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Fixing Baseball’s Real Cheating Problem…Revenue Sharing

By Gary Armida 

The Florida Marlins, Tampa Bay Rays, and the Pittsburgh Pirates are cheaters. The Royals were once cheaters, but they seem reformed at this point. There might be others, but they hide the fact better than the aforementioned teams. In a game of highway robbery, these teams have held hostage the “bad boys” of the league like the Yankees, Red Sox, Mets, and Angels. Yes, the Major League Baseball revenue sharing system is a form of robbery in its current state. While less publicized, this cheating scandal has the largest negative impact on the game. Yes, it is even larger than steroids.

The Need for Revenue Sharing, a Brief History Lesson

Quite frankly, Baseball got scared that the Yankees were going to win the World Series every single year for the rest of its history. Baseball saw teams like the Brewers, Royals, Pirates, Twins (despite one of the richest men in the world as its owner), Rays, Expos, and Rockies struggle to stay afloat. Even the idea of contracting two teams was brought up, with the Expos and Twins the main candidates. Baseball was, and still is, a case of the “haves” and the “have not’s” in terms of revenue. A team like the Royals cannot charge the same amount of money for a ticket, a hotdog, a beer, and a souvenir like the Yankees can. There, in just that small way, is a huge source of the gap of revenue. Additionally, with larger markets like New York and Los Angeles, the Yankees, Mets, Dodgers, and Angels have infinite sources of revenue from television and merchandise. Obviously, there is a real, significant gap between the each segment of the Baseball population.

The National Football League has done revenue sharing correctly. First, it was born out of the benevolence of the late Giants owner, Wellington Mara. Mara reasoned that the league would not be successful with only a handful of teams being able to compete consistently. The NFL distributes revenue to each team in the league, thereby putting them all on an equal playing field. It is because of this practice that a team like the Green Bay Packers can compete with the likes of the New York Giants and Dallas Cowboys. The NFL has a few stipulations that Baseball does not. One, it has a salary cap. Baseball will never go for such a thing, especially the Players Union. It can be argued whether or not that is a good thing, but that is not the point of this exploration. For the reasonable future, having a salary cap is not a realistic option for Baseball. The NFL, however, does have a salary minimum, requiring each team to reach a certain figure in terms of player salary.

The Current State of Revenue Sharing

The exact rules of revenue sharing as stated in the Collective Bargaining Agreement are complicated. The complexities arise from how the revenue is calculated and the many loopholes that can be exploited (such as the Yankees building of a new stadium which lowers their contributions to the poll). For simplicity sake, teams who spend over a certain dollar figure on player salaries and make over a certain threshold of revenue are required to pay a luxury tax. Major market teams like the Yankees, Red Sox, Mets, Angels, and Dodgers are the prime targets of such a rule. Since its inception, the Yankees have been the only consistent contributor to the revenue sharing pool. For the 2007 revenue sharing pool, MLB.com projects the entire pool to be over 300 million dollars, with the Yankees contributing over 100 million dollars of that money. In 2006, the Tampa Bay Rays received approximately 30 million dollars from the pool. The Royals and Pirates have also received significant money from the same pool. The issue with the current plan is the requirement of use. While the Rays received that money after the 2006 season, they actually reduced their payroll to 24 million for the 2007 season. In other words, the Rays’ owner took that 30 million and stuffed it into his already deep pockets. The Marlins were even worse offenders of this practice. After the 2006 season, the Marlins received 31 million dollars from the revenue sharing pot. Their 2007 payroll was an embarrassing 14 million dollars. Where, exactly, did the Yankees’ money go?

To be fair, the current revenue sharing plan can work. The Colorado Rockies invested almost every penny of the 16 million dollars it received by raising its 2007 payroll 16 million dollars from the 2006 payroll. The Royals have obviously dipped into the revenue sharing money as evident by their recent signings of Gil Meche (55 million dollars over five years) and Jose Guillen (36 million dollars over 3 years) amongst some other signings. These two teams have used the system for what it is intended to provide. Sure, they overpaid for the players, but historically bad teams will have to do that in order to gain competitiveness. Once a team proves that it can be competitive, players will sign there for more reasonable money. Until then, the teams must use the revenue sharing money for team improvement.

It only makes sense that a team would do this. Imagine the possibilities if the Minnesota Twins actually used some of the 20+ million they received? Hey, couldn’t they sign Johan Santana for that money? The problem is that teams are not properly motivated to use the money appropriately. For those reading who are thinking that is because there is no set rule, you would be wrong.

5) Other Undertakings
(a) A principal objective of the revenue sharing plan is to promote the growth of the Game and the industry on an individual Club and on an aggregate basis. Accordingly, each Club shall use its revenue sharing receipts (from the Base Plan, the Central Fund Component and the Commissioner’s Discretionary Fund) in an effort to improve its performance on the field. The Commissioner shall enforce this obligation by requiring, among other things, each Payee Club, no later than April 1, to report on the performance-related uses to which it put its revenue sharing receipts in the preceding revenue sharing year. Consistent with his authority under the Major League Constitution, the Commissioner may impose penalties on any Club that violates this obligation.

The above is a section from the collective bargaining agreement as published on MauryBrown.com. This rule specifically addresses teams that don’t use the money for team improvement. Yet, the Commissioner has never singled a team out for non-use of the funds for player improvement (at least publicly). Now many people are writing how revenue sharing is a bad idea and how it can never work. Well, they are half right (or half wrong depending on how you look at things).

The concept of revenue sharing is a tremendous idea. Baseball’s execution of it is quite poor. Obviously, there is a very simple solution to make it more effective. Before we get to that, there are a few popular arguments to debunk. First, Baseball does not need a salary cap. Teams should be permitted to spend as much as they see fit. A team knows the rules with the luxury tax and if it chooses to spend anyway, then that is its business. Besides, this is where most of the revenue sharing money comes from. Second, the idea of a salary cap is unrealistic as the players will never agree to it. This would require 100 times more of a give-back than either the NFL or NHL players ever had to give. Baseball players’ salaries are huge. It is unrealistic to scale back the necessary amount so that the Pirates can compete with the Yankees. Lastly, the revenue sharing plan should remain as it is with just two additions. With these two additions, the revenue sharing plan will be more effective, more equitable, and much more fan-friendly.

The FCP Revenue Sharing Plan

 Well, it’s not really a plan; it’s more like an addition to the current plan. The first addition would be to copy the NFL’s model of having a salary minimum. No longer will a team be permitted to have a payroll of 14 million dollars. In order to gain more in the way of competitive balance, each team must have a payroll in the neighborhood of 45 million dollars. While the Yankees, Red Sox, Mets, Angels, and Cubs more than triple that mark, at least the base of the league will be somewhat equitable. This will force teams to sign their own talent rather than trade it as the player gets closer to free agency. This would force teams like the Twins who say they cannot afford Johan Santana. It would also force teams like the Orioles to reconsider trading a pitcher like Erik Bedard because he won’t be under their control in a couple of seasons. The Oakland A’s (who always skate under this issue because of Billy Beane’s reputation) would be forced to keep players like Dan Haren, Tim Hudson, or Jason Giambi. Imagine the A’s if they could have kept the 2000-2001 teams mostly intact! With the money received from revenue sharing added to a team’s profit, this number should not be too hard to fulfill. The actual salary figure is irrelevant, as long as each team must field a team with some talent. This rule would actually force teams to use the revenue sharing money.

The second and final addition to the plan would be a change to how the money is distributed. Instead of writing teams a blank check, Major League Baseball would hold the money in an escrow account. Once the “entitled” team proves that it needs the money for player salaries, a check will be written for the amount needed. This way, the Commissioner, the payees, and most importantly, the fans know where each dollar is going. This will force teams to be legitimate in their use of the revenue sharing money. If for some reason a team does not use all of the money, it will be returned to the payees according to each team’s percentage paid. This way, George Steinbrenner is not paying for Ray’s owner, Stuart Sternberg’s lunch. By taking control of each team’s right to the money, it will enforce what revenue sharing was meant to be, team improvement.

Closing remarks

There is a need for revenue sharing in Baseball. It is apparent by the lack of equality in terms of ticket prices by each team. The Brewers cannot compete with the Yankees without getting some assistance; much like the Packers cannot compete with the Giants. The need is there. For anyone to argue differently is not seeing the big picture. Sure, it is nice for Yankees and Red Sox fans that their teams compete every year. However, for the integrity of the sport, a more level playing field is needed to ensure consistent competition. Without changing the current system of how the revenue is derived (which would be a long, arduous process), this fairness can be achieved by holding the small market teams accountable. Baseball must move to a minimum salary requirement for each team and must be in control of the money. By doing that, Major League Baseball is forcing teams to improve with the money. In the end, that will make teams like the Rays, Twins, Marlins, and Nationals improve themselves much like the 2007 Colorado Rockies. It will provide more stability to each organization as now it will not be a foregone conclusion that the young star will not be traded before he becomes a free agent. Fans can now be fully invested in the young talent on their teams as they know that most of them will be there for the majority of their careers.

With this setup, Major League Baseball will get the true competition it desires and fans of all teams will look forward to a new season with legitimate hopes that their team can compete.

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