Postscript on Postseason Revenues

Last Friday I wrote this post in which I estimated the amount of postseason ticket revenue to be shared among the Commissioner’s Office, the postseason teams, and the players on each postseason team. The Friday post linked back to another one I wrote in early October in which I explained the formulas used by Major League Baseball to divide postseason ticket revenue. Those formulas were agreed to by the owners and players in the Collective Bargaining Agreement that went into effect for the 2012 season, and will govern through the end of the 2016 season.

In the comments section, several readers asked about revenue generated by concessions during postseason games and by sales of postseason-related merchandise. They wanted to know if those revenues were shared among the Commissioner’s Office, the postseason teams, and the players on postseason teams using the same formula. The short answer is: No. The long answer is that concession and merchandise revenue are shared among all 30 teams, not just the ten teams in the postseason.

Now I will explain the longer answer.

It all starts with the Revenue Sharing Plan in the Collective Bargaining Agreement. The Plan, set out in detail in Article XXIV, creates the mechanism by which the wealthiest major league teams share a portion of their “revenue” with the poorest major league teams. The magic is in Section A, which delineates the kinds of revenue that are subject to the Revenue Sharing Plan and the kinds that are not.

The first key definition is for “Defined Gross Revenue” in Section A(3):

the aggregate operating revenues from baseball operations received, or to be received on an accrual basis, as reported by each Club on an annual basis in the Club’s FIQ [Financial Information Questionnaire]. “Baseball Operations” shall mean all activities of a Club that generate revenue.

One of the activities of a team that generates revenue is operating concessions during home games, including postseason games. The money generated by concessions is included in “Defined Gross Revenue.”

But teams don’t report and share “Defined Gross Revenue.” Instead, they report and share “Net Local Revenue,” which excludes each team’s stadium-related expenses and what’s called “Central Revenue.” This is where the revenue from merchandise sales comes into play.

As defined in Section A(4), “Central Revenue” means:

all of the centrally-generated operating revenues of the Major League Clubs that are administered by the Office of the Commissioner or central baseball including, but not limited to, revenues from national and international broadcasting
agreements (television, cable, radio and Internet) . . . and national marketing and licensing.

“National marketing and licensing” includes merchandise with official MLB and team names, logos, and designs. Every jersey, every t-shirt, every sweatshirt, every key chain, every cap — every product with an official MLB logo sold by the 30 teams — generates Central Revenue. That includes all merchandise with the terms “World Series,” “NLCS,” “NL West Division” and so on. And Central Revenue is shared equally by all 30 teams. So the more “San Francisco Giants World Series Champions 2012” t-shirts sold by the Giants, the more money for other 29 teams, as well.

Are you still with me? Here’s the takeaway:

• Concession revenue from postseason games is subject to Revenue Sharing.

• MLB-sanctioned merchandise sales are not subject to Revenue Sharing.

One more point to close the loop. We started this discussion several posts ago with the question of how postseason ticket revenue is divided among the Commissioner, the postseason teams, and players on the postseason teams. On Friday I estimated how much money each postseason team would receive based on the number of postseason games played, the price structure for each postseason game, and the number of tickets sold at each price point. For example, I estimated that the Giants would earn approximately $20 million in postseason ticket revenue. Whether it’s $20 million, $15 million or something in between, that postseason ticket revenue is not subject to Revenue Sharing. The Giants get to keep all of the money. To the victors go the spoils.