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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