Revenue-sharing in Baseball

[progressiveman1]

Revenue-sharing distributes a percentage of revenues from the teams that make the most and transfers that money to the teams that make the least. The reasoning for this program is to eliminate competitive imbalance and shrink the spending gap between the rich and poor teams. Since a lot of a teams' revenues are based solely on location there seems to be some justification for revenue-sharing, but only if it spreads the wealth in a proper way. In order for MLB to see the desired goals, the R.S. program needs to encourage(if not make it mandatory) spending from low revenue clubs that comes out of their own pockets if they wish to receive any handouts.

With the current system in MLB, a few owners of the poor teams are taking advantage of the handouts in a bad way. Their team payrolls are not increasing despite taking in huge profits, meaning they see no incentive in trying to improve their on-field performance because they know the worse they are, the more money they receive. Sadly, their lack of success and determination is what's making them richer.

This does not mean I disapprove of a revenue-sharing program in MLB, only that I'm suggesting a modification of the current one. A hypothetical idea that I came up with recently requires a low revenue club to spend over a certain threshold relating to their own revenue, and past the threshold they will receive a degree of money from the R.S. system. The higher they spend over the threshold, the more money they receive. The poor teams should be able to afford doing so because they can actually end up buying players at a large discount, in relation to how much money came out of their own pockets. With this R.S. program, it ensures that the owners are improving their team before and while they are receiving handouts.

[progressiveman1]

Since I just started studying this topic a couple of days ago, I should have mentioned that I'm not reluctant to change my viewpoint on the issue, and in fact have come to a different conclusion already. I'll probably end up adding on to this later, due to popular demand in this forum.

At first glance, revenue sharing seems like a logical solution to competitive imbalance in baseball. The small market teams have a much tougher time generating revenues and inevitably spend a smaller amount on their team, not being able to afford or attract higher salary players. The problem is bigger market clubs can generate more revenues, right? Right. The solution is stealing their money to allow small market clubs to compete, right? Wrong. This is an incorrect solution because it is assuming that any owner who chooses to create a team in MLB is entitled to success.

The mistake that is being made, however, is assigning the fault on the wrong party. It is each owner's own fault for not being more successful, whether it's for his choice to create a team in a small market area, for hiring the wrong people, not spending enough, etc. He is allowed to make these choices, but he should not be rewarded for failure.

If an owner decides to create a team in a small market area, he should accept the risks involved. Of those risks, generating less revenue than other teams is a major risk. If the owner doesn't think he will be able to make a profit or compete in the league given these circumstances, then he should choose not to create a team. And although there are more risks to be taken for a small market owner, that doesn't mean he is doomed for failure. For example, the Oakland Athletics and Minnesota Twins are small market clubs, and yet they usually finish at or near the top of their divisions. This is due to good management and spending their money wisely, even if it is significantly less than some teams.

With all that said, I think it's clear that my viewpoint is against revenue sharing in MLB. I never discussed if I thought a revenue sharing system could possibly create its desired result of a consistent balance of competition throughout the league because I find it unimportant and unnecessary to write here. I've explained why even a "successful" revenue sharing system shouldn't be implemented, and I hope MLB eliminates their current revenue sharing system all together.

[KendallJ]

Another way to think of this is from the perspective of the stronger club's management. Is it in their interest to see the lesser teams succeed and have the resources to prosper. If this was true, then one could make a case that stronger teams would benefit from giving money to the lesser teams and it would not be a case of charity. However, this woudl really depend on a lot of factors that I don't understand that well.

a. How dependant is a teams success on its highest paid players. i.e. what's the causation between higher $ spent and winning?

[DarkWaters]

[W]hat's the causation between higher [team payrolls] and winning?

Having a higher payroll usually helps but there are plenty of counterexamples. Consider the current standings and consider this list of 2007 team payrolls which appears to be fairly accurate. In the American League Central, the Chicago Whitesox are one of the highest paid teams yet have consistently been terrible this season. Meanwhile, the Cleveland Indians have a pretty low budget and have a comfortable lead in the very same division. The Baltimore Orioles are also infamous for spending large sums of money and receiving very little productivity in turn.

[progressiveman1]

Another way to think of this is from the perspective of the stronger club's management. Is it in their interest to see the lesser teams succeed and have the resources to prosper. If this was true, then one could make a case that stronger teams would benefit from giving money to the lesser teams and it would not be a case of charity.

Yeah, but I don't think there's much benefit to the higher revenue teams to give their money to the less valuable teams. First, they would have to give away millions of dollars from their profits which otherwise could have been spent on improving their own team. Also, assuming a revenue sharing system worked like its intended purpose, they would have more competitors in reach of beating them in their division race or in the playoffs, and teams collect money when they win in the playoffs.

Maybe one benefit from enriching the less valuable teams could be attracting a few more fans to games, and that could generate a little more revenue for higher revenue team's home games(which they would only collect a portion of though). I'm not sure if that would outweigh the losses.

a. How dependant is a teams success on its highest paid players. i.e. what's the causation between higher $ spent and winning?

There's definitely a strong correlation between the two. As I said earlier, having a small payroll doesn't necessarily mean you're doomed for failure, but the chances of winning seem to increase as you spend more money. The bottom third on the team payroll list are usually the teams with the worst records in the league, with exceptions such as Oakland and Minnesota. Of course there are exceptions on both ends of the list, like with the NY Mets earlier in this decade when they had one of the highest payrolls each year but consistently finished at or near the bottom of their division. They are one of the best teams now with one of the highest payrolls still, but it goes to show that it takes more than money to win because you still need to know how to spend it.

[progressiveman1]

Dark Water,

Based on your comments, I would say you are against revenue sharing in MLB? Is this true? What about a payroll cap?

[punk]

It sounds to me like the goal of this is to make sure the other teams are competitive.

This is good for all the teams in the league, since presumably fan interest is higher if the sport isn't dominated by a couple teams. In that case it generates more revenue for the wealthier teams than if they didn't distribute the money.

The same reasoning applies to the bottom teams getting the first shots at new players.

[progressiveman1]

It sounds to me like the goal of this is to make sure the other teams are competitive.

Specifically, it's to help the bottom 1/3 or so teams of the payroll list. And if you look at the results of those teams since the revenue sharing system began in MLB in 1997, you'll see that almost none of them made it to the postseason(exceptions being Oakland A's and Minnesota Twins, who had no problem competing even before the R.S. system).

This is good for all the teams in the league, since presumably fan interest is higher if the sport isn't dominated by a couple teams. In that case it generates more revenue for the wealthier teams than if they didn't distribute the money.

Right after the R.S. system was created in 1997, the Yankees made it to the World Series 6 of 8 years. There are streaks like this that can't and shouldn't be avoided because it's due to great scouting, great management, dedication from the owner, etc., and plenty of teams that haven't had the highest payrolls get streaks like this too.

With a R.S. system in place, I don't think it would generate enough revenue to compensate the owners who have to pay for it. The owners who pay for R.S. must end up losing a lot of money from it.

A better solution to competitive imbalance is to eliminate a select few teams who generate little revenue and are consistently losing. I'm not sure if those teams are making a profit though. So if anything needs to be done, taking away some of the small market teams should be considered.

[DarkWaters]

Based on your comments, I would say you are against revenue sharing in MLB? Is this true? What about a payroll cap?

I did not voice an opinion on it.

I understand why MLB thinks it is to their advantage to implement it. I would want to think from a game theoretic perspective if it actually is the best mechanism to impose to accomplish MLB's objectives (including as opposed to using any redistributive mechanism.) In other words, I do not wish to post extemporaneously on this topic.

[KendallJ]

This is good for all the teams in the league, since presumably fan interest is higher if the sport isn't dominated by a couple teams. In that case it generates more revenue for the wealthier teams than if they didn't distribute the money.

Yeah, but let's parse this. How exactly does it generate more revenue for the richer teams. That is, how exactly does increased fan interesting in Milwaukee generate greater revenue for New York?

[punk]

Specifically, it's to help the bottom 1/3 or so teams of the payroll list. And if you look at the results of those teams since the revenue sharing system began in MLB in 1997, you'll see that almost none of them made it to the postseason(exceptions being Oakland A's and Minnesota Twins, who had no problem competing even before the R.S. system).

Right after the R.S. system was created in 1997, the Yankees made it to the World Series 6 of 8 years. There are streaks like this that can't and shouldn't be avoided because it's due to great scouting, great management, dedication from the owner, etc., and plenty of teams that haven't had the highest payrolls get streaks like this too.

With a R.S. system in place, I don't think it would generate enough revenue to compensate the owners who have to pay for it. The owners who pay for R.S. must end up losing a lot of money from it.

A better solution to competitive imbalance is to eliminate a select few teams who generate little revenue and are consistently losing. I'm not sure if those teams are making a profit though. So if anything needs to be done, taking away some of the small market teams should be considered.

If you eliminate teams then you are just going to end up with a handful of teams. There's just something less interesting about a sport that consisted of say 6 teams playing each other.

Starting up a whole new team isn't exactly easy, and is liable to just end up using the players from the eliminated teams.

On the other hand, now that I think about it, the problem could well just be poor management. So yes, a lack of profit sharing would force changes in management and ownership.

Profit sharing could just be allowing poor owners to allow bad managers to produce crap teams.

[dan_edge]

The salary cap system fixes the imbalance problem in other sports. I don't see why it wouldn't work in MLB, except the Player's Union would try to strike initially.

--Dan Edge

[progressiveman1]

Yeah, but let's parse this. How exactly does it generate more revenue for the richer teams. That is, how exactly does increased fan interesting in Milwaukee generate greater revenue for New York?

I assume he means that the best teams would draw more attendance and better tv ratings when playing against tougher competition, as opposed to playing a crappy team. It's similar to when the Yankees play at a crappy teams ballpark- attendance rises dramatically.

[progressiveman1]

If you eliminate teams then you are just going to end up with a handful of teams. There's just something less interesting about a sport that consisted of say 6 teams playing each other.

Actually you would end up with around 22(there's 30 now). I'm basing this on team payrolls each year and how often they make the postseason. If you look, you'll see that the top 2/3 teams on the payroll list, division winners are usually spread out almost evenly. The teams in the bottom 1/3 are flooded with crappy teams and they rarely make it to the postseason(except Oakland and Twins).

The salary cap system fixes the imbalance problem in other sports. I don't see why it wouldn't work in MLB, except the Player's Union would try to strike initially.--Dan Edge

What proof do you have that the NFL has better parity than MLB?

[punk]

Actually you would end up with around 22(there's 30 now). I'm basing this on team payrolls each year and how often they make the postseason. If you look, you'll see that the top 2/3 teams on the payroll list, division winners are usually spread out almost evenly. The teams in the bottom 1/3 are flooded with crappy teams and they rarely make it to the postseason(except Oakland and Twins).

If I understand correctly, this would basically be saying there just aren't enough good players to go around. The idea, I think would be that a given population only produces a certain number of good players.

So by letting teams die we let the market find the right number of teams to suit the available pool of players.

[Thales]

Let me offer something on this matter. Keep in mind that low revenue teams have been winning the World Series and it's not been infrequent. The Florida Marlins spring instantly to mind. They beat the Yankees a few years ago. On the flip side, there are high revenue teams that rarely make it into the World Series, Boston being the best example, though they finally got to the big show and won against my Cards after EIGHTY something years. And while Kansas City has been a door mat of late, at one time they were a perennial winner, so I’m inclined to think something has happened to their motivation.

If revenue sharing is needed to create more balanced competition, I think it's perfectly reasonable, since all of the teams together make a product, Major League Baseball, and it's that product which they are trying to sell. But you have to be careful to make sure that the owners of each team are highly motivated to win, i.e. they should make money for their efforts.

I think it's also instructive to look at the Yankees, who spend far and away the most money for their players. Despite having lots of talent on their team, they've not won that much lately. And, if you look at their teams from the mid 1990s, when they had a great team, they didn't have nearly the talent they have now. They won because the team fit together well. This shows you that there is more to putting a team together than payroll.

Here is my theory on this, money can only get you so much, because players are only so good. Even if you talk about the best stars, they usually aren't that much better than the lesser stars, and if you had a trillion, billion dollars, the money-to-quality-play curve is going to flatten out really fast, so that dollars thrown at talent become worthless. Instead, you have to do other things, like get a quality manager, quality coaches, quality trainers, etc.

So, if there is revenue sharing, I don’t think it should be a great deal of revenue that is shared, because I don’t think it would be required to make teams competitive.

Just to throw in something completely different, I also think all of this hype over steroids is over done. With biotechnology in its infancy, we're going to see the athleticism and durability of players (and people generally) only get better, and then all of baseball's records are going to be skewed, and this is a good thing, for being healthier, stronger, faster and living longer are to our advantage as living beings.

Edited September 14, 2007 by Thales

[RationalBiker]

If you eliminate teams then you are just going to end up with a handful of teams. There's just something less interesting about a sport that consisted of say 6 teams playing each other.

I think that depends on one's perspective, but for the sake of argument, is there anything "less interesting" between 20 teams versus 30 teams? I don't personally see a difference once you get over 15 or 20. Would 100 teams be more interesting?

[progressiveman1]

If I understand correctly, this would basically be saying there just aren't enough good players to go around. The idea, I think would be that a given population only produces a certain number of good players.

That might be part of it. The main part is that some small market areas just can't support a MLB team(i.e. generate enough revenue) and the larger revenue clubs can outbid them on most players.

So by letting teams die we let the market find the right number of teams to suit the available pool of players.

What do you mean "die"? It can be estimated beforehand how much revenue a team will generate based on population, income of the people, and common sense.

[progressiveman1]

So, if there is revenue sharing, I don’t think it should be a great deal of revenue that is shared, because I don’t think it would be required to make teams competitive.

Are you suggesting there should or shouldn't be a revenue sharing system in Baseball? At times you hinted "yes" and other times "no".

Just to throw in something completely different, I also think all of this hype over steroids is over done. With biotechnology in its infancy, we're going to see the athleticism and durability of players (and people generally) only get better, and then all of baseball's records are going to be skewed, and this is a good thing, for being healthier, stronger, faster and living longer are to our advantage as living beings.

You do think steroids should be banned though, don't you?

[y_feldblum]

In all other industries open to the market, the worse teams can learn, write up a new business plan, and seek venture capital or some other form of outside investment. A forced revenue-sharing plan is one way among many to destroy an industry. An illustrated theoretical defense of this position can be found in Atlas Shrugged.

[Thales]

Are you suggesting there should or shouldn't be a revenue sharing system in Baseball? At times you hinted "yes" and other times "no".

It's encapsulated in my statement here:

"So, if there is revenue sharing, I don’t think it should be a great deal of revenue that is shared, because I don’t think it would be required to make teams competitive."

Are you asking if it's moral? Then, yes, it's moral. As to it being a good business move, that would require looking more closely at the situation, and my sense is if it's required, it's not going to be much, since low revenue teams can be competitive.

You do think steroids should be banned though, don't you?

From the stand point of the health of players, perhaps, from the stand point of being concerned with the records of baseball, no. Keep in mind that players today have great advantages over players of 50+ years ago medically. Their careers last longer and they can play healthier, because of improvements in medicine, training and diet. Iows, the records are already skewed.

In all other industries open to the market, the worse teams can learn, write up a new business plan, and seek venture capital or some other form of outside investment. A forced revenue-sharing plan is one way among many to destroy an industry. An illustrated theoretical defense of this position can be found in Atlas Shrugged.

You may be right, but keep in mind that the product here is the league, not just one team, and so you don't want your competitors to go out of business, you want them to thrive. They may want other sports leagues to go out of business so that they can repeat the benefits in terms of more fans, but the Yankees literally need other teams to play against, and they want the competition to be good and tough to make the sport more worth seeing. This is not socialism, this is self-interested capitalism at work, here.

[punk]

That might be part of it. The main part is that some small market areas just can't support a MLB team(i.e. generate enough revenue) and the larger revenue clubs can outbid them on most players.

What do you mean "die"? It can be estimated beforehand how much revenue a team will generate based on population, income of the people, and common sense.

We both know in the real world people act in spite of common sense.

There's nothing stopping a city that thinks a MLB team will generate revenue from hiring a consulting firm that will confirm their expectations, and then putting together everything they need to have a team only to find out the firm only gave them the numbers they wanted.

[progressiveman1]

I did not voice an opinion on it.

You implied an opinion on it. Re-read(and maybe re-re-read) your previous comment. It's obvious that you implied there is at least some parity in MLB, so it makes COMPLETE sense that I asked if you were against revenue sharing.

In other words, I do not wish to post extemporaneously on this topic.

That's a good idea. If you lack the knowledge, it's better not to have a firm opinion on the matter.

[progressiveman1]

You may be right, but keep in mind that the product here is the league, not just one team, and so you don't want your competitors to go out of business, you want them to thrive.

Even in the MLB situation, owners want their league competitors to go out of business if they are losing money because of them. If a system like revenue sharing is causing the successful owners to lose money even while creating more parity, it would be in the owner's self-interest to try to stop the R.S. system. And if a few of the worst teams go out of business, the surviving owners will greatly benefit because they don't have to worry so much about so-called competitive imbalance any more. So I think it's wise to keep Feldblum's advice in the back of your head, that a R.S. system destroys business. That means it causes problems such as lost profits, lack of motivation, disgruntled workers, etc etc, and if a system creates more problems than it solves it is bad no matter in competing businesses or in one single league such as MLB.

[RationalBiker]

I think that depends on one's perspective, but for the sake of argument, is there anything "less interesting" between 20 teams versus 30 teams? I don't personally see a difference once you get over 15 or 20. Would 100 teams be more interesting?

I tried to make a point here, but it seems to have gone unaddressed. To further clarify, I see no reason why 30 teams is inherently more interesting than 6 teams simply based on the number of teams. What is interesting is a number of quality teams competing whether it be 6, 10 or whatever. I hardly see why 30 teams is more interesting when quite of few of those teams aren't really that good.

Along that same vein, there is around 160 games to a season? Yea, that's a lot of baseball, but each individual game kind of loses a lot of it's value knowing that in the early season and even into mid-season losing a game or two here or there might not make the slightest difference. Granted, there are times when the two top teams in a division are separated by a game or two in the late season. However, if the number of games in a season were shortened, each game played would have that much more meaning. What I find far more interesting are the playoffs and the world series games. Each and every one of those games has a lot riding on them.

Lastly, I've always thought that it might be more interesting to have the best team determined by the season, and not post season play unless more that one team had a tied record. The "best" team can go all the way through the whole season winning consistently over the long term only to get shot down in a 5 or 7 game series. It just seems to me that the best team would be the one who went (for example) 110-50 versus the team who went 3-2 when in the regular season perhaps they only went 90-70. Yet these two teams could meet up in the playoffs and the consistently better team can lose in short order. Now despite this, I have to say, I find the playoffs and the world series far more interesting games than any of the regular season games for the very reason I brought this whole point up in the previous post. Fewer games with more riding on each game, played by fewer higher quality teams is far more interesting to me. 30 teams playing over half the year = boring (to me). It's gotten so I don't even watch a regular season game unless I can actually go to a ballpark and see it live.

Now, I kind of understand from an economical point of view why having no post season might be disasterous for baseball. When one or more teams that may otherwise be performing decently get to a point where they have no shot at the title, attendence would probably diminish rapidly, let alone the teams that establish early on that they should just stay home.

I know I have strayed somewhat from the original topic, and this veers even a little bit more off course, but here's something else that bothers me about sports teams in general. How shall I say this? Where the team is based makes almost no difference any more (okay, aside from the obviously limited areas that can finanacially support a pro team). It's not like the Boston Red Sox are filled with Bostonians. Any team can be filled with players who hail from home towns everywhere in America (and beyond) except where the team is hosted. I would venture to guess that quite a few of the players have no real pride invested in whether they played for Boston or Houston. I would assume that they have some pride invested in whether they personally play well regardless of what team they are on.

An acquaintance once told me that a person couldn't truly be a fan of a professional sports team unless they were born, grew up, or lived in the town where that team was based. It stands to reason that there should be some rational thought behind why one favors a particular team over another (something more than the color coordination of their unforms for instance). So I start to wonder; unless one meets these conditions, what would be some good reasons to pick a team to support or cheer for throughout a season? I suppose I could support the Baltimore Orioles because we have a nearby farm team, the Norfolk Tides. Or perhaps I could support the Mets because one our Assistant Chiefs is the father of David Wright. Or, I could support the Mariners because my sister-in-law lives in Seattle and be in some small way minorly impacted financially by their success or failure.'

Okay, I'm tired and I'm probably rambling at this point... someone show me the light here.