Sizing Up Cody Allen

According to Forbes, for luxury tax purpose the benefit expense was $14,044,700 per team.  For what I can see, revenue is around $260 million, which would put payroll around $135 million if they spent 52%, which is right around what they spent in 2018

 

Given the teams struggles and ticket sales, I would expect they are budgeting less revenue in 2019.

 

https://www.forbes.com/sites/maurybrown/2018/12/17/final-mlb-payrolls-for-all-30-teams-show-second-largest-decline-since-2004/#381115fe474a

Actually, $135 million is what the Twins would have spent if they had not unloaded some players and their contracts mid-season. I think they actually spent less than $120 million, and still managed to have very little committed to 2019.

so...Cody Allen, huh? He's an interesting pitcher. be nice if the twins could sign him to a 1 or 2 year deal. I think I agree that he would raise the floor of the bullpen.

Why the heck to we want a 30 year-old guy who's coming off a career-worst season posting a 4.70 ERA with career highs in blown saves? What am I missing here? The guy's washed up, he wasn't ever lights-out in the first place.

Heck, give Blake Parker the closer job and Let Allen sign with the Padres or something for a middle relief role, no reason to sign him here in Minnesota.

According to Forbes, for luxury tax purpose the benefit expense was $14,044,700 per team.  For what I can see, revenue is around $260 million, which would put payroll around $135 million if they spent 52%, which is right around what they spent in 2018

 

Given the teams struggles and ticket sales, I would expect they are budgeting less revenue in 2019.

 

https://www.forbes.com/sites/maurybrown/2018/12/17/final-mlb-payrolls-for-all-30-teams-show-second-largest-decline-since-2004/#381115fe474a

Thanks for providing that link. I could not find any accounting for benefits. The league average for salaries (not payroll attributed to players) is about 45% of revenue and 14.4M is roughly 5.3% of total average salary. Of course, the combined cost equates to roughly 50% of revenue. I would expect teams with less than average revenue to spend a slightly lower percentage because the other operating costs should be a lower percentage of gross revenue for higher income teams.

Actually, $135 million is what the Twins would have spent if they had not unloaded some players and their contracts mid-season. I think they actually spent less than $120 million, and still managed to have very little committed to 2019.

 

According to the article with benefits, they spent $143 million

I posted the average payrolls to show there is no validity to your claim that last year's increase was driven solely by the BAMtech infusion. If that was the case it would've been reflected elsewhere around the league. If you think that was some unique situation I suggest you research further; there have been several instances in recent years where MLB teams/owners received large sums of money as part of enormous MLBAM/TV contracts, and in those cases payroll was not affected.

 

What happened last year wasn't a "coincidence." The front office saw short-term opportunities late in the offseason and ownership signed off. There's no reason to think that couldn't/shouldn't happen in this case.

 

I honestly don't know why you and MLR have decided to grind this axe once again. The article suggests the Twins have money to spend and theorizes a $14M deal which would put them around $112M in payroll. I'm not the one confusing the issue at hand.

It wouldn't necessarily be reflected league wide, as most teams accounted that money as capital and not revenue. I believe the Pohlad's told the FO that they would throw them a bone, and let them spend 50% of that money, even though it was technically capital and not revenue. I applaud them for doing that, however it doesn't disprove my argument.

We have 10 years of payroll data since the kids took over for Carl. You point to one season of higher spending to make your argument. What about the other 9 years? Last year was the first time the FO ever considered that there might be benefits of spending more money?

You don't know that is the reason payroll increased by $25 million. You are theorizing, just like I am.

Actually, $135 million is what the Twins would have spent if they had not unloaded some players and their contracts mid-season. I think they actually spent less than $120 million, and still managed to have very little committed to 2019.

According to the article with benefits, they spent $143 million

I see what you are saying. I was thinking in terms of pure payroll.  The article states:

 

The calculations for final payrolls are for the 40-man roster, that also “include the average annual values of contracts and $14,044,700 per club for benefits and extended benefits, which include items such as health and pension benefits; club medical costs; insurance; workman's compensation, payroll, unemployment and Social Security taxes; spring training allowances; meal and tip money; All-Star game expenses; travel and moving expenses; postseason pay; and college scholarships,” according to the Associated Press. The totals include “incentive bonuses, non-cash compensation, buyouts of unexercised options and cash transactions. In some cases, parts of salaries that are deferred are discounted to reflect present-day values.”

 

So that seems to be all expenses related to the 40-man roster plus payroll?

 

I would have assumed that Pohlad representation of spending 52% of payroll meant 52% of "only" payroll, but that could certainly be twisted around a bit.

I see what you are saying. I was thinking in terms of pure payroll.  The article states:

 

The calculations for final payrolls are for the 40-man roster, that also “include the average annual values of contracts and $14,044,700 per club for benefits and extended benefits, which include items such as health and pension benefits; club medical costs; insurance; workman's compensation, payroll, unemployment and Social Security taxes; spring training allowances; meal and tip money; All-Star game expenses; travel and moving expenses; postseason pay; and college scholarships,” according to the Associated Press. The totals include “incentive bonuses, non-cash compensation, buyouts of unexercised options and cash transactions. In some cases, parts of salaries that are deferred are discounted to reflect present-day values.”

 

So that seems to be all expenses related to the 40-man roster plus payroll?

 

I would have assumed that Pohlad representation of spending 52% of payroll meant 52% of "only" payroll, but that could certainly be twisted around a bit.

It would be a very rare exception when an executive referencing personnel costs or payroll does not mean salary + taxes and benefits. I am actually being generous when a say a rare exception. I have never had a client at the executive level that disregarded taxes and benefits when referencing personnel costs. Many organizations refer to this as fully loaded costs. Businesses don't ignore costs.

Large organizations assign dollar values to cross functional resources. You want access to a business analyst? That'll be $135 an hour. The BA is by no means being paid even half that even when including benefits, but the company expects to get more value out of the resource than just what they are being paid, plus there are opportunity costs, thus the high rate.

I would be surprised if the Twins do anything like this, so we should be careful when we compare the Twins to corporations. In baseball, free agents get paid their full value to the organization and the other players get paid a fraction of their value. Other than professional basketball I am not aware of anything comparable to how baseball pays players.

It would be a very rare exception when an executive referencing personnel costs or payroll does not mean salary + taxes and benefits. I am actually being generous when a say a rare exception. I have never had a client at the executive level that disregarded taxes and benefits when referencing personnel costs. Many organizations refer to this as fully loaded costs. Businesses don't ignore costs.

After reading the exact quote, I guess the better question is whether that is what is meant by “players salaries?”

Are you saying that when an executive says “payroll,” that they actually mean “payroll, plus benefits, plus payroll taxes”?

After reading the exact quote, I guess the better question is whether that is what is meant by “players salaries?”

Yes, you have identified where this conversation goes wrong. There is little ambiguity in Payroll Expense or personnel expense. It's reasonable that someone might interpret salaries as meaning salary only without taxes and benefits.

If an executive used the term "salaries" in a summary context and I could not clarify, I would assume he/she meant salary + benefits because these discussions are virtually always in that context. It's a meaningless discussion if part of the information is omitted. "Salaries" is not a term generally used by executives or financial analysts. They use "payroll" or "personnel costs" or even "salary + benefits". It would be interesting to see the exact quote but even if someone used the term salaries, I would assume any Twins executive meant salary + benefits because it makes no sense to exclude a portion of the expense. 

Yes, you have identified where this conversation goes wrong. There is little ambiguity in Payroll Expense or personnel expense. It's reasonable that someone might interpret salaries as meaning salary only without taxes and benefits.

 

If an executive used the term "salaries" in a summary context and I could not clarify, I would assume he/she meant salary + benefits because these discussions are virtually always in that context. It's a meaningless discussion if part of the information is omitted. "Salaries" is not a term generally used by executives or financial analysts. They use "payroll" or "personnel costs" or even "salary + benefits". It would be interesting to see the exact quote but even if someone used the term salaries, I would assume any Twins executive meant salary + benefits because it makes no sense to exclude a portion of the expense. 

Here's what was written in the article at issue:

"The team’s guideline is to spend 52 percent of revenue on player salaries, though the Santana trade will push the 2008 payroll well below that mark—likely somewhere around $55 million after a 2007 opening-day figure of more than $71 million.

Twins president Dave St. Peter said the original budget called for an increase, not a reduction. Jim Pohlad said a 2009 payroll that surpasses the 52-percent standard would be acceptable, but not simply to appease fans for their role in funding for the new stadium."

"Player salaries" is not particularly ambiguous. The business, legal and lay meaning of "salary" is the amount paid by an employer to an employee. In this case, the term is limited to the amounts paid to players.  This does not include payroll tax or benefits in any scenario.

I have no idea what your background is nor who the executives you refer to are who you work with. My background is as a lawyer who has advised businesses and litigated business disputes for more than 23 years, and I've been a part owner of my own businesses for more than 18 years. I have worked with accountants, profit and loss statements and general ledgers extensively.

I'll give you some free legal advice: don't use the term "payroll" to mean "payroll plus payroll taxes and benefits." Payroll taxes and benefits are not "payroll". In fact, you can't even have payroll taxes without knowing what your payroll is. Payroll taxes are based on payroll. If you added payroll taxes into payroll, you'd get taxed on more than your payroll -- and nobody wants to pay more taxes than required, right? Payroll is a specific defined term for compensation paid to employees. The only time benefits can be counted as part of payroll is when they are deducted from pay due to employees. Similarly, the only taxes included in payroll are taxes withheld from pay due to employees. Using the term "payroll" as you suggest is false and misleading, and I would suggest that the shareholders of companies would not be pleased if their executives were going around making promises about "payroll" when they actually mean "payroll plus payroll taxes and benefits." You can look up the definition of "payroll" on Quickbooks or from an accountant's perspective. You can look up the definition of "payroll" from the IRS perspective. Or you can simply look up the general definition of "payroll." "Payroll" does not include payroll taxes and benefits.

From a business accounting perspective, payroll taxes and benefits are considered "labor load" or often they are simply lumped in as "overhead." Similar to worker's compensation, human resources, sometimes legal expenses related to human resources, 401K contributions, and even things like parking and holiday party expenses. These expenses are not considered part of "payroll" nor are they part of employee "salaries."

You can insist that you and your executives commonly use the term "payroll" to mean something other than the actual technical definition of "payroll." (Frankly, I've never heard of anyone doing this before now.} But the problem that you'll face is that nobody will know what you are talking about because you are attempting to shift the definition of the word. Then, you can't have conversations like this that get anywhere because you're not speaking the same language.

Now, to give the Twins ownership an out, they did say that paying 52% of revenues for player salaries was a "guideline." And if you've seen Pirates of the Caribbean, you know that a "guideline" is not the same as a "code."

They said the 52% was over time. There are death, taxes, and my favorite team is owned by the Pohlads,

And now there is one!  Ottavino signs with Yanks for 3 years at $27MM!!  Robertson signed for $23MM/2years and Herrera $18MM/2years.  Any one of these are clearly superior to anyone now slated for the Twins' pen and were all eminently affordable for the Twins.

Look out below if Allen slips from their grasp next!  There is no one else available in the same class who comes close to any of these four.  Shame on you Falvine!!

After seeing the Ottavino deal, there’s no doubt in my mind that Allen would accept a 3yr/$24M offer, but is the FO willing to change things up and make that kind of commitment after all the one year deals we made?? I’m not so sure, and I hate that because filling the 9th with an established closer is really all that’s left for us to do in order to solidify ourselves as legit contenders for the division.

Sounding like Allen is headed to Anaheim. Kimbrel will be all that's left out of an amazing group of FA relievers. Maybe it will be Kimbrel. Not. Not for an FO that is averse to taking any real risk.

Now that Allen is out of the picture. What’s bottom dollar for Kimbrel? 3/50, opt out after 2? If this team doesn’t add some real talent it needs to be blown up, and fast.

They haven’t said how much Allen got yet, but in answer to Nick’s speculation “1 year, $14mm ought to get it donr”, I believe we are going to see that yes, that would have easily gotten it done.

Totally fine with another team signing an aging reliever coming off a career-worst year with a 4.50ERA.

Extremely disappointed in the FO and ownership...

WTF!!  Angels signed Cody for $8.5MM + $2.5MM in incentives for games finished. One year deal.  Of course there's a risk for someone with a bad year the year before, but certainly one the Twins could have afforded!  Obvious this FO loves to play the waiting game but it sure is excrutiating  for a team with such obvious needs.  Oh well, just have to wait and see, but my faith in the Wonder Boys is draining quickly!

Such a contrast between the Angels approach to their bullpen and the Twins.

They added Allen and Curtiss this week while not tendering Parker earlier. It is hard for me to see how the Twins come out ahead with these moves.

I also realize looking at reliever stats has very little projection value. The Twins have much more data as well as scouts. It is critical they have made the right moves this winter.

This is Falvey’s team. This is his coaching staff. My bar for his return next year is the Twins need to be buyers at the deadline. Short of that he and the other front office management must be replaced.