SBJ/June 19 - 25, 2000/Opinion

Revenue sharing must protect all interests

MLB's plan for sharing revenues will soon be unveiled as a tool to improve competitive balance. SportsBusiness Journal presented an interesting plan earlier this year pegged to future media income. Bob Costas offered another version in "Fair Ball."

Owners, players, fans and taxpayers all have much at stake. A broader approach — call it Plan B — may be needed that addresses the interests of all stakeholders (see chart).

The existing state of affairs has brought players the "good old days." In 1999, 13.9 percent of MLB's 892 players had annual contracts in excess of $4 million. Costas' plan promised higher overall salary levels — a necessary element to secure the union's support — but as with the SBJ plan, it may have ignored the interests of high-revenue teams and taxpayers.

Asking big-revenue teams to share their wealth requires more than a call for competitive balance to protect small market teams. The Montreal Expos, for example, received $27 million from the shared revenue pool in each of the past two years. If minor league operations cost approximately $9 million, the Expos received $18 million to attract and retain better players. In 1998 the Expos' payroll was $8.5 million; in 1999 it was $16.2 million.

Thus, MLB was essentially paying the entire cost of fielding a team in Montreal. Teams that receive substantial revenue-sharing funds should be expected to do more than simply use other people's money to field a team.

Market size is a determining factor in terms of the existing inequities because it is associated with local broadcast income and ballpark-related income. Teams in smaller markets should receive larger shares from national revenues to correct these problems.

Beginning in 2005, MLB will earn approximately $720 million a year from its national broadcast contracts and Internet properties. A new revenue-sharing plan should target these funds and be based on market size but include performance requirements, guarantees for the players and some relief for taxpayers.

To protect the interests of players, the plan ensures that no less than $1.8 billion would be spent on salaries. That requires a target of $60 million per team on player salaries, but no team could spend more than $95 million. At this level, the players' share of total revenues exceeds current amounts.

Under this Plan B, each team's share of the revenue pool is determined by a modified "sum of the years" approach. There are currently 30 teams in MLB and the sum of the number of the teams (30+29+28 ...) is 465. The team with the smallest market would receive 30/465 or 6.5 percent of the pooled revenue. The team from the next smallest market would receive 29/465, and so on.

If the shared revenue pool were $720 million and no adjustments were made, the Cincinnati Reds would receive $46.5 million, the Milwaukee Brewers $44.9 million, and so on. Every team would be assured some money, including New York City's Yankees and Mets, who would receive $2.3 million.

Every dollar received from the shared revenue pool must be matched by a dollar from the local team and spent for player salaries, up to a maximum of $35 million in shared dollars, giving a payroll of $70 million. Teams receiving more than $35 million in revenue-sharing funds must use the extra dollars to offset the cost of new ballparks, with the public sector receiving half the excess to reduce the burden on taxpayers. If the Expos received $38 million but decided to have a team payroll of $32 million ($16 million from the team matched by $16 million from revenue sharing), $22 million would be available to reduce the cost of a stadium; half of that, $11 million, would go to reduce taxpayers' payments.

A revenue-sharing system that can provide more than $40 million for some teams while others receive less than $3 million must have safeguards to ensure the funds make teams more competitive. Two measures were created to ensure that the funds are used for the purpose they were intended and to protect the interests of the larger market teams.

Each team must have a "fan penetration index" equal to MLB's average. In 1999 MLB had a penetration index of .54, meaning that teams sold one ticket for about every two people in each market area. If a team misses the league average, this would be evidence of a lack of marketing or of fielding a team that is noncompetitive.

To prevent a franchise from simply lowering ticket prices to meet its penetration rate requirements, a team would need to have an average ticket price equal to the average of all MLB teams.

Any team that fell short of either requirement would forfeit a portion of its share from the revenue pool. Lost funds would be equally distributed to all 30 teams with the requirement that 50 percent be dedicated to players' salaries.

How would this plan work in practice? The accompanying table uses data from the 1999 season to calculate shares. Several small market teams would now have a substantial pool of dollars to attract and retain the best players. The Reds, Brewers, Pirates, Padres and Cardinals would each receive in excess of $36 million. The Expos would receive far less, $27.2 million, but they could raise their share by increasing their penetration rate.

It is time for MLB to implement a revenue-sharing program to protect the interests of fans, players, owners and taxpayers. When the ump yells "Play Ball," let's provide a basis for each team to really "play ball."

Mark Rosentraub is professor and associate dean of the School of Public and Environmental Affairs at Indiana University.


SHARING BASEBALL'S WEALTH
How teams would benefit under proposed "Plan B" revenue-sharing plan
Team
Share
Penetration rate
Ticket index
Net share
Cincinnati Reds
$46.50
203.6
61.5
$40.40
Milwaukee Brewers
$44.90
168
70.3
$41.20
Pittsburgh Pirates
$43.40
122.9
68.5
$39.50
San Diego Padres
$41.80
188.9
83.3
$41.20
St. Louis Cardinals
$40.30
234.8
113.6
$43.20
Montreal Expos
$38.70
52.3
73.3
$27.20
Kansas City Royals
$37.20
98.8
78.5
$35.90
Oakland Athletics
$34.80
94.2
77.7
$32.90
San Francisco Giants
$34.80
137
84.2
$35.00
Tampa Bay Devil Rays
$32.50
105.7
114.2
$35.40
Florida Marlins
$31.00
78.4
89.2
$28.90
Cleveland Indians
$29.40
193.4
127.4
$32.30
Minnesota Twins
$27.90
66.9
60.4
$20.70
Colorado Rockies
$26.30
203.6
61.5
$24.20
Seattle Mariners
$24.80
154.8
109.7
$27.70
Toronto Blue Jays
$23.20
109.2
120.3
$26.20
Arizona Diamondbacks
$21.70
149.2
107.9
$24.60
Chicago Cubs
$19.40
135.7
105.9
$22.30
Chicago White Sox
$19.40
64.7
106.3
$18.90
Atlanta Braves
$17.00
152.2
126.1
$20.00
Houston Astros
$15.50
122.7
87.2
$17.40
Texas Rangers
$13.90
111.5
121.1
$16.90
Detroit Tigers
$12.40
73.6
76.4
$12.20
Boston Red Sox
$10.80
73
151.5
$12.30
Philadelphia Phillies
$9.30
51.7
78.5
$9.00
Anaheim Angels
$6.20
62.7
86.9
$7.60
Baltimore Orioles
$6.20
95.6
145.2
$9.00
Los Angeles Dodgers
$6.20
86.4
89.6
$8.40
New York Mets
$2.30
61.8
118.3
$4.80
New York Yankees
$2.30
74.5
150.6
$5.00
Notes: Teams ranked by media size, smallest to largest. All dollars in millions.
Share: Based on $720 million revenue pool before adjustments.
Penetration rate: Measures attendance compared to market size. MLB average is 100. Teams below 100 forfeit part of revenue-sharing dollars.
Ticket index: Measures average ticket price. MLB average is 100. Teams below 100 forfeit part of revenue-sharing dollars.
Net share: Includes equal redistribution of forfeited dollars.
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