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Why MLB's Revenue Sharing Concerns Us All

Mike SteffanosMonday, May 8, 2006
By Mike Steffanos


According to Maury Brown in the Hardball Times, the New York Mets contributed $24 million in MLB revenue sharing dollars last year. Regular readers of this site know that I have a strong opinion on the use of revenue sharing to level the playing field in major league baseball. Although I agree that an effort to be made to keep things competitive and give small market teams a chance; I take exception when fans of teams in large markets, already paying the highest ticket prices, have to subsidize baseball for some small-market cities. It's a complex question, and a subject to which I've been paying attention. For my earlier writings on this subject, please scroll to the bottom of this posting.

There have been some interesting articles on this subject recently, including one by ESPN's Jayson Stark (ESPN Insider subscription required) from late last month. As Stark points out, one of the big issues in the upcoming Collective Bargaining Agreement (CBA) negotiations will be revenue sharing. The problem, as Stark, myself and many others see it is simple:

At least four teams -- the Marlins, Devil Rays, Pirates and Royals -- are getting more money from their good friends at MLB than they're spending on their entire payroll (this is before they sell one ticket).

This is true. All of them, according to sources, rake in around $30 million in revenue-sharing handouts alone -- plus another $20 million to $30 million in TV, radio, Internet and Central Fund payoffs (generated by national TV contracts and licensing deals).

That comes to $50 million to $60 million, by our count. But their payrolls, by anyone's count, come to slightly less than that. Or, in the Marlins' count, to insanely less.

During negotiations for the new CBA, it is expected that this issue will be addressed. Ownership is hardly unanimous on this subject. Small market teams favor the status quo if not more revenue sharing. Large market teams fear that this form of "corporate welfare" is a huge disincentive to small market teams like those mentioned to increase their profitability, since that would result in a loss of revenue sharing dollars. It's an interesting Catch-22. Stark quotes an unnamed "prominent baseball man" on the dilemma:

Talk about welfare, there's zero incentive for these teams to take that money and spend it. ... If they get better, they draw more people. If they draw more people, they get a better TV contract and they sell more hot dogs. And if you do that, you lose your $30 million a year [in revenue-sharing money only]. Then you actually have to run your franchise like a real business and make it work.

Stark suggests the simple fix of inserting wording into the new CBA that mandates teams using all revenue sharing dollars to improve the on the field product, and suggests a way to enforce it. A really good read, if you have an ESPN Insider account.

In a story in the New York Times from around the same time frame, Murray Chass has a great story on the same subject, including outing two rather surprising recipients of revenue-sharing dollars:

The Phillies and the Orioles were among the recipients of the smallest payments -- the Phillies $6 million and the Orioles $2 million -- but the intrigue comes from their receiving any money at all.

The revenue-sharing system, which is designed to funnel money from wealthier clubs to poorer ones, large markets to small markets, transferred $312 million last year. ... Philadelphia is by no means a small market. It has the fourth-largest television market in the country. Baltimore doesn't have the population of New York or Los Angeles, but the Orioles drew more than 3.4 million fans in six of the first seven years (not counting 1994, the strike year) at Camden Yards.

But the Orioles have allowed themselves to deteriorate, and their attendance has shrunk. The Phillies have been bad for so long that they have turned off their fans, too. Last year, their attendance was ninth in the National League.

The revenue-sharing game is about revenue. Forget market size. High-revenue teams are payers, low-revenue teams payees.

Chass also goes on to mention the smaller clubs that are spending less than they take in. I did not realize that large-market teams like the Phillies were eligible for revenue-sharing. I would imagine that some more successful teams in much smaller markets (like St. Louis) contributed to that $6 million. That's just crazy.

Maury Brown, who writes about the business side of baseball for the Hardball Times, is writing a series of articles on the upcoming CBA. In part 2, he addresses revenue sharing specifically. Brown does a great job in explaining this complex issue. I would be doing his article a disservice if I attempted to summarize it, especially since the Hardball Times web site is free to all. Brown does a good job of stating the contentious issue here:

So, back to that provision within the CBA where clubs are supposed to use the revenue sharing monies to improve on the field performance ... The loophole, of course, is that you can "improve" your on the field performance any number of ways, be it investing in scouting, or farm systems, or what have you. The verbiage in the provision is vague, in that sense.

Because of the vagueness of the provision governing how revenue sharing dollars should be spent, no team, not even the worst offenders, have been penalized for not spending their money to improve the team. This is a concern of owners of large market teams -- and also to the fans, who are indeed subsidizing baseball in smaller cities. By the way, Mr. Brown has an excellent web site of his own called The Baseball Journals, where he writes a lot about the business side of the game and offers up some great interviews. I should also stress here that in referring to the writings of Mr. Brown and anyone else I have cited and/or linked to, in no way implies that they are in agreement with me or my take on this issue.

I've written so extensively on my own views on this matter that I feel no desire to beat regular readers over the head with it again. I wrote this in one of my previous articles, and it effectively much sums up my feelings on this matter:

I'm neither an MBA nor an economist, but as a baseball fan I wonder just exactly where we are going here. As the pressure builds more and more for MLB to "level the playing field", I've come to understand that, like beauty, fairness is in the eye of the beholder. Those that support taking more and more revenue from large market teams to insure competitive balance have absolutely no concern about the hidden cost to fans of those teams.

I'll continue to follow this issue and post on it as it evolves.

More Small Market/Large Market Opinion:
Major League Franchises Need to Be in Major League Cities
Define "fair"
View All On This Topic

Comments (18)

Mike, thanks for your interesting series of blogs on this topic which is of major importance to every baseball fan whether they are aware of the underlying issues or not. I support revenue sharing and luxury taxes. How can I not, after so often deriding the obese payrolls of the Yankees? But it is not because I dislike the Yankees that I deride their payrolls. Competitive balance is something I truly believe in. I would get no pleasure watching "my team" win year after year because it's lucky enough to operate in a big market and pull in bigger revenues to "buy" better players. Hence I support the current system as is, with both revenue sharing and the luxury tax leveling the field somewhat. I am grateful as a Mets fan because for the most part, my team has tried to keep its payrolls at a reasonable level. This year is no exception, with the Mets spending just $2 million more than the second highest spending team in the NL, and just $9 million more than the Braves.

I think they should keep the level of revenue sharing where it is, as 50% may be too onerous for the payor clubs. Keep the luxury tax limit where it is also; don't raise it as they've been doing annually for the last few years. And strengthen the penalties for clubs that exceed this limit.

To address the issue of how the payees are using the money they receive, there should be better accountability, with perhaps every payee required to submit detailed financial reports to an owners subcommittee (not just Selig) that would examine the finances with the assistance of certified accountants. Let this subcommittee decide the suitability of usage. I really don't have a problem with some payee teams not using the money on payroll -- as long as they use it for other legitimate purposes. Payee clubs should also be required to submit an annual report detailing efforts to increase revenues. Payee clubs would thus come under greater scrutiny and not get off "scott free" from having to account for their spending the way they do now.

Bottom line is that I think the system is more or less working fine as is. If it ain't broke, don't fix it. Let the Marlins go someplace else, as South Florida evidently won't support a team. It was a mistake to put them there in the first place. So their relocation should just be considered a market correction. We should just let the market decide where to put the teams (with a little help from revenue sharing, of course).

could we buy a team, keep it in last place and make a few mill. from the rich teams, by doing nothing? I'll manage, Iam sure we finish last in everything. Mike you can be our ace pitcher, if you get it over the plate we will have to put you in the outfield.Five million, ten million, 20 Mllion later we retire. What a country. GOD bless America. There is something wrong with this picture. Or is it just me.

Fastball, I support revenue sharing, too, but I don't favor the same team being able to dig into the pot year after year after year after year... Then it does become corporate welfare, and fans in one city supporting baseball in another, which is wrong.

One thing that needs to be addressed is the draft. They need to cap bonuses to high draft picks to ensure that "signability issues" don't keep the lowest finishing teams from signing the best available players.

I think the Marlins can do fine in So. FL, which is actually a large market. Local government and the team needs to stop playing chicken on a badly needed covered stadium. If I was a Marlins fan I would be outraged by the Marlins being allowed to cut salary to such a ridiculous level.
____________________________________________________________________________

Rev, I'm thinking Topeka or possibly Grand Forks for the franchise.

Mike, I can understand your concern with chronic "welfare recipients" when they are large market teams, but for mid- to small-market teams, there is just no way they can ever compete on an equal basis with the very large market teams like Boston and New York where the cable/broadcast fees constitute a big part of their revenues. Therefore, for these smaller market teams, like Minnesota, for example, I don't have a problem with them being payees every year. Unless you want to contract ALL smaller market clubs no matter how long they've been in existence, there's just going to have to be some sort of permanent revenue sharing to equal the playing field.

About the Marlins -- even in 2003 when they won the WC, and 2004 coming off a WS win when you'd expect a big bump in attendance, they could only attract 1.3 and 1.7 million fans respectively. There's no excuse for that -- not the weather which is not too much more unbearable in the summer than NY, nor the state of the stadium. Everyone calls Shea a dump (though I disagree) and yet the Mets who were less competitive than the Marlins during those years drew substantially more. I just don't think the fan base is there to support a baseball team.

Fastball, I already addressed this in the first one I wrote, Major League Franchises Need to Be in Major League Cities.

So, while I believe that revenue sharing should increase, I would insert a caveat. When you add up all the revenue eligible for sharing from the 30 major league franchises, you would divide that number by 30. In a perfect world, each team would contribute 1/30 of the total, 3.3%. Obviously, this won't be the case. I would set a minimum percentage of the total revenue that any franchise would have to meet, maybe 2%. Exceptions could be made for bad years, but consistent failure to generate local revenues that meet a minimum requirement would result in a penalty where a team loses revenue sharing dollars.

I think that's fair. No one is asking all teams to contribute equally, but it's not fair for fans in one city to subsidize another year after year after year. Then you have cities like Portland, OR, that want to know why baseball shouldn't be subsidized in their town. What's next, Missoula, Montana? (A really cool place, by the way)

Miami is a good-sized market, but it rains almost afternoon in the sumnmer, and the ballpark is a miserable place to be for most of the summer. There's a large Latino population in the area to be tapped in the way the Mets have done it. I think Florida can be a stable franchise given a domed stadium. Anyway, that's my opinion.

Mike, your plan wouldn't address the problem of smaller to mid-sized markets being inherently at a disadavantage due to RSN's and cable/broadcast revenues. It would merely serve to put restrictions/penalties on payee clubs, forcing them to almost double (in some cases) the amounts they currently pay into the pool, increase the percentage of their local revenue they have to contribute so that in some cases it would be higher than the bigger clubs, and decrease the net amounts they get back in revenue sharing. It essentially weakens revenue sharing. Might as well simply go back to the 20% model or something less taxing to the bigger clubs. If weakening revenue sharing is your intent then your plan is fine.

As it is now, there is a significant amount of revenues generated by RSNs that is sheltered completely from revenue sharing. So I don't see any reason to weaken revenue sharing. It is not as onerous as presented by some. But as I said, I also don't support taxing the bigger market clubs any more.

As for Florida weather, that doesn't account for the skimpy crowds they get down the stretch in September or in April and May. The small crowds in September when the Marlins have been competitive and still in the race are especially inexcusable. And I'm not sure how the Marlins can exploit the Latino population any more than they've done already. Last year they had Delgado, Cabrera, Castillo, Encarnacion, Gonzalez, and at least 7 other Latinos play for them. Are you suggesting they create ads targeted just to Latinos? The Mets got criticized for that last year and don't do it anymore.

You didn't really read what I had to say, did you? I simply state that teams that consistently over a long period of time fell far short of the median league revenue are demonstrating that they are either in a city that cannot support a major-league franchise or so poorly run it needs to be addressed. If you look at Brown's list of who contributed revenues, you'll find Seattle, St. Louis, Houston and Texas. Well-run teams in small to medium markets can succeed. I'm not asking them to succeed on an equal level with big clubs.

I'm not here to engage in debate with you, especially when you fail to really debate me on what I'm saying. I find what you're doing actually quite rude. You're more interested in advancing your point of view than really talking about what I said. This forum exists because of my hard work, not yours. Please take these games somewhere else.

Sorry, but I don't play games and don't have time to do so. I only post on issues I feel strongly about and competitive balance in baseball is one of them. I did read what you had to say and I tried to address your points and thought I did (as before, with the Keith issue). I looked at your 2% plan and estimated that it would only serve to tip the balance back to the larger market clubs. And while it's true Seattle and St. Louis are doing well for medium market teams, Houston and Texas are in fact located in (or extremely close to) two of the largest U.S. metropolitan areas, coming in at #7 and #9 respectively. The surprise would be if they weren't payors. And St. Louis and Seattle actually are both in larger metropolitan areas than the Marlins, Pirates, Royals, Oakland, Tampa Bay, Rockies, Reds, Cleveland, and Milwaukee, so it's not really surprising that they are payors either. For the most part, the list of payors and payees correlates extremely well to a list of U.S. metropolitan areas ranked by size. But I won't belabor the issue any more. It appears you're not interested in ideas that don't correlate with your own. So no worry, I won't read your blogs anymore or post here.

Good riddance. I get along fine with people that disagree with me, there are a couple of commenters that I really enjoy that rarely agree with me. I don't get along with people that are so in love with their own opinion they mischaracterize what I say and post 10,000 word essays to my comments that I don't wish to spend all my time answering.

If you just came out and said, "I disagree with you, I believe fans in large market cities should subsidize baseball in small markets," that would have been acceptable. I had a couple of people that I respect look over your posts from this and the Hernandez issue, and they agree with my conclusion regarding you. You're a self-centered, self-righteous pain in the ass. Arrivederci...

The marlins should move to Orlando or West Palm Beach where there are more baseball fans. If they move to Hialeah it is not such a good area, it is a very high crime area. If they were to move to West palm or Palm Beach Gardens then you can still get to the stadium from Miami if you wish to see a Marlins game, this way they will attract people from all over, like Okeechobee, and the surrounding areas, Jupiter and Port St. Lucie and such.

I don't think that MLB should artificially prop up failing franchises. Ineptitude should never be rewarded. (see Asian financial markets crisis of the 90's. This crisis was the result of unsustainable macroeconomic & protectionist policies which create the very "market" imperfections they were originally designed to correct.)

I think that teams should be relegated to AAA when they are no longer viable. AAA teams that win should be rewarded with a MLB promotion. Incentives matter. Teams that win in the junior circuit would benefit the parent club by receiving a majority of revenue sharing pot. The team without the AAA team would acquire the Major league team that fell out. Then we can say good riddance to Royals, Devil Rays, Pirates and other perenial losers with miniscule payrolls (a.k.a. Quadruple A teams).

Somewhat like English soccer. It makes sense, but it will never happen. Too many cities believe it is their right to have sports subsidized by larger cities.

the Marlins, Devil Rays, Pirates and Royals

let's move them to those fields in Central Park where I used to play softball....

Mike,

I read the posts. Fastball was not rude, as you alleged, in his first post. You didn't bring any honor upon yourself by reacting like a playground bully.

I wrote some pieces on my belief that successful franchises shouldn't subsidize unsuccessful franchises on a long-term basis. Instead of debating me on that, Fastball would endlessly pick apart small things in the piece, often misstating what I wrote. I told him/her previously that I didn't have time to engage in endless debate with one reader, but the endless long comments continued.

At the time I was going through a prolonged downturn in my illness and I finally snapped and told Fastball I thought he was rude and why. In retrospect, with a little better health and some experience here, if the same situation happened today I would ignore comments that I felt were just argumentative and ignored the actual thrust of what I was writing about. However, if you see in my reply the actions of a "playground bully", you are someone who is bringing their own agenda here. If you find me so offensive, there are plenty other places to go on the Internet.

It is funny to me that the fans of teams who's GMs have so wrecklessly inflated the salaries for players and thus created the NEED for such revenue sharing in the first place, are the people I hear complaining about it.

The need for revenue sharing was created when baseball insisted on placing teams in markets that couldn't support them. No one inflated salaries more than Tom Hicks did in Texas, hardly a large market. But why fault a business owner for spending money they have to improve their product?

And by the way, the word is "reckless", Shawn.

The flaw with Revenue sharing is teams dont have to spend it on payroll. The other purpose of the Mega payrolls is to sell tickets and not just win games. The Rays may have went to the 08 World Series which is awesome but they still sold under 2 million tickets.

I think you need to add a 2 teams to make it 32 teams. Add 2 playoff spots so there is 12 of 32 who can make the playoffs and realign teams based on payroll spent. example:

Yanks, Red Soxs, Mets, Phils in one division and Teams like the Pirates, Nationals, Indians, Reds in another. This would ensure teams with lower payrolls can be represented in the playoffs. As you spend more you change divisions. This would keep the schedule fresh and teams like the Pirates and Royals would have a chance to play in October.

check out the plan at:

http://thefairball.com/mlb-realignment-plan/

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