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.

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.

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.

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.