Baseball's Bogus Settlement

Why the revenue-sharing agreement will make things even worse


That Major League Baseball (MLB) will complete the 2002 season uninterrupted is an unrelievedly good thing. By finishing a new collective bargaining agreement just in advance of the Aug. 30 strike deadline set by the Players Association, players and owners avoided copious amounts of fan venom.

The new collective bargaining agreement itself is also being hailed as a triumph for the sport. More equitable sharing of local revenues and a tax on wastrel owners like George Steinbrenner—two key elements of the new agreement—will help small-market teams and improve the league's competitive balance. Won't they?

Prima facie, this might seem true, but baseball's freshly minted economic reforms fail on many levels. One, they address a "problem" that is not the result of any institutional flaw but a function of fallacious comparisons to the National Basketball Association (NBA) and National Football League (NFL). Two, even if there were a serious competitive-balance problem in baseball, this agreement wouldn't fix it one whit.

In the NBA, the perceived competitive balance is owing to the fact that more than half the league's teams make the playoffs each season. While that does foment more systemic fan interest, it makes the NBA regular season stretch drive about as meaningful and engaging a Grammy speech. But despite a salary cap and come-one-come-all playoff format, NBA history is little more than a string of dynasties, with the Detroit Pistons, Chicago Bulls, Houston Rockets and Los Angeles Lakers all exercising hegemony in recent years.

As for the NFL, the league has so many structural differences that using it as any sort of comparative model for baseball is a fool's errand. Consider: If MLB teams played 16 games per year, awarded 12 playoff spots instead of eight, adopted a single-game playoff system rather than holding a best-of series and manipulated their schedules so that weak teams in one year played weak schedules in the next, then suddenly baseball would be a paragon of egalitarianism. The salary cap and practically Leninist revenue system have little to do with the apparent competitive balance in the NFL; it's correlation masquerading as causation. If the NFL played 162 games per year, thus allowing the large sample size of games to better and more accurately separate wheat and chaff, then everyone would be wringing hands over the Rams instead of the Yankees.

Under baseball's new agreement, increased sharing of local revenues means that high-end teams like the New York Yankees, Boston Red Sox, Los Angeles Dodgers and Texas Rangers must give more money to teams like the Kansas City Royals, Milwaukee Brewers, Pittsburgh Pirates and Florida Marlins. The luxury tax, which levies a fine on teams that exceed certain payroll limits each year, also targets the big-spenders. Taken in conjunction, those measures are roundly punitive toward owners who, sin of sins, choose to reinvest in their own product. The game's highest salaries are dragged down, and owners at the top of the food chain have less money to spend on their teams. The upshot is that this new system penalizes both the league's best players and its best owners.

Another problem is that these handouts, which will total almost $1 billion over the life of the new agreement, come with no accountability. In 2000, the Minnesota Twins, under the ownership of Carl Pohlad, took in more in revenue sharing than they spent on payroll. That was perfectly allowable under the old system, and there's nothing in the new one to ensure that teams use revenue-sharing dollars to increase payroll or to improve scouting and development. The difference, however, is that this time far more money is at stake. Weak-sister teams are further encouraged to do what the Twins and Brewers have been doing for years—culling profits from a low expense/low revenue model rather than investing in the team and marketing the product to the community. After all, if a team takes the former approach, they'll be profitable and slathered in revenue-sharing dollars for their troubles. If they operate as businesses should, they may be forced to subsidize other franchises. It's little wonder that some teams spend their resources attempting to feign or engineer impoverishment rather than building a successful organization.

Perhaps the system's most grievous flaw is its imbecilic method of defining market size. In fact, revenues won't be handed out to teams that occupy small markets; rather, they'll be given to those with the lowest revenues. To be sure, revenue streams are affected by market size, but most often low revenues are the result of witless organizational strategy or simple lack of effort. Justify for me a system that rewards the wretched market penetration of the Philadelphia Phillies, Anaheim Angels and Chicago White Sox by penalizing shrewd and resourceful clubs like the Seattle Mariners and St. Louis Cardinals, who draw their fans from far smaller population bases.

Baseball's push for economic reform was founded upon wildly overstated competitive-balance concerns. This new system, rather than helping blighted yet well-meaning teams, will instead abet those owners who care about nothing more than maximizing subsidies and achieving cost certainty. Baseball needs to realize that it's a good thing for poorly run businesses to lose money. Otherwise, they have no incentive to improve. Instead, baseball has erected a curious system that punishes success and rewards incompetence. Expect teams to respond accordingly.