Dejan Kovacevic's Pirates chat transcript: 8.23.2010
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Dejan Kovacevic: Afternoon, all, after a whirlwind -- and kind of weird -- Sunday. We will start in five minutes.
Skip: Ready to earn your MBA from Katz?
Dejan Kovacevic: No, I'm not. Funny thing, but I was looking over to my right at the nine or 10 guys covering the Mets this weekend and wondering how often they had to engage in stuff like this. They just show up daily and cover baseball.
I'm no expert on the business topic and have no interest in becoming one.
poorbuccos: DK, does the fact that the Pirates only made 5.4 million in 2009 as compared to 15 million in 2007 and 14 million in 2008 mean that they are spending more money on players, scouts, etc.?
Dejan Kovacevic: That was Frank Coonelly's explanation, yes. He described the dip in profits mostly as related to increased spending on amateur players, scouting and such. He also mentioned the economic recession as having affected all teams.
City of ChampYinz: Dejan, which do you think is the bigger piece of information that can be taken from the financial reports released: 1) That the team with the worst combined record over the past three years has made a $35 million profit; or 2) That a team with a payroll of $40 million can only make a $5 million profit in 2009...meaning that any meaningful increase in salary will likely result in a "loss" for the year?
Dejan Kovacevic: I can tell from my email today that this already is very much in the eye of the beholder. If you ask me -- and you did -- I would think that, from a longer-term standpoint, the idea of whether or not the Pirates can get up to a certain level of payroll -- assuming they and ownership were to do everything right -- would be the bigger deal.
Mr_Xiaoqi: I think one thing that comes out of this whole situation is that Nutting needs to let it go, as in sell. Wouldn't this save him the "agony and public lashings" he publicly spoke of yesterday?
Dejan Kovacevic: I raised that issue with him yesterday, actually, particularly as it relates to the losing, the criticism of him for not spending enough, the accusations of pocketing, and he responded that he very firmly believes he is the right person to get the Pirates through this and keep them from veering from their plan. He said of a potential change in ownership right now that it would be "disastrous."
Mr_Xiaoqi: Dejan - Why the trip and mammoth article on 16 year old Luis Heredia? Is this all we have as Pirate fans?
Dejan Kovacevic: I didn't really consider it as much an article on Heredia as about the process of signing an elite player in that part of the world. I began thinking about that last year when the Pirates failed to get their targeted elite player, Miguel Angel Sano, and that's why I went this time BEFORE the Heredia signing, to see the process, whether it was going to work or not.
But I don't think I billed Heredia as being all that anyone has, certainly not in the introductory segment that describes him mostly struggling on the mound.
Sam K: DK - Two questions: The piece on Heredia was great and its a shame that it will likely be overshadowed in this chat by the financial story. Any chance of a 2nd chat this week devoted to Heredia? In regards to the finances, while it was not explicitly stated (or maybe it was) can we assume that besides the ~20 million doled out for taxes/interest to Nutting, can it be assumed that all other profits were or are going to be reinvested in the team?
Dejan Kovacevic: I appreciate the kind words about the Heredia piece, Sam.
And no, it cannot and should not be assumed that profits are going anywhere until the Pirates prove that. That is what they say, but the burden is on them to prove it.
For all the examining of books and extrapolation of figures that is happening these past 24 hours, this all still is really pretty simple: Spend on the major-league team, and do so up to the level of your market and revenue peers.
I'm not suggesting that happens in derivation to the plan, as I know many will snap back right away. Clearly, the Pirates will have a handful of rookies on the field next year who will cost very little. But there has to come a point where the Pirates can spend up to the level of the Reds and Brewers. If they cannot, something is wrong, either in terms of the way the money is moving, or in terms of ownership's ability to capitalize the team.
Mikey: How much payroll do you see them adding? I could see McCutchens' salary going up and if they keep Duke and Maholm they are due raises. That's all I see them doing besides adding some bullpen arms.
Dejan Kovacevic: The feel that I get is that you will see it back in the $50 million range next year. That would be up from the current $44 million, pretty much back to where it was when the current management took over a couple years ago.
One of the lines that might have gotten lost in my long piece this morning is Frank Coonelly saying for the first time that the Pirates budgeted to "break even" in 2009. Those trades are the only reason they finished in the black.
The math on that, plus current attendance being only slightly up, do not appear to add up to some monstrous increase for 2011.
Brian: Isn't the purpose of running a business to make money?
Dejan Kovacevic: The primary purpose of running a sports franchise is to win. Part of winning is to make money, then to reapply it.
The two are not mutually exclusive.
Greg45478: Is Evan Meek going to get a save opportunity this year, or is Hanrahan the permanent closer right now?
Dejan Kovacevic: Baseball? OK.
I get the impression, though the Pirates will not say so, that they're being more careful with Meek than they'd like to let on. His inning count is ahead of Hanrahan, and Hanrahan has done it before.
I also get the impression the Pirates would much, much rather have these two work out the closer thing next spring, not now.
PirateApologist: Why did Greg45478 ask a question that didn't relate to money?
Dejan Kovacevic: Actually, most of the Qs on the screen in front of me are baseball-related. I just thought the other topic would be of greater interest. Maybe I'm wrong.
colormeskeptical: What is Aki still doing in the organization? Are they seriously thinking someone will trade for him through waivers? Having anyone other than him get those at bats has to be a better use of them.
Dejan Kovacevic: I really couldn't see the Pirates telling a guy who's taking that much of their money to just go home and lie on the couch counting it. They are not happy with any aspect of his preparation entering this season, though they have not criticized that publicly.
I wrote back in the spring that I thought Iwamura looked overweight, and that was greeted with some derision. The Pirates now acknowledge that.
He will ride buses all summer.
SeanE: DK isn't a better question whether the Reds and Brewers can continue to spend at the level they are given the economics of baseball. Are not the Brewers losing money this year?
Dejan Kovacevic: The Brewers will lose. They are about $10 million over where they should be, at around $90 million. Still, there is a colossal gap between the Pirates' $44 million and that $80 million.
Now, the Brewers also are going to have much greater attendance, and they get close to $10 million in parking compared to the Pirates' $0 in parking, so there are variables. But the Pirates also have a much better local broadcasting deal.
Chris: How does John Russell continue to keep his job? Watching him manage the game Friday night and not get the pinch hitter or another relief pitcher up when you might have a chance to get back in the game is a joke.
Dejan Kovacevic: I was trying to think the next day if that was the most questionable move I had seen from Russell, and I still ranked it third: No. 1 was not sending his players out of the dugout to take on the Dodgers this April when Ramon Ortiz threw twice at Andrew McCutchen's head. No. 2 was lifting Zach Duke in the home finale last year at 8 2/3 innings.
jeff: your thoughts on Tabata bunting twice with no one out and a runner on second.....
Dejan Kovacevic: That might be No. 4.
Tabata is second in the NL in hits since the break, and it doesn't take much to score McCutchen from second.
Mr_Xiaoqi: I thought the Pirate payroll was about 35 mil. Where do you get 44 mil?
Dejan Kovacevic: That is the 40-man roster payroll, used by official MLB accounting. The more commonly cited $36 million is the simple addition of the 25 opening-day salaries. The Pirates made a lot of trades, exchanged cash, called up players from the minors, that sort of thing.
O_Fries: You called it with Neil Walker, huh? Before every ball found grass, now every ball finds glove. It all averages out.
Dejan Kovacevic: I wouldn't label Walker lucky. He has been hitting the ball hard since Day 1 and still is. The part that I see as unsustainable is the two-strike counts he runs up. That has to get better.
Tim: Dejan, any chance your PBC blog will ever be available for print subscribers for free? Print subscribers are given no consideration for the pg+ stuff. very disappointing
Dejan Kovacevic: I appreciate that, Tim. With the really uplifting response we've had to the blog -- especially in light of the Pirates being completely awful this year -- we've already had print subscribers sign up, so that would create a problem in that area, I guess. This is done way over my head.
T crack: DK, do you agree with me that Ryan Doumit has the strongest and most accurate arm of all Pirate outfielders?
Dejan Kovacevic: Yes, he does. And he knows it's good, too, which is part of the equation. Obviously, though, there is a ton of work to be done on the actual fielding.
NateRosboro: Do you think, even with the extension in the off-season, that Russell and his coaches (who are left) are safe in keeping their jobs? I'm sure the extension was given without the thought of the team playing like this....
Dejan Kovacevic: I'm sure that I see it the same way, Nate. No, Russell is not safe, and neither are most of the coaches.
Ian: Coonelly/Huntington have done things exactly right with the focus on the draft and LA. Only one of NH's draftees has reached the majors, and it will be 3-5 more years for it to bear fruit. Will the organization be patient enough to see this through, or will NH be fired before Taillon/Allie/Sanchez/Heredia get to Pittsburgh? Now that would be ironic.
Dejan Kovacevic: Few would dispute that the Pirates have upgraded their system, their development and their ability to secure and sign amateur talent. But a GM is judged, ultimately, on his ability to build a major-league team, not move up in the Baseball America rankings. That obviously has not happened to date, and it remains to be seen if he will be given the chance -- or resources -- to make it happen.
Fat Jimmy: BAck to finances: did you ask Nutting if the PBC was required to pay back his loan, or did they choose to pay him back because they had generated enough money that year? Could they have continued to pay him interest?
Dejan Kovacevic: Yes, I asked. The principal was paid back in equity in the team. The interest payments for two of the five years was paid in cash, per a vote of the board that actually was not Nutting's preference. He wanted more equity, and the minority owners wanted to keep their stakes.
My understanding is that the terms of this loan, or note, was that there were certain things that did need to be executed at certain points. No specifics were available beyond that.
That said, turning the principal of the loan into equity doesn't directly deplete the team's cash. It just raises the stake in ownership.
I'm starting to sound like I know something about these matters, which scares me. One more today ...
SeanE: Hidden hint there about Russell DK?
Dejan Kovacevic: No need for hidden hints. The team president said on the record last week that "nobody's job is absolutely safe." That was too short. One more ...
Fat Jimmy: Can you clarify your reporting? This morning you wrote that the $11 million in profit the past two years number did not come from the team, yet in your December 2009 article (in the first graph) you attribute that number to Frank Coonley. Did you make a mistake in 2009 or 2010? :-)
Dejan Kovacevic: The part that attributes to Coonelly is to the team reinvesting all its profits, not to the dollar figure itself. I remember writing the very next day on the blog that I'd love to have had a second crack at the first sentence in December 2009. But once it goes in print and hits the trucks, there it goes.
To repeat for those who might not have seen it on the blog, the $11 million figure in that piece did not come from the Pirates. I said so at the time and repeated it in this morning's main article. It came from my own computation of other information that I had.
Now, as is very obvious, that information did not include the ownership distributions. I asked at the time about dividends, which are different, and was told there were none. The amount, the timing and the placement of all of the four distributions into the 2008 books (even though they involved issues as far back as 2006) obviously would have changed that $11 million figure.
Actual baseball tonight, and a Q&A tomorrow. Thanks for this and for the many kind emails about the Heredia piece. It was an exceptional four days, and I hope that at least a little bit of that came across.
First Published August 23, 2010 2:23 pm