August 20, 2014

Albert Pujols is a Bargain

December 8, 2011 by · 10 Comments 

In order to understand why the Los Angeles Angels are getting a bargain by signing Albert Pujols for $250 million over 10 years, it is important to stop thinking like a fan or a sabermetrician or even a general manager. In order to understand a contract like this, you have to think like an accountant. Put it this way: Angels’ owner Arte Moreno didn’t sign a baseball player, he made a 10 year investment that his accounting team has told him will pay a particular dividend.

I have no idea what the actual numbers are, but certainly there was an estimate made concerning the increase in fan attendance based on Pujols’ signing, which was then multiplied by the average amount of money each fan spends per game on things such as tickets, parking, and concessions. I’m guessing that dollar figure is a million or more and that’s probably very conservative.

If Pujols leads the Angels to the World Series next year, Los Angeles could easily host 8 more games above and beyond the regular season. That in and of itself represents a 10 percent increase, given 81 home games, in the opportunity to sell tickets, parking spaces, popcorn, tee-shirts, hats, scorecards, beer, souvenir rally monkeys, licensed jerseys, and anything else which the marketing men can create.

Albert’s salary is locked in for the next 10 years. Does anyone think that the price of tickets, parking spaces, popcorn, tee-shirts, hats, scorecards, beer, souvenir rally monkeys, licensed jerseys, and anything else which the marketing men can create is also locked in for the next 10 years? Put another way, will the 2021 dollar be worth what the 2011 dollar is worth?

Pujols now stands at 445 career home runs, which means that probably in early 2013 he will hit number 500. How many more tickets and tee-shirts will be sold during that pursuit? The same will occur in year five or six of the contract when he hits number 600, and it’s not unreasonable to think that by year nine or ten, that he will top 700 career homers and have a chance at breaking Barry Bonds’ record. How much will that be worth to the Angels?

The historical drama and more importantly the wins that Pujols will bring to the Angels’ should help them realize an increase in the value of their local television rights.

Then there is the opportunity to depreciate Albert Pujols when baseball season ends and tax season begins. If there is an accountant out there who can enlighten us all on that little recognized benefit to owning a baseball team, it would be most appreciated.

Taken all together, it is not unreasonable to assume that Albert Pujols’ presence on the Angels’ roster will make the Los Angeles franchise $25 million more profitable than it otherwise would have been over the next decade even when accounting for the increase in expenses. I don’t think that a 10% return in this economy is too bad, and again, I have a sense that this figure is conservative.

By the end of this contract, Albert Pujols may be a .250 hitting, platoon designated hitter and I’m sure that Arte Moreno could care less. His investment will have already paid off.

I don’t like to be contradicted, but evidence is evidence and Dave Cameron over at Fangraphs presents some factual contradictions to my argument. I stand by my point, however, that Angel accountants made a calculation that investing in Albert Pujols will turn a profit. Cameron argues that mega-star players only increase attendance as long as they help the team win. If I were Arte Moreno, I’d bet on Pujols doing that for my club. Perhaps what this debate needs is the participation of a tax lawyer. If Albert Pujols and every other player is depreciable, then what does that say about any given contract? And what ARE the tax benefits of owning a professional sports team, especially if you can show a loss to offset income from another business?

Comments

10 Responses to “Albert Pujols is a Bargain”
  1. Jim says:

    Are player contracts not indexed against inflation?

  2. Austin says:

    Jim, to my knowledge, that would be negotiated on a contract by contract basis. I’ve never heard of it being part of a contract, but I haven’t heard of many things!

  3. Good read. I have to disagree with your logic however. There is no mention of the revenue they stand to lose if he does not age well, and the play of the team slips. Will his contract become an albatross that will prevent them from making other moves that might otherwise make them better? I think someone like AROD is a good comparison about how deals like this aren’t always wise financially. It could pay off, but there is a very good chance that factors will come into play that will make it a disaster.

  4. Austin says:

    @Andrew Martin – Andrew, my point is that it doesn’t matter how he ages. The Angels will probably start making a profit off Pujols’ contract within three years, so if he has to be released in year nine or ten it won’t matter to the bookkeepers. Yes, there could be an injury disaster, but that is covered by insurance. Vernon Wells’ contract didn’t keep them from signing Pujols and Wilson, and the only “revenue they stand to lose” is off their profit margin from this contract; it’s not as if they’ll have less than when they started. For that matter, the Angels were not only paying Wells and Hunter in 2011, they were still paying Gary Mathews almost $11 million! What this move really shows is the unbelievable amount of money these teams make.

  5. Peter says:

    I agree Albert is a bargain. When looking at Albert’s contract you also have to discount the cost by what it would cost to fill other player(s) into his slot for the next 10 years. Given the significant risks of inflation coming out of this sustained recession the estimates to fill his slot with similar or oven lesser players could be quite high. All that being said any 10 year investment in a man or machine carries many risks.

  6. I have to agree with Andrew Martin and there is a wonderful article by Tom Boswell today that expresses the concept masterfully. Pujols will continue to decline and five or six years from now will be the albatross that Martin predicts. In the intervening few years the Angels may well make the playoffs consistently behind Pujos and C.J. Wilson. I think the economic issue is the focus on short term benefits but with huge long term down side risk: the very emphasis that gave us our current economic mess.

  7. Austin says:

    @Ted Leavengood – Maybe for the Orioles or the Royals, Pujols’ contract would one day be an albatross, but it doesn’t appear that way for the Angels. If Gary Mathews wasn’t a hindrance to picking up Vernon Wells and his contract and in turn Wells wasn’t a hindrance to signing Pujols, then it doesn’t appear that Pujols will be a drag on Los Angeles’ roster, especially with their income increasing. As I understand it, they just tripled their local TV contract; they can afford mistakes just as the Yankees can. Mathews just came off their books and Wells will in 2(?) years. A mediocre, one-dimensional Pujols will likely be more valuable than those two and cost $6 million less.

  8. Preston Bucher says:

    Read this article….pretty cool.
    http://www.aronsolomon.com/predictors/

  9. Excellent article, Preston (and not just because the author agrees with my point!)

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