New York and Los Angeles, would be dispersed to small market teams like the Pirates. The National League subsequently approved revenue sharing.

Now comes the hard part: The players must vote on the salary cap. And one wonders what incentive the players have to cap their own salaries, particularly in light of allegations that the teams play fast and loose with financial figures in order to show losses year after year?

Since Sauer’s warning that Pittsburgh might lose the Pirates, several potential purchasers of the 107-year-old baseball franchise have emerged. Suitors include Pittsburgh Penguins owner Howard Baldwin and Bill Craig, president of KBL Sports, Pittsburgh’s cable sports channel and a subsidiary of Liberty Media Corp., the nation’s largest cable TV company. Both men are reportedly interested in obtaining television rights to Pirates games.

Pittsburgh multi-millionaire/riverboat gambler John Connelly also has expressed interest in the franchise. But he is deemed a long shot because of his gambling connections. Major league baseball frowns upon anyone with ties to gambling. Which makes sense, considering that the team owners prefer a sure thing when it comes togetting what they want. Like threatening to move a franchise, which always seems to work.

The city almost lost the Pirates in the mid-1980s, when a consortium called Pittsburgh Associates purchased the team from the Galbreath family and Warner Communications for $26 million. (Today that consortium values the team at $100 million and will probably get atleast $80 million.) The consortium still has ten members, including Carnegie Mellon University, three private investors and six corporations (Alcoa, Mellon Bank, PNC Corp., PPG Industries, USX Corp. and Westinghouse Electric Co.). A key aspect of the 1985 deal was a $20 million loan from the city, which was characterized as “working capital.” The terms of the loan are, to say the least, favorable to the partnership.

Joseph Gariti, III, attorney for the city’s Urban Redevelopment Authority (URA), which actually made the $20 million loan, said the 15-year loan agreement tied repayment to “positive” cash flow. In other words, the team is not required to make annual payments to the city unless it declares a profit. Thus, the Pirates have an incentive to operate at a deficit. And each year since the loan was made, the team has done just that.

The Pirates have submitted financial statements to the city outlining the extent of their “loss.” According to the Pirates, the team lost $13 million in 1992; $3.3 million in 1991; $7.6 million in 1990; $4.3 million in 1989; $1million in 1988.; $10.6 million in 1987; and $19.2million in 1986.

However, these losses are questionable — though city officials and the local media apparently have never questioned them. For example, player salaries increased $8 million from 1990 to 1991 when the team told the city it incurred a $3.3 net loss. From 1991 to 1992, when the Pirates’ net loss grew by almost $10 million to a total of $13 million, player salaries rose $11.3 million.

Author Andrew Zimbalist singled out Pirates accounting for special attention two years ago in his book, Baseball and Billions In a section devoted to the Pirates and the team’s accounting procedures, Zimbalist charges that, in 1989, the team’s reported $4.3 million loss should have been a profit of some $1.4 million.

Zimbalist outlines one accounting method used by the team that helped it show a paper loss that year: The Pirates, along with all other major league teams, were found guilty of colluding to hold down player salaries some years ago. A court ordered the teams to begin paying a settlement to the players in 1991. The Pirates, however, booked their first payment of some $2 million in 1989, one of the accounting decisions that led to the paper loss. Zimbalist said if the Pirates had taken the first collusion charge in 1991 when it was actually paid, the team would certainly have shown a profit in 1989.

But again, had the Pirates shown a profit in any of the years since 1985, when the city loaned the team $20 million, the team would have had to make a payment on the loan.

Zimbalist cites other examples of Pirates accounting which he said represent “accounting gimmickry,” including the method the team uses to amortize player salaries. These details raise the larger question of whether the team really is in financial trouble. How, he asks, could the Pirates show a $7million loss in 1990, a year when the team set a record for attendance at Pirates games? And why, if the team is truly interested in making a profit, did it allow its player payroll to skyrocket from $6 million in 1986 to $15.5million in 1990 and $35 million last year? Sauer could not be reached for a response to these andother questions.

The rationale for paying players more is, of course, to win. And the Pirates won — first placein 1990, 1991 and 1992. But from a profit/loss statement standpoint, they were hollow victories, because on paper the team lost money each year. And as a result, the city never saw a single payment on the $20 million loan from its pennant-winning debtor.

Sauer, who has been team president since 1991, put a lid on skyrocketing player salaries last year, resulting in savings of $11 million. He also slashed away at team overhead, including cutting 11 positions in the organization. In 1992, the team spent almost $6 million in administrative costs — the same amount it spent on all player salaries in 1986.

Financially, the team may not be batting .220 as its owners claim but it certainly isn’t hitting .400 either. The accounting firm of Price Waterhouse expressed concern last year about the “long-term financial viability” of Pittsburgh Associates, which owns the Pirates. It said that Sauer’s cost reduction plan was too little and too late to avoid yet another deficit in 1993. The auditing firm also notes the Pirates were forced to open a $35 million major league-wide line of credit to finance “current operating losses and provide short-term working capital needs.” The team must begin repaying the principle of this loan in August. Meanwhile, Price Waterhouse notes that national radio and television rights agreements with major league baseball expire after the 1993 season and the Pirates are expected to lose $7 million in annual television revenues.

Spectators might say the city’s $20 million loan might seem like a good deal for the Pirates (when was the last time you got a loan you didn’t have to make payments on?), but Sauer told Pittsburgh Business Times that the loan was actually a “bargain for the city.” He cited a study by Carnegie Mellon University students — commissioned by the Pirates — that estimates thePirates brought in $129 million in 1990 in in direct revenue to the city. He also noted the Pirates pay taxes and rent for the stadium.

But the city also pays. A spokesperson for the City Controller’s office said the city paid $3,767,671 last year to the Stadium Authority to subsidize annual operating expenses and to pay off the bond issue for the stadium and the aforementioned $20 million loan.

Interestingly, Pittsburgh Associates, the owners of the Pirates, used the argument that the Pirates are a windfall for the city in a lawsuit the owners filed last summer to enforce an alleged promise by former Mayor Richard Caliguiri in 1985 to give them an additional $4.2 million loan if the city was able to refinance Three Rivers Stadium. But the judge on the case was having none of the Pirates’ saber-rattling.

In a decision relating to motions in the case, which is currently in settlement negotiations, Commonwealth Court Judge Madaline Palladino writes: “Pittsburgh Associates’ argument begins with a false premise when it claims that it confers enormous benefits on the City. Clearly, it is the Pirates’ fans, and not Pittsburgh Associates, that pay the taxes on ticket sales and make the other expenditures.”

But until the fans decide to strike out against the teams’ escalating demands, franchises will continue to cry poor-mouth and demand taxpayer subsidies. Elroy Face, the Pirates’ ace reliever in the 1950s and 1960s, earned $42,500 at his peak in 1961, compared to multi-million-dollar salaries paid today. He says teams won’t demonstrate fiscal responsibility “until the fans rebel and stop coming to the ball park.” If ill-used fans everywhere took Face’s advice, the field of schemes could become the field of dreams once again.

Don Cook and John Campanell contributed to this story.

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Note by Jake: the only motivation I have in posting these articles is to put them in the blog’s record.  I’ve received numerous requests over the years to post all the documents I’ve accumulated and I suppose this is as good a place to start since we are officially at the bottom of the sea and can’t possibly go anywhere else but up from here.  Besides, I’m busy with my son’s birthday today.

Here’s just a few other links for you:

– Voicepac: URA’s 1996 note restructuring for McClatchy’s group

– 2004 Pittsburgh Tribune-Review: URA under fire (compliments the above two reads) for renegotiating the terms of the 1996 note

– 1999 Post-Gazette: about the sale to McClatchy and McClatchy’s own ‘t-shirt protesting’ days:

“Heir to a newspaper fortune, McClatchy, 36, is the grandson of diplomat George Kennan, who formulated the containment theory against communism during the early days of the Cold War. McClatchy had tried to purchase the Oakland Athletics and had owned the Class A Modesto A’s, an Oakland farm team. He was such a baseball fan that when his favorite team, the San Francisco Giants, appeared headed to Tampa and its indoor stadium, McClatchy and his buddies donned T-shirts that said: “Death Before Dome.“‘

– Andrew McCutchen: reconstructive right knee; chosing to play for Florida; 3.9 home to first speed