View Full Version : Revenue Sharing

01-13-2006, 12:15 PM

Dayn Perry / FOXSports.com
Posted: 10 hours ago

The recent news that the New York Yankees finished the 2005 season with a $207 million payroll $90 million more than the next highest payroll imparts some lessons regarding the future of Major League Baseball.

On December 19, baseball's collective bargaining agreement (CBA) will expire. The CBA governs the economic landscape of the game, codifying everything from minimum salary and pension contributions to the amateur draft and disciplinary guidelines. Mostly, however, it's the residue of the perpetual struggle between players and owners over how the games' revenues are divvied up.

Suffice to say, much is at stake for both sides, and unlike in the NBA or NFL the power-sharing arrangement is fairly equitable. So when the players and owners are at loggerheads, a work stoppage often results.

The first thing you should know about the owners is that, since baseball isn't a publicly traded entity, they're under no obligation to disclose accurate financial details. The upshot is that they're probably lying whenever they wail to the heavens about this or that economic crisis.

Any exercise in independent forensic accounting reveals that Major League Baseball is a wildly profitable industry, and fans should offer nothing more than a knowing chuckle when Bud Selig solemnly drones on about forthcoming ruin. So when owners push for things like a luxury tax on payrolls, contraction or a salary cap, it's not about leveling the playing field; it's about suppressing labor costs.

One thing the owners (some of them, anyway) are right about, however, is the need for increased revenue sharing. Presently, MLB franchises, in accordance with the 2002 CBA, share 34 percent of local revenues. That's up from 20 percent during the 1996-2001 CBA.

Now, contrast this with the NFL, which mandates that its teams equally share the $2 billion-plus the league gets from its national television contracts. Forty percent of all gate receipts are also divided equally among teams.

The two situations are not entirely comparable, as MLB depends more on local television contracts than national ones. For example, as recently as 2001, the Yankees received more than $55 million (a conservative estimate, to be sure) in local-media revenues, while the erstwhile Montreal Expos received if you can believe this $536,000 in local media revenues, or roughly enough to afford one year of Eddie Perez. (The latter figure was the result of then-owner Jeffrey Loria's orchestrated failure to negotiate either an English-language radio broadcast or a television contract.)

Quite obviously, that's a hulking divide. The Expos' situation was somewhat anomalous, but the revenue disparities in baseball are undeniable; Milwaukee's local-media contract, which was 29th in value in 2001, was worth roughly one-tenth of the Yankees' contract. No one doubts that the Yankees have achieved much in terms of market penetration, but they do split a population base of roughly 20 million with only one other team. How, exactly, is that fair?

In the forthcoming CBA negotiations, this needs to be addressed once and for all, but it won't be easy. Large-market owners are naturally opposed to revenue sharing because they're the ones who foot the bill, and the Players Association balks at it because it would likely serve as a drag on the game's highest salaries. But sports leagues aren't your garden-variety industry.

The goal of the Yankees, Dodgers or Red Sox unlike, say, the goal of Wal-Mart or IBM isn't to drive the competition out of business. The Yankees want to pummel the Royals on the field of play, but they need them to at least otherwise stick around. At a base level, baseball, or any sports league, is a collaborative business, and teams should be compensated for any native market disadvantages they endure. So, next time around, owners should abandon the bid to re-establish payroll luxury taxes, completely forgo any pointless notions of a salary cap and instead focus on bringing revenue-sharing opponents to heel. What baseball needs is to share 50 percent of all local revenues. However, that alone won't be enough.

When you give money to teams with no sense of accountability, you inevitably get reprobates like Carl Pohlad, the billionaire owner of the Minnesota Twins, who have a history of gleefully pocketing shared revenues rather than reinvesting them into the team.

The answer really isn't forcing teams to boost payroll that's a scenario that lends itself to late-hour, asinine contracts doled out solely for the sake of meeting a salary floor. Rather, teams should be held to account to ensure they're plowing these revenues back into the team in some form. Whether that's by retaining a home-grown free agent who otherwise would've signed elsewhere, increasing the scouting and development budget or keeping a talented front office in place, it doesn't really matter so long as the money is being spent to improve the organization.

Sports leagues aren't the cauldrons of social Darwinism that many like to pretend they are; they're cooperative endeavors. In baseball, that should mean a fairer and more sensible sharing of revenues, but only with accountability measures intact. To make the game even more engaging than it already is, this needs to happen.

Dayn Perry is a frequent contributor to FOXSports.com and author of the forthcoming book, "Winners: How Good Baseball Teams Become Great Ones" (Available soon at Amazon.com).

01-13-2006, 12:19 PM
what would happen if MLB shared 40% of their gate take, 100% of their national contracts, and each team pocketed 100% of their local tv/radio contracts? would that do anything useful without implementing a salary cap?

01-13-2006, 12:22 PM
I think the 100% local not being shared would cause the system to be just about how it is now.

Full and complete revenue sharing please. (I know it's a dream)

01-13-2006, 12:48 PM
According to this table (http://www.baseballprospectus.com/article.php?articleid=1297) at BP from '01, the Yankees $56M TV contract was about 10x larger than the Brewers $5.9M deal and over 100x larger than the TV-poor Expos minimalist deal. (Reading this table, it's a no-brainer why the Expos left Montreal.) The Reds were at $7.8M, about 3 slots above the Brewers.

I wish I could find something more current.

While looking for a table like this, I saw some speculation that MLB's hidden agenda in centralizing its Internet streaming sales is to eventually share the revenue from that centralized operation. It could move away from broadcasting altogether, in favor of selling game audio and video directly to consumers.

01-13-2006, 01:25 PM
While looking for a table like this, I saw some speculation that MLB's hidden agenda in centralizing its Internet streaming sales is to eventually share the revenue from that centralized operation. It could move away from broadcasting altogether, in favor of selling game audio and video directly to consumers. I speculated, on Redszone, from day 1 that would (or at least should) be the plan, I hope it is. I was suprised at the "so what" reaction on Redszone. GL