The Marlins and the MLB Revenue Sharing System

Last night, the Marlins traded every player on their active roster with a 2013 salary greater than $1.6 million, save for Ricky Nolasco, who’s owed $11.5 million next season. And Nolasco may be gone soon, too. The Marlins’ latest fire sale came less than a year after Miami signed free agents Jose Reyes, Mark Buehrle, and Heath Bell to great fanfare, as the team prepared to christen the new, publicly-financed Marlins Ballpark. Now, all those players are gone. Reyes and Buerhle were traded last night to the Blue Jays, along with starter Josh Johnson, outfielder Emilio Bonifacio, and catcher John Buck.  Bell was sent to the Diamondbacks in late October. When the Marlins open their second season in the new ballpark, fans will see Giancarlo Stanton in right field and a lot of unknown young players scattered around the diamond.

Tuesday’s trade was just the latest purge by Marlins’ owner Jeffrey Loria, after the latest spending binge, after the prior purge. Loria’s pattern is well-known and has landed him in hot water occasionally, although not nearly as frequently — or as hot — as his critics demand.  One such critic is the players’ union. The Major League Baseball Players Association complained for years that the Marlins violated the league’s revenue-sharing plan by using the money received under the plan for everything but improving the product on the field, as is required. Between 2002 and 2010, the Marlins reportedly received close to $300 million in revenue sharing. With the threat of a formal grievance, the Players Association forced an agreement from the Marlins to use all revenue-sharing proceeds on player development and salaries for three seasons. The agreement was announced in January 2010 and now, three seasons later, has expired. Imagine that.

Even with their taxpayer-funded ballpark, the Marlins will almost certainly be on the receiving end of revenue sharing for the foreseeable future. The club doesn’t have the fan base, television contracts or corporate sponsors bigger-market teams enjoy. And after the sell-off to Toronto, the fan base is likely to shrink even more.

We don’t know how much the Marlins will receive in revenue sharing going forward, but we do how that figure will be determined. It’s all spelled out in the Collective Bargaining Agreement the players and owners signed off on last November. With the Marlins’ financial dealings on the hot seat — again — it’s as good a time as any to dive into complex details of MLB’s revenue-sharing plan.

First, a few definitions. Clubs start with gross revenue, which is all revenue generated by the team’s baseball operations (ticket sales, concessions, local television contracts, etc.), plus a 1/30th share of MLB-generated central revenue (national television contracts, MLB.tv, licensing and merchandise, the All-Star Game, etc.). Clubs then subtract ballpark expenses and the 1/30th share of central revenue. What’s left is “Net Local Revenue.” In an unusual twist, the CBA set the Marlins’ Net Local Revenue at $100 million for the 2012 revenue-sharing year. No other team was singled out in that fashion.

The revenue sharing plan has two building blocks: the base plan and the supplemental plan. Let’s start with the base plan. All 30 clubs contribute 34% of their Net Local Revenue to the base plan pool. The base plan pool is then distributed equally to the 30 clubs. Some teams, like the Yankees and Red Sox, contribute significantly more to the base plan pool than they receive, and are known as Revenue Sharing Payor Clubs. Others, like the Rays and the Pirates, receive more than they contribute, and are known as Revenue Sharing Payee Clubs.

The supplemental plan is trickier. The goal of the supplemental plan is to raise the overall percentage of revenue shared by the Payor Clubs from 34% (in the base plan) to 48%. But each Payor Club contributes a different amount to the supplemental plan, based on something called a Performance Factor. Here’s how it works.

The Net Local Revenue of each club is added together and then multiplied by .48 (for 48%). The result is the “Net Transfer Value” for the revenue-sharing year. We know the Net Transfer Value of the base plan is 34% of total Net Local Revenue. That means the Net Transfer Value of the supplemental plan is 14% of total Net Local Revenue. The question is how to generate the 14%. That’s where the Performance Factors come in.

This chart details the Performance Factor for each club in 2012 and 2013.

Club 2012 2013
New York Yankees 27.7% 27.1%
Boston Red Sox 18.7% 18.6%
Chicago Cubs 11.4% 13.0%
New York Mets 11.0% 10.1%
Philadelphia Phillies 7.5% 8.4%
Los Angeles Dodgers 8.1% 8.0%
San Francisco Giants 3.3% 4.7%
Texas Rangers 1.4% 3.3%
Los Angeles Angels 3.0% 3.2%
Chicago White Sox 3.0% 3.2%
Houston Astros 0.8% 0.7%
Minnesota Twins 1.3% 0.0%
Seattle Mariners 1.7% 0.0%
St. Louis Cardinals 1.0% 0.0%
Detroit Tigers -4.8% -2.6%
Atlanta Braves -1.9% -3.2%
Colorado Rockies -5.4% -4.1%
Washington Nationals -2.9% -4.1%
Baltimore Orioles -3.5% -4.3%
Miami Marlins -7.8% -5.6%
Arizona Diamondbacks -5.8% -5.9%
Cincinnati Reds -5.8% -6.1%
Milwaukee Brewers -7.4% -6.7%
Cleveland Indians -4.9% -7.0%
Oakland Athletics -7.6% -7.8%
San Diego Padres -8.2% -8.1%
Toronto Blue Jays -9.0% -8.3%
Tampa Bay Rays -7.5% -8.4%
Pittsburgh Pirates -9.3% -8.6%
Kansas City Royals -8.2% -9.1%

The clubs with positive Performance Factors contribute to the supplemental plan in an amount equal to the Net Transfer Value of the supplemental plan multiplied by the club’s Performance Factor. The clubs receiving funds get an amount equal to the Net Transfer Value of the supplemental plan multiplied by the club’s Performance Factor. So, for example, if the Net Transfer Value of the supplemental plan for 2012 was $50 million, the Yankees would contribute $13.85 million and the Marlins would receive $3.9 million.

This flowchart captures the base plan and supplemental plan I just described. The base plan is on the left.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

But that’s not the end of the story.

Beginning with the 2013 revenue-sharing year, “big-market clubs” will forfeit a percentage of their net revenue-sharing proceeds; 25% will be forfeited in 2013, 50% forfeited in 2014, 75% forfeited in 2015, and 100% forfeited in 2016. The “big-market clubs” are the Yankees, Red Sox, Mets, Dodgers, Angels, Cubs, White Sox, Giants, Blue Jays, Phillies, Nationals, Braves, Rangers and Astros, plus the A’s, but only when (and if) they are in a new ballpark. Where do the forfeited funds go? Well, mostly back to the same clubs. Sort of.

The forfeited proceeds go to the Net Revenue-Sharing Payor Clubs (those teams that pay more to the base and supplemental plans than they receive) in proportion to how much each club contributed to the Net Transfer Value. This provision brings the Performance Factors back into play. Note that the Blue Jays, Braves, and Nationals have negative Performance Factors but are considered “big-market clubs.” Conversely, the Twins, Mariners and Cardinals have positive Performance Factors but are not considered “big-market clubs.” The end result? The Blue Jays, Braves, and Nationals must forfeit their revenue-sharing proceeds but, to the extent any is a Net Revenue-Sharing Payee Club, that team will not receive any forfeited proceeds. At the same time, the Twins, Mariners and Cardinals need not forfeit any revenue-sharing proceeds, but may, if they are Net Revenue-Sharing Payors, receive a percentage of forfeited funds.

There’s one more twist, and it involves the luxury tax (which I explained last Friday in this post).

A team that exceeds the luxury tax threshold for at least two consecutive years  forfeits a percentage of the refund it would otherwise receive as a big-market club. A luxury tax offender for two years forfeits 25% of the refund; a three-year offender forfeits 50% of the refund; a four-year offender forfeits 75% of the refund; and a five-year offender forfeits the entire refund.

For now, the Yankees are the only five-year offender. Keep in mind, though, that the Yankees have a plan to get under the luxury tax threshold by the 2014 season. As I explained in my luxury tax post, the Yankees want to take advantage of the CBA provision that would re-set their luxury tax rate to 17.5% in the 2015 season if they kept their payroll under $189 million in 2014. Now it’s clear there’s an additional benefit to avoiding the luxury tax in 2014. By 2015, the Yankees would again receive the Net Revenue-Sharing Payor Club refund from the proceeds forfeited by the “big-market clubs.” And given that Yankees have the largest Performance Factor, that refund is likely to be significant — perhaps more so than the luxury tax savings.

Now that we know how revenue-sharing proceeds will be calculated and distributed, let’s return to where we started the discussion: how the teams receiving revenue-sharing funds are required to use them. The CBA is clear:

A principal objective of the Revenue Sharing Plan is to promote the growth of the Game and the industry on an individual Club and on an aggregate basis. Accordingly, each Club shall use its revenue sharing receipts . . . in an effort to improve its performance on the field.

The CBA specifically prohibits clubs from using revenue-sharing receipts to service debt obligations unrelated to baseball operations; make payments to individuals other than on-field personnel and those in player development; make payments to entities not involved in improving on-field performance; make distributions to team owners. The commissioner may impose a penalty on any team that violates this provision (although that has never happened, to our knowledge). And the players’ union may pursue a grievance against any club that violates this provision. Indeed, it was the threat of such a grievance that led the Marlins to agree to do exactly with the CBA requires back in January 2010. We can expect the union to keep a very close eye on the Marlins in the wake of the sell-off to the Blue Jays.

To summarize:

  • All clubs contribute 34% of Net Local Revenue to the base plan, which is then distributed back to the clubs in equal shares.
  • High-performing clubs contribute an additional percentage of Net Local Revenue to the supplemental plan. The percentage is determined by the club’s Performance Factor.
  • Low-performing clubs receive an additional percentage from Net Local Revenue from the supplemental plan. The percentage is also determined by the club’s Performance Factor.
  • Beginning in 2013, big-market teams will forfeit an increasing percentage of revenue-sharing proceeds. The forfeited funds will be shared among the high-performing teams, in proportion to their Performance Factors.
  • Any high-performing team that would other receive a refund forfeits an increasing percentage of that refund if it exceeds the luxury tax threshold for two consecutive years, or more.


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Wendy writes about sports and the business of sports. She's been published most recently by Vice Sports, Deadspin and NewYorker.com. You can find her work at wendythurm.pressfolios.com and follow her on Twitter @hangingsliders.


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Tyler
Guest
Tyler
3 years 6 months ago

Great post. No secret Loria has been cheating for years and hopefully this will FINALLY throw enough bad PR towards him that Selig is forced to address the issue head on, hopefully by forcing Loria out of baseball.

The Real Phantom Menace
Guest
The Real Phantom Menace
3 years 6 months ago

Even that would allow Loria to win as his sale of the team with a new stadium would give him exorbitant amounts of money. If Loria goes, he wins. If Loria stays, we lose.

Tyler
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Tyler
3 years 6 months ago

He’s going to get his money regardless so it might as well be outside baseball instead of driving all baseball fans crazy.

tz
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tz
3 years 6 months ago

Wendy,

Thanks for the informative article, this is now finally clear to me.

One thing that amazes me is that there is no reference on how the “performance factor” is calculated (even in the CBA itself). While the rankings make intuitive sense, I wonder how the owners agreed to these “precise” amounts.

Miami Marlin's jockstrap
Guest
Miami Marlin's jockstrap
3 years 6 months ago

Heyyyyo

joe
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joe
3 years 6 months ago

Nice article. Marlins also will be pocketing around $52M annually starting 2014 with MLB deals with FOX, ESPN & TBS. What a bunch of thieves.

Erix
Guest
3 years 6 months ago

Sorry, you lost me a bit part way through. I don’t quite get the high revenue Blue Jays part with performance.

Nate
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Nate
2 years 4 months ago

As. a Jays fan I chuckled. I was also surprised we were a “big budget” team as very recent history says yes, but the rest has been hit or miss. Plus the Cards have a very similar payroll to the Jays.

Jibraun
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Jibraun
3 years 6 months ago

Can someone explain the policy rationale behind the supplemental plan? It seems like the CBA added a whole layer of unnecessary complexity for no reason, at least to a layman.

Jibraun
Guest
Jibraun
3 years 6 months ago

Does Net Local Revenue include revenue from subsidiary and related organizations, i.e. YES for the Yankees and NESN for the Red Sox? If I recall correctly, at least under the old CBA, revenues generated from those networks or other related entities were not subject to the revenue sharing rules. Are they now?

Joe
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Joe
3 years 6 months ago

YES is not Yankees owned, nor is it a subsidiary – people always seem to think this but it is a separately run business.

The Yankee ownership group owns a portion of YES. If Tom Hicks owned an oil company would the expectation be that profits/revenue made in that company be shared?

You think Goldman Sachs (who I think still owns a portion of the company but is looking to sell ) wants to just donate revenue from a company they partially own to MLB? Why should they?

Jibraun
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Jibraun
3 years 6 months ago

Well, I wasn’t making an argument that they should. I was just asking if they were required to. But thanks for making a strawman out of a simple question.

Use a formula next time
Guest
Use a formula next time
3 years 6 months ago

What are “net revenue-sharing proceeds” as defined in paragraph 13?

PS – Formulas and calculations explain math better than words…

John
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John
3 years 5 months ago

Nah.

Robbie G.
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Robbie G.
3 years 6 months ago

What does it take for fans to flat out refuse to attend games? When your team is acting in bad faith and is very clearly acting in bad faith, and is therefore demonstrating that it is not making an effort to put a decent product on the field, what exactly is the appeal of attending the game? To see the other team’s bona fide major league players? To treat your children to a bona fide American experience (i.e., attending a baseball game)? To eat hot dogs? At what point does an individual take a look at all available entertainment options and determine that the worst possible option is to attend a Marlins game?

Isn’t it just completely frustrating that villains get away with being villains so frequently in American society?

bpdelia
Guest
bpdelia
3 years 6 months ago

yes. yes it is.

Cidron
Member
Cidron
3 years 6 months ago

Thats what fans are.. they stick with their team thru thick and thin, lean years as well as good, poor ownership, as well as fantastic.. its what being a fan is all about.

I have been a Royals fan since the mid 70’s, and believe me, there have been some lean years, and I go into spring training times with the mindset that “this could be the year” every year. Do they do it? nope, but still. I am a fan. Regardless of the status and realistic hopes of my team.

Cliff
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Cliff
3 years 6 months ago

The Marlins were not competitive and adding a free agent or two would not have made them competitive. This makes the team better. Are you sure they won’t add any free agents this offseason? It’s not like the offseason is over.

Jon
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Jon
3 years 6 months ago

It’s fine to get out from large contracts, but it’s also a little hard to believe this is the best package the Marlins could have gotten.

John
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John
3 years 5 months ago

Cliff, you work for the Marlins front office?

The team was picked as a darkhorse going into 2012 and would have improved with keeping those players.

ms
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ms
3 years 6 months ago

Great article, thank you.

siggian
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siggian
3 years 6 months ago

I wonder if the CBA played a role in the Jays being willing to move from a lower 1/3 payroll team to middle or higher payroll team.

bpdelia
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bpdelia
3 years 6 months ago

to me it seems that this is an utterly enforceable rule that seems to lack a clearly defined penalty. failure to reinvest these payments into VERIFIABLE on field improvements needs to be publicized and harshly punished. I.e. forfeiture of rev sharing payments. also they only way to blunt this pr disaster is for delight to at least release a statement to south Florida fans acknilwefing this less than ideal situation and promising to address it. silence from MLB is going to lead to a generation of lost fans

bpdelia
Guest
bpdelia
3 years 6 months ago

that should say “selig” not “delight” thanks auto correct. thanks.

Cidron
Member
Cidron
3 years 6 months ago

verifiable = audit the books.. Might take time, might take a court order, but an audit might do the trick.

Scott
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Scott
3 years 6 months ago

Red Sox luck out not being considered a “big market” club huh?

sturock
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sturock
3 years 6 months ago

Of course, if there were a salary cap as well as a salary floor, this would not be happening. A club wouldn’t be able to sell off all its big contracts.

Just to be devils advocate, though, what did the Marlins win with Buehrle/Reyes/Johnson? Johnson and Reyes are injury-prone, Buehrle is kinda average… what if one or two of these prospects they’re acquiring turns out to amount to something? If fans really hate the team, they’ll stay away, they won’t watch on TV, and Loria will have to sell or make some changes.

And if he continues to put a cruddy product on the field, it affects other owners. They’re not going to want to keep him in the cartel that is MLB and, like Charlie Finely back in the day, he will be forced out.

sturock
Guest
sturock
3 years 6 months ago

PS Thanks, Wendy, for shedding some light on all this.

Cidron
Member
Cidron
3 years 6 months ago

If I recall, the prospects were all very top prospects. Not just trade-fodder types. Realistic “star in the making” prospects, if I read my material (elsewheres, site doesnt come to me atm) right.

John
Guest
John
3 years 5 months ago

“Just to be devils advocate, though, what did the Marlins win with Buehrle/Reyes/Johnson? ”

All three are proven players and Josh was an ace before last year.

Grow up.

Patrick G
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Patrick G
3 years 6 months ago

I’m kind of tired of hearing about “market size” and discussion about the Marlins in comparison to the bigger-market teams. The Miami metropolitan area is the 8th largest in the country — larger than many of the supposed big-market bullies like Boston, Atlanta, Detroit, and San Francisco (which has two MLB teams). The Marlins would have a bigger market if the fans didn’t feel constantly resentful.

Antonio bananas
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Antonio bananas
3 years 6 months ago

Atlanta is a big market bully? Also,it’s not just market size, it’s average wealth, age, number of competitors, etc. in Miami, there are a lot cheaper entertainment options such as going to a beach.

I agree that their attendance should be nowhere near allow as it is. Just wanted to point out that it isn’t as simple as metro population * X = attendance.

Eric
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Eric
3 years 6 months ago

The whole going to the beach thing doesnt fly for a summer sport. Summer is indoor season in fla. The northern teams have much more outdoor recreational competion.

Indignant Bostonian
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Indignant Bostonian
3 years 6 months ago

Harrumph. Boston not considered a “big market”? This sort of thing has led to civil unrest in years past, mark my words…

Marco
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Marco
3 years 6 months ago

Does anybody know:

Is “MLB-generated central revenue (national television contracts, MLB.tv, licensing and merchandise, the All-Star Game, etc.)” a known (or roughly known) quantity?

Thanks

Jeff
Guest
Jeff
3 years 6 months ago

This article is GREAT. Seriously, thank you so much for this information that I otherwise would never have known about. It is useful as I think about different clubs payrolls and how it relates to their market size. I enjoyed reading it.

Jensen
Guest
Jensen
3 years 5 months ago

Wendy , a very interesting article. Please clarify baseball expenses-does this include debt servicing of stadium costs , to what percentage can this debt be serviced? Up to 100% ?
Secondarily , if a teams performance factor is raised such as Toronto from -9.% to -8.1% , since they are considered market they no longer share in the supplemental plan but still receive a share of the 34% of the base plan.
. By Rogers maintains a lower payout for local Tv rights than other big market, are their actions considered disingenuous. As net local tv rights soar , the next CBA will possibly address this disparity and demand consistency where owners would have to include a reasonable value for net Tv rights. Or is this a red herring issue?

dpk
Guest
dpk
3 years 5 months ago

so the formula for net local revenue is essentially gross revenue – ballpark expenses, but i haven’t been able to find anywhere what all is included in ballpark expenses.

Eric
Guest
Eric
3 years 5 months ago

Dear Wendy, what a great article, thank you!
I am just wondering the actual amount of the supplemental plan part of the Net Transfer Value.
Say, the net local revenue of 30 clubs = 150M*30=4500M
the Net Transfer Value of the supplemental plan=4500M *14%=630M
So, the Yankees has to pay 630M * 27.7%=174.5M
and the Marlins will receive 630M * 7.8%=49M
Isn’t it a little too much for both sides?
Thanks.

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