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Home Jordan Kobritz Kobritz: MLB's Revenue-Sharing System Is Broken

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Kobritz: MLB's Revenue-Sharing System Is Broken PDF Print E-mail
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Written by Jordan Kobritz   
Tuesday, 31 August 2010 00:14

After perusing the leaked financial statements of six MLB teams, the obvious conclusion is that Wall Street fat-cats have nothing on MLB’s have-nots. As bailouts go, the revenue-sharing system in MLB is on a par with the federal TARP program.

The documents provide a rare, in-depth picture of not only how much money is going to poorer clubs, but what those clubs are doing – or not doing - with the bounty. It’s clear that both the Pirates and the Marlins have been milking the game’s revenue-sharing system at the expense of the wealthy clubs, led by the Yankees and the Red Sox.

Revenue sharing has been touted by MLB as a mechanism that allows the small market clubs to compete with the big boys. In theory, the concept makes sense. The main purpose of sports is competition and fans have to believe their team has a chance to compete and win. Providing lower revenue clubs the means to compete, even at the expense of the higher revenue clubs, is good for everyone.

But the leaked financials paint a different picture. The Pirates showed a profit of approximately $29 million in 2007 and 2008. During the same period, the team paid its partners over $20 million, in part to cover the taxes on that income and also to repay a seven-year-old loan to one of its partners. Exactly how the team’s revenue-sharing receipts, and those payments, made the team more competitive is not open to debate. The Pirates are currently riding an 18-year losing streak - a record for a North American Major League sports franchise – all while maintaining one of the lowest payrolls in MLB.

The Marlins’ misuse of revenue sharing funds may be even more egregious. The club insisted it needed a new taxpayer-funded stadium in order to compete with other MLB teams. After more than a decade of crying wolf, the Marlins got their wish in 2008 when funding for a stadium that will cost taxpayers almost $2.5 billion by the time it’s paid off was finally approved. But the Marlins, with a payroll similar to the Pirates, showed a profit of more than $37 million in 2008 and perhaps as much as $90 million in the three years leading up to the stadium approvals. Now, a number of politicians are crying foul, asking that the vote be reopened based on fraudulent misrepresentation by Marlins officials. Good luck with that.

While the leak of financial information was a breach of ethics for which someone may ultimately be punished, no team has denied its accuracy. The numbers confirmed what many fans and the media had long suspected: Revenue-sharing funds are not being used for the purpose originally intended. The firestorm created among fans and in the press surely pales in comparison to the angst felt in the boardrooms of such teams as the Yankees and Red Sox, who pay 34% of their local marketing revenues into a fund they now know is being used to line the pockets of team owners in other cities.

While MLB maintains that the Pirates and Marlins have “fully complied” with the CBA requirements for using revenue-sharing proceeds, the disclosures are a blow to Commissioner Bud Selig’s credibility. The commissioner, the former owner of the small market Brewers, cajoled clubs into approving the revenue-sharing system. He has also strong-armed a host of cities to pony up taxpayer funds for the construction of new facilities, allegedly because teams couldn’t compete without them and couldn’t pay for them on their own.

Get ready for Armageddon. Revenue sharing has now moved to the top of the list of issues in the upcoming negotiations for a new Collective Bargaining Agreement, ahead of such issues as a slotting system for the June draft. Surely the players’ association, which must approve any changes to the existing system, will join the higher revenue clubs in arguing for revisions to the system that will result in more money going to payroll.

Revenue-sharing has not served its intended purpose. It’s merely Robin Hood in a suit and tie, a transfer of funds from the rich to the so-called poor. The time has come to change the system in a way that won’t permit MLB clubs to emulate Wall Street.

Jordan Kobritz is a staff member of the Business of Sports Network. He is a former attorney, CPA, and Minor League Baseball team owner. He is an Assistant Professor of Sport Management at Eastern New Mexico University and teaches the Business of Sports at the University of Wyoming. He looks forward to your comments and can be contracted, here.

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