What if the Orioles Just Want to Cut Payroll?

All off season, including here on Camden Depot, it's been assumed that the Orioles have money available to spend on free agents as a result of clearing multiple large salaries off their books. Specifically, the O's no longer have to pay a combined $45 million to Ubaldo Jimenez, Wade Miley, JJ Hardy, and Chris Tillman. Given that the O's payroll has increased every season for almost the past decade, it made sense that at the very least they would maintain a payroll number similar to that of 2017. Of course, the problem with the 2017 payroll (which was the highest in club history) is that the team crashed and burned, finishing below .500 for the first time since 2011.

The Orioles have, in both their actions and their rhetoric, repeatedly shown that the current brain trust has little interest in rebuilding. It was therefore natural to assume that the Orioles would sign several free agent pitchers to bolster what was the worst starting rotation the team has ever had. Of course, there has only been the barest of hints that the Orioles are even interested in any free agent starters, much less being close to signing one. Even in a glacially slow off season, the O's have been less active than their normal selves. This raises obvious questions about what the goals of this off season actually are.

From a non-cynical perspective, perhaps the O's are just engaging in their time honored method of waiting for the market to shake itself out and then picking up whatever is left. In an off season with a relative dearth of impact talent, this might even make sense. The problem is that the team is desperately in need of pitching talent and there have been multiple reports that the Orioles have been turned off of the starting pitching market by contract demands, health concerns, or both. There is certainly still time for moves to be made, and it seems likely that the Orioles will bring in at least one or two MLB starters, but the idea that the team would sign multiple higher end pitchers is rapidly becoming unrealistic.

A less generous interpretation, however, would be that the Orioles may just not want to continue spending at the level they have over their recent run of success, especially since they have spent well above their market over the past half decade. Baltimore is the 21st largest metro market in America with about 2.7 million people. There are six other franchises that operate in markets with 600,000 more or fewer people than Baltimore: San Diego, Saint Louis, Colorado, Tampa, Pittsburgh, Cincinnati, and Kansas City. 600,000 is, admittedly, an arbitrary number, but I mostly picked it to show the types of teams that the Orioles are clustered around in terms of market size.

Note: All payroll data provided by Cot's Contracts.

It's clear that the Orioles are at the top of the class among this group, with only the Cardinals having a higher average payroll since 2012. The Orioles also have the highest single season payroll ($164 million in 2017) and outspent each of these teams in 2016 and 2017. If you go back only to 2014, the differences are even more stark, with the Orioles having the highest average payroll of the group.

Clearly, this kind of analysis ignores any number of factors. I didn't take into account regional television network revenue, ticket sales, team record, or a host of other potential reasons for the disparity in payroll among these teams. That said, if we accept the idea that the total number of people living in a particular market is a decent proxy for how much a given team should spend, this data is fairly striking. Within their market peer group, the Orioles have been easily one of the highest spenders over the past half decade.

So, maybe there's a simple explanation for the lack of activity from the O's this season: they've realized that their market cannot sustain this level of spending and are attempting to bring the payroll down to more reasonable levels. Even if they do very little in terms of adding to the rotation, it is likely that the 2018 payroll will at least be in the $130 million range, still well above their average spending since 2012. While the team isn't doing what most fans, and even players, seem to want, they will still be spending a significant amount of money on the team in 2018.

Of course, the biggest issue isn't necessarily that the Orioles are cutting payroll, but rather whether the brain trust has a clear idea of where the franchise is going in the next several years. Undergoing a payroll correction in the service of a rebuild may result in a couple of lean years at the major league level, but at least there would be a plan in place. Cutting payroll while also holding onto and/or not seriously engaging in contract extension discussions with the team's most talented players seems much less like a plan and more like a front office that is in disarray.

The Orioles Have a Lot of Hard Payroll Decisions to Make

At first glance, it would seem like the O’s have a lot of long term flexibility in terms of payroll.  According to Cot’s Contracts, they are at $87M for 2017, $51.5M for 2018 and then all the way down to $30M in 2019.  That, however, is simply the amount of money we know is already committed, as these numbers necessarily do not factor in arbitration raises. In some ways, this is good: Not having a lot of money committed long term should allow for greater flexibility to sign extensions with current players or to go out and get free agents.

The flip side is that much of the team is only under control for two more seasons.  Here’s a list of current players who will not be under team control in 2019 as of today:

Adam Jones

Matt Wieters

Brad Brach

Zach Britton

Mark Trumbo

Yovani Gallardo

Chris Tillman

Hyun-Soo Kim

Dylan Bundy

Ryan Flaherty

JJ Hardy

Oh, and a guy you have maybe heard of.  He’s having a pretty good year.  Young shortstop, used to play third, punched a guy in the face a little while back…

The point here is not to say that the team will look different in 2019, because that’s obviously true for many teams.  The issue is that the entire core of the current team will not be guaranteed to be in Baltimore in just three seasons.  Even in 2018, the only players who are under team control from the above list are Manny Machado, Jones, and Britton.

So, what’s a road map for the team in terms of payroll going forward?  Everything should start and stop with Machado.  He’s the biggest and most important domino and the future of the franchise is largely based on whether the Orioles can retain him.  Let’s say, for the sake of this post, that the O’s can sign Machado to an extension after the 2016 season.  Let’s also say he gets something similar to what Jon Shepard proposed: 10 years, $400M, with an opt out after year 5.  Assuming there is some money deferred, I'd estimate Machado will be around a $35M per year payroll number.

Under this scenario, a Machado extension would raise the total committed payroll in 2017 to $122M, which does not include salaries for Tillman, Britton, Gausman, Brach, Caleb Joseph, or Jonathan Schoop.  Combined, those players made just over $16M in 2016.  That number could easily double in 2017.  If it does, the payroll would then be at a record high of $150M, and that does not include other, smaller arb raises, not to mention possibly re-signing someone like Trumbo, Wieters, Alvarez, etc.  If the O’s need to make moves in free agency, just inking a big Machado extension will easily push the club into the top 6 or 7 payrolls in baseball (potentially even top 5) with little to no improvement in terms of actual players. Perhaps Machado takes a reduced salary for the first year or two which will be made up in subsequent seasons, but even so, it is very difficult to imagine the O’s not running a $150M+ payroll in 2017 that may not even include their current starting catcher, RF, and DH.  

Things calm down a bit in 2018.  Ubaldo Jimenez’s deal will be off the books, as will Hardy’s and Gallardo’s (though it will require $4M total to buy them out, which is the most likely outcome).  That represents a savings of over $35M.  The problem there is that Tillman will be a free agent and will probably command a $15-20M commitment per season.  If he leaves in free agency, the rotation could be something like Gausman and... well, the rest is unclear.  It also means that the team would likely need a third baseman, a left fielder, a right fielder, and possibly a catcher.  That’s a lot of holes when you consider that, even with some big contracts coming off the books, the payroll will be around $100M (with the theoretical Machado extension) without any of those positions being filled.  This is also not taking into account potential extensions for guys like Gausman, Schoop, Bundy, etc.  

There are, of course, players that could plug these holes that are currently in the system. By 2018, Chance Sisco should be in line to make his debut. Perhaps Trey Mancini moves to the outfield or becomes a DH. DJ Stewart has had a slow start to his professional career, but as a former first round pick there's a chance he is ready to contribute in two seasons. Jomar Reyes will still only be 21 years old, but he is consistently ranked among the team's top prospects and could be in a position to move up to the big club. Pitchers like Cody Sedlock, Chris Lee, Tanner Scott, Hunter Harvey, and David Hess could be knocking on the door for the rotation as well. All of these players, however, come with the inherent risk and unpredictability of being prospects and they will almost certainly not all pan out. The O's will need to rely on their farm system to fill some of the holes on the big league roster for sure, but they will also need to go out of the organization as well.

So, what’s the solution?  It’s honestly hard to see one with the current roster and payroll.  A Machado extension after 2016 (which seems like the most likely time for it to occur, if ever) will require a huge payroll jump in both the short and medium term if the Orioles want to keep the team together.  For a team that, prior to 2016, has traditionally been closer to the middle than the top of payroll rankings this would require a pretty significant shift in philosophy.  Depending on what happens the rest of this season, perhaps they simply throw caution to the wind and go all out for 2017 but the potential repercussions of that kind of approach could be drastic.

The alternative would be to sign Machado and simultaneously rebuild by trading guys like Britton, Tillman, Gallardo, O’Day, and maybe even Adam Jones to get younger and cheaper, and in so doing build around Machado, Davis and a new crop of prospects to go along with what they currently have in the minors.

Of course, the third and most treacherous path (one that many O’s fans don’t want to contemplate) is to trade Machado for a huge haul in prospects.  To me, though, that would only be viable if they also dealt the rest of their core players as well and went into a total rebuild.  Additionally, the longer they wait the less trade value Machado will have.  Teams will certainly line up to try and trade for Machado, but the price tag would necessarily go down the closer he is to free agency and one of the biggest contracts in history.  Essentially, the O’s need to make the decision on Machado by the end of this season in order to put a plan in place to either go for broke or to rebuild and re-tool.

To me, the most viable path forward for the team to remain competitive long term is to sign Machado and rebuild at the same time.  It seems unrealistic to assume that the O’s will spend $150M+ every year, and trying to keep the current team together will absolutely cost that much and is likely to cost more.  The front office has been surprisingly liberal (at times) regarding payroll issues, so perhaps this analysis is not giving enough credit to the idea that the Orioles will do whatever it takes to win a World Series.  It would not be entirely dissimilar to what the Tigers have done for the past five or so seasons, and with some clever contract structuring it might not have to be a long term disaster.  

In the end, the Orioles are going to have to make some very difficult decisions regarding the roster and payroll in the very near future.  I see this as a feather in the team’s cap.  Without spending on ridiculous free agent contracts they have built a team that has become so good that it is almost too expensive, but their success may be the impetus for pretty drastic roster changes.  Just another reason to win the World Series this year.

Would You Pay More for Tickets if the Orioles Paid More for Players?

Writers for Camden Depot have written a number of articles discussing how the Orioles could improve their team for the playoff run. These articles have primarily focused on the fact that the Orioles should consider trying to find upgrades because they're currently in first place. But there's another factor that the Orioles and other teams consider when they decide whether it makes sense to buy and sell that hasn't been discussed --- money.

Most fans want to see a winner and Orioles fans are no exception. The Orioles had an average attendance larger than 40,000 fans per game from 1992-1999 when they were reasonably good. From 2006 to 2011 attendance was nearly half of that at about 21,000 to 26,000 fans per game. What's interesting is that attendance has been increasing from 2012 to 2014. Attendance has increased from 21k fans per game in 2011 to 29k fans per game in 2013 and 2014.

According to Baseball Reference, Orioles attendance is down slightly in 2014 from 2013. Baseball Reference determines this by comparing how many fans showed up in 2013 through the number of games played at home in 2014. They're comparing 2013 attendance through 49 games to 2014 attendance through 49 games.

There are problems with this approach. More fans attend games on Friday, Saturday and Sunday then attend games on Monday through Thursday. More fans attend Orioles' games against the Red Sox, Yankees and interleague teams then they do against the Rays and Royals. If a double header is played due to a game being postponed and tickets are good for both games (which has happened once this year) then Baseball Reference considers the second game as having 0 attendance. While this is technically accurate, it is unhelpful when trying to determine trends. Without finding a way to account for these issues it really isn't possible to compare 2013 attendance to 2014 attendance.

What I decided to do was build a dataset with all Orioles home games from 2006 to 2014 and determine average attendance based on the day of week that a game is played as well as the opponent type in order to be able to compare attendance from 2006 to 2014. The chart below shows the season, attendance above average season and attendance above average season through 48 games. The reason why I use 48 games instead of 49 is because I omit all games with an attendance of 0 due to a double header.

Year	Extra Fans Full Season	Extra Fans Looking at First 48 Games
2006	76640	104549
2007	107976	64095
2008	-37139	2204
2009	-150904	-58753
2010	-310915	-253807
2011	-278696	-272159
2012	101641	112653
2013	250777	317547
2014	401421	401421

The chart shows that when these factors are taken into account we should expect the 2014 Orioles to have 100,000 to 150,000 more fans in attendance than the 2013 Orioles and about 650,000 to 710,000 more fans in attendance than the 2010 Orioles. The reason why the numbers look different can be explained by the following two charts. The first chart shows the number of games that the Orioles have played against different types of opponents on different days of the weeks.

Opponent Rank	Day of Week	2006	2007	2008	2009	2010	2011	2012	2013	2014
Average	Fri/Sun	16	17	16	18	18	19	19	16	14
Average	Middle	35	33	32	33	32	27	29	32	16
Average	Saturday	8	9	9	9	9	10	10	8	7
Elite	Fri/Sun	10	8	8	8	8	6	6	9	2
Elite	Middle	7	9	9	9	9	16	12	10	8
Elite	Saturday	5	4	4	4	4	2	3	6	1

The Orioles haven't played very many elite opponents on the weekend yet this year and it's showing in the attendance numbers. On the other hand, this team hasn't played a lot of home games during the middle of the week against average opponents. The next chart shows the attendance for each type of game.

The chart shows that the Orioles are seeing an increase in attendance in just about every category from 2014 to 2013 with the one exception being average games on a Saturday. It also shows a large increase in attendance in 2013 and 2014 compared to 2008 through 2011.

Orioles' fans have shown they'll go to games to support even a competitive team. The Orioles only made it to the playoffs once in that two year span and didn't win the AL East in either of those years. If the Orioles can win the AL East and/or advance in the playoffs then it seems reasonable to expect an even larger increase in attendance. Management will need to consider that when making decisions about the team. It means that another reason why they'll want to buy is because they see the benefits of having a good team.

There's really only one problem. The Orioles were eligible for Wednesday's Competitive Balance Lottery. The only teams available for this lottery are those that are in the bottom ten in either market or revenue. According to the CBA, the Orioles' market is considered the eleventh smallest meaning that the Orioles revenue is in the bottom ten. Given the Orioles payroll is 14th highest in the majors already it's hard to see the team spending a lot more money on payroll when the team simply doesn't have that kind of revenue.

The reason why the Orioles have such a large revenue problem is simple. Their average ticket price is one of the lowest in the majors. At a cost of $25 per average ticket and $45 per premium ticket, the Orioles are charging considerably less than the average MLB cost of $28 per average ticket and $93 per premium ticket. One reason why the Red Sox can spend so much money on players is because they charge $52 per average ticket and $176 per premium ticket. Each Red Sox fan brings in at least twice as much revenue as each Orioles fan. And when you consider that the Red Sox attendance is usually greater then the Orioles by about 500,000 fans it is clear why they can afford a larger payroll then the Orioles.

If the Orioles' attendance increases by a million fans from 2011 to 2015 then the team would see an increase of revenue between $25 and $30 million dollars. Realistically, all of that money wouldn't go solely to payroll so we're talking enough revenue to add some talent but not enough to make a real splurge.

The Nationals charge $34 per average ticket and $187 per premium ticket. Suppose the Orioles attendance was 3,000,000 in 2015 and they charged the same ticket prices as the Nationals. In that case, the Orioles might see an increase of revenue of about $80 million dollars which is easily enough to make a splurge. With that kind of increase in revenue a payroll of $130 to $140 million is very possible and with that kind of money the Orioles could go after a top free agent.

Which begs my question. Would you pay the same average ticket prices that Nationals fans pay if it meant the club could spend $40 million more on payroll?

2012 Projected Payrolls for MLB

2012 Projected Payrolls from Yahoo.

Orioles' Payroll Flexibility

Over the past ten years, the Orioles team payroll has varied considerably.  It has been as high at 93.3MM in 2007 and as low as 51.6MM in 2004.  Last season, the club came in at 86.9MM and that is probably a good line for considering what the payroll could be next year and, perhaps, over the next few years.  That would be good for the 15th highest payroll in baseball.  The take home message there is that while the team is not poor, it is in no position to buy themselves into contention as long as we assume that there are no further streams of revenue to increase spending.

The Orioles have a bit of flexibility in their payroll.  In 2012, they are obligated to pay five players 42.4MM: Nick Markakis (12.35MM), Brian Roberts (10MM), Mark Reynolds (7.833MM), J.J. Hardy (7.417MM), and Kevin Gregg (5.8MM).  They also have several players in line for arbitration for 28MM: Luke Scott (3rd arb; est. 6.2MM), Jeremy Guthrie (3rd arb; est. 7MM), Adam Jones (2nd arb; est. 7MM), Darren O'Day (2nd arb; est. 1.2MM), Jim Johnson (2nd arb; est. 2MM), Jeremy Accardo (2nd arb; 1.1MM), JoJo Reyes (1st arb, est. 1MM), Brad Bergesen (1st arb., est. 1MM), and Robert Andino (1st arb., est. 1.5MM).  That commits roughly 70.4MM for the 2012 season and leaves around 17MM left to improve the team.

This tells us two things:

1. There is supposedly not much money left over to improve the team.
2. 70.4MM does not get you much to start with.

In the future, things are likely to get worse.  Markakis' salary increase another 3MM, Roberts is around through 2013, Mark Reynolds has an 11MM team option, Guthrie and Scott become free agents, and there are a number of arbitration cases.  Jones enters into his final arbitration day in 2013 where his salary may go as high as 10MM from the 3.25MM he saw last year.  Johnson and Andino may see their arbitration values rise significantly if they wind up with the increase in playing time as a starting pitcher and starting infielder, respectively.  Finally, Brian Matusz, Matt Wieters, and Tommy Hunter become arbitration eligible.  It would not be surprising if the Orioles are at 87MM before entertaining a single free agent.  It could be argued that the ability to bring on a high price free agent would not present itself until 2014 at the earliest.  Brian Roberts' contract would open up a great deal of money, but that cash might be flipped over to Adam Jones.

As Dan Duquette has mentioned, the Orioles are going t have to be able to make the most of the non-premier free agent market.  That includes finding potential players like Mike Antonelli.  However, this model is more and more difficult because other teams are doing and have done the same thing.  Somehow, Duquette has to make up for lost ground and then become an industry leader in finding what others are overlooking.

The Orioles are a Small Market Team

That title probably brought a number of you here to read this column and tell me how I am wrong.  Not only wrong, I imagine some of you might call me blinded by Dan Duquette's words over the past few weeks that suggest he considers the team a small market ballclub ("I learned in a small market, I applied my skills in a small market, to put together a top-quality team").

Mind you, I did not feel that Baltimore was a small market town.  I have always bought into the idea of the Orioles being a sleeping baseball giant as Peter Gammons used to say.  However, my own personal journey challenging that thought emerged as I began as I began traveling around to other cities.  I began to realize how small Baltimore is and how much of the city is probably not all that interested in baseball or inclined to spend money on it.  Add that to some of the money from corporations, perhaps, being siphoned off to the Nationals who are trying hard to be a well liked team (to varying success).  At this point, I became comfortable with Baltimore being a mid-market town, which made sense with respect to information available on how money is dispersed in Major League Baseball.  However, they calculate these things, the Orioles (in the few years available) were right in the middle neither giving or receiving much of anything.  

Recently, Dan Duquette referred to the Orioles as a small market team in being introduced to the fan base and in several interviews thereafter.  Are these valid statements?  Have we been in a situation akin to the frog that sit in a pot of water slowly coming to boil?  Do we not realize we are being boiled...or fading as a city of importance.  It would seem to fit the motif of an old port and steel city that is being marginalized by outsourcing of materials and a trade deficit.  It is also something that was harped on with the Wire.

My methodology was simple.  I consulted four sources:

• TV Market Size (Nielsen estimates, August 2011)
• Radio Market Size (Arbitron Estimates, Fall 2011)
• Population (2010 US Census)
• Gross Domestic Product (2007-2009 Data, Dept of Commerce)

AL East Rankings

Baltimore
TV Market Rank: 27th
Radio Market Rank: 21st
Population Rank: 21st
GDP Rank: 19th

Boston
TV Market Rank: 7th
Radio Market Rank: 10th
Population Rank: 22nd
GDP Rank: 9th

New York
TV Market Rank: 1st
Radio Market Rank: 1st
Population Rank: 1st
GDP Rank: 1st

Tampa
TV Market Rank: 14th
Radio Market Rank: 19th
Population Rank: 55th
GDP Rank: 23rd

Toronto
(not in United States, so we have to use different sources)
TV Market Rank: Between 4th ranked Philadelphia and 5th ranked Dallas
Radio Market Rank: Between 14th ranked Seattle and 15th ranked Pheonix
Population Rank: Between 3rd ranked Chicago and 4th ranked Houston
GDP Rank: Between 11th ranked Miami and 12th ranked Seattle



Conclusion
The data tends to indicate that the Orioles are likely a low mid-market team or a high small market team.  Camden Yards, a greater population, and a history probably helps the Orioles sustain a higher revenue than the Rays have.  It also helps that the Orioles' regional market deal helps them siphon cash away from the potential gold mine of the Washington DC market.  Of course, DC has had issues with properly supporting the team.  The last time a DC team was dominant was probably back in the late 1860s and early 1870s when the Treasury Department bankrolled the team.

Back to Baltimore, we might have to get use to the idea that this team cannot spend as much money as teams in Arlington or Boston.  The Orioles are at a competitive disadvantage and it makes it difficult for the team to succeed.  It requires a top notch front office that is efficient with how it invests its money and that has not been the MO of the team over the past couple decades (or ever?).  Even the great teams of the 60s and 70s were built on a foundation of out spending teams for bonus babies prior to the implementation of the draft. 

The Orioles were big spenders back in the day, so how did their population size compare back then?

 

Baltimore does appear to have stabilized in population and one hopes the same is true about the amount of money the team is able to take in from the surrounding area.  During the 1990s Baltimore began successfully (to a degree) shifting from blue collar to white collar commerce and production.  The city is still well behind New York, Boston, and Toronto in terms of available money coming from media deals.  I boiled it down to two things: (1) the Orioles are a threshold middle/small market team and (2) they are in a worst potential revenue market than three of the five teams in the AL East.