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Follow the money


Oct 24, 2002
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Credit: ESPN.com

Thursday, March 20
Follow the money
By Darren Rovell

When Oakland A's owner Steve Schott said earlier this week that he would be unable to re-sign Miguel Tejada after this season, the rationale for baseball's revenue-sharing system took a hit.

The approximate $12 million that the A's expect to receive for this season, Schott predicted, just isn't enough to make the small-market team competitive in open bidding for last season's American League Most Valuable Player.

"The agreement doesn't come close to fixing the system," Schott told the Los Angeles Times. "When you're not even in a position to make an offer to a kid who has been in our organization since he was 17 and is like a son to us, it's not fair."

Soon after baseball's owners and players settled on the terms of a new Collective Bargaining Agreement last August, commissioner Bud Selig said fans should expect a strict luxury tax plan and increased revenue-sharing to bring competitive balance to the game.

Since money has yet to change hands under the new agreement and the games that count still have not been played, it's too early to tell if the agreement will do anything more than allow team owners to share the wealth. As revenue-sharing steadily increased from $50 million in 1996 to $169 million last season, the fans' focus has been on those teams on the receiving end, as talk show radio hosts and columnists intimate that too many teams at the bottom have used the money in the past to achieve greater profitability.

"I keep reading in certain newspapers that clubs weren't spending that money on players," Selig said. "That's just sheer nonsense. We went through and traced every single revenue-sharing dollar and couldn't find one club or one dollar that hadn't been spent on player development of a team."

But, according to financial projections of major-league teams' payrolls made by ESPN The Magazine, the Padres will spend $15 million less than last year on their 40-man roster, while the Royals slashed their payroll by approximately $9 million and and the Pirates reduced theirs by $2 million.

These receiving teams will have to show that they used the funds they received -- a total of $258 million for the 2003 season -- "in an effort to improve its performance on the field," as spelled out in the new agreement. Should they not present sufficient evidence that they have done this by April 1, 2004, Selig has the right to impose penalties on the teams.

Though Selig's minority stake in the Brewers is held in trust while he serves as baseball's commissioner, it's not clear how strictly the league will enforce the mandate. Interestingly, the Brewers trimmed their 40-man payroll costs by more than $10 million this season, according to estimates.

Royals president Dan Glass declined to comment on how the Royals' reduction in payroll will help make the team more competitive and Devil Rays owner Vince Naimoli did not return calls seeking comment.

Part of the problem is that the "Revenue Sharing + Luxury Tax Threat" equation doesn't automatically correlate to greater competitive balance. If higher payroll teams spend less and lower revenue teams spend more, there's no mathematical law that stipulates a direct relationship between payroll and competitive balance.

Last year, thanks to wise decision-making and an excellent farm systems, the Minnesota Twins, despite only a $41.3 million payroll, played the Oakland A's, who had a $41.9 million payroll, in the American League Division Series. The Twins then moved on to play the eventual World Champion Anaheim Angels, whose $62.8 million payroll ranked 15th in league spending.

In all, only three of the 10 highest-spending teams -- the New York Yankees ($133.4 million), Arizona Diamondbacks ($103.5 million) and San Francisco Giants ($78.4 million) -- made the playoffs last season. Three other teams with at least a $100 million payroll -- the Boston Red Sox ($110.2 million), Texas Rangers ($106.9 million) and Los Angeles Dodgers ($101.5 million) -- failed to make the cut.

"It's not only about high payrolls," said Dave Dombrowski, president and general manager of the Detroit Tigers. "A larger payroll can cover up mistakes and injuries, but wise decision-making is equally as important."

The luxury tax worked so well to restrain high spending during the offseason that the union requested information from the league related to offseason signings, presumably to investigate possible collusion. Only the New York Yankees and Mets -- who will pay approximately $8 million and $2 million, respectively -- exceed the $117 million threshold for their 40-man roster that triggers the luxury tax.

If the luxury tax is working now, it should continue to be effective when the tax is increased from 17 percent this season to 22.5 percent on payrolls more than $120.5 million in 2004. And in 2005, if repeat violators exceed the threshold for the third year in a row by exceeding a $128 million payroll, baseball will levy a 40 percent tax on every dollar over that amount.

But as revenue sharing increases by $91 million this season to $258 million, tracking how small-maket teams spend their share could be difficult.

Dombrowski, whose 25-man payroll has remained steady from last season at around $56 million, said judging team spending based on player payroll alone is deceptive. "Our game has a lot of hidden costs and some of those costs involve the money a club spends on player development," he said.

A reasonable, hard payroll floor was not agreed to when the league was negotiating with the union. The owners suggested a 40-man payroll floor of $45 million, but the floor wasn't perceived to be a real value, since only the Devil Rays would be forced to meet it in 2003. While the union didn't agree to the floor in part for fear it would lead to a cap, some owners believe in the philosophy of making sure teams are spending the money they receive from revenue sharing.

"I'm really for (a floor) because competition is what sells," Arizona Diamondbacks managing partner Jerry Colangelo said. "People want to see outstanding games and sometimes you need to force an owner's hand."

Other executives say they believe, despite fan pressures, owners of lower-revenue teams should have the option of pocketing the money.

"I'm regrettably certain most of the money goes towards player development and gets spent," Atlanta Braves president Stan Kasten said. "I'd rather see a team with $20 million in losses take $10 million in revenue sharing and use it to stem the tide of their losses, but everyone always thinks that they are one player away. My preference is for these teams to break even first because the bad business of others reflects negatively on the entire business."

Some say the luxury tax combined with increased revenue sharing and an economic slowdown gives fans of have-not teams the best hope they've ever had for competitive balance.

"In the old agreement, there was risk of a runaway effect, where three or four teams would spend a lot and have a large margin for error, while others would spend little and have almost no margin forever," said Admin Baer, the San Francisco Giants' executive vice president. "I think that could change."

Fans see raising payroll as one sign that an ownership group cares about building a champion.

"Credibility is very important," Baer said. "If you are in a situation where the perception is that you are attempting to shut it down, there's going to be erosion at the gate. Fans have to know that you are committed to being in the heart of the race."

One team that has finally skirted criticism this season is the Minnesota Twins. Owner Carl Pohlad was torched by fans and media alike for skimping on payroll while taking in money from the larger revenue teams. The Twins' payroll for the 2003 season will be approximately $55 million, up from the $16 million he spent on the team in 2000. The Twins had a $27 million payroll in 2001, and last year spent $41 million on its players.

"The raising of the payroll is a result of our commitment to keep a core group of players intact for as long as possible," team president Dave St. Peter said. "Despite our low revenues, our ownership is committed to winning in order to ensure the future viability of this team."

St. Peter said the team will lose more than $10 million this season. But team executives believe spending $88 million to re-sign Joe Mays, Brad Radke and Torii Hunter could pay off when they launch their own sports network, Victory Sports, which will telecast Twins games next season.

"It's too early to tell if this new system is going to work," St. Peter said. "We know we're not going to get to keep everybody."

Selig is confident the luxury tax and revenue sharing will have a positive effect on competitive balance.

"If we don't have revenue sharing from 1996 on, (the Anaheim Angels) never make it and they never put their team together," Selig said. "It was the first thing that bore fruit from our revenue-sharing deal and you're going to see a lot more of that in the coming years. I don't think people understand how dramatic the economic landscape of this sport has been changed."

Darren Rovell, who covers sports business for ESPN.com, can be reached at darren.rovell@espn3.com

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