If there’s anything people hate more than a losing team, it’s a winning team -- one of those teams that win all the time. Large-market teams like the Yankees, Red Sox and Cubs seem to be using their substantially larger payrolls to abuse the rest of the league in a show of Harlem Globetrotters-style dominance. At the same time, five or six organizations annually field teams with a payroll less than the Yankees left side of the infield. Unlike the NFL, where the majority of revenue is generated at the national level, baseball franchises traditionally generate and retain a large majority of their revenue locally. Also, unlike the NBA or NFL, baseball has no salary cap. In an era of market competition to buy free-agent talent, it is inevitable that the teams in larger markets, with their bigger revenue bases, will eventually win out.
To the average baseball fan, the terms "revenue sharing", "luxury tax" and "competitive balance" are about as lucid as a smoke-filled room. The first two terms are the MLB's answer to fix the third term, which has hindered America's Pastime for the past few decades.
This article is designed to help you understand how baseball is trying to fix its competition problems, why it is not working, and how we the average baseball fan can help fix this problem. In addition, I will break it down so that you need not be a Harvard grad with an MBA from Wharton to understand the shortcomings of the system.
First, revenue sharing is Major League Baseball's attempt to help out the lower market organizations. Under the latest version, in effect through 2011, all teams contribute 31 percent of their local revenues and that pot is split evenly among all 30 teams. In addition, a chunk of MLB’s central fund - made up of revenues from sources like national broadcast contracts - is disproportionately allocated to teams based on their relative revenues, so lower-revenue teams get a bigger piece of the pie. Basically this means teams that pull in more money from Local TV deals (YES, Turner, FSN) will contribute more to the pot than teams like the Marlins and Pirates that can't get ratings, thus drastically increasing funds for the lower market teams.
In the perfect world, the teams receiving this money would turn around and invest in helping improve their organization including spending on free agents, coaching staff, scouting, and facilities. But in reality, these teams are pocketing the majority of the money. For example, in 2006, the Kansas City Royals received over $32 million in revenue sharing, but their payroll increased just 6%.
According the the MLB, luxury tax is as followed: “Teams whose payrolls exceed set thresholds will be taxed on the portions above the thresholds, with the money to be used for player additions, including player benefit plan, or the industry growth fund, or developing baseball players in countries lacking organized high school baseball.” So according to Major League Baseball all money received by teams must take all funds and use it accordingly on their team.
What does all this information mean? Great question. Let's start by assessing baseball in 2009. The bottom seven markets this past year all received between $80-90 million in revenue sharing and luxury tax. The Marlins, Padres and Pirates each had total payrolls of less than $50 million.
Let's take the Florida Marlins for example: Last year their total payroll was $36.8 million, yet they were given over $80 million by baseball. Eighty million dollars. Let that sink in. Take a second here. I am not a math major, but something just does not add up. If at the beginning of the year they were cut a check for between $80-90 million, but Loria doled out only $37 million in salaries so where did the rest go? This, my friend, is the problem in baseball today, and is why year in and year out the same teams are the bottom feeders of the league. The same reason we have to watch Tony Womack in the All-Star Game as a Pirate.
So the real truth of baseball right now is that there are owners who make $80 million-$90 million a year, then they turn around and draw 1.5-2 million fans, make $40 or $50 a head. All of a sudden, they’re sitting there with $200 million in revenues and they’re spending $50 million, $60 million, $70 million on players. This is the problem in baseball, and the solution is to make owners accountable for their actions and accountable for their spending. A ledger of spending is the only real way to truly hold owners accountable for actually spending money on players. Jeffrey Loria, among others needs to show proof of where he spends every dollar that he gains from baseball. This would hold owners accountable, and in turn increase payrolls of the ball clubs. Owners will not be fast to act unless pressure is exerted from the fans. Fans who fill the seats, buy the jersey's and pay the bills. When the fans come together and clamor for change, the owners will have to make consolations and their current loophole will shut.
The competitive balance problem we have in baseball is not faulty due to the current solution, it stumbles because of the ownership in baseball. The upper echelon of teams should not be looked down upon for spending so freely every off-season, they should be celebrated. They are playing within the rules, and at this point so are the Marlins, Pirates and all other teams hoarding money given to them by the big markets in baseball. The only way to have a competitive balance in baseball is to hold owners responsible, and have them show where they spend their revenue sharing. Once the owners start actually spending this money on players and player development, then and only then will baseball be a competitive sport from New York to Pittsburgh.
