Academic journal article The Sport Journal

Is Revenue Sharing Working for Major League Baseball? A Historical Perspective

Academic journal article The Sport Journal

Is Revenue Sharing Working for Major League Baseball? A Historical Perspective

Article excerpt

Revenue Sharing in Major League Baseball

In the last decade, Major League Baseball (MLB) has witnessed the dominance of the same few teams during the regular season. The Yankees have reached the World Series six times and have won four championships in the past ten years, while the Atlanta Braves reached the World Series five times in the 1990s. The Red Sox have won two championships in the last five years, and a glance at the end-of-year standings shows slim differences in division winners. Some studies (Schmidt & Berri, 2001) have argued against the popular contention that MLB competitive balance is on the decline. However, the imbalance, real or perceived, has caused dissatisfaction in many fans and owners, and is often mentioned as the biggest problem facing the game (Lewis, 2007 and Lewis, Sexton, & Lock, 2007).

In 2000, The Blue Ribbon Panel, an independent panel appointed by MLB Commissioner Bud Selig to look into the issue, cited 'the large and growing disparity between what are called local revenues' (Levin, Mitchell, Volcker, & Will, 2000, p. 6) as one of the reasons for the chronic lack of competitive balance. Local revenues consist of gate receipts, local television, radio and cable rights fees, ballpark concessions, advertising and publications, parking, suite rentals, postseason, and spring training. In a 2007 study, Gennaro found that local revenue contributes 70-80% to a team's total revenue. Therefore, economic factors such as attendance, per capita income, and other Standard Metropolitan Statistical Area census figures are largely responsible for the level of total revenue baseball teams receive.

The latter is a problem because all teams participate in the same national labor market. MLB does not have a salary cap; therefore, a team can spend any amount they wish on their payroll. The teams with the most revenue have the most available funds and are therefore able to make offers that cannot be matched by lower revenue teams. The amount of a club's revenue is considered a key factor in determining the amount of that club's payroll, and it has been argued that the size of a club's payroll is the most important factor in determining how competitive the club will be (Levin et al., 2000, p. 36, and Hall, Szymanski, & Zimbalist, 2002).

The Blue Ribbon Panel found that "these problems have become worse since 1994 and unless addressed seem likely to remain severe' (Levin et al., 2000, p. 1). The panel went on to suggest that the commissioner should instate revenue sharing, a competitive balance tax, central fund distributions, as well as a competitive balance draft, and should allow franchise relocation. In 1997, MLB officially granted the commissioner new powers to distribute the central fund revenues in unequal amounts, as opposed to the previously used method of distributing these central fund revenues equally. More recently, in October of 2006, MLB and the players association reached a five-year agreement on the revenue sharing policy. The agreement requires all 30 teams to pay 34% of their local revenues into a common pool, and that pool is split evenly among the 30 teams (Jacobson, 2008, p. 1). In 2007 alone, $312 million of wealth was transferred from high to low revenue teams (Fatsis, 2006, p. 2).

The system of revenue sharing, however, has instilled much controversy within the league. 'The big clubs say some teams simply shouldn't get the money' (Fatsis, 2006, p. 1). Their argument is that certain teams have not shown that they are actually using the proceeds from revenue sharing to improve performance. Rather, they claim some owners hoard the profits while their teams' struggles amplify. The Kansas City Royals are the epitome of this argument. Since 2000, Royals' ticket sales have declined 18%, while the team valuation has increased from $96 million to $282 million (Vardi, 2007). The Royals' revenue sharing proceeds have doubled since 2002, while their payroll has increased only 6% annually. …

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