Giancarlo Stanton signed the biggest contract in U.S. sports history by agreeing to a 13-year, $325 million contract with the Miami Marlins, an average annual value of $25 million. I don't really have a problem with the size of the deal, as he should be able to outperform it if (the largest "if" in the history of sports, at least from a dollar value) he stays healthy. I'm more concerned with how Miami will be able to pay him.
From a salary standpoint, the Marlins are in very good shape. They have around $16 million in 2015 payroll obligations (now $41 million) and plenty of flexibility going forward. They have loads of young talent under team control like Jose Fernandez, Henderson Alvarez, Adeiny Hechavarria, Marcell Ozuna, Jarred Cosart and Christian Yelich and young talent poised to join them like Austin Barnes and Justin Nicolino. On paper, they're a team that appears ready to rise.
But there are serious questions as to how this will be financed. This chart shows Marlins attendance and their rank in the National League since their inception:
They had decent attendance as an expansion team, a nice spike in their World Series year of 1997, but since then, not so much. Even in 2003 with a young exciting team they were near dead last in average NL attendance, and whatever bounce they received from opening their new stadium in 2012 was dead on arrival. Other than that year, they've been last in NL average attendance since 2006.
There are two excellent sources for information on team finances, the Forbes annual list of baseball team values and Bloomberg team values. They use different methodologies but in general tell the same story -- the Marlins are worth around $500-600 million, with the difference appearing to be in how the MLB Advanced Media payment of $110 million per team (in 2013) is treated. Put another way, the estimated worth of the Marlins is just under twice the value of Stanton's contract.
A team's value is one thing, their cash flow another. Forbes estimated the Marlins with $159 million in revenue for 2013 and operating loss of $8 million. Bloomberg gives additional information on revenue:
Forbes estimates the Marlins have a debt load of 44 percent, or around $220 million given their valuation. The increased payroll will reduce their revenue sharing payment, so if the $8 million loss is accurate (and this is another big "if"), it will only get bigger. Plus, all that young talent will begin looking for their own paydays very soon as well. In other words, the Marlins were losing $8 million when paying Stanton $6.5 million -- increasing his salary by around $20 million will only exacerbate this.
This can be rendered moot with a competitive team that causes fans to attend the games. Getting average attendance up to around 30,000 fans a game would help, but that hasn't happened in almost twenty years. All the pieces are in place with a new stadium and an exciting lineup, so this will be the best test Miami will have to see if it can support a baseball team.
Jay Jaffe wrote an excellent piece suggesting Stanton should be able to live up to his contract, utilizing my favorite tool, discounting a contract. I did my own analysis and came up with similar results. By my calculations, if Stanton delivers around 40 Wins Above Replacement (WAR) he'll be worth the contract, and anything north of that will be a bonus. I assumed one WAR is worth $6 million and will increase five percent a year. This Google Docs sheet shows the model and allows for changes, so play around with it and see how changing the inputs affects the results. Briefly, this is what it translates to:
40 WAR shouldn't be difficult for Stanton to attain, and this sheet lists the very healthy number of outfielders since 1901 who accumulated 30 WAR or higher from ages 25-37. There's over 100 players on the list (Hall of Famers are highlighted in yellow), so it's not even remotely unprecedented.
It's also worth noting that owner Jeffrey Loria has made a fortune running the Marlins the way he has and count infuse some of his own earnings into the team in order to keep them competitive into the later years of the deal. Alternatively, there are rumors that they're be renegotiating their poor television deal soon, which could be a nice boon. There's also the matter of the backloaded nature of the deal, which could mean the Marlins end up never having to pay the last $200+ million and all of this is moot.
No one can predict the unpredictable, but if Stanton stays healthy, he should be able to deliver the value. It also adds another very intriguing possibility for the Marlins since they've now placed a future value on Stanton -- if they get really desperate, they can trade him to a team with the resources to pay this contract in the TV deal doesn't materialize and the fans don't show up. Or they can try something they've never really attempted before -- place a young, exciting and competitive team on the field and allow them to grow and win together for a long period of time.
All data from Baseball-Reference.
Scott Lindholm lives in Davenport, IA. Follow him on Twitter @ScottLindholm.