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Baseball and Revenue sharing- why the Yankees have to be big spenders

Posted by mandyf on October 7, 2008

It sounds crazy and there are plenty of Yankee haters out there which is fine, but without the free spending Yankees and to a lesser degree Red Sox, where would baseball be? We wouldn’t even be looking at the Ray’s in the postseason without the revenue sharing scheme that allows mediocrity to profit. This isn’t to take a thing away from the Ray’s under the sun, their hierarchy understood and exploited the system better than anyone. It’s just something to think about.

Here’s a fact concerning the flaw in the revenue sharing system that makes it a joke. Teams pay 34% of their local net revenue into profit sharing which is then SUPPOSED to be used to help poor teams increase payroll and player development. Obviously right now the Ray’s are the only recipient doing either. That’s not my beef with it though, it is that the owners receiving the subsidy can do whatever they want with it, including pocketing it.  Consider in 2006 the Yankees and Red Sox actually lost money due to having to pay into revenue sharing but pulled more or less even after interest, income taxes, and depreciation. Temas like the Rays, Pirates, and Royals depend on this.

 The even sadder thing is, and this is proved, is that IF (big word) the Yankees were to tank for a few years and they cut salary below the the luxury tax, most of the small market teams would take a giant revenue hit. They all get money from revenue sharing not just by luxury tax but gate receipts, the YES network, and merchandise sales. The Yankees are #1 across the board. Teams earn 24% more on a Yankee series, the Yankees outsell everyone in merchandise accounting for 27% of total sales, and then the  nut is $77m to revenue sharing. All told the Yankees directly pay into EACH team aside from the other powerhouse financial teams about $7m.yr, and for those they play the impact is near $10m. Add in each teams share from the Television rights and it gets stupid.

What it all means is if you really want to make money in the MLB, the Pirates have it right, play pathetic, pay the minimum, rake in huge revenue sharing dollars that outpace expenses. You don’t have to be good to turn a profit anymore.  In most businesses, aside from professional sports or modern American banks, if you don’t turn a profit you go under. The neighborhood dry cleaner isn’t going to get revenue sharing from other dry cleaners across the country to make up for a few bad years.  Banks don’t get the same treatment necessarily, just nearly trillion dollar government bailouts.

 I may be in the minority but if you really look at it mediocrity is being championed and success punished. Perenially strong teams trying to win, selling merchandise, and drawing fans take hit after hit for doing well. Teams, even the Twins with baseballs Carl Pohlad the richest sole owner in baseball with his billions can trot crap out there every year and make money. Sometimes those players develop, give fans a brief glimmer of hope, and then get dealt away or allowed to simply walk away rather than try to pay fair market value.

 Baseball has always been a sport of cycles, but look at the fact that revenue sharing has actually made worse the condition it was created to address which is parity. Sure the Rays snuck in this year but what about a year or two? They hardly drew fans this year and without revenue sharing there is no way they will retain who they have or attract new talent. They tied a few guys up on multi year deals but what happens to  the other 20 guys on the roster? They will want to get paid. If they fail to draw then revenue money alone won’t allow this to happen.  What really tells the tale is go bak say to 1980 and even with one less round of playoffs look at how many different teams made playoff appearances. Look at baseball since revenue sharing and compare. The gap has widened, the rich still rule the roost.

 So hate the Yankees, Red Sox, Angels, and Cubs if you must for having the money, but hate the small market owner even more. They are given every opportunity to use the tools to win,  and aside from the Rays none choose to use them. It’s not the fault of the big market teams they win, it’s the fault of the small market owners for lining their pockets instead of treating their franchises fans with respect.

 Just realize if the Yankees and other big franchises trim payroll, small market teams will have to compete on their own, a concept that has become all too novel in baseball for nearly 2/3 of it’s franchises that only understand profiting by losing.

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