Bob Nutting, meet Michael Porter

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Those with a license to drive major corporations – i.e. holders of an MBA – will recognize the name of Michael Porter. Porter is famous for a model he created to attempt to capture factors that influence the attractiveness of entering a particular market.

Porter’s five forces are buyer power, supplier power, threat of new entrants, threat of substitutes, and competitive rivalry. I’ll spare everyone a deep explanation of each one, but will apply each to the situation that Bob Nutting, owner of the Pittsburgh Pirates now faces.

Bob Nutting is the owner of the Pittsburgh Pirates. It is almost unanimously accepted that he is not nearly as committed to winning as most of his colleagues. I believe that his business philosophy is mainly based on avoiding risk, sacrificing potentially large profits for steady income for him and his family. While in just about every other case, I would be in favor of him running his business any way he chooses, in this case, I believe he is taking advantage of of his privileged position in the market as well as the misplaced loyalty of Pirate fans to enrich himself, and I’d like to see the situation change.

One criticism of Porter is that his model is static, but I’ll use the Porter model while incorporating potential changes. In fact, Nutting seems to be counting on the continuation of the status quo, which could be a major mistake.

Let’s take each one by one:

Buyer power – I’ll put Pittsburgh Pirate fans in this box. The Pirate fan is a price-taker – economic speak for someone who has little or no influence over the price charged for consumption. They have little power other than acting collectively, which is difficult to do given the overriding feeling of apathy that most have by this point. Collective fan action is possible (see Manchester United), but is unlikely in this case. The verdict: Buyer Power is low.

Supplier Power – We’ll put the players in this box. Just as in the buyer power box, players must take collective action in order to change the current situation. However, unlike Pirate fans, the Major League Baseball Players Association is fairly powerful and is willing to take collective action. The MLBPA has smacked down the Florida Marlins and may do the same to the Pirates…we can only hope this works. Overall, supplier power is medium – they can limit Nutting’s extreme cheapness, but whether they can do enough damage to make him sell is yet to be determined.

Threat of New Entrants – very low – the Buccos already had Jeff Clement in the opening day line-up, so expansion, especially in Pittsburgh, is almost unthinkable. The lack of any threat of any new entrants has Nutting cozy in his Christmas stockings this winter.

Threat of substitutes – While the Penguins and Steelers thoroughly dominate the Pirates in terms of attendance, TV ratings, and merchandise sales, there is no true threat of substitution during the summer months. Baseball is ingrained in the culture of enough of the population that the average beer-swilling Bucco fan won’t easily switch to wine-tasting nor suddenly take up an interest in the Pittsburgh Symphony Orchestra. Overall, unfortunately, threat of substitutes is low.

Competitive Rivalry – Herein lies our best hope. The current situation is that competitive rivalry is high amongst an elite that consists of about 7 teams. The majority of teams reside in a second tier that has some hope of putting together a good year or two, but can’t compete for the elite free agents. A third tier exists for teams, e.g. the Pirates, in which it takes a good deal of luck for these teams to compete, let alone challenge for a title. Currently, “low-revenue” teams like the Buccos receive a small subsidy from richer teams with much greater revenue. Nutting’s business strategy relies on this revenue as he pays a minimal amount to his players (which is the major operational cost involved in running an MLB franchise). Recently, the big guys (Yankees, Red Sox) have been rightfully challenging the spending of the low revenue teams – why should they line the likes of Nutting’s pockets when the little guys are not even attempting to be competitive? I believe one of three things will happen: 1). The big guys stop sharing revenue and the league is divided into teams that have a chance to win and those that don’t. The situation becomes so ridiculous that something has to give – MLB splits into two different leagues or we decide to share revenue. 2) We get NFL-style revenue sharing 3). The revenue sharing situation stays constant but pressure from the combination of fellow owners, the MLBPA, and (I would hope) fans force Nutting to sell to an owner with so much money that small operational losses are the least of their concerns. Any one of these would be preferable to the current situation. Let me know how you think it will play out, or what I’m missing from this analysis.

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3 Responses to “Bob Nutting, meet Michael Porter”

  1. Richard D Says:

    Interesting read and as always on the ball! Excuse the pun but hard to resist. Similar thoughts on John W Henry would be appreciated…

  2. Links of the day « It's more fun than a TPS report… Says:

    […] Bob Smizik says Bob Nutting isn’t going anywhere. The TPS report had its own – possibly over-optimistic – take here. […]

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