Pirates financials leaked

[monty57]

i don't see it as an ethical problem for newspapers to report this at all. plus that would really limit reporting if they can only publish information that's already available to the public.

 

i'm really happy about all this, but then i'm in favour of a shared system to begin with. i'm hoping the additional information will help to cause more of a stir with fans to put something in place.

 

I never said the paper should only report what is already available to the public, but they shouldn't report private information which is criminally obtained unless there is a very valid reason for doing so (i.e. finding out a greater crime has occurred). Let's use a different example. Suppose someone breaks into your house and steals your financial information. They give it to the newspaper, and instead of having the thief arrested, the paper decides to publish your financial information, suddenly making private information which no one has a right to know very public.

 

Ethics in reporting is extremely vague, and a large part of that is people are happy when they find out something private about someone else, and are only upset when it's their own private information which is aired.

[MJLiverock]

If the Pirates were forced to spend all their money or even some high percentage like 80% on the MLB payroll - - how long before they stunk again as their minor leagues suffered from lack of investment and the team was forced to sign aging Free Agents to bad contracts just to spend the money

 

Nobody important or intelligent is complaining that the Pirates are spending money on development. However, if the Pirates take the handout money and then the owners pay themselves with that handout, there's a problem.

Let me say it again, why should they be forced to spend it on marginal major league talent that won't make the team any better but will just serve the purpose of wasting the money so as not to show a profit. If the team runs a loss every year there is no reserve or even willingness to add that extra umph for a playoff push or pennant race. A $15MM profit is really not that much in the scale of professional sports. They can probably swing a few million of that one way or the other just on attendance variances and given the high fixed cost nature of running a sports team variance in profits will occur. It isn't like if attendance is running 100,000 ahead of budget they can out and spend that extra $4MM from tickets/parking/concessions/merchandise on building a better player in August to make sure they end up with zero profits.

 

The report also fails to mention the balance sheet numbers of the club which are an important piece of the puzzle. The ownership claims to have not paid out dividends to the owners which would mean the profits were retained by the club which is what a business often does to fund future expenditures. Also income statements, if that is what was leaked, do not account for capital investments such as stadium improvments.

 

It is also interesting that the revenue sharing payments were 2x the reported profits so without the reveneu share agreement they would have been $15MM+ in the hole each year forcing further cutbacks. And as stated they may well have just held the $15MM in profits in the club for a rainy day, for future needs to exceed budgets, to fund capital improvements, or just because they didn't want to waste the money on a mediocre FA signing.

 

[jeffy]

What is the basis for the claim that any "crime" has been committed?

 

The Pirates statement:

 

"Someone with access to the Club's financial statements has breached his/her fiduciary obligation to the Club by providing a copy of the Club's audited financial statements for the 2007 and 2008 seasons to the Associated Press," and "The Club is a private company that has no obligation to publicly report its financial results and, like most private companies, has consistently declined to do so."

 

does not seem to make this "crime" claim. Someone may get fired...perhaps more, but I doubt anyone will be facing criminal charges or a potential prison sentence.

[MJLiverock]

Fiduciary duty violations usually result in civil penalties. I know if I breach my fiduciary duty to my clients or my firm I can expect to be sued. If say I passed along one of my wealthy clients fiancial information or the financials of a private pension plan to the newspaper I wouldn't do jail time but my job, career, and likely bank accounts would take a serious hit.

[kramnoj]

Let me say it again, why should they be forced to spend it on marginal major league talent that won't make the team any better but will just serve the purpose of wasting the money so as not to show a profit.

 

Saying it again isn't helpful, since it didn't have anything to do with what I said. Nowhere do I say that the Pirates should spend more money on major league players just to spend money on major league players.

 

But if they are taking money from other teams, the owners shouldn't pay themselves with that money. If they have money left over that can't be put to good use on development, then they send the money back to the league. They obviously didn't need it. The purpose of the revenue sharing should be to improve teams, at the major league level, or for development for future major league talent. It shouldn't be used as profit for the owners who receive the funds.

 

Also income statements, if that is what was leaked, do not account for capital investments such as stadium improvments.

 

I'm curious, have you actually read what the linked documents? It wasn't income statements. It was the Pirates financial report, including expenditures.

 

It is also interesting that the revenue sharing payments were 2x the reported profits so without the reveneu share agreement they would have been $15MM+ in the hole each year forcing further cutbacks.

 

Again, there isn't an outcry to get rid of revenue sharing. But it's not clear that the Pirates really needed all the revenue sharing that they got, either.

[monty57]

Well put MJ. I used the term crime in a generic fashion while discussing ethical behavior. The true infraction is breach of contract and breach of fiduciary responsibility. The likely penalty would be a serious fine (potentially well into the hundreds of thousands of dollars), job loss, and if the person in question were an attorney or accountant, they would likely be unable to work in said field ever again (disbarment).

 

The point was that the paper was condoning this unethical behavior for their own financial benefit (to sell more papers). The Pirates are a privately held company, and therefore their financials are private. They did not commit any criminal or unethical acts, and therefore when the information was submitted to the paper, they should have acted ethically, which would have been to report the perpetrator to the authorities. They should not have printed the ill-gotten information.

[RobertR]

I'm no lawyer, but I'd suspect that there's a pretty good defense for the paper and leaker under various "whistle blower" laws. The Marlins look to be especially egregious.

 

It's very much a newspaper function to expose if an industry is collecting millions/billions from taxpayers through false claims. Even if no law has technically been broken.

 

Robert

[MJLiverock]

But if they are taking money from other teams, the owners shouldn't pay themselves with that money. If they have money left over that can't be put to good use on development, then they send the money back to the league. They obviously didn't need it. The purpose of the revenue sharing should be to improve teams, at the major league level, or for development for future major league talent. It shouldn't be used as profit for the owners who receive the funds.

 

Also income statements, if that is what was leaked, do not account for capital investments such as stadium improvments.

 

I'm curious, have you actually read what the linked documents? It wasn't income statements. It was the Pirates financial report, including expenditures.

 

My point was that the owners didn't pay themselves the money according to the article they did not pay a dividend. That means they likely left the money in the club as retained earnings which can be used as mentioned. The variances in revenue can easily move that profit number around and the team even claims the 2009 profits were down to $5MM.

 

I read the article but not the actual statements. Finiancial report is a vague term that doesn't tell me was it an income statement, balance sheet, cash flow statement, executive summary of revs/expenses, memo to the board, or a combination of the group, all of which are "Financial Reports". I can manipulate a "financial report" to show many different kinds of profit or loss depending on how I account for items and whose accounting rules are applied.

 

I don't doubt that the Pirates made some sort of profit I just don't find the report of such to be a an agregious offense.

 

The article points out the team spent $23MM and $21MM in player development, inline with other teams. Considering their overall revenue is among the lowest that points to them spending a higher than average percentage on player development which is consisttent with the idea of building from within or bottom up while leaving some profits in the club as retained earnings to pay for higher major league payroll that will come as the talent improves.

[LouisEly]

"Ethics" = just because you can do something doesn't mean you should.

 

I hope they sue the bejeesus out of whomever leaked this information. If they have access to this information they signed a confidentiality agreement, which they then breached. And monty was exactly right - by publishing this they are condoning an ethics violation. If anything, the paper is the one committing a crime as they are using information obtained via a violation of contract law for their profit. This isn't Watergate they are scooping - it is the financial statements of a private organization that made a profit, and the revenue sharing they received was agreed on and signed off on legally under the rules of MLB.

 

I'm no lawyer, but I'd suspect that there's a pretty good defense for the paper and leaker under various "whistle blower" laws.

 

"Whistleblower laws" apply to committing crimes. There is no crime in making a profit if no laws are broken. Certainly Florida is in need of a new stadium if they are going to keep the Marlins, and if they are going to build a stadium they will need to start pocketing money. Banks are a little leery of loaning out a billion dollars now to a business that is breaking even. Credit is hard to come by these days. If they are going to prove that they will pay back that loan they have to prove they are making a profit.

 

Ask yourself this - what if your accountant/tax preparer leaked your tax returns/w-2s/etc. to the local paper and they published it? And what if someone read that who has the same occupation as you but your employer pays you more than theirs? Does that make what you earn "criminal"? What if you run a business but you profit more because you pay your employees less and pay less in rent because you run your business in an old, outdated building instead of a fancy new office building (similar to the Marlins)? Does that mean you are not ethically running your business?

[RobertR]

Claiming that you can't contribute to a stadium because you're not making any money, might not technically be a crime if you don't say it under oath. It's not perjury. OTOH, it might be considered fraud. Lying/making misleading statements in order to obtain a financial advantage is certainly immoral, if not illegal. And, it's something taxpayers should know about. Especially since I doubt the Marlins/Rays/MLB/Sports are going to stop putting their hand out for government help anytime soon.

 

Exposing someone misleading the government about their financial situation is in the public interest. Whether it's someone collecting unemployment fraudulently or literally getting an advantage of hundreds of millions of dollars over the lifetime of a stadium.

 

Robert

[monty57]

The government has every right to ask for the financial records before giving the team money for the stadium, and the team can decide if they want to give the records or not. However, I've never heard of a government caring about the profits/losses of the team when it comes to giving them money for a stadium. They generally cave when the team says they have other suitors. If the government gives the team money without demanding financial records, the public should blame the government, not the team. Or, they should blame themselves for screaming to the local government that they don't want the team to leave, so the government then caves.

 

However, none of this is about fraud, corruption or anything else. The Pirates did nothing wrong criminally, ethically, morally or in any other way. The only person who could be sued out of this is the person who leaked the information, and I hope he is caught. The paper will not suffer any consequences even though I think they should.

 

The bigger story is if other teams' records are truly being leaked as someone in an earlier post mentioned. If this is the case, then it would seem that there is a good chance that someone is behind this who is bribing team employees to leak the reports. If the players union or someone else is doing this, it really is a story.

[Baldkin]

A great article on why the Pirates shouldn't just blow the money and how much their revenue is based on ticket sales & revenue sharing dollars.

 

http://www.slate.com/id/2265068/pagenum/all/#p2

[snyttri]

http://www.spj.org/ethicscode.asp

I don't think this thread needed to be sidetracked into a discussion of journalistic ethics because there doesn't seem to be a close call here. This has little to do with the comparison some have attempted to make of revealing a random individual's financial information with damage to the individual but no benefit to the public.

MLB continually uses its powerful voice to try to persuade the public that it needs financial and legislative support to run its business. To make informed financial and voting decisions on an important American institution the public has a need to know how much of MLB's story is the truth and how much is a lie. The release of the financials is a blessing to anyone interested in the truth.

If clubs want to try to keep their financial information private while at the same time loudly and publicly proclaiming that their financial situation requires drastic changes that will have significant public consequences they can try to do so. But it is a great story if what they tell they public is betrayed by their private records. Other than embarrassment if their press releases are contradicted by the records the clubs are not necessarily harmed by the release.

If MLB wants it to become to seem unfair to have their private financial information in the newspaper they could begin with a moratorium on complaining about their financial situation to newspapers.

[kramnoj]

My point was that the owners didn't pay themselves the money according to the article they did not pay a dividend.

 

If you had read the linked report, you would see that the Pirates distributed over $20 Million in 2007 to the owners. It wasn't dividends, but this was money that went to the Pirates owners. This money could have been given to the city of Pittsburgh as a good faith gesture for the stadium, but it instead was paid to some of the owners. This is from the financial report that the Pirates file.

 

Here are the documents from the Pirates for your review: http://deadspin.com/56150...ial-documents//gallery/1

 

I don't doubt that the Pirates made some sort of profit I just don't find the report of such to be a an agregious offense.

 

There may be people that disagree with you. For example, the citizens of Pittsburgh. If the Pirates made enough money to distribute $20M in one year to owners, did the Pirates truly represent themselves in terms of how much they could contribute towards stadium financing?

 

The MLBPA may also have cause for concern. While it is a valid point that more major league spending would not have drastically improved the Pirates, this is still money taken from other teams and given to the Pirates for the purposes of building a competitive team. If the Pirates didn't use all those funds for that purpose, then this is money that is not going to the players. Since the revenue sharing was collectively bargained with the union, they have cause for concern that money taken from other teams was given to the Pirates, and that money was not used for the intended purpose. That money could have been used by the teams from whom the money was taken and spent on players.

[Invader3K]

In a related story involving the Florida Marlins: http://sports.yahoo.com/mlb/news;_ylt=ArMckUxS2BdPqq5UU42ef1YRvLYF?slug=jp-marlinsfinancials082410

 

The swindlers who run the Florida Marlins got exposed Monday. They are as bad as anyone on Wall Street, scheming, misleading and ultimately sticking taxpayers with a multibillion-dollar tab. Corporate fraud is alive and well in Major League Baseball.

 

A look at the leak of the Marlins’ financial information to Deadspin confirmed the long-held belief that the team takes a healthy chunk of MLB-distributed money for profit. Owner Jeffrey Loria and president David Samson for years have contended the Marlins break even financially, the centerpiece fiscal argument that resulted in local governments gifting them a new stadium that will cost generations of taxpayers an estimated $2.4 billion. They said they had no money to do it alone and intimated they would have to move the team without public assistance.

[MJLiverock]

My point was that the owners didn't pay themselves the money according to the article they did not pay a dividend.

 

If you had read the linked report, you would see that the Pirates distributed over $20 Million in 2007 to the owners. It wasn't dividends, but this was money that went to the Pirates owners. This money could have been given to the city of Pittsburgh as a good faith gesture for the stadium, but it instead was paid to some of the owners. This is from the financial report that the Pirates file.

 

Here are the documents from the Pirates for your review: http://deadspin.com/56150...ial-documents//gallery/1

 

I don't doubt that the Pirates made some sort of profit I just don't find the report of such to be a an agregious offense.

 

There may be people that disagree with you. For example, the citizens of Pittsburgh. If the Pirates made enough money to distribute $20M in one year to owners, did the Pirates truly represent themselves in terms of how much they could contribute towards stadium financing?

 

The MLBPA may also have cause for concern. While it is a valid point that more major league spending would not have drastically improved the Pirates, this is still money taken from other teams and given to the Pirates for the purposes of building a competitive team. If the Pirates didn't use all those funds for that purpose, then this is money that is not going to the players. Since the revenue sharing was collectively bargained with the union, they have cause for concern that money taken from other teams was given to the Pirates, and that money was not used for the intended purpose. That money could have been used by the teams from whom the money was taken and spent on players.

Again I read the report the payment you reference was a tax payment. It doesn't go into the owner pockets to buy a new Rolls it is a treatement of passing the taxes from the club to the owernership. Very common in LP accounting and tax treatements. This is why journalists aren't very good business reporters but are good at twisting things around to make a story. Just like a small business that is an LLC may show a profit of $100,000 dollars but guess what that number flows throw to the owernships personal taxes and they pay income tax on that at their personal rate. Yet some reporter can claim, "Wow, XYX, LLC made a $100,000 profit or why doesn't XYZ, LLC pay taxes -- should the owners be investigated?" And bam they get their story, it happens and has already this year in a political race.

 

The ownership also hinted at paying off loans they made to the business also a common tactic in a closely held private enterprise, often to help in tax planning.

 

More on a philisophical bent than the financial rules, in the end I don't even care if they paid out a straight dividend or salary of $15MM each year. Plenty of players get paid that much why shouldn't the owner of a team? Oh, because it is their responsibility to make the team good even if not possible in a short frame and players never have to pay back salary for sucking or getting hurt. But hey make sure to not have any money availabe in the future so that when need or opportunity arises they can't do anything. Way too many enterprises, governments, and people run their budgets that way and it is never good to spend every dime every year even if the money is just wasted.

 

There is revenue sharing the NFL does anyone care that the Lions suck or that the Packers rarely venture into free agency and have been under the cap?

[kramnoj]

Again I read the report the payment you reference was a tax payment. It doesn't go into the owner pockets to buy a new Rolls it is a treatement of passing the taxes from the club to the owernership. Very common in LP accounting and tax treatements.

 

But it's not common for the Pirates to do this. They don't do it every year. They had extra money, and they chose to give it to the owners, which is directly the opposite of what you wrote in your first sentence in post 32. At least one article written about this notes that because the Pirates are an LP, they are not required by federal law to pay the taxes of the owners. So the Pirates owners had a choice, and unsurprisingly, they chose to pay themselves.

 

Now you can say it went to pay taxes, instead of in their pockets, but that's not much of a distinction. As owners of a business, they are obligated to pay their taxes on this business. If they chose to pay themselves the money to cover taxes, they have given themselves money they otherwise wouldn't have had. For some owners, it may indeed have been enough money to buy themselves a Rolls Royce, if they so chose.

[monty57]

So, the players need to get paid no matter what, but the owners are not allowed to ever get paid, even if it is simply to reimburse them for expenses they would not have had if they were not owners? Is your arguement that owners are greedy if they take a penny out of the organization, because every last dime should go to the players?

[endaround]

The Pirates are arguably the worst run franchise in MLB and has been for years (only the Royals and the Marlins under Loria are close). Why should constant failure earn a profit?

[kramnoj]

Is your arguement that owners are greedy if they take a penny out of the organization, because every last dime should go to the players?

 

That's a silly question. Do I ever make that argument? No.

 

So, the players need to get paid no matter what, but the owners are not allowed to ever get paid, even if it is simply to reimburse them for expenses they would not have had if they were not owners?

 

Players get paid according to their contract, which they negotiate with owners. Owners are allowed to get paid, depending on the circumstances. If they are given money in a collectively bargained revenue sharing agreement designed to improve the team and instead give themselves that money, then there is a problem.

[jeffy]

MLB continually uses its powerful voice to try to persuade the public that it needs financial and legislative support to run its business. To make informed financial and voting decisions on an important American institution the public has a need to know how much of MLB's story is the truth and how much is a lie.

 

If MLB wants it to become to seem unfair to have their private financial information in the newspaper they could begin with a moratorium on complaining about their financial situation to newspapers.

 

...and then they might proceed from there to a moratorium on demanding taxpayer subsidies in the form a free ballpark in just about every market. The system stinks, every team demands taxpayer subsidies in order to be able to compete with the other teams who have gotten taxpayer subsidies. I think nothing would really change for the fans if each team had shoulder an average cost of, say, $50 million per year in paying for their own stadiums and this meant reduced profits for the team owner's and/or that the average player made only, say, $2 million per year, instead of $4 million.

[RobertR]

Sports might be the only multi-billion dollar industry that can't afford to build their own places of work.

 

Robert

[MJLiverock]

Again I read the report the payment you reference was a tax payment. It doesn't go into the owner pockets to buy a new Rolls it is a treatement of passing the taxes from the club to the owernership. Very common in LP accounting and tax treatements.

 

But it's not common for the Pirates to do this. They don't do it every year. They had extra money, and they chose to give it to the owners, which is directly the opposite of what you wrote in your first sentence in post 32. At least one article written about this notes that because the Pirates are an LP, they are not required by federal law to pay the taxes of the owners. So the Pirates owners had a choice, and unsurprisingly, they chose to pay themselves.

 

Now you can say it went to pay taxes, instead of in their pockets, but that's not much of a distinction. As owners of a business, they are obligated to pay their taxes on this business. If they chose to pay themselves the money to cover taxes, they have given themselves money they otherwise wouldn't have had. For some owners, it may indeed have been enough money to buy themselves a Rolls Royce, if they so chose.

You are missing the whole point of LP tax rules. Any profits generated by the LP are not taxed at the LP level they are considered the income of the actual partners individual incomes and are taxed on their personal tax returns. In other words if the Pirates genrate a profit, even if it all stays in the Pirates bank account the ownership partners pay income tax from their personal bank account on their share of the profits. Pay out or not the owners pay the income tax. That is why LP distribute the money it is the same thing as if the LP actually paid the tax on the profits. Just as a corporation pays income tax on its profits before the net profit is calculated. A LP's net profit does not include the taxes as an expense, thereby overstating the true net profit of the entitity.

 

If the Pirates operate at a net loss the owners get to take a deduction against their personal income taxes as well.

 

http://thismatter.com/money/funds/dpp/limited-partnership-taxation.htm

 

 

[kramnoj]

47 doesn't address what I wrote. Address the specific issues that I discussed:

 

Are the Pirates required by federal law to pay the taxes for the owners?

 

Do the Pirates pay the taxes for the owners every year?

 

If the answer to both of those questions is No, then the Pirates made a choice. And they chose to give themselves the money. True, or false?

[jeffy]

Not only that, if they spent the money and had no profit there would be no taxes to worry about.

 

I had always assumed that team owners were not in this to make a profit, but just for the glory of winning. In addition to profits, are the owners also paying themselves a fat salary as corporate officers in the case of teams that are corporations or as the managing partner (or whatever the correct term would be) for those that are not incorporated?