MLB revenue-sharing funds best used on amateur players
Published July 19, 2010
This is about revenue sharing, that practice in Major League Baseball that causes high-revenue teams to send money to low-revenue teams. This is necessary in MLB because most revenue is generated at the local level and teams must be roughly equivalent in playing ability to protect the value of the product, a game.
The value of a game is determined in all sports by the image of the league, also stated as its trademark, the existence of a series of rules that distribute talent among the teams, and the fact that the outcome of the game is in doubt. All of these factors are related, and the doubt as to outcome is based on the nearly equal distribution of talent among the teams. If high-revenue teams are allowed to spend three or four times the money on salaries than the low-revenue teams can spend, this second element is destroyed and the outcome becomes intolerably predictable.
Few fans want to spend money on expensive tickets if the only question is how much the high-revenue team will win by. In other words, the Kansas City Royals have to beat the New York Yankees about 40 percent of the time to have a credible product.
The critical issue here is the distribution of players according to league rules in a way designed to balance talent. These rules control the amateur draft, professional draft under Rule 5, rules controlling trades, player roster limits, the waiver rules that make players available to teams in reverse order of standing, and rules limiting the time a player may be controlled in the minor leagues. However, MLB’s free agency system works contrary to these rules by not controlling this distribution.
Revenue sharing can be very helpful in maintaining competition if used to sign amateur players and does little if used to sign professional free agents.
Revenue sharing distributes more than $440 million a year. There is some criticism that some recipients keep too much of the money and do not spend it appropriately. The MLB Players Association claims that the money should be used for major league player salaries and has registered a complaint that compelled, it is said, one team to increase its team salaries.
The MLBPA’s position is in error. If the revenue-sharing money is spent on contracts with existing major league players, the sole effect will be inflated major league salaries and no improvement in competitive balance. If a low-finishing team with a low payroll was compelled to spend all of its revenue-sharing distribution on salaries, it would only raise the salaries of its team and would not necessarily allow it to sign another team’s player. Of course, the effort to sign another team’s player would result in a higher salary for that player, not guarantee the player would change teams, and, as all major league salaries are interrelated, the result is salary inflation, not improved competition.
This salary inflation is the MLBPA’s goal, but it must be resisted by MLB’s management as it is counter-productive, and as the opening shot of the coming negotiation season would signal weakness in management’s resolve.
What is being shared is revenue, and revenue is used to fund overall operations of all teams that compete with each other in a variety of ways. The Supreme Court, in its compelling decision in American Needle v. NFL, made this argument in denying single-entity status to the NFL when it listed the ways teams compete with each other. It is in these areas where revenue-sharing proceeds must be spent, not just on major league salaries, but on all aspects of a team’s operation, especially player scouting, drafting and development.
The amateur draft under MLB Rule 4 allows teams to draft in reverse order of their finish in the preceding season. Now that top-revenue teams have discovered the value of this development tool, they have decided to pay large bonuses to these players. An interesting phenomenon has arisen that was not contemplated when Rule 4 was adopted. This phenomenon is that high-revenue teams approach the player’s representatives and tell them to inform low-revenue teams that, (1) if they are high school players and are drafted, they will go to college instead, or (2) if they are college players, they expect a very substantial signing bonus and are not interested in that team, anyway.
Both techniques are aimed at encouraging the low-revenue team to forgo the selection and to select a player who has “signability.” This concept is relatively new and is very damaging to MLB’s long-term balance. Rule 4 is designed to move the best players to low-finishing teams. If those teams forgo selecting the very best players for less talented but more signable players, their position in the second division is perpetuated.
Simply stated, revenue-sharing money should go to enhancing a team’s operations, with some spent on marketing, stadium improvements, better scouts and scouting, but the majority of the money must go to the elimination of signability as a consideration in the selection and signing of the players in the amateur draft.
Washington signed the best player in 2009, Stephen Strasburg, and then again drafted the best player in Bryce Harper this year. This is the proper action, and it’s the action that will make the Nationals successful in the future.
Clark C. Griffith (firstname.lastname@example.org), an attorney in Minneapolis, is a former owner, treasurer and executive vice president of the Minnesota Twins. He was chairman of Major League Baseball Properties and a member of the MLB labor negotiating committee.