Revenue Sharing debated

January 27, 200620 yr

http://www.kansascity.com/mld/kansascity/sports/13722385.htm

Posted on Fri, Jan. 27, 2006

Baseball revenue sharing debated

Royals say they need their $55 million to compete. Others wonder if it?s money well spent.By JEFF PASSANThe Kansas City StarThe first check arrives June 1 every year. No one in the Royals organization wants to talk about the money.

Last year, it was for around $20 million, the first of three payments the Royals would receive as one of the top beneficiaries of Major League Baseball?s revenue-sharing plan. Designed to encourage financial parity, revenue sharing is an exercise in socialism: the richest clubs give, the poorest receive and, baseball hopes, success kisses everyone.

According to two sources with knowledge of the numbers, the Royals received about $55 million last year ? more than $30 million coming from a central fund that distributes money to all 30 teams, and another $20 million-plus in revenue-sharing dollars given to teams with local revenues below the game?s average.

That the Royals could more than cover their $36.9 million payroll last year by simply existing is a microcosm of baseball?s growth from $1.2 billion a year in revenues when commissioner Bud Selig took over in 1992 to nearly $5 billion last season.

Bull markets do have their drawbacks, though, and Kansas City could prove center stage for baseball?s most important debate of the year. The Royals are among a handful of teams that have drawn criticism for carrying small payrolls while receiving large revenue-sharing payments. And with the league?s collective-bargaining agreement expiring in December, experts agree: Revenue sharing will likely be the most hotly contested issue during negotiations.

?This snapshot ? you got this much, and your payroll is this much less ? is such a Mickey Mouse, unfair form of analysis,? said Rob Manfred, baseball?s executive vice president of labor relations. ?I think the toughest job in the game remains being the general manager and owner in a small market.?

The Royals agree. Owner David Glass said every dollar the team receives from the league goes into baseball operations, as the collective-bargaining agreement stipulates it must. Glass said while all of the money does not go into major-league payroll, it helps pay for scouting, signing bonuses and other aspects of player development.

?Teams have to be accountable to themselves for spending the money to become competitive,? Glass said. ?If I were a high-revenue team paying revenue sharing, I?d want the recipient to use the money to make themselves more competitive. If (other teams) tried to dictate that, all you?re going to do is drive up the market. Teams have to manage their own needs.?

On one side of the revenue-sharing argument sit teams such as the Royals, Pittsburgh Pirates and Tampa Bay Devil Rays, who have spent thriftily, lost consistently and still enjoy support from the majority of owners. These teams would like an even greater slice of revenue sharing.

On the other side are a minority group of owners and the players? association. They scoff at a system in which a team such as the New York Yankees paid an estimated $75 million in revenue sharing last year and lost money, while the Royals received more than $20 million and made money.

?This was a system that?s supposed to create competitive balance,? said Andrew Zimbalist, an economist who has consulted with Major League Baseball. ?If all it does is take $20 million or $30 million from one team and give it to another, it might make David Glass happy, but it doesn?t do anything for competitive balance. The system right now penalizes success and rewards failure. It might sound clever, but it?s true.

?The Royals are an example of a team that has benefited from the dole in baseball. Insofar as if you can say there?s welfare abuse from laziness anywhere in our country, they?d be a potential candidate.?

As the debate grows in the coming months, Glass plans to be a loud voice for small markets. Yes, the Yankees lost money, while the Royals turned a modest profit. But, the Yankees doled out $208 million in player payroll, about $170 million more than the Royals. If Kansas City stands a chance against such a behemoth payroll, Glass said, then revenue-sharing money is the rock to load in its sling.

Since baseball?s first revenue-sharing plan in 1997, the Royals have ranked in the bottom one-third of the league for payroll each season. In five of the last seven years, they were among the bottom five teams.

The Royals have declined to share financial records showing how they have used revenue-sharing dollars, but they chafe at the idea that they have pocketed the money. If they did so, officials argue, it would have surfaced in baseball?s yearly audit or the players? association annual look at their books.

?I believe the vast majority of people in the industry accept revenue sharing as a necessary component of our economic landscape,? Manfred said.

And that?s because there have been revenue-sharing success stories. The Los Angeles Angels ? now among the contributors ? received money when they won the World Series in 2002. A year later, the Florida Marlins won a championship with more than $20 million in revenue-sharing funds.

When baseball first discussed the idea of revenue sharing in 1993, the landscape was barren. Only $10 million was distributed among 28 teams. By then, each NFL team received almost $33 million in national television money.

Next year, with new television contracts, that number will jump to $125 million per NFL franchise. Baseball is banking on a new national TV deal after this season and the potential stock sale of the lucrative MLB.com to swell its central fund. Large enough, ideally, that one day the sport won?t take from one team and give to another.

?Look at it this way: You pay taxes if you have income, right?? said John Yee, chief financial officer for the San Francisco Giants. ?We?d rather be in a position where we are successful and revenue sharing is in place and voted on than needing to receive money.?

Just because a team contributes to the revenue-sharing pool doesn?t mean it is profitable. In 2004, the Yankees, Angels, Boston Red Sox, Los Angeles Dodgers and St. Louis Cardinals shared three qualities: They made the playoffs, they contributed revenue-sharing dollars and, according to Forbes Magazine, they lost money.

Of the eight playoff teams in 2004, only the Atlanta Braves and Houston Astros made money.

?I?m tired of it,? Yankees owner George Steinbrenner told USA Today last spring. ?We keep carrying everybody else and get outvoted (by the other teams) all the time. But that?s the way it is; it?s like a socialist state. That?s the way they wanted it, that?s the way they got it.?

The sniping goes both ways. Pirates owner Kevin McClatchy called for discussion of payroll spending reform during the next negotiations ?because these guys can?t control themselves.? And that came in January 2005, almost a year before the Toronto Blue Jays threw a combined $102 million at pitchers A.J. Burnett and B.J. Ryan.

?There?s always going to be give and take,? one owner said. ?Given the different interests of the different teams, there?s got to be some. But we did make progress last time.?

Still, that won?t limit the suggestions that crop up during collective-bargaining negotiations. Owners will bring up a minimum and maximum payroll, to which the players? union is vehemently opposed. The players? association will wonder how the percentage of revenue invested in payroll plummeted from 67 percent in 2002 to around 50 percent currently.

And sometime, while revenue sharing is on the table, a large-market owner could make this point brought up by agent Scott Boras: If an owner purchases a small-market team at a fraction of the price of a big-market team, why should the smaller team be entitled to an equal share of revenues?

?We have a responsibility,? Boras said, ?where there should be a platform that says if an owner is unsuccessful for a long time, there should be a mandate given to him about his ability to stay in the league. That may give him (the incentive) necessary to stay competitive.?

Consecutive 100-loss seasons convinced Glass to raise the Royals? payroll in 2006. He said the team would spend $50 million. As of today, assuming Emil Brown wins his arbitration case and including Scott Sullivan?s $300,000 buyout, it projects to around $45 million ? less than the $47.9 million the Royals spent two years ago.

Glass said early calculations show the team will lose money in 2006, even after central-fund and revenue-sharing payments, which figure to be more than the $55 million-plus from last season.

Low payrolls haven?t stopped the Royals? value from nearly doubling since Glass officially purchased the team on April 17, 2000 for $96 million. Entering last season, Forbes appraised the Royals at $187 million.

Glass said franchise value is irrelevant. Just like the payroll-vs.-revenue sharing comparison, he believes the numbers can be deceiving.

?When we gave (first-round draft pick) Alex Gordon $4 million to sign with the Royals, we didn?t say it comes from advertising income,? Glass said. ?It all goes into the club. You?ve got payroll and player development and scouting. There?s a myriad of places it all goes.?

For four months last year, the Royals went back and forth with Gordon, trying to get a deal done. Suddenly, when general manager Allard Baird joined the negotiations in late September, they intensified. Gordon signed Sept. 29.

The Royals? final check, for nearly $20 million, arrived Oct. 1.

Very interesting stuff. Especially pertinent to the Marlins' situation as they forecast what revenue sources will be available in the near future and at what amounts for their future decisions on and off the field. I'd argue that one of the reasons why they made the moves they did was for some security in case they were to lose some amount from revenue sharing or other funds through the upcoming CBA.

P.S. That $30M is from national TV, merchandising (yep, all merchandising is split equally) and other MLBAM ventures.

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