Will Leaked MLB Financials Alter Revenue-Sharing?

There was something oddly fitting about both a statue of Bud Selig being unveiled and the final set of leaked MLB financial documents becoming public on Tuesday. Selig has said on more than one occasion that we’re witnessing the “Golden Era” of baseball, citing the economic windfall that has come to the league over the last decade. Revenue-sharing, a pride and joy of Selig’s, is at the center of the largest public release of club financial documents – leaked to Deadspin – that include the Pirates, Rays, Mariners, Marlins, Angels, and Rangers (see them all here).

In July of 2000, with the league claiming projected losses of $232 million for the 2001 season, Selig came before Congress with his Blue Ribbon Panel on Baseball Economics report, which at its heart states, “Proper competitive balance will not exist until every well-run club has a regularly recurring reasonable hope of reaching postseason play.” The report then went on to say that, “The limited revenue sharing and payroll tax that were approved as part of MLB’s 1996 Collective Bargaining Agreement with the Major League Baseball Players Association have produced neither the intended moderating of payroll disparities nor improved competitive balance. Some low-revenue clubs, believing the amount of their proceeds from revenue sharing insufficient to enable them to become competitive, used those proceeds to become modestly profitable.”

So, with each Collective Bargaining Agreement since, revenue-sharing has been increased, funneling money from the haves to the have-nots of the league in order to gain competitive balance. In 2009, $433 million in revenue-sharing moved from high-revenue clubs to those in need of assistance.

Along the way, sizable increases in the amount of “central revenue” has found its way into club coffers. The growth of national television money from ESPN, FOX Sports, and TBS which total approx. $660 million a year in rights fees funnel back to each of the 30 clubs. Add in annual dividend checks from MLB Advanced Media of $2 million, revenues from MLB Properties, international broadcast agreements, etc.,  and all clubs, large revenue-making, or not, have found extra money that can be used to help produce a winning product on the diamond.

Still, the field would remain unlevel without revenue-sharing tied to net local revenues, so with the leaked Deadspin docs having three clubs (the Pirates, Marlins, and Rays) that have received considerable amounts via the revenue-sharing system, the documents provide ammunition for clubs such as the Yankees and Red Sox when collective bargaining begins in earnest shortly after the World Series ends.

Parsing the documents, here’s how much revenue-sharing was either received or paid out for a given year:

Revenue Sharing
Year Club Amount (+/-)
2009 Angels ($16,402,000)
2008 Angels ($14,747,000)
2008 Rays $35,345,277
2007 Rays $39,380,713
2009 Marlins $43,973,000
2008 Marlins $47,982,000
2008 Pirates $39,046,312
2009 Pirates $30,302,652
2008 Mariners ($16,174,000)
2007 Mariners ($8,284,000)
2009 Rangers ($5,495,000)
2008 Rangers $5,495,300
2007 Rangers ($5,005,398)

Revenue-sharing is defined by the CBA as monies that are to be used “in an effort to improve its performance on the field.” The vagueness of the provision is designed to give elasticity – clubs down in their development cycle can choose to use the funds to develop talent, or use it to fuel payroll at the Major League level. Looking at the leaked docs and 3 clubs that have historically received revenue-sharing, we can factor in ML payroll, player development , and subtract revenue-sharing from that total :

Year Club Player Dev ML  Payroll Total
(Before Rev)
Rev Share Total
(After Rev)
2007 Pirates $21,166,850 $50,871,186 $72,038,036 $30,302,652 $41,735,384
2008 Pirates $23,182,677 $51,040,233 $74,222,910 $39,046,312 $35,176,598
2007 Rays $21,900,693 $36,563,305 $58,463,998 $39,380,713 $19,083,285
2008 Rays $20,017,186 $56,018,335 $76,035,521 $35,345,277 $40,690,244
2008 Marlins * $29,970,000 $29,739,000 $59,709,000 $47,982,000 $11,727,000
2009 Marlins * $30,024,000 $43,002,000 $73,026,000 $43,973,000 $29,053,000

* Includes amateur player signing bonuses from separate line item

When adding in Central Fund dollars, the balance tips from clubs unable to fund their major league rosters and pay for player development. Several years for these three clubs sees excess money (shown as a negative value), with only the Pirates in 2008 still requiring funds to cover player costs.

ML Salary + Player Dev – Rev Share – Central Funds
Year Club Player Cost
(Adj)
Central Funds Player Cost After
2007 Pirates $41,735,384 $41,751,550 -$16,166
2008 Pirates $35,176,598 $34,584,688 $591,910
2007 Rays $19,083,285 $23,877,635 -$4,794,350
2008 Rays $40,690,244 $19,778,648 $20,911,596
2008 Marlins * $11,727,000 $31,298,000 -$19,571,000
2009 Marlins * $29,053,000 $31,592,000 -$2,539,000

* Includes amateur player signing bonuses from separate line item

To be clear, there are other costs in running a ballclub. Sales and marketing… ballpark operations…. team expenses, etc… the latter table is not a case of saying that local revenues aren’t needed, or that revenue-sharing should be abolished, but it does show that outside revenue sources meet player salary and development needs.

While there is long-tern debt to consider, Net Income, which is is operating profit after depreciation, interest, taxes, and other expenses for each of the clubs, gives a solid measure of profit.

It is these figures from the leaked documents that will rankle the likes of the Yankees and Red Sox the most as it shows that (especially in the case of the Pirates), subsidized clubs, despite losing for long stretches, are making a profit. In a sign that revenue-sharing is still needed (but, arguably, not at the levels currently seen), when subtracting Net Income from Revenue-Sharing we get the amount of “over subsidy” for the years and clubs in the leaked docs (e.g. $24,638,063 more than needed for the Pirates in 2008):

Year Club Net Income Rev Share Diff
2008 Pirates $14,408,249 $39,046,312 $24,638,063
2007 Pirates $15,008,032 $30,302,652 $15,294,620
2009 Marlins * $3,900,000 $43,973,000 $40,073,000
2008 Marlins $29,462,000 $47,982,000 $18,520,000
2008 Rays $4,016,163 $35,345,277 $31,329,114
2007 Rays $11,066,191 $39,380,713 $28,314,522

* Lower net income due to new stadium expenses

What Will Be the Outcome from the Leaked Docs?

Over the years, the battle in MLB has shifted from being about “players vs. owners” to “low-revenue clubs vs. high-revenue clubs”.  Since clubs don’t share their financial information, each of the 30 clubs now has visibility to more than one other club’s financial data. So, the reaction by the public could be getting mirrored in front offices across the league.

What seems clear is that when collective bargaining comes around, talk of lowering the amount of revenue-sharing that the current CBA has will be a hot topic. At the least, the leaked docs gives considerable weight to saying that more revenue-sharing is not needed.

This may not be a one-size-fits-all affair. Looking at the net income figures for the Rays in comparison to the Pirates and the Marlins, and one could argue that a new stadium could help bolster their bottom line, something that ownership has said repeatedly. It’s not hard to imagine that the Athletics are in much of the same position. Lowering revenue-sharing could conceivably place those two clubs in difficult, or possibly dire positions. And, remember, we’re just looking at the very bottom of the player payroll spenders. Those slightly above the bottom have to be accounted for.

And while the leaked documents are an incredible look inside how clubs truly operate, greedily we should demand more. Those at the top of MLB’s revenue-making ladder should be placed under the same scrutiny. In a perfect world, the leaker of the MLB club financials would have graced us with the Yankees and Red Sox figures, thus giving clarity to the argument that while the bottom needs accountability, so do those at the top. While a cap is out of the question, lowering the Luxury Tax thresholds and increasing the tax rate for those that break them (that’s you every year since the Luxury Tax was implemented, Yankees) needs to be seriously considered in the next CBA.

“Cap”… “Floor”… those seem out of the question any time soon. But, “salary compression”, a phrase used often at the Commissioner’s Office and the MLBPA, is something that needs more tending to. What was often said, but not given hard numbers to back up, has become common knowledge: even those with the lowest player payrolls in baseball, and some with historically terrible records in the standings, are profitable. Subsidizing clubs at the current levels that continue to lose repeatedly may not be incentivizing them to move up the standings. One thing is certain. Matters have changed since the documents were leaked this week.

FOR MORE ANALYSIS SEE:

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Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to FanGraphs and Forbes SportsMoney. He is available for freelance and looks forward to your comments.

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The A Team
Guest
The A Team

“Since clubs don’t share their financial information”

It seems to me that if the goal is to create greater parity throughout the league via some revenue sharing scheme, then team finances should be totally transparent to the other teams. Of course, this raises all kinds of other problems, not least of which is the probability that the Player’s Union would get a hold of the information and make effective use of it. And better paid players hurts the bottom line.

So perhaps in this case, parity and profitability are diametrically opposed.