Sheehan Nails MLB's Economic Blind Spot

[DrungoHazewood]

Apparently John Henry once again is proposing some plan to rejigger how teams redistribute money. And Joe Sheehan hits the issue dead on:

The other story of note was John Henry proposing changes to how MLB redistributes money. Shockingly, his plan would have the greatest effect on the Yankees, as it focuses on high payrolls rather than high revenues. It was self-interest disguised as economics, and should be condemned as such. Henry correctly questions the efficacy of wealth transfers approaching a billion dollars to a number of teams that do not appear to be using that money to change their competitiveness. His solutions, however, are unoriginal—yet another call for guaranteeing a portion of revenues to the players in exchange for payroll constraints—and, as all owner plans have always done, fails to address the central problem.

Henry is a smart man, a successful man, a man who has made his wealth based on knowledge of finance and economics and the use of hard data. So why won't a man like that acknowledge what outsiders such as Keith Woolner and Derek Zumsteg have known for years: that the problem MLB faces isn't an issue of payroll or revenues, but the differences in potential revenue that have developed across markets in the past 30 years? A man with the background of John Henry has to understand that central point, and yet he presents a plan that would do absolutely nothing to address it.

Smart, serious people have presented well-crafted solutions that directly address this problem. The first owner to take up one of these solutions, to back a plan that has nothing to do with limiting labor costs or hindering the competitiveness of a rival or dipping into the public till is the owner I will take seriously on this topic. The problem of differing incentives across markets is the one that drives everything else, that makes it profitable and even sensible for the Royals and Pirates and Marlins to be run in the soul-crushing way they've been run for more than a decade. MLB has never once attempted to address this, and the plans they've enacted have made the problem worse. Until fixing the marginal-revenue problem becomes the game's top priority—and it is very reparable—no equity among markets is possible.

I want to know why one of the smartest, most accomplished, most economically-literate men in baseball won't embrace a real solution.

Almost all of the problems in baseball can be traced back to a system that sets wildly varying potential revenues in stone, mainly through territorial rights and an extreme reliance on local media contracts. Everything else goes back to this: The draft is there to keep rich teams from signing all the young players by outbidding everyone else, driving up bonuses. Revenue sharing is to fix the problem with big market teams having more revenues than anyone else. So is any proposed cap or luxury tax. Slotting, same thing.

If everyone had roughly equal potential revenues, we'd be done - it would all be fixed. So in my mind, that's where we need to head. To a system where teams can end up in markets that are roughly equal. Lots of way to do that, and nobody with any power has even hinted around at starting even one of those ideas.

It's obvious why Henry won't come up with such a solution: Boston derives a lot of its advantages from being the largest single-team market in MLB. He doesn't want a solution where everyone is on par with Boston - then he has to compete on equal footing. He wants a situation where the Yanks are knocked down a peg or two, but Boston keeps its advantages over everyone else.

[KAZ97]

Apparently John Henry once again is proposing some plan to rejigger how teams redistribute money. And Joe Sheehan hits the issue dead on:

Almost all of the problems in baseball can be traced back to a system that sets wildly varying potential revenues in stone, mainly through territorial rights and an extreme reliance on local media contracts. Everything else goes back to this: The draft is there to keep rich teams from signing all the young players by outbidding everyone else, driving up bonuses. Revenue sharing is to fix the problem with big market teams having more revenues than anyone else. So is any proposed cap or luxury tax. Slotting, same thing.

If everyone had roughly equal potential revenues, we'd be done - it would all be fixed. So in my mind, that's where we need to head. To a system where teams can end up in markets that are roughly equal. Lots of way to do that, and nobody with any power has even hinted around at starting even one of those ideas.

It's obvious why Henry won't come up with such a solution: Boston derives a lot of its advantages from being the largest single-team market in MLB. He doesn't want a solution where everyone is on par with Boston - then he has to compete on equal footing. He wants a situation where the Yanks are knocked down a peg or two, but Boston keeps its advantages over everyone else.

So Drungo, do you prefer a solution of essentially eliminating local revenues ala the NFL or keep the local revenues and balance the market by, for example, having teams in north NJ and Conn?

[scOtt]

It wouldn't surprise me much if Peter Angelos was the owner to propose a real plan. He has kind of a reputation as a maverick in the league, like refusing to hire replacement players during the last strike. Plus, despite all the bad that is said about him, he has a reputation for being for the little man. Pro-union (in general, not the player's union).

[srock]

So Drungo, do you prefer a solution of essentially eliminating local revenues ala the NFL or keep the local revenues and balance the market by, for example, having teams in north NJ and Conn?

I'm interested in reading a solution that moves two teams. One to NY (Brooklyn) and one to Connecticut. It should include the possibility of a 3rd team moving to Jersey in 10 years or so should the market imbalances remain.

I'm not sure moving the teams is better or worse than expansion, but I think the talent level isn't good enough for expansion. I could be wrong, that's just my gut feeling.

Sorry Pittsburgh and Kansas City, but I think your teams need to move.

[csgordos]

I'm interested in reading a solution that moves two teams. One to NY (Brooklyn) and one to Connecticut. It should include the possibility of a 3rd team moving to Jersey in 10 years or so should the market imbalances remain.

What are the chances that this idea would really affect the Yankees. The Yankees have been an institution in that whole area. If your grandfather, father, and now you are a Yankees fan, what are the odds that your son growing up in north NJ will become the local fan and not a Yankee fan? I don't think that is likely, but maybe I am wrong. Interesting idea though. One benefit is we could move out of the division of the Yankees as it would make geographic sense to have Boston, NYY, Conn, NJ, and NYM in the same division. We could end up in the NL with the Phillies, Nats, Braves, Toronto.

[GeorgiaBird]

There is an important fundamental fact that is too often not appreciated in these discussions, that unfortunately makes most all of these discussions academic (though fun). The fact is a simple one: The only people who have the power to change the system, the owners, do not have any reason to see the system as broken and have no motivation to make real change.

Henry is a smart guy, and is trying to ride a wave of populism to take a shot at his biggest rival. But the truth is the owners are making money. All of them. If teams like the Pirates or the Royals or the Rays really had the sort of losses they profess to having year after year after year, they would no longer be around. It may stink for the fans, but the fans don't get a say. It may stink for the players in those cities, but they are getting compensated for their trouble.

This isn't to say things shouldn't change, or that there are a lot of good ideas out there that could make things better. But there is a reason this discussion never gets anywhere: The people who need to be involved to do any good simply don't have a reason to want to get involved.

[byrdz]

The owners just need to be convinced, just because they're making money doesn't mean they can't make more, and in a more competitively balanced situation. This is the ideal situation and should be the overall goal moving forward. Not every seat in every stadium for every game will be sold and not every team will go to the playoffs no matter what you do. But there's no doubting that there's huge room for improvement. To say otherwise is to say that this is as good as it gets. Is that really what we want for the best game in the world?

Obviously, the teams that are receiving revenue sharing need to be held more accountable for how it is spent. I read an idea from an article recently that I liked a lot. Based on some sort of market size/win% algorithm they would receive a certain sum of money. Without an incentive to win it's just monopoly money. That might be good enough start for now.

[DrungoHazewood]

So Drungo, do you prefer a solution of essentially eliminating local revenues ala the NFL or keep the local revenues and balance the market by, for example, having teams in north NJ and Conn?

The root cause of the problem is territorial, expansion, and franchise movement restrictions. These things are what led directly to the system we have where two equally well-run teams can have revenues 10 times different, simply because the territory they're granted by the league.

There are many possible solutions, with various levels of impossibility ranging from almost impossible to "only in the LSD-fueled rantings of Bill Lee". Moving a couple of teams into the Yank's market would be a start. Leveling revenues through centralized funding like the NFL might eventually come about if media distribution changes. Making expansion much easier would be great. A 2nd major league would be good.

One fix I've always been obsessed with to an unhealthy degree is breaking up baseball AT&T-style. If each professional baseball league (or sports league, for that matter), from the AL to the NL to the International League to the Sally League to the Northern League were forbidden by federal law from operating jointly, competition would work out a lot of problems. Six, eight, ten or more teams at the AA level or higher would call NYC home. 4-5 would be in Boston and the surrounding area. Each market would quickly be filled with as many teams as the market could bear. Market size would no longer be any kind of significant advantage.

Of course you'd also have to ban government subsidies of stadiums, and force existing teams to buy or pay market rent on the current government-bought facilities... Trivial issues!