Boston Red Sox

Boston Red Sox

Wednesday, January 20, 2010

MLB's Money Problem Is A Revenue Sharing Problem

Baseball commissioner Bud Selig says some Major League Baseball teams lost money in 2009, though he has declined to name which teams.

"We don't live in a bubble. And so, I think the clubs in some areas have been hit a lot harder than others," said Selig.

Total attendance was 73.4 million last year, MLB's fifth-highest ever. However, Major League attendance was down seven percent collectively.

MLB's attendance dropped from an average of 32,528 per game in 2008 to an average of 30,350 in 2009.

Like the rest of Detroit, the Tigers are facing financial difficulty. They had one of baseball's biggest attendance drops last season, from a franchise-record 3.2 million in 2008 to fewer than 2.6 million in '09. That amounted to a 20 percent decline.

But the Tigers downturn wasn't even the worst in baseball.

The Mets had the biggest dropoff in attendance from 2008, at 24 percent. The Nationals were down 22 percent, and the Padres declined 22 percent.

While some teams are struggling, others are living quite nicely off of MLB's revenue sharing agreement.

About $400 million — or 34 percent of each team's net local revenue — was distributed to small market teams last year. Most of that percentage came from the Yankees, Red Sox, Mets, and other high-revenue teams.

However, the Marlins, Royals, and Pirates are taking in more in revenue-sharing than they are spending on MLB player payroll, and showing a profit.

That has gotten the attention of MLB Players Association executive director Michael Weiner.

"We're concerned when we have clubs that are not using the receipts for the purpose to which they were intended under our contract. It's the players' job to enforce that provision,” said Weiner last month.

According to Forbes Magazine's annual team valuations (specifically based on Operating Income, a measure of profitability), the clubs with the lowest player payrolls, who receive the lion’s share of revenue-sharing, are some the league’s most profitable.

The players' union has expressed concerns that revenue sharing proceeds have not been used as required by some teams.

For instance, the Marlins' team payroll has been so small as to violate Major League Baseball's revenue sharing provisions. The Marlins, plagued by poor attendance, have had the lowest payroll in MLB in three of the past four seasons.

Under pressure, last week the Marlins reached an agreement with the players' union to increase spending by an unspecified amount.

MLB's basic agreement calls for each club to use its revenue sharing receipts in an effort to improve the team. But that's clearly not happening. Some clubs (such as the Pirates) are paying down stadium debt, which seems in violation of the agreement.

Perhaps it is financial concerns that has resulted in the large number of still unsigned free agents, many of whom have fine pedigrees.

As of Sunday, the following free agents were all still available:

1B: Russell Branyan, Carlos Delgado
2B: Orlando Hudson, Felipe Lopez
SS: Orlando Cabrera, Miguel Tejada
3B: Joe Crede, Melvin Mora
DH: Jim Thome, Jason Giambi
OF: Rick Ankiel, Reed Johnson
OF: Johnny Damon, Xavier Nady
OF: Jermaine Dye, Gary Sheffield
C: Bengie Molina, Jose Molina
SP: Joel Piniero, Vicente Padilla
SP: Jon Garland, Pedro Martinez
SP: Ben Sheets, Braden Looper
SP: Chien-Ming Wang, Mark Mulder
SP: Erik Bedard, Jarrod Washburn
RP: Kiko Calero, Chan Ho Park,
RP: Ron Villone, Kevin Gregg
RP: David Weathers, Jamey Wright

It's an interesting list, and indicates that there is still value to be had, even for lower payroll teams.

As it stands, they are being subsidized by the big market clubs anyway. There is no excuse for them not to spend.

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