A’s Revenue Sharing Money Heads Back to the Yankees

A lot of time and words are spent here and elsewhere on the split of baseball revenue between players and owners; we spend less time comparing revenue between franchises. Sure, we make distinctions between small-market teams and large-market teams, putting the Yankees and Red Sox in one corner and Cleveland, Kansas City, and Pittsburgh in another. But we don’t spend a lot of time talking about what that actually means. There are a few good reasons for that. One is that we don’t have access to much of the data that would make meaningful analysis possible. But I suspect the main reason is probably that fights between billionaires who don’t take the field aren’t that interesting to a lot of fans. Add in rising revenues and $50 million windfalls from MLBAM, and for some, exactly how much money owners have isn’t all that important when we just know that they have a lot.

Many fans don’t even care about the fight between millionaires and billionaires. That’s their prerogative, but it’s important to consider these things carefully. The latest CBA wasn’t just a loser for the players for the obvious reasons, those were multiple: a competitive balance tax that barely increased, tax penalties that get progressively worse, small minimum salary increases, no universal designated hitter, only minor changes to free agent compensation, no concessions when it comes arbitration, no additional roster spots, hard international spending limits, and no help at all for the minor leaguers. The CBA also hurt the players when it comes to revenue sharing.

Wendy Thurm’s post from 2012 does a good job explaining the system under the old CBA and it is worth revisiting, but in sum: Teams took 34% of their net local revenue (local revenue minus stadium expenses), pooled it together, and divvied it up equally among all the teams. This was the base plan, and as is probably obvious, teams like the Yankees paid more into the pool than they received as part of it. There was also a supplemental plan. A pool of 14% of total net local revenue is created, with revenue taken from big-market teams like the Yankees and Red Sox and given to small-market teams like Pittsburgh and Tampa Bay. The supplemental plan worked to take a greater percentage away from high-revenue teams like the Yankees, and give it in higher percentages to the small-market teams.

Here’a a hypothetical under the old system.

  • Total Local Net Revenue is $3 billion, averaging $100 million per team.
  • Yankees Local Net Revenue is $400 million
  • A’s Local Net Revenue is $50 million

Under the old system, 34% of the *total* local net revenue is $34 million per team. For the Yankees, 34% of their local net revenue is $136 million; they end up making a net payment to the pool of $102 million once their distribution is taken into account, bringing other clubs up to $34 million. For the A’s, 34% of local net revenue is around $17 million; they end up receiving around $17 million in revenue sharing from the pool. Under the supplemental plan, 14% of $3 billion is $420 million. The Yankees pay about a quarter of that total with the Red Sox, Dodgers, Cubs, and Mets paying another 50%, so the Yankees put another $105 million in the pool. The A’s receive around 8% of the supplemental pool, so they get another $34 million to up their total to around $51 million. The Yankees end up with $193 million in net local revenue minus revenue sharing and the A’s end up with $101 million in net local revenue plus revenue sharing. These numbers are meant to be illustrative and provide a rough example of how revenue sharing worked.

The current CBA is much simpler, with a single 48% pool divided equally so that the same percentage of revenue is shared, but it is distributed differently. It takes less money away from the richest teams by eliminating the supplemental pool. In the example above, every team gets $48 million from the pool. The Yankees 48% figure comes to $192 million, so that they pay in $144 million. The A’s 48% figure is $24 million, so they receive $24 million. In this scenario, the Yankees get to keep a lot more of their money and the A’s get less. While we don’t know what the actual numbers are, the A’s did receive more than $30 million in 2015 and 2016, and at one time expected their 2019 payment to be greater than $40 million. The A’s won’t be getting that $40 million, however, as they will receive just a fraction of that amount. Most of that $40 million will stay with the Yankees, Cubs, Red Sox, and Dodgers.

In the last CBA, which went from 2012-2016, MLB phased in restrictions on teams receiving revenue sharing payments. All teams started on equal footing, able to receive revenue sharing based solely on their local net revenue numbers. (The Marlins were treated slightly differently, essentially unable to collect in 2012 after refusing to spend any money prior to 2012, resulting in a threatened grievance by the players.) The CBA phased in restrictions so that larger-market teams could only collect a portion of the revenue sharing owed to them, and by the time the new CBA rolled around, none of the large-market teams were allowed to collect revenue sharing money if their revenue was low except for the A’s, who despite their famously spendthrift ways and decaying ballpark, signed a billion dollar local TV deal in 2009. They’re low-revenue due to their stadium issues, but not quite small-market. The A’s were given an exception under the previous CBA, so that the restrictions didn’t apply until the team got a new ballpark. The new CBA removed those restrictions and began phasing in reduced revenue sharing payments for the A’s. Per the CBA:

Notwithstanding the foregoing, the revenue sharing disqualification of the Oakland Athletics shall be phased in as follows: 25% disqualified in the 2017 Revenue Sharing Year; 50% disqualified in the 2018 Revenue Sharing Year; 75% disqualified in the 2019 Revenue Sharing Year; and fully disqualified in the 2020 and 2021 Revenue Sharing Years.

This means that if, for example, the A’s had received $40 million in revenue sharing in 2016, they would only have received $30 million in 2017, then $20 million last year, $10 million this year, and then would get nothing in 2020 and 2021. So who gets the A’s money? The teams paying into revenue sharing receive it, but there’s a catch: teams get more money if they don’t go over the competitive balance tax.

Let’s say the Yankees pay about 20% of the money in revenue sharing that goes to other teams. That means that for next season, they will receive $6 million more dollars than they would have because the A’s can’t receive revenue sharing. The Dodgers will get something less than that. The Cubs, too. The Red Sox will receive 75% of their potential share because they will have gone over the tax threshold two years in a row next season. In 2020 and 2021, the clubs stand to gain even more money. Even If the Yankees go above the tax threshold the next two seasons, they might end up holding on to around $15 million that would have gone to the A’s in the previous CBA. That money might make its way to players, but given the incentives here and the teams publicly stated desires to stay under the threshold, there’s cause to be skeptical.

The amounts we are dealing with aren’t huge sums, but they are an added benefit to keeping spending low despite having to pay significantly less in revenue sharing. These aren’t speculative amounts if some big market team have lower revenues. We know where Oakland will be the next few years. And it isn’t just Oakland that ends up with less money, though they certainly bear the brunt of the losses. All of the lowest-revenue, smaller-market teams are likely receiving less money from revenue sharing than they used to under prior CBAs. It’s not an excuse for Cleveland to cut payroll given the increases in national television money, but it is likely that the have-mores are taking a bigger piece of the revenue pie than the have-a-decent-amounts.

Ahead of the last round of CBA negotiations, I thought there would be a fight among the owners over revenue sharing. Likely because the players didn’t demand enough concessions, that fight never took place. Small-market teams were willing to take less revenue sharing because negotiations with the players were too easy, and national revenues from television deals and money from MLBAM were good enough at the time. It’s not a big part of the player loss in the last CBA, but it doesn’t help when the teams with more money refuse to spend it. Revenue sharing might not seem like an important issue for the players, but spreading money around might have yielded a bit more spending at the bottom of the league.

We hoped you liked reading A’s Revenue Sharing Money Heads Back to the Yankees by Craig Edwards!

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Craig Edwards can be found on twitter @craigjedwards.

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williamnyy
Member

I have written about this topic extensively, so I am very happy to see it mentioned here. Everyone focused on the new luxury tax rules in the new CBA, but they missed the revised revenue sharing scheme. Essentially, the large markets were bought-in to a more highly taxed system in exchange for sharing less revenue. The result is big markets, especially the Yankees, get to tell fans how restrictive the luxury tax is while keeping a larger percentage of their revenue. The result is the plummeting percentage of revenue spent on payroll, as depicted in this chart: https://tinyurl.com/y7kp772n

Johnston
Member
Johnston

Nice chart. That’s a good business practice by the Yankees. Whether or not it’s good for baseball is another question.

docgooden85
Member
Member
docgooden85

People are constantly confusing what is advantageous with what is right. Profit maximizing is not a virtue, it’s just profit maximizing.

williamnyy
Member

You’re right. Prioritizing profit may not be an evil, but it also isn’t a virtue. I would be more sympathetic to the argument that sports teams are also a business that deserves to make money if only so much of that business wasn’t built off of false claims, both legal and social, of being a public trust. Let’s take the Yankees again, for instance. Their bottom line is padded by a federal anti-trust exemption and a (now illegal) tax preferred/free financing structure of Stadium debt. These advantages have been secured under the premise that the team is a civic institution worthy of special treatment. If owners want to play the “business card”, then maybe they should agree to start acting more like one when it comes to competition and regulation of expenses.

Shalesh
Member
Shalesh

What benefit exactly does the anti-trust exemption afford the Yankees or MLB in general? What do they get out of it that leagues like the NBA, NFL, and NHL don’t?

Dave from DC
Member
Member
Dave from DC

Many years ago I read Andrew Zimbalist’s _May the Best Team Win_ on the consequences of baseball’s antitrust exemption. I’ve been meaning to re-read it but haven’t yet, so I’m drawing rather tenuously from memory here, but I think one of the main concerns was how owners who also have a stake in the media company which broadcasts games or other team-related entities can fudge their profit numbers, making it seem like the team itself is less lucrative than it really is. From the book: some “franchises are owned by media companies that have shackled their team to lucrative broadcast and cable contracts–often making it impossible for fans to see games on television. Others own entities that do business with the teams, charging inflated prices for facility management, concessions, and catering. Complex intracompany transactions can reduce franchise revenues substantially, causing operating losses for teams while owners still make millions. Zimbalist estimates that tens of millions of dollars are sheltered from MLB revenue each year.”

The exemption also gives the league final say on issues over which owners in other sports have more control, like team relocation, and in theory allows the league to contract teams if it wishes. Back in the early aughts when Selig suggested contracting the Twins and Expos some members of Congress threatened to attack the antitrust exemption:
https://slate.com/news-and-politics/2002/07/why-does-baseball-have-an-antitrust-exemption.html

Finally, if memory serves it has a lot to do with the compensation and restricted movement of minor leaguers, but I don’t recall the details.

Edit: Ah yes, here it is: “The only thing that legally allows MLB to treat minor leaguers as a form of indentured servants is MLB’s presumed exemption from the nation’s antitrust laws. If the exemption were definitively lifted, then a minor league ballplayer could sue MLB.” He notes this is particularly important because there is no union negotiating on behalf of minor leaguers–they’re just screwed.

Shalesh
Member
Shalesh

Ok, so anti-trust has nothing to do with related-party transactions. Owners should take best/lowest bids.

Does it enable more team movement than other sports? I’m not sure: Expos move to Miami, Seattle Supersonics move to OKC, Raiders/Cardinals/Chargers move around every 10 years.

I didn’t know Zimbalist referred to minor leaguers as “indentured servants.” That’s ridiculous. Talented young baseball players are banging down the door to be drafted/signed by teams to receive professional development & training. No one is forcing them to take this deal. Sure, their wages are low, but again they receive free training, many of them huge sign-on bonuses, and if they’re successful, $550k as their entry-level salary. The NBA has D/E/F/G-leagues too and the NHL has the IHL, right? MLB doesn’t need an anti-trust exemption to do things other leagues do.

I don’t think MLB gains very much from anti-trust exemption. People use it around here like 12-year-olds use the vocabulary word of the day. Sounds smart, but doesn’t say anything.

Dave from DC
Member
Member
Dave from DC

It would be worth reading the book, I think. I’m not sure I am doing it justice after all this time. And I readily admit I can’t remember now how/if he links his appeal to remove baseball’s antitrust exemption to the question of related-party transactions. With that said, at least in one very specific instance, I disagree with your statement. Owners should not take the “best/lowest bid,” if one bid gives them a chance to pay themselves rather than someone else. To say nothing of the advantage in CBA negotiations that would result from using creative accounting to make it seem like you are losing money when you are not–that’s really the crux of the book. It’s important to note that it was written during the Selig years when teams were talking about losing hundreds of millions of dollars, and Congress and independent economic analyses were very skeptical of that claim.

Edit:

Wait, I found at least a small piece of the link between antitrust and related-party transactions. Zimbalist claims that having the exemption, which is valuable to MLB in a host of other ways he lays out, incentivizes misleading accounting practices. Politically, it is useful for baseball to seem less profitable than it is when the periodic Congressional saber rattling happens over whether the antitrust exemption should be removed. Anyhow, that’s all the time I have now to skim the book, but my recollection is that it argues persuasively that the exemption matters.

Takiar
Member
Takiar

The NHL has the AHL, and its minor league players are WAY better treated than their baseball counterparts.

On a percentage basis, very few baseball minor leaguers receive big bonuses, the vast majority is poor, eat badly because of a lack of options (even Vladdy Jr, with his money and family making him meals, said he often had nothing to eat but junk food, especially on the road) and sleep in cramped apartments.

Wonderful Terrific Monds
Member
Wonderful Terrific Monds

The antitrust exemption is basically hollow at this point, after the Curt Flood Act. Players can already sue MLB for antitrust violations and because of collective bargaining, the antitrust exemption has no functional impact on labor relations between owners/players. The exemption potentially has an effect on expansion/contraction, but in reality it doesn’t. There is no serious allegation that baseball is using its monopoly status to restrict output (i.e., reducing teams or reducing games) or charge supra-competitive prices for its product.

What’s interesting is that the exemption’s real power (if it has any) is that MLB collectively can control the acts of individual owners. For example, the exemption is a check on the ability of an owner to capriciously move his team to a new city without MLB consensus and it protects MLB from an antitrust challenge when it takes over a team from a “bad” owner, like it did to Frank McCourt.

As far as the exemption’s effect on minor league players, it’s vastly overstated. First, the exemption has no effect on whether minor leaguers unionize and collectively bargain. Minor leaguers can do that at any time. And other sports (like the NFL, NHL, and NBA) also allocate players by a draft and have minor leagues (for NHL/NBA), and they don’t have the exemption, so the existence of these things are not predicated on it.

But even if minor leaguers sued, they likely wouldn’t win under the rule of reason (a legal term for the test that this type of alleged antitrust action would be judged). This last point would be an article all its own.

Shalesh
Member
Shalesh

Thanks to both you and DaveDC for answering. I didn’t know it gave MLB a bit more power over Owner attempts to move a team. And Dave, I take your point on related-party transactions to show less profitability. We don’t know that it occurs, but we can see the motivation.

Dave from DC
Member
Member
Dave from DC

Kudos to you, Shalesh, and WTM as well for making me question my assumptions. Based on what you have said and a cursory reading of articles just now, it seems 2019 me isn’t as convinced by Zimbalist’s argument as 2007ish me.

Wonderful Terrific Monds
Member
Wonderful Terrific Monds

Dave – one other thing, and I can’t remember whether Zimbalist covered it. Some people hypothesized that baseball’s antitrust exemption is what allowed MLB’s blackout rules and allowed them to carve up the nation into regional media markets (i.e., that the antitrust exemption facilitated MLB’s media strategy).

But actually, MLB (and Comcast) were sued under the Sherman Act for this practice and the case was allowed to go to trial (the NHL was likewise sued in a separate case). Before trial, MLB settled the case making a number of concessions worth >$100MM.

In any event, my point is only to show another example where people have hypothesized that MLB gets some benefit from the antitrust exemption, but it actually doesn’t apply. (And moreover, even if baseball did get the benefit of increased media revenues from its exemption, then the players likewise benefit through their increased share of baseball revenues).

Wonderful Terrific Monds
Member
Wonderful Terrific Monds

Shalesh – one point about owners’ attempting to improperly show less profitability is that, because of revenue sharing, there are strong incentives for owners to police each other.

In other words, if one owner improperly hides profits, he’s taking money out of the pockets of other owners. Other owners and the commissioner don’t like that, and provide a powerful check against that happening. As well, the MLBPA likewise has the full incentive (and ability) to provide a check on owners who are improperly hiding profits.

Shalesh
Member
Shalesh

Ah, great point, Wonderful!

awy
Member
awy

by being the new york yankees. owning the name and uniform people cheer for.