The Atlanta Journal-Constitution
MLB deal may hinge on revenue sharing
Can’t blame anyone who has tuned out news of MLB’S lockout of players. What’s the point of keeping up with the details? The bottom line is that the two sides appear far apart, with pitchers and catchers (not) reporting next week. Braves supporters just want to know when they officially can go back on Freddie Freeman Watch and see what kind of roster Alex Anthopoulos assembles to defend the World Series title.
However, there’s one aspect of the negotiations worth keeping an eye on for fans of the game. The players want to reduce the amount of revenue shared among MLB teams. Yes, I know. That sounds like one of those details that’s not worth monitoring. But the evidence shows that revenue sharing is tied to competitive balance.
That’s the conclusion of a study by J.C. Bradbury, a professor of economics, finance and qualitative analysis at Kennesaw State. His research shows that after the 2003 collective bargaining agreement took effect, the amount of local revenue shared among teams increased from 20% to about 34%. Players’ share of revenue began decreasing from about 59% to before that CBA to 45% after the 2012 CBA.
MLB teams that don’t spend much on player payroll still collect revenue from those that do. Teams that spend big on salaries have less motivation to do it because the payoff is reduced.
“When you increase revenue sharing, you lower the incentive for any team to win because you have to share those winnings with everyone else,” Bradbury said in an interview. “If you are a team competing for that top player,
you pay a 40% luxury tax and then, even though more fans are watching the game, I’ve got to share that revenue with other teams. I’m not going to bother bidding on that player. That’s going to keep salaries down.”
That’s been the practical effect of the measures that MLB owners claim increase competitive balance among teams. The top-spending teams are taxed on payroll above a certain threshold. Some of the local revenue, which includes money from game-day operations and local TV contracts, is shared. Teams that generate less revenue while losing receive money from those sources and, theoretically, use it to improve their rosters.
That hasn’t happened. The players could demand stronger stipulations that franchise owners who receive money from revenue use it to improve their teams. But Bradbury said that would be too hard to police because of the different accounting methods used by teams and the broad definition of what constitutes spending to improve the team.
“I think what we’ve seen is you sort of need to leave teams alone figure out the best way to win,” Bradbury said. “Reduced revenue sharing is something that players ought to be focusing on rather than how it’s spent.”
MLB’S players have an obvious self-interest in opposing measures that keep salaries down. That’s usually of little concern to people who just want to watch baseball and don’t care much about player salaries. But, in this case, the financial interests of players align with those fans who want to see all
team owners make a goodfaith effort to put a winning product on the field.
How much do fans care about that? They say they want competitive balance. That’s often cited as a reason to explain the NFL’S enduring popularity. But this could be a case where actions don’t match words, at least up to a certain point.
“The empirical studies that have been done show it’s not very important for demand,” Bradbury said. “That doesn’t mean fans don’t care about competitive balance at all. It just needs to be within a reasonable range. If you have the Harlem Globetrotters vs. the Washington Generals, that’s not interesting.”
More than a third of MLB teams weren’t good enough to make the playoffs in any of the past five years under normal circumstances (discounting 2020’s pandemic-shortened season). MLB’S team owners obviously aren’t interested in creating incentives for more payroll to increase competitive balance. Instead, they want to lower the bar by expanding the playoffs. That way it’s easier for teams to make it and team
owners can sell the image of success.
Maybe the competition already is balanced enough for MLB’S customers. Brad- bury cited the popularity of soccer’s English Premier League, where the top teams consistently dominate those low in the standings.
The EPL’S system of promotion and relegation helps to ensure that franchise owners who aren’t interested in competing don’t stick around long. I’ve always imagined how much better our sports would be if, say, the Orioles could be sent to a lower league. Instead, we’ve got bad team owners protected from competition while their businesses are subsidized by winning franchises and taxpayers.
Bradbury said baseball players face a tough atmosphere for negotiations because of the changing nature of MLB’S business. Team owners are receiving an increasing amount of revenue from sources that have little or nothing to do with players performing their jobs. That includes MLB Advanced Media’s streaming technology work for outside companies.
Baseball players could
demand that their salaries be guaranteed as a set share of league revenues. That’s how it works in other U.S. leagues. But MLB team owners wouldn’t agree to that without a hard salary cap, which players have long rejected. Bradbury said players are right to do so because the accompanying salary floor would be too low. The cap would hurt their compensation more than the floor helps.
Baseball owners won the last round of CBA negotiations before this one but lost some before that. Players want to reverse the trend of their decreasing share of revenue overall and allow younger players a chance to reach free agency sooner.
Said Bradbury: “A lot of it is just sort of a competition of wills. Who is going to blink first? I wouldn’t be surprised if we lose a lot of games. It seems both owners and players are digging in.”
Fans who want to see more franchises field competitive teams should hope players hold the line on demanding reduced revenue sharing among teams.