Is This Heaven? No, It's I.O.U.: Why Major League Baseball Must Modify Its Current Revenue-Sharing and Luxury-Tax Procedures

By Golden, Zachary | Suffolk University Law Review, Winter 2011 | Go to article overview

Is This Heaven? No, It's I.O.U.: Why Major League Baseball Must Modify Its Current Revenue-Sharing and Luxury-Tax Procedures


Golden, Zachary, Suffolk University Law Review


"There's nothing wrong with a baseball team turning a profit. What is wrong is a baseball team that cries poor while posting 18 consecutive losing seasons turning a profit. This difference is why the Pittsburgh Pirates, whose financial data from 2007 and 2008, the 15th and 16th of those seasons ... are the target of such recrimination. While positioning themselves as the victim of 'the system ' and trading away an entire starting lineup, the Pirates have been one of the most profitable teams in MLB, pocketing $29.3 million in 2007 and '08 combined, years in which they cashed revenue-sharing checks for a whopping $69.3 million.'" (1)

I. INTRODUCTION

In August 2010, Deadspin.com, a sports and entertainment website, published leaked financial records for a number of Major League Baseball (MLB) clubs, including the Pittsburgh Pirates, Florida Marlins, Tampa Bay Rays, and Los Angeles Angels of Anaheim. (2) According to these documents, the Pirates, one of the league's worst teams, raked in an operating profit upwards of $14.4 million in 2008. (3) MLB's current revenue-sharing system aided in the Pirates' accumulation of such a robust profit margin. (4) These leaked financial statements served to demonstrate what many baseball commentators have bemoaned for years: the current MLB revenue-sharing system is clearly dysfunctional, as evidenced by the fact that smaller market teams are realizing substantial profits while remaining consistently uncompetitive. (5) Parties on both sides of the collective-bargaining process believe that the Pirates embody the "core problem" with a system that has been implemented over the last two decades, "step by arduous step." (6) In other words, the revenue-sharing structure that MLB ostensibly created to increase parity has simply produced "a welfare class of teams that can turn significant profits by keeping payroll down." (7)

The relationship between MLB owners and players has been notoriously rocky. (8) For over a century, both sides have been embroiled in a number of passionate labor disputes concerning everything from MLB's longstanding federal antitrust exemption to its infamous reserve system, and now revenue sharing. (9) MLB first implemented a revenue-sharing system to combat glaring payroll disparities between small- and large-market teams, which most owners believed to be the predominant source of competitive imbalance in the late 1990s and early 2000s. (10) under the system, money generated from local revenue sources is transferred from presumably wealthier, large-market teams, such as the New York Yankees and the Boston Red Sox, to smaller-market teams such as the Pirates and the Marlins. (11) MLB also employs a competitive balance--or "luxury"--tax whereby a team whose salary exceeds a predetermined threshold must pay into a central fund, which is then distributed to less wealthy teams based on financial need. (12) MLB implemented this tax with an eye towards an overall depression in player salaries, much to the dismay of the Major League Baseball Players Association (MLBPA). (13) The league's revenue-sharing system will undoubtedly be a major point of contention between the players and ownership, and quite possibly among the owners themselves, during the next collective-bargaining process. (14) Given professional baseball's long history of acrimonious labor negotiations, a smooth resolution seems highly unlikely. (15)

This Note will analyze the fundamental flaws in MLB's current revenue-sharing system, which has failed to bring about increased parity. (16) Part II.A will discuss MLB's formative years, including the genesis of its nonstatutory exemption from federal antitrust regulation as formed by the Supreme Court through a now-infamous trio of cases known as the "Baseball Trilogy." (17) These antitrust issues, and their relation to the National Labor Relations Act, which governs all agreements reached through collective bargaining, must be considered before any changes are made to MLB's current revenue-sharing structure. …

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