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Baseball's Revenue Sharing Problem
Major League Baseball Hurt By Teams Who Don't Spend Money on Players
Nov 12, 2007 James Lincoln Ray

Major League Baseball doesn't require the beneficiaries of revenue sharing to spend the money they receive on players.



Under Major League Baseball’s revenue sharing system, which has been in effect for the last ten years, a number of "big market" teams like the Yankees, Mets, and Red Sox give huge chunks of money every season to a group of "small market" teams that include the Kansas City Royals, the Tampa Bay Devil Rays and the Florida Marlins.

Revenue Sharing 101
It's not that the wealthier teams are generous. Quite far from it. In 1997, baseball created a new revenue sharing system that requires successful teams to pay millions of dollars every year to unsuccessful teams. Revenue sharing is supposed to create better competitive balance among all 30 Major League Baseball teams. The past decade has shown that teams who use revenue sharing dollars to attract and retain talented ballplayers become more competitive on the field and more profitable on the books.

The Colorado Rockies are a fine example. The Rockies used all of the $16 million they received in 2006 revenue sharing dollars to increase their payroll in 2007, and that certainly helped the team win this year's National League pennant. The Detroit Tigers are another success story. They used revenue sharing dollars to attract free agents Ivan Rodriguez and Magglio Ordonez, and those players helped the Tigers climb from a team that won just 43 games in 2002 to a club that won the American League pennant last year.

Many Revenue Sharing Recipient Teams Don't Improve
Being on the receiving end of baseball’s Robin Hood Policy doesn't guarantee success, however. One reason that some clubs fail to improve is that they don't use their revenue sharing dollars to attract free agents or to retain homegrown players.

Major League Baseball's revenue sharing agreement does not require recipients to spend the "shared" revenue on actual ballplayers. All that is required by teams is that they use the money "to improve the product on the field." That vague requirement, however, has not been enforced by the League. In reality, the money can go anywhere. It can even go into the owner’s pockets.



Florida and Tampa Bay Are the Worst Revenue-Sharing Offenders
The two biggest abusers of the system are the Florida Marlins and the Tampa Bay Rays (who changed their official team name from the Devil Rays just a few days ago, wow!)

The Marlins won the World Series title in 2003 with a team that had a unique combination of great young players and talented veterans that included Josh Beckett, Brad Penny, Mike Lowell and Ivan Rodriguez. That year, the team had a respectable $54 million payroll. Rather than retain those players, however, the Marlins traded away Penny and Beckett for much cheaper players, and lost Mike Lowell and Pudge Rodriguez to free agency.

By shedding these stars, Florida was able to cut its payroll down to $14.9 million in 2006, which is less than 20% of the Major League average of $78 million. It was also less than half of the $31 million in revenue sharing dollars the team received that year. So, rather than using the money to retain or attract on-field talent, the owners took it as part of the team's MLB best $43 million profit in 2006.
The Rays might be worse than the Marlins. From 2002 through 2006, Tampa Bay took in an average of $32 million per year in revenue sharing money. During that same period, the Rays had an average payroll of just $27 million, which was the lowest in baseball. They also had the worst five year record on the field, winning an average of just 70 games per season. Yet the team turned an average profit of more than $20 million during those years.

The Revenue Sharing Rules Need a Change
As stated above, baseball doesn't force revenue sharing recipients to use the money on payroll. All that is required is that the team use the money to "improve the product on the field." No one has even tried to define the meaning of "improve the product on the field." Moreover, there are not any subtantial reporting requirements or other measures of accountability in the system. Teams get the money and simply use it as they please. Some spend it on payroll and watch their teams improve. Others pocket the cash and watch their teams continue to suck.

So long as the rules remain lax and enforcement non-existent, teams will be able to take advantage of the system. Here are some changes that have been suggested.

Some advisors argue that baseball should require teams to spend a specified minimum percentage of shared revenue on player payroll. Others have suggested a model that would pay the most revenue sharing dollars to those small market teams who were best able to increase their attandance and/or television viewership each year. Some have even suggested a simple minimum dollar amount for player payroll.

Whether or not any of these ideas can work is of course subject to debate. Perhaps the best way to resolve that debate would be to implement one or more of them and see how they work. It's got to be better than what baseball has right now.

P.S. -- On December 4, 2007, the Marlins agreed to trade their two highest paid players, Miguel Cabrera and Dontrelle Willis, to the Detroit Tigers for young prospects, a move that will likely insure that the Marlins will have the lowest payroll and one of the worst franchises in baseball in 2008.



Read more at Suite101: Baseball's Revenue Sharing Problem: Major League Baseball Hurt By Teams Who Don't Spend Money on Players http://baseball.suite101.com/article.cfm/baseballs_revenue_sharing_problem#ixzz0tfqIvGY4