Stuart Sternberg, savvy owner of the Tampa Bay Rays, in a recent interview predicted that his team’s payroll must be sliced from more than $70 million this season to the $50 million range for 2011.Last year, small-market teams received $450 million from revenue sharing.
I think it’s going to be difficult to get approval to increase that number, because the wealthier teams — the Yankees, Red Sox, Cubs, etc. — kick in 90 percent of the total amount and are wary of giving up more. Plus, the Players Association is concerned that some of the teams receiving the money are not using it to improve their teams, instead using it to enhance their bottom lines.
So how do we fix this problem? Clearly, a salary cap is impossible because there also needs to be a floor. I’ve yet to see a coherent, fiscally rational and logical plan to enact a salary cap in baseball…that would be acceptable (or even one worth being considered) by the Union. The NFL model won’t work here. And I still hold to another one of my mantras: “You can’t complain unless you offer up a solution.”
So how does MLB fix this? I’ve suggested before, even though I know they are not perfect, the following ideas:
- Lower the luxury tax threshold (more teams paying)
- Continue to escalate the penalties for exceeding that threshold (offending teams’ payments increase every year)
- The top 5 teams that take in the revenue sharing/luxury tax payments must provide audited financial statements to MLB to “prove” they spent the handouts on improving the club via “sources and uses” schedules. If the team can’t prove they used the funds to improve their clubs, they either forfeit the following year’s payments or must refund the current year’s payments.
- Teams that are amongst the bottom 3 in terms of payroll for five years in a row are prohibited from receiving payments for the following year (a motivation to spend)
- Get a slotting system in place for the MLB draft so teams won’t bypass superior talent due to cost
- I was prepared to include a comment about the foreign draft being disproportionally tilted towards the large market clubs, then the Reds signed Chapman. Now, I am conflicted here.
The points above are not bullet-proof, but I offer them up as a conversation-starter. What would you add or remove to that list?
The issue is tying any redistribution to revenue, which creates problematic incentives. For a team near the bottom, it may make sense to put together a team that will draw very poor revenues (by being lousy), since the payments from revenue sharing will result in higher profits that would building a good team.
The underlying issue is that certain markets are inherently larger, and therefore higher potential revenues than others. This is why large market baseball teams have higher valuations than others- a well run large market team can always outdraw a well run small market team.
To correct this imbalance, the best thing to do is to tie redistribution with market size- teams that play in large markets (Yanks, Sox, Dodgers, Angels) pay some money to small market teams. This means that teams like the Mets, that may not have drawn a lot of revenue, still have to pay in because of their market size- they are being penalized for not performing well.
Derek Zumsteg wrote a very detailed plan for this at baseball prospectus a while ago, which remains to this day, the best plan I've seen.
http://www.baseballprospectus.com/news/20020815zu…
No salary caps or floors- the free market will determine player salaries and teams are free to chose whether or when to spend money on players based on where they are in their success cycle.
It eliminates the root cause of the financial imbalance, while still incenting teams to maximize revenues. It may even pass Rawls' veil of ignorance…
Jason, your proposal is a good one, and I think there's a small chance that some of it might be adopted. I'd like to make a counterproposal that I think is better than yours, and has no chance of being adopted.
1. Tax Revenues, Not Salaries. We want the wealthy teams to help out the poor teams, but a team's wealth should be measured by the money coming in, not the money going out. Why should a wealthy team be able to avoid the tax by spending less on salaries?
2. Tax Gross Revenues. Learn a lesson from Hollywood: a fair system of revenue sharing has to be based on the total amount of revenue coming in, prior to any deductions for salaries, expenses, interest on loans, taxes or anything else. Otherwise, you'll end up rewarding the teams with the accountants who can come up with the longest and most creative list of "legitimate" deductions. (Paging Frank and Jamie McCourt!)
3. Tax Everyone, But Not Equally. The current system of taxing teams above a certain threshold is not good for baseball. It implies that teams can be rich but not too rich. As Yankees fans, we know how this works: the fan of every other team in baseball thinks that their team is rich enough and that every richer team is too rich. This is nonsense (and downright un-American, when you think about it). Better is to simply tax every team on a sliding scale: the poor teams pay a lower percentage, the rich teams pay a higher percentage. The principle here is: sharing the wealth is good, trying to punish the rich is bad, and trying to define who is (and is not) rich is futile and stupid.
4. Share Revenue With Everyone (but not equally). The logic here is similar to that for taxing everyone: each team should have an interest in the success of every team. This would give each team a greater incentive to think a bit more about what's best for the game.
5. Create A League Of Their Own. Let's take a cue from English soccer (football), and create two Major Leagues. The best teams get to play in MLB "A", while the lesser teams play in MLB "B". The two top teams in MLB "B" would join the top six teams from MLB "A" in the post-season, AND would be admitted to MLB "A" in the following season. To make room, the two bottom teams in MLB "A" would be demoted to MLB "B". During the season, there would be a limited amount of interleague play between MLB "A" and MLB "B".
The "two league" solution provides the necessary corrective missing from revenue sharing: we share revenue to give the cellar-dwellers the opportunity to become better teams. If these teams cannot take advantage of this opportunity, then they should step aside and give another team the chance. The "two league" solution recognizes that it's better for baseball to share revenue with small-market teams (like the Twins and the A's) that can successfully use the revenue to make their teams competitive, and that it's a waste to throw money at other teams (like the Royals or the Pirates) that never get any better regardless of the help they receive.
(While it's off-topic to say so, wouldn't it be great to have two "Cinderella" teams in the MLB post-season? This is part of what makes "March Madness" so great!)
Larry,
MLB is too conservative to use your ideas, but #5 could work for the NBA and NHL.