Addressing Tanking Through Revenue Sharing

The title of this post suggests that tanking is a problem in major league baseball, and one that needs addressing. It’s worth noting that “tanking” might be a bit of a misnomer. While definitions may vary slightly, if we consider tanking to be intentionally losing for a period of time in order to save money and horde talent for a later run of success, there aren’t actually a lot of examples. There are several issues with that model, but one of the most significant, both in perception and in reality, is waning competition. There is less parity in baseball as more teams head to the extremes and fewer occupy the middle. It’s so bad in the American League that a good team like the Cleveland Indians can actively try to get worse and still be favored to win their division because of the state of the rest of the AL Central. With the Yankees, Red Sox, and Astros all so good, the rest of the AL looks up and sees few avenues to a playoff spot and one that almost assuredly only buys a team one game. The motivation to get a few wins better is lacking at the top, with so few contending teams, and at the bottom, where a few extra wins likely won’t meaningfully change a team’s playoff odds. These aren’t “tanking” issues, but problems with the current landscape’s competitive level.

These issues are exacerbated by the recent windfall from BAMTech sales, which have netted every team more than $50 million, national television deals that have continued to go up in value, and local cable television deals that provide higher guarantees. Ticket sales are still important to a team’s bottom line, but they are slightly less important to turning a profit, which serves to make winning slightly less important. Revenue sharing might provide an avenue to placing a greater emphasis on winning.

Revenue sharing is a fairly simple process, in which every team takes 48% of their net local revenue (revenue minus stadium operating expenses), then puts it in a big pile and divides it evenly among the league’s 30 teams. Clubs like the Yankees and Red Sox put more in than they get out while teams like the Marlins and Pirates get a lot more back than they put in. The teams on the lower end of the revenue spectrum are supposed to spend the funds they receive on the field. Last year, the Major League Baseball Players Association filed a grievance alleging that the A’s, Marlins, Pirates, and Rays were not doing so. The players aren’t the only group that have been upset about revenue sharing; the Yankees have complained about the system for years.

To some extent, the Yankees got their way in the last CBA. In previous years, the overall revenue sharing pool was still 48% of net local revenue, but the Yankees had to pay an even greater share, with 34% of revenue being split just like it is today, but with the other 14% of revenue being covered disproportionately by the Yankees and the other high-revenue teams, and sent to smaller-market teams under a pre-determined split. It’s time to bring back that split, but instead base payments and receipts on winning and losing.

Here’s how it might work.

Teams would be separated into three tiers. At the top, you would have the five biggest clubs in the Yankees, Dodgers, Red Sox, Cubs, and Giants. These are the teams worth the most, according to Forbes, with revenues that dwarf most other clubs. In the middle tier, you would have the next set of teams in terms of value and revenue, including the Mets, Phillies, Cardinals, Angels, Nationals, Astros, Braves, White Sox, Mariners, and Blue Jays. In the last tier, you have the other 14 teams: the Padres, Pirates, Tigers, Diamondbacks, Orioles, Twins, Rockies, Indians, Brewers, A’s, Royals, Reds, Marlins, and Rays. The top two tiers would still ended up sending money to the the teams in the bottom tier, but instead of basing the amount solely on revenues, as is the case in the current CBA, or based on market and performance, as in previous agreements, the amounts sent and received in the supplemental plan would be based on wins.

As an example, let’s say that of the 48% of revenue that is shared, 10% goes into a supplemental plan. That means that 38% of net local revenue is shared evenly, but the rest of revenue sharing is based on win totals relative to the other teams in the tier. If that 10% amounted to $200 million, we would need to figure out how to transfer that $200 million from the haves to the have-nots.

One way to do that is to have the top-tier pay two-thirds ($134 million) and the middle tier pay one-third ($66 million), with the bottom tier splitting the proceeds. Because the Yankees are the Yankees, I will propose that they have to pay $14 million off the top, leaving $120 million for the top-five clubs. Here’s how the top tier might have looked last season.

Proposed Revenue Sharing Plan for Top Tier Clubs
Team 2018 Wins % of Tier Payment
Red Sox 108 10% $12 M
Yankees 100 14% $16.8 M
Cubs 95 18% $21.6 M
Dodgers 92 25% $30 M
Giants 73 33% $39.6 M

Consider the above your anti-tanking incentive. We could structure the percentages a little differently, but having a fairly significant difference from the bottom to even the middle provides a strong disincentive to go through a prolonged rebuild. Here’s how we might structure the next tier.

Proposed Revenue Sharing Plan for Middle Tier Clubs
Team 2018 Wins % of Tier to Pay Payment
Astros 103 1% $660 K
Braves 90 3% $1.98 M
Mariners 89 4% $2.64 M
Cardinals 88 5% $3.3 M
Nationals 82 6% $3.96 M
Phillies 80 10% $6.6 M
Angels 80 11% $7.26 M
Mets 77 12% $7.92 M
Blue Jays 73 15% $9.9 M
Rangers 67 16% $10.56 M
White Sox 62 17% $11.22 M

None of the payments in this tier are all that high, but it does provide a slight financial disincentive for a huge rebuild. As to how the payments might be distributed, here’s one suggestion.

Proposed Revenue Sharing Plan for Recipients
Team 2018 Wins % of Tier to Receive Payout
Athletics 97 16.0% $32 M
Brewers 96 13.0% $26 M
Indians 91 12.0% $24 M
Rockies 91 11.0% $22 M
Rays 90 10.0% $20 M
Diamondbacks 82 7.0% $14 M
Pirates 82 6.5% $13 M
Twins 78 6.0% $12 M
Reds 67 5.5% $11 M
Padres 66 5.0% $10 M
Tigers 64 3.0% $6 M
Marlins 63 2.5% $5 M
Royals 58 1.5% $3 M
Orioles 47 1.0% $2 M

This isn’t the total amount teams would receive from revenue sharing, as the base plan of 38% would still be distributed. The figures above would be in addition to what teams have already received, and only funds that are already earmarked to be distributed under the current plan would be used. Most of the numbers above could be easily tweaked, and the $200 million figure is just a rough estimate of how money could be shared. We wouldn’t necessarily need to use just single-season wins; a multi-year average might be fairer.

Teams wouldn’t be forced to spend any more money on payroll (though that is certainly a good way to put together a winning roster), but they would be encouraged financially to win. This plan might not directly transfer money from the owners to the players, as these are funds being transferred between owners, but it might prove to be a more beneficial ask than the universal designated hitter and might be met with more public support. Getting owner buy-in would take a consensus unlikely to materialize quickly, but tying wins directly to money should give teams the proper incentive to try to put their best possible product on the field, and help to alleviate concerns of tanking and anti-competitive behavior.

Craig Edwards can be found on twitter @craigjedwards.

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4 years ago

I do like the idea of dividing some portion of revenue sharing based on winning%. I also think a simple way to give teams incentive to build and maintain competitive rosters all season would be to award an extra draft pick directly after the first round to every team that wins a certain number of games (something like 73-75 perhaps).

4 years ago
Reply to  ballskwok

Not a bad idea. Here’s a simpler, but more radical idea – the team with the worst record forfeits their first round pick. Painful, but that would encourage even the worst teams to try to improve.

4 years ago
Reply to  tz

Forfeit might be strong, but I kind of like the idea. If you reduce the ability of bad teams to get better, you discourage deliberately going from 4th in the division to 5th, which is a good thing, but you also hurt a team that is legitimately trying to win but is snakebit.

The Expos/Nats were run by Loria then MLB for some time, and started winning reasonably quickly once they had more normal ownership, but without the consecutive #1 picks that became Strasburg and Harper, I’m not sure the Nats would have been a winning team by 2012, even though they had rich owners and a new stadium. You’ve got to let teams that are bad by accident become better.

4 years ago
Reply to  tz

Not sure how fair something like that would be. Baltimore had the worst record last year but they actually did try to compete – holding onto Machado, signing Alex Cobb and Andrew Cashner. They actually chose not to tank even though many experts thought they´d be better off blowing the team up. They ended up with the worst record because bascially eveything that could go wrong, did go wrong for them last year. And their “reward” for all that is you want to take away the #1 overall pick in the draft from them?

On top of that, there are some really weird incentives that are created. Do you trade Machado in the middle of the season or not? If you don’t trade him, you lose out on some prospects that can help you rebuild. If you do trade him, you might end up with the worst record and therefore lose the #1 overall pick. (of course, you could also end up with both happening…you don’t trade Machado and you still end up with the worst record).

I could see some sort of NBA style draft lottery among the 10 worst teams. But stripping the #1 draft pick seems overly harsh.

4 years ago
Reply to  emh1969

The MLB Draft is enough of a lottery in its own regard. Inbound talent is so hard to evaluate and project compared to the NBA.

Looking at the best everyday players in terms of fWAR in 2018 who were drafted, 4/5 were first rounders, but none went first overall. Bregman went 2nd, Lindor went 8th, Trout and Yelich were both in the 20s. Oh, and Mookie Betts was a 5th round pick.

I recognize that this is a small sample of players, but we all know that it’s fairly representative of the league body. Most good players go in rounds 1-3, but plenty of 1s bust inside and outside of the top 5-10 picks. So what value is there really in making sure that you lose 60 games rather than 65? Do we think that teams actually can actively control that level of deviation over 162 games?

It’s also worth noting that tanking is nowhere near as prevalent as the union and its proponents like to pretend, especially when compared to the NBA. Here are the Wins totals for the four teams noted that the MLBPA filed a grievance against:

97, 90, 82 and 63

Even the Marlins and their 63 wins were actually trending to push 70 wins after going 26-27 in June and July, before a disastrous 7-19 August.

As much as conspiracy theorists (and union representatives) like to pretend that we know exactly who is and is not trying, or who is purportedly “actively try(ing) to get worse”, such as the Cleveland Indians, we really don’t.

To recommend that teams who finish poorly be penalized because we assume that they aren’t trying is beyond presumptuous. It’s self-righteous.

4 years ago
Reply to  oozyalbies1

Sure the draft is a bit of a crapshoot but there’s still value to be had in having the highest pick possible. Using Baseball Reference, here’s how much WAR the top 10 picks in the draft have produced so far:

#1: 1047.9
#2: 688.3
#3: 580.6
#4: 573.0
#5: 406.2
#6: 567.4 (Bonds effect)
#7: 383.8
#8: 282.1
#9: 269.3
#10: 484.6

So other than the #6 pick (which is greatly influenced by Bonds) and the #10 pick (which is a combo of players led by McGwire), you basically have a straight line between pick position and overall WAR.

4 years ago
Reply to  emh1969

Definitely a fair point. While I still don’t think player performance / development for those picked at the top of the draft is nearly as guaranteed in baseball as the NBA, you’re correct that, objectively, the earlier a player is picked, the safer they are, especially when you’re picking in that area over a sustained period.

I do maintain that assumptions regarding who is and is not trying are dangerous.

Specifically on the Indians, to say that they are actively trying to get worse is plain snarky and, I think, unfair. They lost Brantley and Allen, who was underwhelming in 2018, in FA, and haven’t necessarily sought out any of the more high profile (aka expensive) replacements available. They did add Bauers as a 1B/OF option, and replaced EE with Carlos Santana (and HanRam) at 1B/DH.

Otherwise, as far as their shopping of Corey Kluber, while it’s unconventional for a contending team to trade a top SP, especially in this environment, perhaps they see something (which a lot of us do) in his peripherals that indicate a decline is coming (or is already underway) and they were trying to cash in while his value was still such that he might return multiple top prospects. Obviously the return offers weren’t sufficient enough for them to sacrifice short-term win potential for the long-term.

But I think those are important, honest conversations that all teams should have regarding aging players without being typecast as “cheap”.