MLB's Revenue Issue: A Simple Fix

[LookinUp]

There has been much hand-wringing on this site and others about the financial disparities in MLB, principally because of the Yankees' payroll. Now, the MLB has a special committee of people who are apparently proposing a dramatic realignment which will likely have a significant effect on the Orioles, among others.

I sympathize with the folks who want more parity and a better economic model. It would be good for the sport if 30+ markets had a legit chance to compete. Unfortunately, I'm unconvinced that this dramatic realignment is good for baseball, and I'm equally unconvinced that it will fix baseball's revenue problems.

So, what is the problem? It's not that money is concentrated in the hands of a few teams. It's that a few teams get all of the BIG NAME free agents. Other teams can't compete for those BIG NAME players...that's the problem.

What we know is that the Yankees in particular already pay tens of millions in revenue sharing. This would continue. Here's the simple fix:

Implement a max contract system, somewhat like the NBA, but not a salary cap. This system would allow a team to sign their own FAs for up to $20 million per year, while other teams could only spend $17 million per year (play with the numbers as you choose). In a nutshell, the Yankees could decide to spend $17 million on every position, but they couldn't simply overbid by $40 million on a player like they did with Sabathia. They could sign a bunch of players, but they couldn't simply buy all of the best players as they enter free agency. The contract cap would be high enough that we'd still have plenty of FAs - with no limit on the # of years a team could offer - but low enough that most teams would be willing to at least consider making that investment on their version of Teixeira. Players could still be awash in money, just not quite to the ARod/Pujols level.

This is against all I stand for with respect to free market economics, but baseball isn't now and never will be a free market. If it were, the Yankees and Red Sox would be Home Depot and Lowes, and the Royals would be Hechinger. They'd be out of business, and that's not good for baseball.

Importantly (for me) it would also maintain the existing traditional alignment of baseball, so teams like the Orioles would continue to play their historical rivals. Note, this doesn't preclude some logical realignment.

[DrungoHazewood]

1. Most teams wouldn't pay $20M/year for anyone, including their own.

2. How many $17M per annum contracts are there? It can't be 15 or 20. So your plan has no impact on 98% of major leaguers.

3. When you cap, and this is a kind of cap, you shift resources and incentives to other areas. Rich teams would have more money to use on development, cutting away at poorer teams' advantages. And top free agents would be presented with a dozen offers at the max salary, so they'd choose based on other things, like who wins the most or who has the best facilities or most rabid fanbase or most endorsement opportunities (hint: Yanks, Sox).

4. Allowing the big teams to overspend hurts them. Even the Yanks probably have some kind of internal payroll limit. Under your plan they'll still get most of the big names, and they'll have a lot more cash left over for the almost-big names.

5. If you modify your thresholds, setting the limits lower, you'll get more and more pushback from the MLBPA and the big market teams.

[Three Run Homer]

There has been much hand-wringing on this site and others about the financial disparities in MLB, principally because of the Yankees' payroll. Now, the MLB has a special committee of people who are apparently proposing a dramatic realignment which will likely have a significant effect on the Orioles, among others.

I sympathize with the folks who want more parity and a better economic model. It would be good for the sport if 30+ markets had a legit chance to compete. Unfortunately, I'm unconvinced that this dramatic realignment is good for baseball, and I'm equally unconvinced that it will fix baseball's revenue problems.

So, what is the problem? It's not that money is concentrated in the hands of a few teams. It's that a few teams get all of the BIG NAME free agents. Other teams can't compete for those BIG NAME players...that's the problem.

What we know is that the Yankees in particular already pay tens of millions in revenue sharing. This would continue. Here's the simple fix:

Implement a max contract system, somewhat like the NBA, but not a salary cap. This system would allow a team to sign their own FAs for up to $20 million per year, while other teams could only spend $17 million per year (play with the numbers as you choose). In a nutshell, the Yankees could decide to spend $17 million on every position, but they couldn't simply overbid by $40 million on a player like they did with Sabathia. They could sign a bunch of players, but they couldn't simply buy all of the best players as they enter free agency. The contract cap would be high enough that we'd still have plenty of FAs - with no limit on the # of years a team could offer - but low enough that most teams would be willing to at least consider making that investment on their version of Teixeira. Players could still be awash in money, just not quite to the ARod/Pujols level.

This is against all I stand for with respect to free market economics, but baseball isn't now and never will be a free market. If it were, the Yankees and Red Sox would be Home Depot and Lowes, and the Royals would be Hechinger. They'd be out of business, and that's not good for baseball.

Importantly (for me) it would also maintain the existing traditional alignment of baseball, so teams like the Orioles would continue to play their historical rivals. Note, this doesn't preclude some logical realignment.

I'm not sure if this reform would have much effect. The Pirates and Royals (and Orioles, unfortunately) are unlikely to ever spend $20 million per season on one player. Meanwhile, the Yankees could still outbid everyone else just by extending the length of contracts. CC Sabathia would probably have preferred to sign with the Yankees for $10 years, $170 million, even if Milwaukee had been willing to offer (say) 3 years, $60 million to keep him.

I'm not a big fan of division realignment either. I don't want the league to be divided into an "A" division, and "B" division and so on. I don't want the O's to be competing to be the best team in the worst division.

Just have real revenue sharing and a salary cap, like all the other major sports do. To create the revenue sharing pool, tax each team according to the size (and thus potential revenue) of its local media market, rather than its actual revenue stream, so that teams still have financial incentives to market themselves well and put out a good product.

[CrimsonTribe]

I doubt the MLBPA would allow any sort of cap on salaries, no matter how high.

[LookinUp]

I think most of your points actually argue for my proposal. Here are my responses...

1. Most teams wouldn't pay $20M/year for anyone, including their own.

I bet just about every team would pay that for Teixeira, Howard, Fielder, Pujols, etc. These are the guys who tip the balance. Not Pettite, Vasquez, Burnett, et al. The Yankees would basically be able to purchase pitchers and second level FAs (they already do), but each comes at a very high out year risk. Further, it would eliminate some of the incentive for arbitration eligible players to wait for FA to sign. The relative potential value gained would diminish.

2. How many $17M per annum contracts are there? It can't be 15 or 20. So your plan has no impact on 98% of major leaguers.

Exactly. This is a good thing that *might* make it play better with the owners and the union. I don't think Adrian Beltre is the problem.

3. When you cap, and this is a kind of cap, you shift resources and incentives to other areas. Rich teams would have more money to use on development, cutting away at poorer teams' advantages. And top free agents would be presented with a dozen offers at the max salary, so they'd choose based on other things, like who wins the most or who has the best facilities or most rabid fanbase or most endorsement opportunities (hint: Yanks, Sox).

They'd only have 1 offer at max salary. The other dozen would be at less than max value. Facilities aren't as important as money and stability. Additionally, baseball isn't a huge endorsement sport, so the relative advantage there would be minimized compared to the NBA and NFL.

In the interest of space, I took out the part about the draft and int'l FAs, but I agree that they'd need to be addressed at some level. Either way, just because they haven't yet fully exploited those avenues doesn't mean that won't happen under the current system (it will, eventually). In other words, it'll probably have to be addressed either way.

4. Allowing the big teams to overspend hurts them. Even the Yanks probably have some kind of internal payroll limit. Under your plan they'll still get most of the big names, and they'll have a lot more cash left over for the almost-big names.

How does it hurt them? I'm not concerned about the Yankees' bottom line, I'm concerned about the competitive advantage. You'll have a hard time convincing me that their spending is bad for them in the standings. Also, I don't believe they'd get all of the big name guys. Again, I'm talking about the BIG NAME FAs.

5. If you modify your thresholds, setting the limits lower, you'll get more and more pushback from the MLBPA and the big market teams.

Why would I modify the thresholds? If anything, I might have a sliding scale where the other teams could bid closer to the original team. 15% less is quite significant, particularly when you consider that a player would have to move themselves and their families to an unknown team/area.

[TGO]

2. How many $17M per annum contracts are there? It can't be 15 or 20. So your plan has no impact on 98% of major leaguers.

Only 29 in the history of baseball. 18 of those are current. And it looks like about half of those 18 are contracts the team would like to take back. (these #s might be off by one or two, I counted quickly)

# Roger Clemens, $28,000,022 (2007)

# Alex Rodriguez, $27,500,000 (2008-17)

# Alex Rodriguez, $25,200,000 (2001-10)

# CC Sabathia, $23,000,000 (2009-15)

# Johan Santana, $22,916,667 (2008-13)

# Manny Ramirez, $22,500,000 (2009-10)

# Mark Teixeira, $22,500,000 (2009-16)

# Roger Clemens, $22,000,022 (2006)

# Manny Ramirez, $20,000,000 (2001-08)

Roy Halladay, $20,000,000 (2011-13)

# Miguel Cabrera, $19,037,500 (2008-15)

# Derek Jeter, $18,900,000 (2001-10)

# Carlos Zambrano, $18,300,000 (2008-12)

# Andruw Jones, $18,100,000 (2008-09)

# Barry Bonds, $18,000,000 (2002-06)

Roger Clemens, $18,000,000 (2005)

Ryan Howard, $18,000,000 (2009-11)

Torii Hunter, $18,000,000 (2008-12)

Sammy Sosa, $18,000,000 (2002-05)

Ichiro Suzuki, $18,000,000 (2008-12)

Vernon Wells, $18,000,000 (2008-14)

Barry Zito, $18,000,000 (2007-13)

# Jake Peavy, $17,333,333 (2010-12)

# Jason Giambi, $17,142,857 (2002-08)

Matt Holliday, $17,142,857 (2010-16)

# Jeff Bagwell, $17,000,000 (2002-06)

Carlos Beltran, $17,000,000 (2005-11)

Carlos Delgado, $17,000,000 (2001-04)

Alfonso Soriano, $17,000,000 (2007-14)

[LookinUp]

I'm not sure if this reform would have much effect. The Pirates and Royals (and Orioles, unfortunately) are unlikely to ever spend $20 million per season on one player.

The Brewers were in this category until they got Sabathia and Fielder. I bet they would.

Meanwhile, the Yankees could still outbid everyone else just by extending the length of contracts. CC Sabathia would probably have preferred to sign with the Yankees for $10 years, $170 million, even if Milwaukee had been willing to offer (say) 3 years, $60 million to keep him.

Sabathia was a severe outlier insofar as he was a pitcher who got that much money over that many years. The risk is huge. Still, the Yankees wouldn't have been able to offer that deal under my proposal, so the Brewers would have at least had a chance, and probably a good one. Consider, their offer was something like 5/100. The Yankees would have had to go to 7 years to significantly outbid them.

Just have real revenue sharing and a salary cap, like all the other major sports do. To create the revenue sharing pool, tax each team according to the size (and thus potential revenue) of its local media market, rather than its actual revenue stream, so that teams still have financial incentives to market themselves well and put out a good product.

A more pure financial system is harder to get by either the players or the owners. My system may have a better chance of succeeding.

[DrungoHazewood]

I bet just about every team would pay that for Teixeira, Howard, Fielder, Pujols, etc. These are the guys who tip the balance. Not Pettite, Vasquez, Burnett, et al. The Yankees would basically be able to purchase pitchers and second level FAs (they already do), but each comes at a very high out year risk. Further, it would eliminate some of the incentive for arbitration eligible players to wait for FA to sign. The relative potential value gained would diminish.

If I were in charge of a small or mid-market team I'd pay $20M for Teixiera, maybe $25M for Pujols and ARod, and that's about it. There's not a pitcher in the world I'd approach $20M a year on, and I wouldn't even get into the bidding on Howard, Fielder, or other Mo Vaughn types.

Exactly. This is a good thing that *might* make it play better with the owners and the union. I don't think Adrian Beltre is the problem.

The plan is more acceptable because it has less impact. If you're only touching 1% or 2% of contracts this thing is more for show than competitive balance.

They'd only have 1 offer at max salary. The other dozen would be at less than max value. Facilities aren't as important as money and stability. Additionally, baseball isn't a huge endorsement sport, so the relative advantage there would be minimized compared to the NBA and NFL.

I'm assuming that almost every free agent would take $17M from the Yanks/Sox/Dodgers/Angels over $20M from the Royals, Nats, or Pirates. Especially if the rich teams can just extend the deal, or defer more money to make the overall package more valuable.

How does it hurt them? I'm not concerned about the Yankees' bottom line, I'm concerned about the competitive advantage. You'll have a hard time convincing me that their spending is bad for them in the standings. Also, I don't believe they'd get all of the big name guys. Again, I'm talking about the BIG NAME FAs.

Your plan keeps teams from signing Barry Zito to a 12/43789M deal. It allows them to still sign Teixiera to a 10/170 deal with endorsements and a private jet and his own suite in the clubhouse... and take the cash they would have used to outbid everyone else and spend it on CC Sabathia or whomever.

Why would I modify the thresholds? If anything, I might have a sliding scale where the other teams could bid closer to the original team. 15% less is quite significant, particularly when you consider that a player would have to move themselves and their families to an unknown team/area.

I figured, if anything, you'd want it to apply to more players so it would be more than window dressing.

[TGO]

I don't think Adrian Beltre is the problem.

I absolutely think guys like Adrian Beltre are the problem. Not Beltre specifically by himself because he signed a one year deal with an option, which most teams probably could have afforded. He picked Boston because of competitiveness and because Fenway should help his stats. But look at how many of those mid-level FAs Boston signed. Beltre, Cameron, Scutaro, and they traded for Bill Hall. Plus John Lackey, who only has one year on his deal over $17 million. Add those to a whole slew of guys they have under contract who are in that $7-16 million sweet spot (Drew, Ortiz, Lowell, Beckett, Youkilis, Papelbon, Martinez, Matsuzaka, and several more).

[LookinUp]

If I were in charge of a small or mid-market team I'd pay $20M for Teixiera, maybe $25M for Pujols and ARod, and that's about it. There's not a pitcher in the world I'd approach $20M a year on, and I wouldn't even get into the bidding on Howard, Fielder, or other Mo Vaughn types.

But the point isn't about who anyone should sign, it's about whether they could be competitive if they choose to be when those players hit FA.

The plan is more acceptable because it has less impact. If you're only touching 1% or 2% of contracts this thing is more for show than competitive balance.

I guess we have a disagreement on the definition of the problem. I simply don't think mid-level guys are part of the problem. By definition, there are many available. It's only the elite players who create the problem. The Yankees didn't buy a World Series last year with Ryan Garko.

I'm assuming that almost every free agent would take $17M from the Yanks/Sox/Dodgers/Angels over $20M from the Royals, Nats, or Pirates. Especially if the rich teams can just extend the deal, or defer more money to make the overall package more valuable.

Maybe today, but why would you assume this over the long run? Look at basketball. Lebron James just apparently decided to stay in Cleveland. Duane Wade apparently wants to stay in Miami. Their endorsements are available no matter where they play. The only driving factor then is competitiveness, personal comfort and money, and they're staying put.

Furthermore, why would we want to protect bad franchises? Allowing player movement is a good thing in that respect. Perhaps a terrible player wouldn't want to be in a bad environment. Even that would vary by player.

Your plan keeps teams from signing Barry Zito to a 12/43789M deal. It allows them to still sign Teixiera to a 10/170 deal with endorsements and a private jet and his own suite in the clubhouse... and take the cash they would have used to outbid everyone else and spend it on CC Sabathia or whomever.

Nobody made a 10 year committment to Teixeira. They made an 8 year committment. Still, their 10 year committment would only be 10 million more than some other team's 8 year committment. With interest and potential future earnings, it's probably a deficit.

I figured, if anything, you'd want it to apply to more players so it would be more than window dressing.

I don't want MLB to control all player movement. I want them to allow teams an opportunity to keep their best players and I don't want any 1-4 teams to have an insurmountable (over time) financial advantage allowing them to purchase a winner rather than to compete in all aspects of organizational development.

[LookinUp]

I absolutely think guys like Adrian Beltre are the problem. Not Beltre specifically by himself because he signed a one year deal with an option, which most teams probably could have afforded. He picked Boston because of competitiveness and because Fenway should help his stats. But look at how many of those mid-level FAs Boston signed. Beltre, Cameron, Scutaro, and they traded for Bill Hall. Plus John Lackey, who only has one year on his deal over $17 million. Add those to a whole slew of guys they have under contract who are in that $7-16 million sweet spot (Drew, Ortiz, Lowell, Beckett, Youkilis, Papelbon, Martinez, Matsuzaka, and several more).

Boston should be rewarded for being a good franchise. Allowing second-third tier players the right to choose the better franchise makes the most sense. Under what system would that not be the case?

For John Lackey, the Angels could have afforded him, but chose not to. He didn't fit their risk profile due to his age and some recent injuries.

To be clear, I'm not advocating any system that provides exact financial equality because it's impossible in the current MLB political environment. The numbers could be tweaked here or there, but I think the point is that teams with FAs should have a better chance to keep their players because that's the real problem in baseball today.

I'm open to other solutions. Anyone have something better/different to offer?

[MarCakes21]

I think that the concept of what you have in basketball may actually work. Its not a hard cap, but it does have some limitations.

For example, you can sign players to a max deal only if you have cap space. At that point, they would need to take a significant discount to play on a team without cap space, as they would have to be an exception to a mid-level player similar to what basketball has.

Also, another key point of what basketball has is that if this "max-player" is on your team, not only can you sign him for more money per year, but more years over all. So you could give someone a 10/200 contract, whereas another team, like the Stanks would be forced to give them say a 8/136 deal. Big difference when you look at it that way. Would the player signing a max deal then sign for 64 mil less?

The system does not work in the NBA, but it would be interesting in MLB, even though the MLBPA would never agree to this. However, it also does not work in the NBA because they're revenue is actually much much less than what they spend on players. So every single owner is actually shelling out of his pocket to pay players. In the MLB, with revenue sharing, teams make more money then they pay players, just not all choose to spend it.

[DrungoHazewood]

I'm open to other solutions. Anyone have something better/different to offer?

Comprehensive revenue sharing based on market potential and incentivized towards success.

Or, if you were starting from scratch, you'd construct a system that allows the market to decide the number and level of teams in each geographic area so that each team's market size would be roughly the same. This could take the form of a large number of competing, independent leagues. Or maybe a promotion/relegation system. Or maybe a hybrid system that regularly expands/contracts/relocates franchises based on performance.

Or, you could just wait until TV revenue is overwhelmed by internet content delivery revenues. The former isn't shared (mostly), the latter is. That will go a long way towards fixing the current disparities.

[LookinUp]

For example, you can sign players to a max deal only if you have cap space.

I think the concept of a broader cap is DOA.

Also, another key point of what basketball has is that if this "max-player" is on your team, not only can you sign him for more money per year, but more years over all.

In theory, this could be somewhat workable in the collective bargaining sense of things. I actually think I'd prefer not to limit the number of years. There's a natural market risk limitation involved anyway.

[LookinUp]

Comprehensive revenue sharing based on market potential and incentivized towards success.

Care to elaborate?

Comprehensive would mean MLB would ask for more money from the Yankees. Very difficult to secure this agreement. Market potential would present actuarial/legal difficulties, but they could probably be overcome. Would incentives mean MLB would recoup some % of money not spent on payroll?

I'm interested, but I think the difficulty here is in securing the agreement by taking more money from the haves. Of course, any would be difficult.

I also don't fully understand how this would effect payroll.

Or, if you were starting from scratch, you'd construct a system that allows the market to decide the number and level of teams in each geographic area so that each team's market size would be roughly the same. This could take the form of a large number of competing, independent leagues. Or maybe a promotion/relegation system. Or maybe a hybrid system that regularly expands/contracts/relocates franchises based on performance.

I agree, but we won't start from scratch. You can't undo the Yankee dynasty.