With finances laid bare, what future revenue sharing?
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Earlier this week, a leak rocked the baseball world. Now, this wasn’t your run-of-the-mill steroid leak. This wasn’t news of a player traded, suspended or otherwise disgraced. This was a meaty, juicy leak of MLB’s hard-to-find financial information, laid bare for all to see.
The documents, originally posted on Deadspin included the Pirates, Rays, Marlins and Angels in one leak, the Mariners in another and the Rangers in a third. The numbers are in line with what most industry-watchers perceived them to be. Small market teams have been, thanks to revenue sharing, turning small profits while putting teams of varying quality on the field. It’s not so much an outrage as it is a giant question mark for the future of the game and baseball’s next collective bargaining sessions in 2011.
Over at the Biz of Baseball, Maury Brown contextualizes the numbers in the documents. Since two of the clubs — the Angels and the Mariners — dole out revenue sharing money while three others — the Marlins, Pirates and Rays — receive it, we can see the disparity between the haves and the have-nots.
Florida, for instance, had a combined net income of $32 million over the past two seasons while receiving over $90 million in revenue sharing. The Rays had a net income of $15 million while taking it $74 million in other team’s money. If Yankee fans want to a bit jilted, they have every reason to. In a sense, our team is paying to compete against Tampa Bay this year.
This glimpse at the numbers leaves us wanting more. We don’t know how the Yankees’ finances look; we can’t see the Red Sox’s books. We can only guess from the Angels’ ledger — and their $30 million revenue sharing charge — the top-tier teams must contribute to Major League Baseball’s pot. Without a full sense of how each of the 30 clubs are doing, it’s tough to issue many conclusions about the state of revenue sharing and the luxury tax in baseball, but we can try.
Maury Brown, writing this time for Fangraphs, already has. In a piece earlier this week, he made the case for increased revenue sharing. Even though teams are seemingly overly subsidized, Brown wants to see what he terms “salary compression.” Because, as he puts it, “subsidizing clubs at the current levels that continue to lose repeatedly may not be incentivizing them to move up the standings,” the top teams’ spending must be reined in while revenue sharing continues in an effort to level the playing field.
Over at Sports Illustrated, Joe Sheehan has a different proposal. He would prefer to see Major League Baseball establish a market size-based model of revenue sharing. Instead of a welfare system where mediocrity — or downright losing — is constantly rewarded, Sheehan too pushes for something that can create economic parity by adjusted for the market. “If a team does a particularly good job of leveraging its market to make money,” he writes, “they shouldn’t be penalized for that. Similarly, if a large-market team becomes a sad joke, they shouldn’t get bailed out by dipping into the fund. Revenue-sharing shouldn’t be punishment for failure or reward for success; it should be a tool to create a fair and level field of competition.”
Should we, as Yankee fans, be satisfied with either of these answers? After all, although revenue sharing is billed as a way to penalize all of the teams, its primary purpose is to limit the Yankees’ natural economic advantages, and thus, any revenue sharing/luxury tax proposal will inevitably hit the Yankees the hardest. Some might say that if the Yankees are unhappy, the revenue sharing is doing the job, but as long as the Bombers are outspending everyone by significant margins, MLB’s shot at parity isn’t working.
It’s easier to say first what shouldn’t happen. MLB can’t simply increase revenue sharing money that goes to the teams without money. An extra $5 million in the pockets of the Pirates won’t help them become competitive. Perhaps it will allow them to spend more at draft time, but the two-win player $5 million can buy on the free agent market will be the difference between a 90-loss season and a 92-loss season. Fans won’t come out in droves for that quality of play.
Major League Baseball also cannot put itself in a position of penalizing owners for making a profit. It’s easy to fault the Pirates and the Marlins for taking millions out of their baseball clubs while the Yankees invest millions in the on-field product, but that’s a calculated business decision. Owners get into the game to make money, and the $10 million will do just as much on the field as it will in the pockets of an ownership group. The Yanks shouldn’t be paying out more dollars just so that the Pirates owners can enjoy higher profits from a team that’s consistently losing.
So we’re left trying to find some economic incentive to invest. Maybe baseball should allow revenue sharing for small market clubs on the verge of competitiveness. On a case-by-case basis, MLB can assess how much money a team would need to field a competitive club. Of course, this would lead to a situation where non-competitive clubs see their margins shrink. In essence, this could create contraction by market forces as the clubs that don’t compete can’t and are no longer viable MLB teams. The union would demand an expansion of the active rosters, but baseball would see the gap shrink between the haves and the have-nots simply by economic attrition.
Despite this glimpse into baseball’s tortured economics, we’re left where we started: with few real answers and no good solution to a problem that will dominate headlines for the coming year. Baseball certainly has a competitive imbalance as the Yankees and the Red Sox can pump more money into their teams in one season than some clubs can in three. Even as we learn more and more about baseball teams’ ledgers, to solve this problem while encouraging competitiveness remains an ever elusive goal.
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The Mason Williams Watch
The main uproar I saw coming out of this was from the taxpayers which helped to fund the Marlins new stadium. That said I don’t have a big issue with revenue sharing, does it suck as a big market and/or simply successful team to have profits ripped from you, yes, but talent evaluation is generally what keeps a lot of these teams down.
does it suck as a big market and/or simply successful team to have profits ripped from you, yes, but talent evaluation is generally what keeps a lot of these teams down.
I think these are mutually exclusive though. Regardless of keepng teams down due to poor talent evaluation, it’s wrong to have profits ripped away from you simply because you are in a big market. If a team is making a profit on their own while putting out a poor product, why should they be subsidized with extra money for the hell of it?
Yes you’re right I shouldn’t have lumped them together, it’s more that even despite being handed money it doesn’t necessarily make these teams more competitive.
There are plenty of ways for rich people to make money. Owning a baseball team is not really one of them.
There are too many teams. No one told Steinberg to buy the Rays. They have no market and no stadium. They came in last and were able to get the best young players. Win or lose they still make the same money in the regular season.
There should be a general fund to pay designated players market value to allow a team to keep their own drafted players if they chose. That should take the place of revenue sharing. Other expenses should be taken care of by the clubs.
I understand what you’re saying here, but it’s not quite correct. Owning a baseball team is very profitable. Maybe not from a year-to-year, proft-generating perspective, but owning a baseball team is extremely lucrative and has a very good ROI.
I don’t know what feels worse: Giving a bad team money so their owners can pocket it, or giving a good team in our own division money so they can improve.
i wish there was a way that rich teams did not subsidize “poor” teams in their own division….
Revenue sharing wouldn’t really mean very much if you only had to do it when it couldn’t hurt you.
it still hurts giving away funds to other teams…you face ALL AL teams during the year and of course the NL during inter-league and WS– so I do not think it is too much to ask NOT to fund one’s direct competitors that one plays 18 times.
It makes zero difference. Either way the team that is getting money from revenue sharing is gonna get their money. Instead of getting it from the Yanks, they’d get it from the Angels or whomever.
The only thing that does it make you say, “well at least they didn’t get their money directly from us”. At the end of the day, the Rays are still going to be collecting that check and using it to compete against the AL east and the rest of MLB.
I do not think it is too much to ask NOT to fund one’s direct competitors that one plays 18 times.
But in sports, you depend upon your direct competitors being competitive to generate revenue.
If the Yankees became the only good team in baseball, it would be like the Globetrotters vs. the Generals and nobody would care anymore because the league would become a fait accompli.
Right, from a business standpoint, baseball isn’t competitive so much as it’s a partnership. The Yankees have to have competition to drive that revenue.
I used to think the answer was to limit what the receiving teams were allowed to spend the charitable donation money on — like players’ salaries only, for example — but realized that a profit-hungry owner could just move his own team’s money budgeted for that purpose into his pocket as easily as he could do it with the Yankees contribution. Still think there has to be a way to make teams spend the unearned bucks to improve something other than the owners’ cashflow, and to spend it over and above what the receiving team already had in their budget for those real needs — just don’t know what it is.
I for one am happier with the Rays and other small-market teams playing at a high level!! I’m happy to fund the competition… and then beat them!
That.
maybe they can re-convene the House Committee On Un-American Activities. i bet Joe McCarthy would call all this revenue sharing “pinko”
I used to be a cashier at a supermarket, and would see people come in all the time using foodstamps and then driving away in a their BMW. It annoyed the crap out of me that people were exploiting our tax dollars that way. I’m sure the Yanks, Red Sox, etc feel the same way about revenue sharing at this point. No matter what system you use, someone will find a way to exploit it. Any team turning a profit should not get a dollar of revenue sharing money, but if you impose this all it will do is make the owners hide their profits more.
I forget which team or teams did this. But can someone help me see the justification for amortizing players contracts. If contracts are garunteed that is a future promise to pay. Shouldn’t this be a liability and not treated as an asset?
Teams should be have to be audited to verify their financial information if they are going to receive revenue sharing an government funding for stadiums. It’s not right for an owner seeking a new stadium to pocket millions in revenue sharing and turn around and ask for tax dollars to build a stadium.
The reality of the matter is there are essentially three tiers in baseball. 1: Yankees, Red Sox, Cubs, Dodgers, Mets, White Sox, Phillies, Angels, Cardinals & Phillies. 2: Braves, Nationals, Reds, Brewers, Rockies, Tigers, Twins, Giants, Mariners & despite the b/k Rangers. 3: Jays, Rays, Orioles, Indians, Royals, A’s, Marlins, Pirates, Astros, Diamondbacks & Padres. The first tier of teams are the group that keeps MLB going. Particularly when in comes to TV coverage and of course $$$$$$$$$ (No one is putting Royals/Indians on Fox or ESPN (Even MLB Network would be hard pressed for that one)). As much as people complain about the Yankees/Red Sox etc, there is no way the smaller teams want to severely weaken them. I remember years ago, when Kevin McClatchie owned the Pirates and suggested banning the Cubs & Braves from broadcasting in their ballparks. When the Yankees, Dodgers, Red Sox, Cubs & Braves threatened to leave MLB over that issue, it was quickly and quietly dropped. People will complain about the Yankees and sometimes they will take actions trying to hurt them (It started with John McGraw kicking them out of the Polo Grounds over the popularity of Babe Ruth (aka: Outdrawing the Giants)). But in the end, they will fail (As the Pirates and Giants did (The Giants of course, left town less than 30 years later, over attendance)), because the price of a weak Yankee franchise is not worth it from a MLB financial point of view (Attendance, TV contracts, merchandising, competition against other sports etc).
I know know how Januz feels about this.
You read that? Good for you.
God man, paragraphs. Please.
revenue sharing proposal:
5% tax on all teams with payroll >150% league avg.
All $ goes into a collective fund.
At season end fans mail in ticket stubbs and the tax money is divided amoung the fans on a per ticket stub bases.
Fat chance of that happening.
They could at least lower consession prices.
I like the idea of revenue sharing based on market size. This way you do not penalize small mkt teams who perform well. In my mind this is the best way unless we consider (which I doubt we will) a system that they have in the primier league (English soccer) where every year 3 teams get relegated to a lower league & 3 teams get promoted. This system creates a system where teams have motivation to put a solid product on the field or face relegation.
Me too. Sheehan’s idea makes sense.
I see no reason a team with a large market that it fails to capitalize on should get a revenue-sharing check. Nor do I see any reason a small-market team that is successful should be penalized by losing some revenue-sharing money. That looks wrong-headed to me, since it effectively taxes the recipient team for increasing its revenues.
How is revenue from the YES Network treated? Do the Yankees have to share that money, too, or is that in a different bucket?
Revenue sharing is good for baseball. We may not like it because it’s taking money out of the pockets of our team and giving it to our competitors, but having multiple good baseball teams is good for the game and makes it more interesting and more profitable.
Let me get this straight, baseball team owners are a bunch of chiseling pikers. Next thing, we’ll be finding out the NFL is letting brain damaged and crippled players languish in retirement.
Club owners didn’t become this wealthy by accident. It’s about time something like this came out. I hope it doesn’t stop, with this revelation.
What I hope we don’t see is unfortunately what I see bandied about more and more: a salary floor. That won’t do the slightest bit of good; salaries will simply adjust upward in response, and the bottom teams won’t be able to afford more and better players than they do now.
Nor does mandating that revenue sharing money go back out on the field work because teams that want to extract profits can simply accordingly cut back the share of non-revenue sharing income that is applied towards players’ salaries.
The only solution I can see is to come up with a formula that comes up with a minimum amount that must be spent on salaries on a team-by-team basis, accounting for the size of the team’s market and the demographics of that market (not only do the Yankees have a bigger market, they have a wealthier market on a per-person basis than say Kansas City).
Finally, if you truly want to level the playing field a bit you need to have mandatory slot payments in the draft and/or allow teams to trade draft picks. That lets the small-market clubs extract their full value from the draft picks. (Note, as some have proposed, that limiting mandatory slots to only the first two or three rounds is useless as Boras and others will ensure that their top picks aren’t chosen until Round 4 are beyond by making it clear they won’t sign if drafted in Rounds 1-3.) I would think the union might go for this because dollars not spent in over-slot bonuses are dollars that go to veterans’ contracts….
I think my anti-salary cap credentials are quite well established, but I’m very much a proponent of some sort of revenue sharing. the formula may need to be tweaked, and there may need to be better oversight of how the money is being used (although I’d not that the union got a look at the books in the off-season, and signed off on every team’s spending except the Marlins), but at the end of the day:
1. It’s in the bigger market teams’ interests to make sure there are teams in smaller markets and those teams have the potential to win at least from time to time
2. If we want to look at what’s fair, if revenue sharing gets eliminated, territorial rights have to go to. And all things considered, if we assume the two go hand in hand, I don’t see any reason the Yankees shouldn’t pay a premium for their territorial rights over the New York market.
I don’t mind small market clubs being subsidized any more than I mind my neighbor being on welfare while I work. That’s not sarcasm. I have a lot of benefits from working that welfare recipients don’t have. We might look at them as being on the dole or being lazy or whatever, but they look at me as someone who went to good schools that they didn’t go to and had chances they didn’t get to have. Plus I have credit cards and bank accts etc.
There are pluses and minuses to any position. I LOVE the Steins putting their money back into the team. I hate the Twinkies owner for pocketing it and then being told, at Yankee Stadium by Twins fans as the Twins were losing, that we were BUYING the playoffs. Well we bought some of your ticket for you to be here. So shut up. The Yankees are good for baseball. Like it or not, they’re good for baseball.