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.
Craig Edwards can be found on twitter @craigjedwards.