Most Recent Editorial
What Was Revenue Sharing Really About?
September 19, 2010
Tommy Craggs, at Deadspin.com, contacted me a while back. He had obtained audited financials (operations, balance sheets) for a small number of MLB teams for a very short period. I agreed to look them over for 1) authenticity, 2) veracity, and 3) anything that stood out to me. After he released them at Deadspin.com I received many subsequent press inquiries.
What about this team's claims? What about that team's claims? What about claims of poverty in stadium negotiations when one or two were "clearly" quite profitable? And my favorite: Why aren't these teams doing what they are "supposed" to and spend their net revenue sharing proceeds to make their teams better.
This last question made it clear to methat, by and large, my work on revenue sharing has either been forgotten or has gone unnoticed.
Let me be plain: MLB's pooled revenue sharing system was never intended to improve competitive balance (level the playing field between larger- and smaller-revenue owners). All pooled sharing does is reduce the perceived value of talent to ALL owners (Yankees and Rays, alike). Thus, payrolls are pressured downward. But the wonderful thing about pooled sharing is that it does not change fan willingness to pay by $1 for any team owner. So, MLB owners must have surmised,under pooled revenue sharing we pay players less but collect revenues as always. The pool, then, is just the amount that is collected as redistribution from players to owners. The particular revenue sharing arrangement (originally in the CBA that came out of the 1994-1995 strike) is a device for splitting up the spoils that was agreeable to a majority coalition of MLB owners at the time!
And here is the crucial point: All owners are better off under revenue sharing. Even though the Yankees take less out of the pool, their share came from lower player payrolls. And even though the Rays take out more, their share came from lower player payrolls. It is all money that neither owner would have obtained if the pooled sharing device were not in place. And it is all money that goes to each owner in addition to what they would otherwise have made in the absence of revenue sharing.
Thus, net revenue sharing proceeds are just a lump sum transfer from players to all owners (Yankees and Rays, alike). There is no incentive incentive in this redistribution device to alter team quality and nobody really has in a long-term noticable way. In the CBA immediately following labor negotations in 2001, language was added directingt the Commissioner to monitor how net revenue proceeds get spent. The explicit direction is that they be spent on team quaiity. But that CBA directiveis without teeth and there is no reason for the Commissioner to do anything except reassure everybody that MLB owners are obeying the CBA. And that is what has happened because it is in the best interests of all owners, Yankees and Rays, alike.
It is interesting that many owners document that they have obeyed the letter of the CBA. But this is just data that shows MLB has extremely high return. For those owners, apparently the highest return to net revenue sharing proceeds is reinvestment in their team. Since all owners have alternative uses for the money, the highest return must be in their team. But the pooled revenue sharing device does not make them do this. Indeed, that device was never intended to balance play.