Comments on: Success and Sustainability (Part 3 of Why Revenue Sharing Is Dead) http://itsaboutthemoney.net/archives/2010/09/07/success-and-sustainability-part-3-of-why-revenue-sharing-is-dead/ The official Yankee blog of ESPN's Sweetspot Network Sat, 18 Oct 2014 00:03:09 +0000 hourly 1 http://wordpress.org/?v=4.0 By: spark http://itsaboutthemoney.net/archives/2010/09/07/success-and-sustainability-part-3-of-why-revenue-sharing-is-dead/comment-page-1/#comment-9212 Wed, 09 Feb 2011 04:40:58 +0000 http://itsaboutthemoney.net/?p=14544#comment-9212 Drug Rehabilitation Network is your best chance at long term sobriety, and that means finding the Drug rehabilitation facilities to suit your every need.

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By: Larry@IIATMS http://itsaboutthemoney.net/archives/2010/09/07/success-and-sustainability-part-3-of-why-revenue-sharing-is-dead/comment-page-1/#comment-3671 Fri, 10 Sep 2010 23:16:04 +0000 http://itsaboutthemoney.net/?p=14544#comment-3671 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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By: Paul @ The DiaTribe http://itsaboutthemoney.net/archives/2010/09/07/success-and-sustainability-part-3-of-why-revenue-sharing-is-dead/comment-page-1/#comment-3661 Fri, 10 Sep 2010 16:31:26 +0000 http://itsaboutthemoney.net/?p=14544#comment-3661 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

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By: Larry@IIATMS http://itsaboutthemoney.net/archives/2010/09/07/success-and-sustainability-part-3-of-why-revenue-sharing-is-dead/comment-page-1/#comment-3630 Thu, 09 Sep 2010 19:47:47 +0000 http://itsaboutthemoney.net/?p=14544#comment-3630 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.

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By: David http://itsaboutthemoney.net/archives/2010/09/07/success-and-sustainability-part-3-of-why-revenue-sharing-is-dead/comment-page-1/#comment-3615 Thu, 09 Sep 2010 15:22:32 +0000 http://itsaboutthemoney.net/?p=14544#comment-3615 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.

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