I will be on Sirius/XM Radio (MLB Homeplate on XM175, Sirius 210) at 12:30pm ET/9:30am PT with Jim Duquette discussing the 11 year end of year payroll figures.

There was such interest (and good discussion) around the publication of the ranking and salary figure totals for all MLB clubs over an 11 year period (End of Year Salary Totals for MLB Over 11 Years (1999-2009)) that it seemed appropriate to add to the discussion.

One aspect is whether there should be a salary cap and floor in Major League Baseball. The question that is attached is whether the Luxury Tax is suppressing spending, and whether revenue-sharing is incentivizing lower revenue making clubs to spend more on player payroll. What is displayed below is the highest and lowest end of year salaries for MLB over the same 11-year period. In each instance, the Yankees hold the #1 position while the last ranked club (#30) has shifted between three clubs, the Marlins, Rays (four times, each), and Twins (three times).

Here's a chart representing the percentage of difference between the highest and lowest over 11 years:

What should we make of the numbers? Is it the Yankees outspending? Is it adjustments to revenue sharing that have caused the fluctuations? Select Read More to see an explanation

When adding in the percentage of increase/decrease for the Yankees and the #30 club in terms of player payroll spending, we get a much clearer picture of why there is undulation over the years.

The Yankees have, for the most part, remained steady in the amount spent. Remember that the figures presented over the 11 years do not take into account inflation, so the increases each year are not always as much as they appear. With the exception of the 2002 to 2003 jump (26 percent), the Bronx Bombers, while spending far above their counterparts, and regardless of having increased spending recently just on pace with the rate of inflation, as the trendline below shows, their increased spending increases at a rate higher than the lowest payroll clubs over the same period.

The reason for the fluctuation from year to year over the 11 year study is attributed to, not the increased spending of the Yankees, but rather the erratic behavior of the lowest spending clubs (Twins, Rays, and Marlins). One reason for the fluctuations could come from contracts that have backloaded figures; salary increases in each year of a multi-year contract. But, the most logical explanation would be that low-revenue making clubs aren't afforded a steady stream of revenues with which to work from. Where the Yankees have a strong brand, steady attendance, and solid revenues from the YES Network and sponsorships, these streams ebb and flow with the underlings, mostly in times when they are winning (up swings).

So, in a larger sense, the focus for parity should be more acutely focused on the bottom of the league's spending, and less so on the upper reaches, especially with the Yankees. While there is little denying that a methods to constrain runaway spending on their part needs to be addressed, the real need is in providing more sustainable spending in the bottom quartile of the league. In 2006, adjustments to the CBA's revenue sharing system were designed to incentive the low-revenue makers to invest in player payroll at the major league level. While some clubs have made attempts, most have seen that revenue-sharing disincentives them from spending on player payroll. With increased centralized funds, why spend to win? In the past, winning was the only method insure revenues would come into your coffers. Now, there is less incentive to do so. Still, as the trendline shows, there has been increased spending over time, even in the midst of the erratic up and down of the lowest club's spending over the last 11 years.

When the next CBA is reached (the current agreement ends in December of 2011), look for further tweaking of the revenue-sharing system to get the low spenders to increase spending, and increased penalties with the Luxury Tax (should it be held over in the next agreement) to try and stymie the Yankees from overspending.

In the end, fans should spend more time focusing on the bottom, instead of the top (the Yankees) where there is increasing talk in favor of a salary cap. As the old adage goes, you're only as strong as your weakest link.

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. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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Comments (7)

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written by Casey, December 27, 2009

Hello Maury,

I just finished replying under your previous article before noticing you had written a second one. I will repeat some of what I said as it is relevant here:

"In addition, there are many other ways to use revenue sharing to improve a club without increasing payroll. Such as amateur draft bonuses, signing international free agents, running overseas traning facilities and programs, plus hiring better scouts, trainers and farm system personnel. The payroll for the 40-man roster should not be the only way one a*sesses proper usage of revenue sharing monies."

Moreover, for small market teams, investing in the farm system probably has the biggest payoff for them in terms of success, because even with revenue sharing, they cannot hope to ever compete with the big market teams for the premium free agents such as Santana and Sabbathia.

So while proper oversight of usage of revenue sharing is certainly warranted and neccesary, and maybe tweaks in the process have to be made, I disagree that simply looking at the cost for the 40-man payroll should be the true test.

Moreover, you stated that payoff of debt is not proper usage for revenue sharing moneies. But why not? If a club like the Pirates didn't use it for debt, they might be using other monies that typically go to fund the payroll. So one way or another, they have to pay off that debt. And without the revenue sharing money, their payroll might drop even lower to pay the debt.

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Paying of Debt
written by Maury Brown, December 27, 2009

The intent of revenue-sharing was never designed, nor should it ever, be used to pay down debt. That is not how the CBA defines the use of revenue-sharing:

the requested distribution should improve the Club’s performance on the field

Finally, paying down stadium debt (such as the Pirates admitted to doing), increases the value of the club, which then in turn becomes profit should the club be sold. If the idea is that the Nuttings (or any other owner using revenue-sharing to pay down debt) should use revenue-sharing to their betterment, not the Pirates performance on the field, then I'm sure there is a long line of Pirates fans that would argue against that practice.

What you are ostensibly saying is that welfare is acceptable; that the Pirates have zero chance of competing on any level due to high payrolled clubs and would not make a cent (or, go into debt) if not for revenue-sharing. The Pirates are profiting without fielding a winning product due to throwing their hands in the air. If there was a reasonable attempt, as opposed to annual salary dumps, I dare say that fans would start coming to the ballpark (again), and revenues would increase via the gate. If you wish an example of this practice, ask yourself how the Pirates conducted themselves in the year PNC Park hosted the All-Star Game. There was extra revenues that could have been used as profit, which would have allowed for proper use of revenue-sharing as well revenues that the Pirates garner outside of the centralized system. As for centralized dollars.... you failed address any of the leaguewide revenues that come in via national television, BAM, MLB Extra Innings, MLB Properties, et al.

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use of revenue sharing
written by Pete Toms, December 27, 2009

I'm not arguing that some franchises (Bucs, Marlins) haven't used rev sharing dollars to pay down debt or help finance a new stadium. What I do think is that the other owners know and are relatively ok with it. (Fer chrissake if we know, don't they?) In both instances, the use of those rev sharing dollars increases the value of the franchises, and a rising tide....also in both cases, over the long term the use of these dollars should help contribute to the payees being into the pockets of the payors less.

And Casey, if there wasn't rev sharing (which includes both "centralized" and payroll tax revenues), or less of it, there would be more pressure on the Bucs to field competitive teams and put butts in the seats. Rev sharing provides incentive to "suck". As Maury has mentioned, the rev sharing marginal tax rates were adjusted to mitigate against this and although the experts say the situation is better, it still exists.

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...
written by Casey, December 27, 2009

Maury, the "intent" of revenue sharing was only broadly defined in the CBA and thus it is open to interpretation. There was never any specific ban on any type of spending outlined in the CBA.

Ultimately, the intent is to improve a team's performance on the field. It only stands to reason that if a team uses the shared revenues to pay down debt, then it is freeing up other monies that would otherwise be used to pay that debt so they can be used for on-field or farm system/scouting improvements. And that without the RS monies, their payroll or player development expenditures might be even lower. I don't think anyone can argue with this logic.

The bottom line is that each team that gets the money is required to submit audited reports to the commissioner's office. It is up to Selig's office to police the clubs that get the money. He is doing that at the bidding of the owners. If many of the “payor” owners felt he wasn't doing that correctly or that too many of the “payee” clubs were misspending, they would fire him or otherwise raise a stink. Instead, they recently gave him an extension and he makes a mint in salary. Apparently most of the owners (with the possible exception of the Yankees) are satisfied with the “payee” clubs and how they are spending RS money. They are the ones giving the money and are not complaining. So why are some of you? (Weiner, you, Peter Toms, Stark. etc).

What I am saying is that revenue sharing (I will not call it "welfare") is very acceptable and in fact preferable to a system without it. With revenue sharing and the LT, the smaller market teams have a small chance to get to the postseason and win it all. Without it, their chances would be virtually nil. Some would say they are virtually nil even now.

You seem to concentrate/pick on the Pirates. Even if it were true that they misuse RS funds (and I'm not ceding that they do), one errant club would not negate the overall value of a plan that the “payor” clubs themselves have deemed to be acceptable.

As for not addressing centralized revenues, what point do you want me to address and how is it relevant to this topic? Correct me if I'm wrong, but aren't most of those revenues split evenly between the clubs -- and only a small portion is allocated to the revenue sharing formula that some of you are attacking?

While baseball is a business, it is first and foremost a sport. That is its primary purpose. True competition cannot result when the playing field is so uneven that one club is capable of spending 5 to 6 times the amount other clubs can -- due mainly to virtue of geographical location and the economics of the pay TV industry which didn't even exist for most of the history of the sport. The sport therefore needs to adapt to these changing realities. Revenue sharing and the LT are reasonable steps. If the owners deem it so and are willing to fight for it one day, then eventually a payroll cap will also be acceptable. But in the meantime, what I would like to see is a huge increase in the LT tax rate. The owners should initially ask for a top tax rate of 85%.

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...
written by Casey, December 27, 2009

"And Casey, if there wasn't rev sharing (which includes both "centralized" and payroll tax revenues), or less of it, there would be more pressure on the Bucs to field competitive teams and put butts in the seats. Rev sharing provides incentive to "suck"."

Peter, you keep arguing the disincentive angle but offer no proof. The only proof you tried to offer -- the example of the Yankees -- in fact supports the idea that such measures are NOT a disincentive to winning.

If there were no revenue sharing or much less measures like this, then I think you really have a disincentive to win since the chances are virtually nil. Actually, I think some teams would just fold up tent in that case and all you'd have are mid-market and big market teams left.

BTW, revenues from the payroll tax do not go into the revenue sharing pool. That's a misconception that many have including Stark.

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Casey
written by Maury Brown, December 27, 2009

Couple of comments... Only bringing up the Pirates because they were initially brought. I do not believe that revenue-sharing should be scrapped, but rather some clubs (not all) need to be incentivized to invest revenue-sharing dollars more directly into MLB player payroll. This was imparted to me by a) a renowned sports economist that a*sisted in the adjustments to the program, as well as its chief architect at the time at the Commissioner's Office. So, there is concern that the payees focus their attention that way.

In terms of "stands to reason that paying down debt" was part of the revenue-sharing provision, the PA would highly disagree. And, remember, revenue-sharing is collectively bargained. But, to lend some credence to your position, it is not only the league that reviews the requests for revenue-sharing funds, but the PA also has the right to review the filed requests, so if they wanted to lodge a complaint, they could. To date, they haven't.

Finally, as to the LT... I was asked by Jim Duquette today on XM Homeplate what my recommendation to address the inadequacies would be, based on the fact that the PA will never go for a floor or cap (floor is half way to a cap). Said that while some increased revenue sharing would be helpful, the ability to incentivize the payees to spend more directly at the MLB player payroll level was needed. Not forced, mind you... incentivized to do so on their own. On the Luxury Tax, I said it needed to have more teeth, but based upon the politics in play, the adjustment would need to be incremental. If, as you su*gested, the owners said, "Let's have an 85% tax rate for those that break the threshold," the PA would say, "You're backdooring a salary cap."

Finally, as a point of clarification for those reading, as you mentioned, the Luxury Tax monies collected are not distributed centrally, as revenue-sharing is. The bulk actually goes to the players in the form of benefits.

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