Success and Sustainability (Part 3 of Why Revenue Sharing Is Dead)

(I don’t mean to imply that Maury is the only person out there defending revenue sharing.  For example, see Phil Birnbaum here and Rob Neyer here and my buddy Kristi Dosh here.  Other analysts are less critical than I have been, but see a need to reform the revenue sharing system.  See Dan Rosenheck here.  I’m not trying to cover the entire spectrum of opinion with these cites, i just want to give you a flavor of what people are saying.)

Maury’s argument (begun here, continued here and principally made here) focuses on the success of the Tampa Bay Rays.  While I’ve examined how the Pirates and Marlins have abused the revenue sharing system, Maury looks instead at how the Rays have used revenue sharing in the right way, to become one of the best and most exciting teams in baseball.    Maury does not mince words: he calls the Rays a “Shining Example”:

“When Bud Selig asked for increase revenue-sharing in 2000 through his Blue Ribbon report, maybe this snapshot of the Rays from 2007-08 was his vision. While the Marlins (and to a lesser extent, Pirates) actions have been questionable as it pertains to the use of revenue-sharing dollars, the Rays (at least for the two years we have visibility to) fall within the spirit [of] its design.”

How is it that the Rays have used revenue sharing in the “right” way?  Examined closely, Maury’s argument boils down to the following: (1) the Rays received a combined $75 million in revenue sharing in 2007 and 2008 (the two years covered by the financial statements leaked by deadspin.com), but earned only $15 million in net income during this period, so (2) without revenue sharing, the Rays might have lost $60 million during this period, so (3) without revenue sharing, the Rays probably would have taken drastic cost-cutting steps during this period to avoid these kinds of losses, and (4) these steps would have prevented the Rays from fielding a championship team.   Add (1), (2), (3) and (4) together, and you logically reach the conclusion that revenue sharing was a necessary component for the success of the Rays.

What should we make of Maury’s argument in favor of revenue sharing?  Is Maury correct to cite the Rays as a “shining example”?  To answer these questions, we need to ask two other questions. (1) Did the Rays use revenue sharing to build their 2008 AL Championship team? (2) Will revenue sharing enable the Rays to keep their winning team together?

How The Rays Were Built: 2007

Did the Rays need revenue sharing to build their current ballclub?  The answer is no.  Not really.

To get a better picture, let’s look at the 2007 Rays roster, the roster for the year covered by the earlier of the two financial statements leaked by deadspin.com:

Note that most of the core of the Rays’ 2008 AL winning team is already present in 2007.  Yes, Delmon Young and Brendan Harris would depart within a year, shipped to the Twins for Jason Bartlett and Matt Garza.  True, the Rays would drop their 2007 free agents at DH and RP, and sign more expensive free agents for these positions in 2008.  Otherwise, the core of the Rays’ 2008 team is present in 2007, either on the  roster, or (in the case of  2008 Rookie of the Year Evan Longoria) in the Rays’ minor league system.

We can learn a great deal from examining the 2007 Rays’ roster.  First, the core of the team was assembled from baseball’s amateur draft.  BJ Upton (drafted 2002), Scott Kazmir (also drafted 2002, by the Mets), Delmon Young (drafted 2003), Evan Longoria (drafted 2006), and late 2008 arrival David Price (drafted 2007) are all early first round draft choices.  Young and Price were the first players taken overall in 2003 and 2007 (respectively), Upton was the second player taken overall in 2002, and Longoria was the third player taken overall in 2006. (A great place to look up MLB draft choices is here.)  In order for the Rays to consistently take players this high in the 2002-07 drafts, the team had to be consistently terrible during this period.  And the Rays were consistently terrible: for the ten years between 1998 and 2007, the Rays finished last in the AL East every year but one (when they finished next to last).

Next thing to note: the Rays weren’t big on signing international free agents prior to 2007 (or after 2007, for that matter).  Of the players shown above, only Akinori Iwamura (a 26-year old established Japanese player) was an  international free agent signed by the Rays.  The Rays did not (and do not) appear to be all that interested in scouting and signing young players out of Latin America.  Consider this: in 2010, 28% of major league baseball players are from outside of the U.S.  But of the 30 players on the Rays’ current roster, only 17% are from outside of the U.S. (we count Carlos Pena as from the U.S., as he moved to the U.S. at the age of 14 and was drafted by the Rangers in the MLB amateur draft), and all of these players were acquired by the Rays through trades with other MLB teams.  No foreign-born player on the Rays’ current active roster was signed by the Rays as an international free agent.

The Rays’ relative lack of interest in signing international players only serves to highlight the emphasis placed by the Rays on the domestic amateur draft.  Despite the fact that Maury Brown and others consider the Rays to be  a “shining example”, it seems unlikely that other teams can follow this example and build through the draft like the Rays did.  For one thing, few teams can afford to play losing baseball as consistently as the Rays did for a ten-year stretch in order to amass the high draft picks that are the heart of the Rays’ current team (the Pirates can and do play this badly, but other teams have occasional runs of competence).

Moreover, even at the very top of the draft, it’s not easy to find players that morph into major league stars.  Consider: from 2002 to 2007 (skipping 2005), the Rays’ six first-round picks (none of which were lower than the 4th overall pick in the draft) were BJ Upton, Delmon Young,  Jeff Neimann, Evan Longoria and David Price – all major leaguers, two of them all-stars.  The Rays might just have easily drafted other guys, like Bryan Bullington, Rickie Weeks, Matt Bush, Luke Hochevar and Mike Moustakas.  Who are these other guys?  They were the top draft picks in 2002 to 2007 (again skipping 2005) that were not taken by the Rays.  Never heard of most of these other guys?  Me neither.  Rickie Weeks has had a decent but mediocre career so far with Milwaukee, but the others? Bryan Bullington is a pitcher with a combined 1-9 record and 5.57 ERA over five part-time seasons with 4 clubs.  Luke Hochevar has accumulated an 18-30 career record with a 5.68 ERA for the Royals.  The other guys have not appeared (yet) in the majors.

In short: the MLB amateur draft is a crap shoot.  Even given that the Rays were terrible enough for long enough to have high draft picks for many consecutive years, they still got amazingly lucky to have chosen so many good young players in the draft.  The Rays’ heavy reliance on the draft (and their apparent lack of interest in signing international players outside of the draft) does not seem like a strategy that’s worthy of emulation.  At best, Maury Brown seems guilty of hyperbole when he called the Rays a “Shining Example”.  Unless, of course, Maury meant that the Rays were a shining example of how a losing team can get very lucky and become a winning team.

There’s another thing to note about how the Rays assembled their 2007 roster: they did so on the cheap.  The Rays’ payroll in 2007 was around $24 million.  A $24 million payroll is $12 million less than the Pirates’ current payroll.  A $24 million payroll is $13 million less than the Marlins’ 2009 payroll, and the Marlins’ payroll entering 2010 was so low that the baseball players union acted for the first and only time to force the 2010 Marlins to spend more on player salaries.  You’d have to go all the way back to the year 2000 (when the Yankees’ payroll was less than half of what it is now) to find a team other than Tampa Bay with a payroll less than the 2007 Rays. (You can look up historic team payrolls here.)

Take a look back at the chart above showing the Rays’ 2007 starting lineup.  More than half of the players on this list were earning close to the then-league minimum salary of $380,000.    Three other players were free agents making less than $1 million a year.  Three players on the team (Navarro, Kazmir and Jackson) were acquired in trades where the Rays dumped salary by giving up more expensive (or potentially more expensive) players.  If you looked at this roster at the beginning of 2007, you could be forgiven for concluding that the Rays were a “shining example” of how to field the cheapest possible major league baseball team.

From the financial statements revealed by deadspin.com, we can see that the Rays might easily have been able to afford a $24 million payroll in 2007, even without revenue sharing.  Even before the 2007 Rays had received a dollar in revenue sharing, the team had already earned $25 million in TV, radio, sponsorship and advertising revenues, and had another $28 million incoming from the baseball central fund and MLB properties.  True, the Rays’ combination of AL-worst attendance and some of the cheapest ticket prices in baseball meant that the Rays would earn only $28 million in ticket sales in 2007 (roughly comparable to what the Yankees earn during a 7-game homestand).   But if you add in what the Rays received for suite sales, concessions, parking and the like, the Rays earned about $74 million in 2007 without including revenue sharing.  Isn’t that enough to cover a historic-low payroll without the need for revenue sharing?

Here’s where Maury Brown’s math comes into play.  In 2007, the Rays operating income was about $22 million.  After the Rays paid about $10 million in interest on its $120 million of debt, and factoring in a few other charges, the Rays showed “comprehensive income” in 2007 of about $10 million.   So if you took away the $39 million the Rays received in revenue sharing, (strictly by the math) the team would have lost around $29 million in 2007.  Maury’s argument must be that the Rays could not have sustained this kind of loss – without revenue sharing, the Rays would have had to cut costs in a way that would have derailed the team’s efforts to build a winner on the field.

Unfortunately, this argument does not stand up to close analysis.  Remember that the Rays’ 2007 payroll was only $24 million.  By Maury’s math, in the absence of revenue sharing the Rays would have lost $5 million even if they had somehow cut payroll to $0.  But baseball would not have permitted the Rays to field a team of 25 unpaid interns.  The team was required to pay each player at least the then league minimum salary of $380,000.  And as we’ve shown, this is close to what the Rays were paying to most of the team’s core players.  The Rays would have saved next to nothing by releasing the likes of Navarro, Upton, Shields, Kazmir, Jackson, Sonnanstine and Hammel.  The Rays might have given up Ty Wiggington, Delmon Young and Carl Crawford, but that would have reduced their hypothetical $29 million loss by maybe $7 million.  No, if the Rays truly had to make ends meet in 2007 without revenue sharing, they would have had to make cuts in other areas: in their $18 million of general and administrative expenses, or $19 million in sales and marketing, or $10 million in “team expenses”.  They would not have gutted the core of their 2007 team, even if revenue sharing had been abolished before the 2007 season.

So, let’s summarize.  How were the 2007 Rays built?  In the cheapest way possible, through extensive reliance on the MLB amateur draft.  Did the Rays need revenue sharing to build a team in this way?  The best and most accurate answer to this question is “no”.  The Rays may have needed revenue sharing simply to survive in any form.  But in 2007, the Rays’ payroll represented close to the bare minimum required to field a 25-man team.  In hindsight, this “bare minimum” does look like money well spent.  But we cannot say that the Rays needed revenue sharing to field a team when most of the team’s best players were playing for close to the minimum salary.

If the 2007 Rays are a “shining example” of anything, it is that a baseball team does not need much money to build a winner.  All a team needs to emulate the Rays is the kind of consistent on-the-field failure required to amass a series of high draft picks, plus a dose of the kind of luck required to consistently select championship-level players in the draft.  If revenue sharing is required at all in this process, it is required in only a modest amount sufficient to prop up the team during the lean period (10 years in the case of the Rays) while the team loses ballgames and alienates a percentage of its potential fan base.  Paying more than a modest amount of revenue sharing to teams like the 2007 Rays, or to the current versions of the Pirates and Marlins, is a waste of money: it results in teams having more money than they can use productively.

(Note that Rob Neyer argues here, and IIATMS’s Brien argues here, that it would be foolish to force the Pirates to spend all of the roughly $40 million a year they receive in revenue sharing.  To which I reply: then pay the Pirates only the fraction of the $40 million that they really need!)

How The Rays Became Winners: 2008

 

We’ve examined the 2007 Rays and learned that the team was built on the cheap, in heavy reliance on the MLB amateur draft, and against the odds that a high percentage of these draft picks would develop into top major leaguers.  But while the 2007 Rays finished last (again); the 2008 Rays finished first, and went to the World Series.  What caused the Rays to (finally) transform into a winner in 2008?  And did revenue sharing play a role in this transformation?

There were a number of factors critical to the Rays’ historic turnaround in 2008, including the team’s promotion of Rookie of the Year Evan Longoria  from the minor leagues, and the trade for shortstop Jason Bartlett and pitcher Matt Garza.  But the key ingredient for the Rays’ 2008 success was time.  In 2007, the team’s core consisted of rookies or players with a year or two in the major leagues. The team was more experienced in 2008, and this experience translated into more wins and fewer losses.  While the team’s hitting held steady in 2008 (the team hit for a combined .769 OPS in 2008, compared to .762 in 2007), the team’s pitching improved dramatically.  The Rays’ team ERA dropped from 5.53 in 2007 to 3.82 in 2008 (Andy Sonnenstine’s ERA dropped by a point and a half; Edwin Jackson’s by about 1.3).

Other changes in 2008 should be credited to Rays’ team ownership.  Current Rays owner Stuart Sternberg bought the team in late 2005, but he truly made his presence felt after the 2007 season.  The team changed its name, colors and uniforms prior to the 2008 season, but more significantly, Sternberg promised to raise the team’s 2008 payroll. Sure enough, the 2008 Rays spent $44 million on team payroll – this was the second lowest payroll in major league baseball in 2008, but this payroll was a big jump over the team’s 2007 payroll.  Below is a chart showing the payroll and starting lineup for the 2008 Rays:

We can see from this chart some of the places where the Rays spent their additional $20 million.  Some of this added money was used to buy upgrades for the Rays’ free agents at DH and RP.  While Cliff Floyd was not exactly a DH all-star, his 2008 .804 OPS was a big improvement over the 2007 .705 OPS posted by Greg Norton.  As for aging closer Troy Percival … well, it’s not clear that Percival provided an improvement over 2007 closer Al Reyes, but at least Percival personified Sternberg’s effort to make his team better.  In any event, these two upgrades cost the Rays about $3 million.  Where did the Rays spend the other $17 million?

The sad answer is: the other $17 million was eaten up by the increased cost of keeping the 2007 squad together.

Without constant player turnover, all young teams get older, and more expensive.  Players making the league minimum become eligible for salary arbitration, and eventually for free agency.  Teams are often advised to sign arbitration-eligible players to longer-term contracts; the 2008 Rays signed Scott Kazmir to a three year deal, which explains his increase in salary shown above.  Long term contracts with younger players often provide for increased salaries in later years, which explains Carl Crawford’s rise in salary in 2008.  Moreover, when a bargain free agent like Carlos Pena performs above expectations (Pena was the AL Comeback Player of the Year in 2007), then the free agent is going to command a larger salary.  So Pena cost the Rays an extra $5.2 million in 2008.

The Rays were a better team in 2008 because they were a year older, and they were a more expensive team in 2008 for the same reason.  In baseball, there’s a rule of thumb for young teams: time is money. The 2007 Rays proved that it doesn’t take much money to assemble a good young team.  But the 2008 Rays prove that it can take money to keep a good young team together long enough for the team to start winning.

This is where Maury Brown can make his most effective case for revenue sharing.  Without revenue sharing, it’s hard to see how Sternberg could have added to his team’s 2008 payroll, let alone retain the core of his 2007 squad.  Even after receiving revenue sharing of $35 million in 2008, the Rays barely made a profit.  If the Rays had not made the post-season in 2008 (which netted the team an additional $11 million), the team would have lost $7 million in 2008.

Unfortunately, the 2008 Rays represent the high point of our discussion of what revenue sharing is able to accomplish.   Unfortunately, even when a team like the Rays gets lucky enough to break through and achieve success, revenue sharing does not provide what the team needs to sustain success.

The Problem of Sustainability: The Rays 2009 and Beyond

The financial data for the Rays leaked by deadspin.com covers only 2007 and 2008, so we do not have a detailed picture of the Rays’ current financial situation.  But taking the Rays’ 2008 financial data as a baseline and using other available information, we can generate a picture of where the Rays currently stand financially, and whether revenue sharing is providing the Rays with the help they need to remain successful on the field.

The picture is not a pretty one.

Let’s go back to 2008: as we discussed, the Rays used their post-season revenues to turn a modest profit that year.  Fast forward to 2009.  We can point to four events that hurt the Rays financially in 2009: (1) they did not make the 2009 post-season, (2) despite their 2008 success, their 2009 attendance increased only slightly (from 22,259 a game in 2008 to 23,147 in 2009), (3) the Rays’ revenue sharing moneys probably dropped in 2009, as a result of the team’s increased revenues in 2008, and worst of all (4) their team payroll increased from $44 million in 2008 to $63 million in 2009.

Let’s do the math.  The Rays would have lost money in 2008 if they had failed to make the playoffs.  We can guess that the Rays did lose money in 2009, when they did miss the playoffs.  True, the Rays might have found some new or increased source of revenues in 2009 (though certainly not from increased fan attendance at home games), but any such revenue would probably have been eaten up by the team’s $19 million of additional payroll.  If we are to take these numbers seriously (and we have to take these numbers seriously, if we’re going to take Maury Brown’s analysis seriously – which I do), then the Rays must have lost money in 2009.

(A note: according to Forbes’ estimates, the Rays had $15.7 million of operating income in 2009.  This figure does not take interest payments into account, but even if we deduct these interest payments, the Rays would still have been profitable according to Forbes.  Personally, I prefer my projections over the Forbes’ estimates, which were prepared before deadspin.com’s leak of the Rays’ financial data.  For one thing, the Forbes estimates do not show any source of revenue that could have made up for the team’s loss of post-season income and increased payroll.  But even if Forbes is right, this means only that the Rays were in better shape in 2009 than we might otherwise imagine.  It does not change the fact that “time is money” and that the Rays’ financial picture is worsening. For a discussion of the accuracy of the Forbes estimates compared to the data leaked by deadspin.com, see here.)

The picture does not improve for the Rays in 2010.  Below is a chart showing the cost of the Rays’ current starting lineup:

Let’s do the math again, this time for 2010.   True, the Rays should make the post-season this year, though there’s no guarantee that they’ll earn post-season revenues like they did in 2008 (when they made it to a World Series).  But the 2010 Rays are (so far) drawing fewer fans than they did in 2009 (22,679 a game, the last I looked).  Moreover, their payroll is now over $72 million, 19th highest in the major leagues.  Again, it seems like the Rays must be losing money – probably more so in 2010 than in 2009.  How are the Rays continuing to operate as usual?

Perhaps the Rays found other ways to increase revenues in 2009 and 2010.  Maybe the Rays are receiving more from TV and radio (their TV ratings are way up this year, but this probably won’t bring in more money until the Rays’ media contracts are up for renewal) or from another source. But here’s where baseball’s revenue sharing system gets truly perverse.  If the Rays have found a way to increase their local revenues, this will cause their revenue sharing payments to drop.  For every extra $10 the Rays might earn locally, they’ll lose $3 to $4 in revenue sharing.   Now, it’s one thing if the Rays can find a windfall source of new revenue, one they can tap without any work or expense.  But what if the Rays need to invest $7 in order to reap $10?  For example, what if the Rays determined that with a $7 million increase in expenditures for promotion and advertising, the team might draw $10 million of new customers to the ballpark?  It would not be worth it for the Rays to even try such a scheme.  The team would lose more in revenue sharing than it would net after expenses in gate receipts.

We’ve already seen how revenue sharing rewards failure (in particular, the failure of the Pirates and the Marlins).  We can now see in the case of the Rays, how the system punishes success.

Even Maury Brown sees that the handwriting may be on the wall for the current version of the Tampa Bay Rays.  Maury writes that “the Rays are teetering ever so close to having this “loser to winner” story collapse under its own weight” and “the Rays are in dire need of increased revenues.”  In looking for increased revenues, Maury focuses where he should focus, on the Rays’ attendance figures.  The Rays cannot sustain one of the best teams in baseball with local revenues derived from the 8th worst home attendance in baseball (only 2,500 fans a game better than the lowly Pirates).   The $30 – $40 million the Rays might receive in annual revenue sharing is not enough to bridge the gap between 23,000 fans per home game and the payroll required for a championship team.

Here in a nutshell is why revenue sharing doesn’t work: the system pays more to the 2010 Pirates than it does to the 2010 Rays.  Only the Pirates don’t need all that money, while the current version of the Rays needs revenue sharing now more than ever before.

The Need for Sustainability

I’ve argued that baseball’s system of revenue sharing is a system of investment: baseball takes revenue from big-market teams like the Yankees, and invests this money with small market teams like the Pirates, Marlins and Rays.  But as we’ve previously noted, revenue sharing lacks basic features required for successful investment, including transparency and accountability.

By looking at the Rays, we can see another basic feature lacking in revenue sharing: sustainability.  Even if a team gets lucky like the Rays and builds a successful team from top draft picks, there’s nothing in the revenue sharing system that allows the team to sustain that success.  The rule that “time is money” takes hold, and revenue sharing is not enough to bridge the gap between small-market revenues and championship team salaries.  This is the problem facing the Rays: as Maury Brown admits, the Rays will have to be broken up (like the 1997 Marlins were broken up, even before baseball established revenue sharing) unless they can generate substantial new revenues.

Should we be surprised when teams like the Rays are unable to draw big crowds at home even after they start winning?  Maybe not.   The San Diego Padres have reversed their losing ways and are heading for the playoffs this year, but their home attendance has barely picked up (25,788 average home attendance in 2010, 19th best in baseball, compared to a 23,735 average home attendance in 2009).  There’s been improvement in Cincinnati, whose Reds have turned things around and today own the best record in the National League (the Reds have 25,658 average home attendance in 2010, versus 21,579 in 2009), but the Reds’ 2010 attendance still trails even that of the Padres (and to note, the Rays’ attendance trails both the Padres and the Reds).  Meanwhile, other teams – even small market teams – draw relatively big crowds despite losing more often than not.  The Tigers draw 30,809 fans a game (in an economically depressed city) to watch a team play under .500 baseball; the 63-73 Brewers have 34,669 fans at an average home game.  (Historic home attendance figures can be viewed here.)

Some have argued that the Rays need to build a new ballpark in order to draw big crowds.  It’s true, there’s a lot to hate about the Rays’ Tropicana Field.  But the Padres play in gorgeous new Petco Park (only 6 years old), and that doesn’t seem to be helping their winning team attract fans.  Nor are fans flocking to Cincinnati’s 7-year old Great American Ball Park.

Would a new ballpark help sustain the Rays’ success on the field?  Truth is, it’s too late now to ask that question.  The question of sustainability should have been addressed long ago – before the Rays’ payroll began to outstrip the team’s revenue, even before the Rays began to emerge from their years of finishing in the AL cellar.  The issue of sustainability should have been addressed when baseball was putting the first system of revenue sharing into place.

Instead, we have a system of revenue sharing where billions of dollars have been invested in the potential success of teams like the Rays, but no one has thought about how these teams might sustain this success.  No sensible capitalist would invest in a system like this.  If the Rays’ 2008 success was a “shining example” of revenue sharing in action, then the eventual wholesale distribution of the team’s best players to the sport’s richest ballclubs will be a “shining example” of why revenue sharing is a failure.

According to Maury Brown, the Rays have used revenue sharing in the right way.  From a business standpoint, I disagree.  From a business standpoint, the Rays are trapped between the increasing demands of a championship payroll and the limited local revenue they can derive from a small market.  From a business standpoint, the Rays are (probably) losing money in spite of revenue sharing.  From a business standpoint, the Rays have made escalating long-term financial commitments ($12 million of guaranteed contracts for 4 players in 2011; $11 million of guaranteed contracts for three players in 2012) without any sure source of escalating revenues to match those commitments.  Meanwhile, the “time is money” rule will continue to work against the Rays until they succumb to business reality, dismantle their championship team and start all over again.

And what a waste that will be.  Baseball does so little to ensure that teams use revenue sharing to improve their performance on the field.  Success stories like the Rays don’t come around all that often (we’ll need another year at least to determine if the Reds and Padres are capable of repeating this year’s surprising performances).  The Rays got lucky with their draft picks and built a terrific team.  But baseball will do nothing (or at least, not enough) to help that team stay together.  Billions of dollars poured into revenue sharing, and its few successes are allowed after a couple of years to fizzle out and revert to mediocrity (or worse).  What a waste.

In the meantime, the Pirates will (probably) continue to lose game after game.  They’ll keep in place a young roster and a cheap payroll.  Local revenues will stay low, but revenue sharing and other central revenues will lock in a steady profit for Pirates’ ownership.  Ironically, the Pirates have found the secret to sustainable success under revenue sharing, by remaining consistently awful.

Sorry Maury, but It’s All About The Money.  The “shining example” of revenue sharing is the Pirates, not the Rays.  And this is why revenue sharing needs to be overhauled, or scrapped altogether.

36 thoughts on “Success and Sustainability (Part 3 of Why Revenue Sharing Is Dead)

  1. Ben, an afterthought.  Look at the two teams in Chicago.  You have the White Sox, contending for the post-season, a good team, drawing 27,000 fans a game.  That's not much better than the Reds and Padres.  Meanwhile, in the same market, same town, you have the Cubs: 20 games under .500, stumbling through yet another underperformance.  They average 38,000 fans a game.  How to explain it?

     

    Well, we know some of the ways to explain the Cubs and White Sox.  The Windy City types LOVE to go to Cubs games.  I've never been to one, but it's supposed to be great.  Maybe it's the ivy on walls, or the beers on tap.  There's a "fan experience" that transcends the product on the field.  I think it's the same for the Dodgers here in LA.

     

    Maybe there's something the Rays could do to change their "fan experience".  Building a new stadium comes to mind, but that's not an easy thing to do, especially when teams like the Rays expect to pay only a small fraction of the cost of construction.  In any event, it does not look like the Rays can change their "fan experience" simply by putting an exciting, winning team on the field night after night.  Of course, we're tempted to conclude that Tampa must not be fertile ground for a successful baseball team, but when we see similar things taking place in San Diego, Cincinnati and on the south side of Chicago, we have to wonder whether something else is going on.

  2. Glenn G.

    Larry,

    I have an "educated guess" as to why the discrepancy.

    One. It's the Yankees and everyone wants to see the Yankees. I don't care if you hate or love them. You want to see them. Also, as much as i hate to say this, they are the Cowboys (ugh) of baseball. a.k.a. America's team of the Great American Pastime. So their international fan base is established. And lastly, it cost less for a family of 4 to take Amtrak to Baltimore for a weekend, stay in a hotel, and take in a ballgame than in would to go on the 4 train uptown (i think they charge extra just to pass the stadium).

    Two. It's the DBacks and Padres and the likes. The answer to them having good road attendance is the fact that people like seeing their team win, so why not go to a home game where you know you'll have something to cheer for knowing you have a 73.5% (educated guess) chance of winning.

    And three. It's the Mets and if your father never sat you down, looked you in the face and said 'Your a Mets Fan' Chances are… you're not a Mets fan. The New York Yankees are the state's team (or the Universe's team depending on who you ask), and the New York Metropolitans are the city's team so outside of Queens, the're about average, but it's also not a 73.5% chance of winning for your home team, so you don't go.

  3. Ben

    Thank you for writing these up, I think you make a fair argument and it’s interesting to see the dynamics of it all.  I know this is getting sidetracked, but when you bring up the attendances of places like Detroit and Milwaukee, I often wonder why we don’t have baseball in more markets like this.  In San Diego, you’re competing with the weather, the zoo, the beach, Sea World, and to an extent even Disneyland.  In Tampa you’re competing with much of the same, whereas in Detroit in Milwaukee, they’re not competing with anything, people want to go and see sports because it is the de facto activity to go to.

  4. Larry@IIATMS

    Let me catch up with some comments.

     

    Frank, baseball has enjoyed terrific economic growth over the past 10 years, so I don't see contraction as being in baseball's immediate future.  You're right, teams need other teams to play against.  Also, baseball needs to be present in many markets in order to be a truly national sport.  It may be good for the business of baseball to subsidize teams in smaller markets.  If that's the case, then let's change revenue sharing to a system of pure subsidies, and eliminate the fiction that revenue sharing is supposed to promote competitive balance.  I'm still trying to figure out what I'd do to fix revenue sharing, but I'm leaning towards a system of subsidies based on relative market sizes.

     

    Ben and Brien, you guys need to get together!  Ben may be right that San Diego is too well-to-do to support baseball, and Brien may be right that baseball is not as affordable as it could be, but those two arguments seem to run counter to each other.  Brien, you'd also have to explain how two teams in the same city have such different attendance records when presumably all of the economic and social factors you cited should affect each team in the same way

     

    I think Ben is closer to it when he discusses team histories. Of course, the White Sox have a rich team history.  Agreed, the fans make a big difference.  That's one reason why I'd love to attend a Cubs game at Wrigley, or a Cards game in St. L.

     

    Glenn G., thanks so much for comparing the Yankees to the Cowboys.  Yucch.  I like the idea of lousy teams drawing big away crowds, but I'd have to see statistics to back THAT idea up! The conventional wisdom is that good visiting teams draw the best crowds.  My view of the Mets is warped by having grown up a Yankees fan on Long Island in the 1960s.  My father sat me down often, looked me in the face and said that if he was going to take me to a game, he wasn't going to drive any further than Flushing.  And he was a Yankees fan.

  5. Ben, thanks for the comment.  I think there’s always been the idea floating around that in places like Florida and Southern California, there are “other things to do” in addition to attending sporting events.  This idea might explain why the Padres and Rays are not playing to overflow houses.  But the Dodgers have one of the most loyal fan bases in baseball, and the Angels also draw well.  Also, wouldn’t you think that Cincinnati would fall into the category of cities like Detroit and Milwaukee?
     
    It’s an interesting question, what drives baseball attendance?  We know that a team can expect a spike in attendance when they build a new ballpark, but I don’t know of any team that’s been able to maintain that spike.  We all assume that winning teams attract bigger crowds than losing teams, but that assumption doesn’t seem to be true this year.  Meantime, teams like the Cubs draw big crowds every year.  I’m not sure what’s going on, but it may be the case that fans attend baseball games for reasons other than seeing the home team win.

  6. Frank

    Larry, I'm leaning towards eliminating revenue sharing all together and let whatever the consequences, just happen. Baseball was a national sport when there were a lot less teams. Maybe it will force out ownership that shows no desire to win. Maybe it will force fans to attend games instead of sitting at home if they see they are about to lose their franchise. Maybe it will force MLB to lower the number of games in the season. All I know is that I find it kind of repulsive to pay teams just to be around.

    You are right that MLB has enjoyed explosive growth. As a Yankee fan I grew attending Yankee games when a GREAT crowd was 30,000. The only time they filled the stadiun was opening day and bat day. Most games I attended had 15,000 fans attend. Now it's 40-45,000 plus for every game. It took George S. to buy the team away from CBS to accomplish this remarkable turnaround. Maybe, just maybe, there are a few more George S.'s out there.

  7. Jason@IIATMS

    I can see the “there’s other stuff to do” possibilities, but on a weeknight at 7pm, how many people are going to the zoo, or seaworld, or legoland, etc.?

    On a midday, weekend game, I can see that dilutive effect.

    On a Wednesday night in San Diego, they drew 21k, myself included. The night was perfect and the game was fun.  And the stadium was half (or more) empty.

  8. Frank

    Excellent article. I feel that MLB will eventually come to the conclusion that there are just too many franchises. Whether they decide to scale back or not is another question. Revenue sharing masks the ills of overexpansion and poor market performance. But what is the alternative? There are only 20 ML teams drawing over 25,000 per game. Only 14 drawing greater than 30,000. Without revenue sharing, the successful clubs would have no one to play.

  9. Ben

    The Dodgers and Cubs both have rich histories, and at least with the Dodgers some championships to reference.  It seems like the Cubs will always have that “nostalgia” factor as it continues to be passed down from generation to generation.  It might just be the demographics of the cities as well, San Diego is a relatively well-to-do town and it may not be chic to go to the games no matter how awesome that field is (and it is amazing as is the Tilted Kilt right there).  Tampa Bay was at one point and may still maintain a population with an overall average age above 60 years old.
    Also having gone to a few games in a few different stadiums a lot of it goes beyond what the stadium and the city provide, some of it clearly is the fans.  Compare a Yankees game to a Padres game, the fans and their enthusiasm just don’t compare.
    Sorry to veer off topic, it’ll be interesting to see how this plays out in the next few years.

  10. “Of course, we’re tempted to conclude that Tampa must not be fertile ground for a successful baseball team, but when we see similar things taking place in San Diego, Cincinnati and on the south side of Chicago, we have to wonder whether something else is going on.”
     
    That seems relatively obvious I think. Even aside from the recession, wage levels have been stagnant for a decade, ticket prices are going up, there are more activities people put their kids in, more games are on television, the stadiums aren’t necessarily easy to get to, and so on.

  11. If you’re in the mood for a head-scratcher, try looking at the league ROAD attendance figures.  These figures are more compressed than for HOME attendance figures, which argues (I guess) that we fans don’t care that much about the identify of the visiting team.  But we obviously care at least a little bit, because (logically) the Yankees have the best road attendance in baseball.  The Yankees achieve this high attendance in spite of the fact that they play the highest percentage of their games against teams in the AL East, where no other team has huge home attendance (Boston is 8th, the others are 23rd – 25th).  So, it would appear that fans show up to visiting parks to see the Yankees.
     
    Other strong road attendance teams are teams you’d expect to draw well around the country: the Dodgers, Phillies, Red Sox and Cubs.
     
    Then you have the head-scratchers.  Why would Houston have the third best road attendance in baseball?  Why would the Pirates of all teams have the 11th best road attendance in baseball, essentially the same road attendance as the Cardinals?  Maybe there’s some attendance advantage to being located in the NL Central, but then why would the Reds (best team this year in the NL Central) have only the 19th best road attendance?
     
    It gets stranger.  Which NL team has the worst road attendance?  The NY Mets.
     
    Stranger still.  The nine teams with the worst road attendance in baseball are all American League teams.  The team with the worst road attendance of all?  The Chicago White Sox.  Second worst road attendance?  Tampa Bay Rays.  Think this is a fluke?  In 2008 and 2009, the TWELVE worst teams in road attendance were all American League teams — only the Yankees and the Red Sox avoided bottom-of-the-league status.
     
    Anyone care to crunch numbers and explain this strangeness to the rest of us?

  12. Larry@IIATMS

    Part of the mystery solved: NL attendance is higher than AL attendance on average — 3,000 a game larger so far in 2010.

  13. spark

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  14. houstongm

    this is awesome i love when rob neyer gets burned.  how he is still writing for espn i really have no idea.

  15. Eric R

    "It took George S. to buy the team away from CBS to accomplish this remarkable turnaround. Maybe, just maybe, there are a few more George S.’s out there."

    uhhm— sort of.

    CBS bought the Yankees after the 1964 season.  In the 10 years before CBS ownership, the Yankees ranged from 33% to 72% more fans than the averrage AL team.

    In their first year as owners, CBS got +37% [ in the neighborhood of the previous couple years].  But then ranged from +1% to +13% in the other seven years they owned the team.  GS took over the team and was at +13%, +17% and +17% in his first three years [lets call that a neutral transitional period for the team].

    From 1976 to 1981 they were in the +50% to +68% range.  That's great-  Go GS!

    But then 1982-1988, they went below +24% only once [with a max of +32%]… now to merely pretty good [at best, considering the size of their market?].

    1989-1996, they maxed out at +6% with a couple years at around 20% below league average.

    Now since 2002 theey are back at their historic 'normal' levels of sustaining over 50% more fans than the average team.

  16. Anthony

    Noting Larry's comment above regarding road attendance, possibly it is as simple as brand image and recongnition. 

    The Cubs/Sox home attendence is an example of this.  One team is in contention, the other is not yet drawing much larger crowds.  The Yankees/Mets are another example, even though the winning team is the higher drawing one– there are New York transplants everywhere which may account for high Yankee road attendance, but that applies to the Mets as well.

    The intricacies are above me, but Boston went through a new ownership change and a bit of a rebranding in the early 2000's, and their attendance, along with revenues, increased dramatically in that time.  Boston is a great example because it is a large market with a great history.  I think it may have somethign to do with the green and pink hats–

    Regardless, I believe it may come to brand image and recongnition.  Consumers will be less likely to subsitute the Royals for the Yankees, regardless of economic conditions, than they would be to sub colgate for stop and shop brand toothpaste. 

  17. Interesting discussion.  It seems that revenue sharing (surprise surprise) is not a magic bullet.  None of this of course really proves anything, of course.

     

    Some interesting thoughts:

     

    1) The argument that teams need to push up their attendance figures, whilst correct, really does not "explain" how the Yankees can have an enormous payroll versus, say Pittsburgh.  Do the math – what if Tampa sold out every seat of every one of its 81 home games?  What's that, 20,000 additional fans per game, paying $20 a seat?  So, quickly, that would give them an additional $400,000 per game in revenue, and that's a pretty liberal estimate.  A total of $32MM additional money.

    What is the payroll  of the Yankees versus Tampa?  It's a hell of a lot more than thirty two million dollars.  The Red Sox paid tens of millions of dollars just for the rights to negotiate with Diasuke Matsuzaka.

    The Red Sox and Yankees (and some other franchises) have the massive cash infusions from other revenue sources – Boston for example pulls in a lot of $$ from NESN, and the Yankees likewise from YES and cable contracts.

    Yes; it's an embarrassment that teams like San Diego or Tampa do not draw with first place teams, but pretending that that alone is the big problem is to ignore reality.

    I like the idea of forcing teams to use revenue sharing gains to make the team more competitive (i.e., on player salaries).  I'd be equally happy to do away with it entirely, and let some of the teams fold, which they inevitably would do.  The revenue and cost structure of the game is much, much different now than a generation ago.  Historically speaking, in the 1950s, there were only 8 teams in each league – and the Yankees more or less won every single year.  Teams like the St Louis Browns or the Philadelphia As and Phillies were out of contention every year for decades.  And what was the attendance per game?

    I'm a Toronto Blue Jays fan, and I can tell you – there is significantly less interest in your team when pretending that they will finish within ten games of the playoffs is a fantasy.  Toronto has not contended (and by that I mean, entered the last two weeks of September with even a chance to make the playoffs) in 17 years.  Ditto for Pittsburgh and Kansas City.  Milwaukee has made the playoffs once between its 1982 World Series loss and 2010 – a span of 28 years.  Does anyone imagine a time when any of these teams could realistically be expected to contend?

    I'm not saying that that's good or bad, but what *inevitably* will happen I think is that the economics of the game of 50 years ago will return.  There will be teams that fold.  The "best" players will concentrate in a handful of cities.  And I further think that a lot of the sorts of strategies that exist to protect young players' health will be abandoned once teams like Cleveland and Minnesota realize that it's in their best interest to get as much out of their young stars as they can before they go to the Yankees or Boston.  If *I* as a GM had a guy like David Price, for example, I would try to get 300 innings out of him every year while I could.

     

  18. Cosmo

    I think you're argument against the 07 Rays is flawed. Its understandable that when revenue sharing money is doled out to "small market" teams, the expectation is that the money will immediately infused into the major league roster. However, as anyone familiar with free agency can tell you, paying market prices for major league talent is useful only for a select few teams expected to contend each season. Blowing cash on free agents doesn't make you a winner, it makes you the Cubs/Mets. This post contends that the amateur draft is a bit of a crapshoot, and can't be relied on to consistently produce a winning ball club. As evidence, we are given a list of highly touted prospects that the Rays DIDNT select in the draft. Then we are shown the tiny amount of money the 07 Rays spent on their roster, where cost-cutting would have been near-impossible. The solution, in lieu of revenue sharing subsidies, would be to cut front office costs, the very same front office that was shrewdly able to correctly navigate said draft. Player payroll is not an adequate measure of an organization's desire to produce a winning ballclub. The Rays are still a shining example of how to operate with limited team resources.

  19. Frank

    Maybe the thing to do is eliminate the luxury tax, revenue sharing and put a salary max/min like they have (had) in the NFL. It worked pretty good for them. Pretty much it gave the league some type of balance. Cap the team salaries at the average plus a %. Make the minimum the average minus a percentage.

    Or something else. I don't know. Maybe this wouldn't work in baseball.

  20. mike

    I have said this in the past and will always say this whenever I see anything written about revenue sharing. So here goes:

     

    The basic premise I hold is that there would be no revenue at all if there were no competition. Period – no argument can be successfully made against this fact.

     

    Thus it is perfectly reasonable to make sure that competitors share in the revenue they help generate. At least that is a capitalistic sure thing – perhaps is some Marxist baseball league, the wealth would properly be distributed equally.

     

    In fact the competitors split the gate since forever, effectively recognizing that the competitor was also a draw for revenue.

     

    The one thing that is probably understood but certainly not recognized officially is that those competitors are also important for the TV revenue – without them, there is no TV revenue. Unfortunately, TV revenue – unlike the gate – is not shared, but it sure should be.

     

    There would be no need for mysterious taxes or revenue sharing if the TV revenue were shared just like the gate is shared. If team A plays Team B 6 times of 162, then they should each share in 6/162 of the others TV revenues. Adjusted per some pre-set formula of course; it really shouldn't be 50-50. Go 55-45 or 60-40 or whatever floats your collective boat but share it with the teams against whom you actually compete.

     

    Meaning that if the Yankees do not play the Pirates, they will not be sending any money to Pittsburgh, for example, while the Orioles would be getting quite a substantial sum.

     

    That is the only fair way to share revenue – with the actual competitors. The more the Yanks pay out and earn, the more their most frequent competitors gain that they could use to actually compete. Meanwhile the Pirates and the Marlins would not be given handouts they didn't have a hand in earning – maybe that would make them more likely to spend what they have well. If it didn't work, that would be their choice of course and we are in a capitalistic society after all – at least for the moment.

  21. I don't have a whole lot of use for "free market" arguments related to the business side of baseball. I mean, the bottom line is that Major League Baseball owns a legal monopoly and its teams are allowed to operate as a trust, and that basically makes your generic market principles useless in context.

     

     

  22. Frank

    Mike- Have to disagree with that point. The reason why teams such as the Yankees and Boston have such successful networks is solely because of what the Yankees/Red Sox have done to make them successful. Do you honestlly believe that a Pittsburgh and/or Baltimore have any type of drawing power in NY/Boston? People come out to see their home team no matter who the competition is. People watch their networks for the same reason. It is the home team that has built up the following and not a result of who they play. To ask teams to share all their revenue flies in the face of capitalism and good business practice.

    Phiily and Minnesota pack their stadiums night after night with very little deviation in attendance for competition. I honestly feel that a franchise has to have a good core of baseball fans to start with to be successful.

    The people I've communicated with on boards about Tampa Bay say that their stadium is ugly and just too hard to get to. There is no public transportation. But their TV ratings are way up. So let Tampa Bay start a network. Hopefully, they will get a new stadium in the near future that will allow greater access. But, in the mean time, they should take advantage of the revenue streams that are at hand. 

  23. Larry@IIATMS

    Brien, who is the target of your latest remarks?  Can you be more specific?  I'm not upset, I'm just not sure what you mean.

  24. Mike's comment before mine. Sorry.

     

    Though I guess the sentiment holds in general too.

  25. Larry@IIATMS

    Frank, I'm not willing to give up on revenue sharing altogether, though I'm still working on what to do in place of the existing system.  You make a great point: the Rays' current attendance of 22,000 a year would have been just fine when I grew up, too.  As for salary caps and floors … oh boy, did I discuss THAT topic to death earlier this year!  You could look it up.  Caps and floors won't work for baseball, in large part because the lowest revenue teams cannot afford an appropriate floor.

     

    HoustonGM, we love Rob Neyer here.  I think his writing is the best on the ESPN web site.  That doesn't mean I always agree with him.  Obviously, this is a case where we disagree.

     

     

    Eric R, great research!  Thanks.

     

    Anthony, great points.  I think you are right about brand names and brand loyalty.  I live in LA, and I doubt if the average Dodger fan got all that excited this year about seeing the improved ballclub from Cincinnati.  But we turn out in force for the Giants games every year, because we hate those guys.  I'll circle the dates when St. Louis is in town because of Albert Pujols, and I won't check his OPS numbers on FanGraphs before I do so.  Mostly I select games that fall on dates that are convenient for me.  If I'm typical of the average fan, then it's no wonder that people have not been turning out to see the home team play the Rays.

     

    David, you get your own comment back.  As soon as I can get to it.

  26. Larry@IIATMS

    I want to try to catch up with reader comments.  It may take me a few posts to do so — please be patient.  I’ll start with Cosmo, out of the fondness I have for people who disagree with me.
     
    I’m not arguing with the idea that teams like the Pirates (and the Rays of 5 years ago) needed to start the rebuilding process with a core group of young players.  We’ve already written here about how it’s impossible to rely solely on free agency to build a winning team, regardless of a team’s financial resources.  http://bit.ly/apTEtH.  I question the Rays almost exclusive reliance on the draft to build this core, and their apparent lack of interest in young international free agents, but I don’t question their seeking to build a core of young players.
     
    All this being said, the Rays relied on free agency in every year we examined.  In 2007, the Rays’ free agents were cheap.  In 2010 the Rays’ free agents are more expensive, though of course they’re not NY Yankees-style expensive.  It may be possible to build a winning team these days without SOME reliance on free agency, but doing so is very, very difficult.  So, when you say that free agency is only for a few select teams, I respectfully disagree.
     
    Back to free agency for a moment.  I’ve contended that the Rays got very, VERY lucky in the MLB amateur draft.  If you like, go and google the phrase “baseball amateur draft crap shoot” and see how many articles you find.  I listed the top players not taken by the Rays in 2002, 2003, 2004, 2006 and 2007 as an example of how difficult it is to locate major league talent in the draft.  Here are the second-highest choices in those years not taken by the Rays: Christopher Gruler, Kyle Sleeth, Justin Verlander, Greg Reynolds and Josh Vitters. Verlander is a star, the other guys have not yet made their mark.  A crap shoot.
     
    I’m not trying to say that the Rays should have given up on the amateur draft.  (I DO question the Rays’ decision to pretty much ignore the international free agent market.)  But it’s one thing to say that the Rays tried to make the most of their high draft picks, and another to cite this as why the Rays are a “shining example”.  What team ignores the amateur draft?  What team does NOT try to select the best player available?  The Pirates and Marlins are in the draft every year, too.  I’m arguing that the Rays’ success in the draft is due to two factors: (1) their playing such miserable ball for 10 years that they were almost always selecting at or near the very top of the draft, and (2) luck.
     
    Let’s shift over to the money part of the discussion.  I’ve argued that the 2007 Rays spent about as little as a team could spend on player payroll.  To make this point, I compared the Rays’ 2007 payroll to the payroll of some of the most infamously cheap teams in recent memory.  When I made this point, I was careful to ALSO say that the Rays probably spent this money very well, and I did NOT argue that the Rays should have spent anything in addition.  I was simply making the point that the Rays did not appear to use much of their revenue sharing money to put players on the field.  I was saying that if revenue sharing had not been available, the Rays could have cut very little from their payroll, and that the lion’s share of their cuts would have been made elsewhere.
     
    Cosmo, you argue that it would have been a bad thing to make cuts in the same front office that “shrewdly” made all of those wonderful draft picks.  I’m still arguing that these picks were more a matter of luck than skill.  Here’s a point I did NOT make in my main post: in 2005, Stuart Sternberg purchased the Rays and proceeded to fire the team’s senior vice president of baseball operations and most of the team’s front office.  http://bit.ly/a03MOL  If this is the front office that “shrewdly” chose Upton, Young, Neimann, Hammel, Jaso, Wade Davis and Sonnanstine, then it was a dumb move to fire that front office.  Moreover, if Sternberg was dumb enough to fire such a shrewd front office, then how was he smart enough to replace it with an equally shrewd front office that drafted David Price and Evan Longoria, and traded for Matt Garza and Jason Bartlett?
     
    I emphasize the luck that went into the Rays’ rise to the top of the AL, but I’m not being critical of the Rays.  It’s not the fault of the Rays that a small market teams needs to get lucky to build a winner.  My criticism is aimed at revenue sharing, not at the Rays.  My point is that it doesn’t TAKE much money to do what the Rays did and assemble a core of players throught the draft … but it DOES take money to keep that core together.  Only revenue sharing throws the most money at teams when they’re assembling the core, and cuts back just when the team needs the money most to retain its core.  A more rational system might pay $10 million of revenue sharing annually to the Pirates, and $60 million annually to the Rays.  After all, the Rays have managed (through skill or luck, by using revenue sharing money or not) to achieve the very thing that revenue sharing is supposed to produce … and it’s about to disintegrate as the Rays costs outgrow their revenue.  In the meantime, the Pirates are using revenue sharing money to make distributions to their partners to cover taxes on team profits that would not exist if not for revenue sharing.  In what world other than baseball does this make any sense?

  27. mike

    Brien, if you think I was making a free market argument, you need to read it again. I did refer to a more capitalistic than marxist approach (sharing based on participation versus sharing on some luxury tax nonsense) but that did not suggest a free market approach. My approach is purely based on competition – if you don't have any competition, you don't make any money no matter if you are a monopoly or not. Competiton in my suggestion refers solely to the teams on the field not some generic free market concept.

     

    Frank it doesn't really matter what boston and NY have done to make their networks more successful. If there were no competitors on the field of play for the Sawx and/or Yanks, they would have no income very shortly.

     

    My comment had absolutely nothing to do with what drawing power any team has in any location actually. Rather it was that the entire product cannot exist without competition on the field.

     

    Larry I understand that sharing gate receipts went away with revenue sharing as I am quite old :)  The fact I find that totally wrong is why I constantly keep saying that sharing gate and TV revenues on some pre-set methodology and of course weighted by which teams were competitors and how often.

     

    It really is the most straightforward approach and it is also eminently fair. What happens to any team once these arrangements are in place will be totally up to how the team's management handles business.

     

     

  28. Larry@IIATMS

    Mike –
     
    There is a basic idea in most studies of baseball economics that what baseball is selling is competition.  The higher the level of competition, the more valuable the sport.  This idea is not seriously tested or debated very often, it’s something of a truism, but I personally subscribe to this idea and I think most of the experts do, too.
     
    So I’d tend to agree with you: to some extent, each team should share in the success of the sport in general.  To some extent, the most successful teams should share their success with the less successful teams.
     
    At the same time, baseball is built on the idea that each team is an autonomous unit and is free to act as it chooses to act (within the rules, of course, and within the loose limits set up under baseball’s collective bargaining agreement).  A team is supposed to enjoy its successes, and
     
    So, we have a balance to strike, between individualism and collectivism.  The Yankees owe some fraction of their economic success to the Pittsburgh Pirates (probably a very small fraction, but why quibble?).  In turn, if the Pirates run their franchise into the ground, this hurts the Yankees.
     
    I am personally in favor of more collectivism and less individualism.  Just a personal bias, I guess.  So I’m not opposed to revenue sharing in theory.  But collectivism is a two-way street.  If the Yankees are going to be required to pony up $150 million a year in revenue sharing (success is a collective thing!), then there’s something inconsistent in saying that the Pirates have the right per capitalist principles to retain their share of these payments as profits (individualism rules!).  It’s the spirit of collectivism: the Yankees share their revenues, and the Pirates answer to the collective for how they use those revenues.  Or it’s the spirit of individual capitalism: the Pirates have the right to a profit and to do with their money whatever they damn well want to, and the Yankees have the right to retain the money they make.
     
    But enough of abstract philosophy!  A few concrete points:
     
    First: baseball teams no longer share home gate receipts with the visiting team.  There used to be a home/visitor split of gate receipts, but this was dropped when revenue sharing was added.  The Yankees get to keep 100% of their ticket sales (subject to revenue sharing, of course).  While the Yankees lead baseball in road attendance, they don’t see a dime of the gate receipts from this attendance.
     
    Second: it is an interesting idea to replace revenue sharing with a system where home teams split their gate receipts with the visitors, but I’m not sure how fair such a system would be.  Your idea seems to be based on the notion that teams like the Rays who do the “right” things and become top ball teams will draw more fans as the visiting team and reap a substantial reward.  Unfortunately, as we’ve already pointed out, the Rays have the second worst road attendance in baseball.  True enough, the Rays play lots of road games in Boston and NY, where ticket prices are very high, so splitting the receipts for 30,000 fans in NY is worth more than a similar split in, say, Kansas City.  Of course, if your system might pay more to teams like the Rays located in the AL East, how fair is this system to teams like the Royals?  I’m not dismissing your idea out of hand, but I see problems with what you’re proposing.
     
    I think that some share of local TV revenue probably makes sense.  I’d also like to see more done to improve national TV revenue, and more importantly, to improve the revenue available from MLB advanced media.  I’d like to do away with blackout restrictions that enhance the value of local TV packages while depressing the value of pay-TV and internet packages.

  29. Larry@IIATMS

    David, attendance means more to a team’s financial health than any other single factor.  We discussed this earlier this year here: http://bit.ly/90ikDn.  Look at the discrepancy in gate receipts I show in this earlier post.  Then compare the discrepancy in the number of TV viewers for each team, shown here: http://bit.ly/diTpCh.  Yes, the Yankees have a big advantage, no matter where you look.  But the discrepancy in gate receips is much bigger than the one in TV viewers.
     
    Your estimate of $32 million of additional revenue is probably about right.  That would double the Rays’ current gate receipts.  Of course, you’re not counting additional revenues for concessions and parking (if the Rays charge for parking).  With $64 million in gate receipts, the Rays would be in the neighborhood of the White Sox, Tigers, Brewers and Rockies, and ahead of the likes of the D-Backs, Mariners, Nationals and even the Twins before they opened their new stadium.  From a financial standpoint, this would be heady company for the Rays.
     
    True enough, unless the Rays can also raise ticket prices (and their tickets prices are near the league low), they’re not going to produce gate receipts like those of St. Louis or San Francisco.  And it may be impossible for the Rays to ever approach gate receipts the likes of the Dodgers, the Phils or the Cubs.  As for Yankee levels of gate receipts?  It would seem impossible for the Rays to compete with the Yanks at the gate.
     
    But I think you’re underestimating the importance of $64 million in gate receipts.  $64 million in gate receipts would be the 13th highest figure in baseball.  Look at the payroll teams with around $64 million in gate receipts can sustain: the Tigers have a $122 million payroll.  The White Sox are at $105 million.  The Brewers are at $81 million.  The Rockies are at $84 million.
     
    If the Rays could afford an $85 million payroll, they’d have a chance to keep a winning team on the field.  True, they could not retain all of their core players through free agency — like all mid-market teams, they’d have to make choices (like how the Twins kept Joe Mauer but gave up Johan Santana).  I’m not saying that the additional gate receipts would make life easy for the Rays, but it would put them solidly in the ranks of the mid-market teams I’ve mentioned above.
     
    Now, if you’re looking for a formula for how the Rays can compete financially with the Yankees, you’re not going to find it here.
     
    Moving on to the problems of the Blue Jays — they are unique problems.  I don’t think that the Blue Jays should be discussed along with Pittsburgh and Kansas City.  While this is a minority opinion around here (and in most sabermetric circles, by the way), I think that baseball DOES have a competitive balance problem.  But the Blue Jays’ problem is compounded by the fact that they play in the same division as the Red Sox and Yankees, so to make the post-season, the Blue Jays need to field an outstanding team (like this year’s Rays) during a year when either the Yanks or the Red Sox slip a little. The odds against this are more than a little depressing for the Jays, and the O’s, which helps drive discussions of division realignment (which I won’t touch here).
     
    When you’re talking about the Royals, Pirates and Brewers, you’re talking about teams that don’t have to finish ahead of the Yankees and Red Sox to make the post-season.  And if your goal is for every MLB team to have a chance to make the playoffs, then (ignoring the AL East) baseball’s record is pretty good.  I discussed this situation here: http://bit.ly/c61mvY.  26 of the 30 teams in baseball have made it to the post-season at least once since baseball expanded the post-season in 2005.  20 of these 30 teams have made it to the post-season at least 3 times, including small and mid-market teams like the Rockies, Diamondbacks, Padres, Mariners, Twins, A’s and Indians.  True, the balance is far from perfect, but it compares favorably to those of other sports, as Brien discusses today in a different post.
     
    If you read my post at http://bit.ly/c61mvY, you’ll see that I’m not happy with the current level of competitive balance in baseball, but you cannot really say that a team like the Brewers has no realistic chance to contend.  Particularly in a year when the Reds, Padres and Rangers are all contending.
     
    Last: I don’t think it will help the Rays to pitch David Price 300 innings a year.  Even if the Rays think they’ll be unable to retain Price, they’d still hope to get maximum value for Price in a trade.

  30. Mike Trathen

    I may be a bit late to this discussion but, to me, the reason why the Astros and Pirates are so high in road attendance is that they are rubbish teams.  The home fans have a far higher chance of seeing a win that day/night than if the Cards or Reds were in the building so more of them turn up to see the game.

    As far as revenue sharing goes, I agree with Frank’s notin that the luxury tax and revenue sharing have to be scrapped.  Any free-marketeer would agree that “intervention” of any sort, but particularly by vested interests, distorts the market even further than if it had been left to its own devices.  As the NBA and NFL salary cap farces have shown, they don’t work.  The same teams make the playoffs and win the titles because:

    – they have smarter people running the teams
    – they have the best players at the most critical positions
    – they have owners that put the money back into the team, not their own pockets (like any sensible business owner does to grow the business)

    A few things, as a start, that I would like to see implemented are (and I preface this by saying I am a Red Sox fan born and bred in New Zealand):

    – trading of draft picks, so you could perpetuate Rays-like longevity by trading Carl Crawford or Matt Garza to teams like the Yankees or Red Sox for, say, the next 3 first round picks (this will become somewhat limited because teams will run out of high value draft picks to trade and it makes my third point below ever more difficult)
    – a required percentage of global MLB revenue that is equally distributed to all teams and this money must be spent on draft picks / 25-man roster salary
    – a hard slot system of player payments in the amateur draft (this links to my first point above so that draft picks have a “value”)
    – a formalised system for distributing international players throughout MLB (players like Chapman should not have mega-leverage compared to college / high school players based in the US)
    – a required minimum number of 25-man roster spots (say 15) that are “home-grown” by each team so that teams like the Yankees and Red Sox can’t sign multiple free agents every year (this will focus minds to player evaluation, scouting and drafting etc so the smartest teams will have the best players)

    There are other things I have thought about, but that’s a decent start.  Maybe I can revisit this again after doing more in-depth thought.
     

  31. Larry@IIATMS

    David, attendance means more to a team’s financial health than any other single factor.  We discussed this earlier this year here: http://bit.ly/90ikDn.  Look at the discrepancy in gate receipts I show in this earlier post.  Then compare the discrepancy in the number of TV viewers for each team, shown here: http://bit.ly/diTpCh.  Yes, the Yankees have a big advantage, no matter where you look.  But the discrepancy in gate receips is much bigger than the one in TV viewers.

    Your estimate of $32 million of additional revenue is probably about right.  That would double the Rays’ current gate receipts.  Of course, you’re not counting additional revenues for concessions and parking (if the Rays charge for parking).  With $64 million in gate receipts, the Rays would be in the neighborhood of the White Sox, Tigers, Brewers and Rockies, and ahead of the likes of the D-Backs, Mariners, Nationals and even the Twins before they opened their new stadium.  From a financial standpoint, this would be heady company for the Rays. 

    True enough, unless the Rays can also raise ticket prices (and their tickets prices are near the league low), they’re not going to produce gate receipts like those of St. Louis or San Francisco.  And it may be impossible for the Rays to ever approach gate receipts the likes of the Dodgers, the Phils or the Cubs.  As for Yankee levels of gate receipts?  It would seem impossible for the Rays to compete with the Yanks at the gate. 

    But I think you’re underestimating the importance of $64 million in gate receipts.  $64 million in gate receipts would be the 13th highest figure in baseball.  Look at the payroll teams with around $64 million in gate receipts can sustain: the Tigers have a $122 million payroll.  The White Sox are at $105 million.  The Brewers are at $81 million.  The Rockies are at $84 million.
    If the Rays could afford an $85 million payroll, they’d have a chance to keep a winning team on the field.  True, they could not retain all of their core players through free agency — like all mid-market teams, they’d have to make choices (like how the Twins kept Joe Mauer but gave up Johan Santana).  I’m not saying that the additional gate receipts would make life easy for the Rays, but it would put them solidly in the ranks of the mid-market teams I’ve mentioned above. 

    Now, if you’re looking for a formula for how the Rays can compete financially with the Yankees, you’re not going to find it here. 

    Moving on to the problems of the Blue Jays — they are unique problems.  I don’t think that the Blue Jays should be discussed along with Pittsburgh and Kansas City.  While this is a minority opinion around here (and in most sabermetric circles, by the way), I think that baseball DOES have a competitive balance problem.  But the Blue Jays’ problem is compounded by the fact that they play in the same division as the Red Sox and Yankees, so to make the post-season, the Blue Jays need to field an outstanding team (like this year’s Rays) during a year when either the Yanks or the Red Sox slip a little. The odds against this are more than a little depressing for the Jays, and the O’s, which helps drive discussions of division realignment (which I won’t touch here). 

    When you’re talking about the Royals, Pirates and Brewers, you’re talking about teams that don’t have to finish ahead of the Yankees and Red Sox to make the post-season.  And if your goal is for every MLB team to have a chance to make the playoffs, then (ignoring the AL East) baseball’s record is pretty good.  I discussed this situation here: http://bit.ly/c61mvY.  26 of the 30 teams in baseball have made it to the post-season at least once since baseball expanded the post-season in 2005.  20 of these 30 teams have made it to the post-season at least 3 times, including small and mid-market teams like the Rockies, Diamondbacks, Padres, Mariners, Twins, A’s and Indians.  True, the balance is far from perfect, but it compares favorably to those of other sports, as Brien discusses today in a different post.

    If you read my post at http://bit.ly/c61mvY, you’ll see that I’m not happy with the current level of competitive balance in baseball, but you cannot really say that a team like the Brewers has no realistic chance to contend.  Particularly in a year when the Reds, Padres and Rangers are all contending.

    Last: I don’t think it will help the Rays to pitch David Price 300 innings a year.  Even if the Rays think they’ll be unable to retain Price, they’d still hope to get maximum value for Price in trade.

  32. Larry:
     
    first, thanks for taking the time to respond to my points.  I read your prior post (vis-a-vis competitive balance), and like your conclusion there, I think looking at who wins the World Series is a poor proxy for competitive balance, since obviously, the playoffs represent a sequence of short series where variance becomes a big contributor.  The data from Log5 and other places illustrates it, but in heuristic terms, if the best team played three consecutive series against the worst team (an extreme case) of best of 5, 7, and 7, it would have a less than 50-50 chance of winning all three series.  Even if it had a 3-1 likelihood (75% chance) of winning any one series, the chances of the better team “winning” all three consecutively is 42% (3/4*3/4*3/4).  The “break even” point is not arrived until the favoured team has an 80% likelihood of winning a given series (and then, the probability of a random championship is 51%).  And the playoffs represent putatively series between the “best” teams.
     
    Put simply, the gating event here is getting to the playoffs, and hence, the fact that the Yankees have won so many championships over the past 15 years represents remarkable luck in the post season.
     
    Turning, however, to the REAL question of competitive balance, one must look at the distribution of who makes the playoffs and how often.  Using the “since 1995″ divisional splits is a bit freighted, since I would say that the finances of the game have changed significantly since 1995, and thus, it’s more useful to look at more recent history.  I didn’t look it up. but of the 26 teams that have made the playoffs since 1995, how many of them have NOT made it since 2000?  How many between 1995 and 2000?  I know that Baltimore and Texas both made the playoffs in the mid/late 90s, and have not done so since – though Texas is in good shape to do so this year.  I’ve purposefully avoided the NL, but I would agree that there is much more competition in it by my impression.  I wonder if this is not because there are fewer big spenders, and they are more distributed (i.e., the two biggest spenders – Boston and New York are not only both in the AL, but both in the AL East).  With only one “wild card,” this basically means that if you are in the AL East, you have to be one of the two best teams in the AL to make the playoffs – you simply cannot make the playoffs without winning 95-100 games.  If EVERY division had this dynamic, I think you’d see a much lower distribution.
     
    In the NL, there admittedly is a LOT more “balance;” in the past 10 years, the wild card has been won by eight different teams.  In the AL, the Boston Red Sox have won five of the past 10, with the Yankees winning another.  Comparatively, the AL Central has taken one of the wild cards over ten years (Detroit, 2006), and the AL West three (Oakland, 2000, Seattle 2001, Angels, 2002).  Put another way, the AL Wild Card has been taken by either Boston or New York in six of the last 10 seasons.  Only ONE of the 16 Wild Cards has been won by a different AL East team (the 1996 Baltimore Orioles), and zero of the past 13.
     
    I posted my own comments on this back at the outset of the 2009 Series (www,tinyurl.com/39x9zqd), but in summary, the Red Sox and Yankees are eligible for two of the four AL slots (e.g., neither can win the AL West).  Going back to 1997, the Yankees and Red Sox have been eligible for 22 playoff slots – they’ve won 17 of them. Among Tampa, Baltimore, and Toronto, Tampa has captured one of the 22 spots (winning the AL East in 2008).  So, three of the five teams in the AL East have won 1 of 22 playoff spots (less than five per cent).
     
    THAT is not any sort of “competitive balance,” and I think is severely distorted by the finances and their distribution that is somewhat unique to the AL.
     
    Also along those lines, the fact that New York and Boston have such an enormous impact on the salary structures has perversely (in my opinion) helped make the NL (and to some degree, the other AL divisions) more competitive.  One way to look at it is that since 2000, 10 NL teams have made the playoffs winning fewer than 90 games.  Only once has any AL team done so (the 2000 Yankees).
     
    Since the advent of the wild card (and ignoring 1995, which was a 144 game season), five AL teams have reached the playoffs with less than 90 wins, and only ONCE (1996, Baltimore) has a wild card gone to a team with fewer than 90 wins.  In the NL, 12 teams have done so. Thus, an NL team with < 90 wins is twice as likely, historically, to reach the playoffs than an AL team in the three division, wild-card format.  And since 2000, the gap is even more lop-sided (10-1).
     
    The arms race in the AL East has made (in my opinion at least) the AL stronger over-all, but somewhat less competitive.  It’s made the AL east almost totally uncompetitive, outside the outlier of Tampa Bay, which you rightly point to is hugely based on luck (high draft picks with the majority of whom quickly become borderline all-stars), which is unsustainable.  And the failure of competitive balance has gotten worse over the past 5-10 years.
     
    To one of your other points, yes – gate receipts obviously are a huge part of revenue – no one would argue that.  My point was that selling more seats alone cannot make Tampa (or other low-revenue teams) competitive in the same way that Boston and New York are.  Put another way, without selling seats, it’s impossible over the long term to be competitive.  But that criterion is necessary, but not sufficient.  Secondly, I would say that the number of viewers that a given team gets is at best a proxy – a better look is what is the value of the contract that the broadcaster has signed to cover the games.  Obviously, if no one is watching, ads cannot be sold, and the value of the contract will go down.  But simply because similar numbers of people watch the Yankees on YES, than say, the Oakland A’s on FSBA does not mean the VALUE of the contract is similar.  What do the Yankees get from YES (or Boston from NESN) versus what Cleveland gets from Fox Sports Ohio?  I don’t have access to those data, but that is what the real measure is. And for another thing, YES is owned largely by the Steinbrenner family, who also own the Yankees.  What that relationship means to the revenue dynamic is another variable.
     
    Now, as to the use of David Price (or other young, emergent stars), I really disagree.  Yes – when he gets to his full value, his value as trade bait is somewhat tied to his health.  But the perceived value (and the value of a contract) is largely tied to his past performance.  For example, no one gives a first or second year player the fattest contract, which always goes to the guys with the “best” performance over the past 3-5 years.  If Price developed arm problems because he started 36-40 games a year, and pitched 10-15 complete games, it would lower his trade value.
     
    But that then reduces to what the ACTUAL value of having Price pitch 300 innings every year for 5 years, versus what his potential as trade bait in year six would be with a reduced load.  Again, I look at the recent trade of Roy Halladay, who went to the Phillies for “prospects.”  This is the typical trade – it remains unseen whether any of the players Toronto got will ever even pitch in the big leagues, whereas Halladay is a Cy Young candidate this year.  I would argue that in a lot of these cases, the “prospects” a team gets do not match the value lost when a guy like Halladay (or Cliff Lee or CC Sabathia) is traded because a team knows it cannot sign him.  The question I would ask to evaluate this is, how often would a team like Cleveland or Toronto or Milwaukee trade their best players for “prospects” if payroll were not an issue?  My suspicion is that it would be rare, and in any case significantly less.  And thus, I would suggest GMs get whatever mileage they can while they can because the total value over time is simply going to be greater using that strategy.

  33. Larry@IIATMS

    David, great comments.  I'll continue to post here on issues impacting baseball economics and competitive balance, and I hope you'll continue to comment.

     

    I read your blog piece, good work!  I've posted here earlier on the limits of building a baseball team through free agency, see http://bit.ly/apTEtH.
     

    You're a math guy, so perhaps you've seen some of the studies looking for a correlation between money and wins.  The relationship they find is weak. Yeah, I'm not convinced by these studies.  The hypothesis I'm working on is that there's a lot of luck in winning in baseball, but if you just look at the non-luck factors related to winning, then money becomes very important.

     

    Looking at who makes the playoffs and how often is one good measure of competitive balance — that was part of the point I was trying to make in my post on luck and competitive balance in the post-season.  Agreed, it matters a lot how often a team qualifies for the post-season, and the two teams that make the playoffs the most often ARE the two richest teams in MLB.  Two OTHER rich teams, the Mets and Cubs, have not done nearly as well.  Also, forgive my short sample size, but 2010 has not been a kind year for the wealthy in baseball.

     

    On the topic of short sample sizes, I reached back to 1995 to get all of the relevant data I could.  Yes, baseball's economics are different today than in 1995, and you're right to wonder when Baltimore may next make the playoffs, but Texas should break through this year.  cincinnati too.  It's not even 100% clear that the Yankees and Red Sox will stay on top of the AL heap forever.  The Yanks have had a great 15 year run, but the Yanks from 1982 to 1994 could fairly be compared to the current-day Mets and Cubs. The AL East was not always the strongest division in baseball.  It's hard to know whether the population density in the NE corridor of the U.S. will ensure that the Yanks and Red Sox will continue to make the odds miserable for the O's and Jays, or whether we're drawing conclusions from a too-small sample size.  In any event, when I look at competitive balance in baseball, I think of the AL East as a special case.

     

    True enough, the Yankees have the $$ to sustain success — that is, if they can avoid becoming too old and too reliant on free agency.  True enough, the Yankees can afford to retain their young core players through free agency (or through social security, if you prefer), but they still have to develop new young core players, particularly up the middle (center field, second base, and particularly at shortstop and catcher, where it's hard to find quality players in free agency).  The Yankees are always at risk of becoming the baseball version of the recent vintage NY Knicks — overpriced, past their prime and looking to free agency for the quick fix.

     

    On to some of your mosre specific points:

     

    Your comparison of NL and AL playoff teams with fewer than 90 wins may be skewed by the dominance of the AL in interleague play.

     

    I continue to maintain that nothing is as important to a team's economic health as home field attendance.  Yes, the Rays cannot earn Yankee-style money simply by selling out the Trop.  But for the moment, the Rays' goal has to be to compete with mid-market teams like the Twins and Brewers.

     

    We don't have complete numbers on the value of the 30 local baseball TV contracts.  Welcome to my world: we aren't working with the best possible data to reach the conclusions we try to reach about the business of baseball.

     

    Regarding your point about the David Prices of the world: I guess there could be a temptation for a team to overuse a player who has no future with the team, but if the player is young and has trade value, the team is also going to want to preserve that value.  If the Rays overpitch Price and he goes Stephen Strasburg on us, that's going to affect his value. In any event, let's hope that teams do the right thing when it comes to what's best for the health of their players, and let the money be damned.

  34. This is tremendous and something that’s been in my craw (as an Indians’ fan) since Sabathia faced Lee in the WS last year.  I wrote this (http://bit.ly/4zbtH7) a while back at The DiaTribe, but the real issue is that MLB needs to incentivize success for these teams and give a proportionate amount of dollars to teams that need them, when they need them.
    Regardless, here’s how I wrote a portion of it last Winter:
    A possible solution could go something like this – once a player hits Free Agency, allow said player to go out on the open market to see what deals exist for him out there. When the bidding has concluded and an offer sheet is signed by the player and his agent, his current team has 10 days to match the offer, much like Restricted Free Agency in the NBA. Now here’s where that pool of money created by the “Competitive Balanced Payroll Tax” come in – the player’s current team can decide to match the offer sheet while only footing the bill for half of the contract with the other half of the money coming from the pool of money created by the Competitive Tax Pool that John Henry argues for. To put that in tangible terms, if the Brewers wanted to match the Yankees’ 7-year, $161M contract offer from the Yankees last off-season, they would be responsible for $80.5M of the deal with the other $80.5M coming from the Tax Pool.

    Thus, the large market teams can still bid for the services of the players they desire and, if their offers are matched, they have effectively ensured that the money that they pay into the “Competitive Balanced Payroll Tax” is going strictly for MLB players (not for other small market “expenses”) and the smaller market teams don’t have to assume as much risk in signing their own players to their contracts to keep them. The large market teams may not like the idea of bidding against their own money or subsidizing the contracts of players not playing for them, but their concerns about throwing money into other owners’ pockets would be allayed and they would be left to strive for the same excellence in player development that every other team would be chasing.

    If teams don’t elect to utilize this Tax Pool to keep their own players, the onus is strictly on them for either not developing players internally compelling enough that they want to keep them or they are exposed for being more concerned with the bottom line than they are the product on the field. If a team develops players prudently, the machinations would be in place to keep those players as long as they wish to, with the players being compensated dollars equivalent to “what the market will bear”.
    Ultimately, it’s about creating a system that would benefit the teams that developed players and created an environment for players to develop as a cohesive unit into a perennial contender.
    Whether something like that works or not, the reasons laid out so articulately here show why 26 or so of the teams in MLB are just looking for a lot of luck and an awfully small window of contention to squeeze through

  35. Larry@IIATMS

    Paul, we’re clearly thinking on the same track.  By the way, I claim full right to borrow from your ideas when I come up with my proposal for fixing or overhauling revenue sharing.
     
    Id refer to your idea as a right of first refusal funded with MLB matching funds.  Interesting.  I am a business lawyer, and in general business lawyers don’t like to grant rights of first refusal.  These rights tend chill the market for whatever it is that our client is trying to sell — it can be hard to get a fair market value bid for the purchase of something that is subject to a right of first refusal.  No one wants to be a “stalking horse.”  I think that there is such a “chilling effect” in restricted free agency in the NBA, though I’m no NBA expert.  However, your proposal needs SOME mechanism to set a fair price for free agents, and a right of first refusal is as good a way as any to set this price.
     
    My guess is that the players’ union will resist your proposal, because of this chilling effect.  So we need to give them something in return.  I’d suggest that the right of first refusal would only apply to players eligible for free agency for the first time.  Moreover, in order for a team to be eligible for matching funds, they’d have to allow the player to file for free agency a year early, and that any salary proposal eligible for matching funds would have to be limited to a term of four years or less.  That seems like a fair trade-off: a player made subject to this right of first refusal might earn a bit less (because of the “chilling effect”) but they’d see free agency money a year earlier.
     
    The next problem I see comes straight from our case history of the Rays.  The problem facing the Rays is NOT paying market price to free agents.  The problem facing the Rays is that they cannot afford the cost of having their young core players become eligible for arbitration.  So, in order to save the Rays, we’d need to figure out a way to make MLB matching funds available to pay the salaries of arbitration-eligible players who are not yet eligible for free agency.  But how do we determine a fair market price for these players, when these players are not yet eligible to test the market?  We might use the price for the player set in arbitration, but relatively few players and teams actually GO to a formal arbitration — teams and players usually settle before they reach arbitration.  So, we’d have to rely solely on the contract price negotiated between player and team to set the player price.  This makes me a bit nervous … though maybe this is OK.  Not sure.
     
    Next problem is a fair allocation of funds.  Presumably, the Yankees would not be eligible for matching funds!  That’s fair.  But how do we determine which teams are eligible and which are not?  We COULD say that any team that’s currently eligible to receive revenue sharing would be eligible under the new system to receive matching funds.  But this sets up a strange system where a team currently paying $5 of revenue sharing would get nothing under the new system, and a team currently receiving $5 of revenue sharing might get hundreds of millions under the new system.  I understand that part of the thinking behind your proposal is to get away from the business of simply throwing the most money at the “poorest” teams, but I don’t think we want to see such a radical difference in how we treat middle-of-the-road teams positioned at around the revenue sharing cut-off.
     
    Your system also has a problem of matching revenues to expenses.  At present, revenue sharing raises about $450 million a year — that’s something like 75% of the combined net profits of all 30 MLB teams.  But I’m not sure it’s enough to cover 1/2 the cost of all those free agents and salary arbitration guys.  It’s really impossible to predict.  I’ve looked quickly and I can’t find any aggregate estimate of these salary costs.  Another problem is that your system requires baseball to make long-term commitments.  What if the system agreed to cover $200 million in free agent salaries in the first year.  That commitment could go forward for 4 years.  Would there be any money left in the system to cover free agent salaries in years 2, 3 or 4?  If not, then your system would unfairly favor the first teams eligible to use the system.  I’m not sure it’s possible to design a system that commits money for more than a single year.
     
    There are some other details, such as what happens if a poor team trades a subsidized free agent to a rich team.
     
    Paul, this is a problem when you communicate a creative idea to a lawyer like me.  We’re trained to poke holes in creative ideas.  I like your idea, but it may need some work.

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