The History of the Current System for MLB Revenue Sharing and Luxury Tax—and What Needs Fixing

Honestly, I just don't think much needs to be done. You have many teams that don't WANT to compete so they collect the $200 Million check and then strive to win 80 games and make an operating profit. The teams that are doing it right aren't at all concerned about the operating profit and just want to increase the value of the brand. 

Are some of the owners not rich enough to do that? I guess, but why is that anyone's problem? They're holding onto a multi billion dollar asset that's earning a passive 10% and crying poor. 

Absolutely no salary cap should be agreed to. We might see increased revenue sharing and CBT thresholds or whatever, but the system is actually fine for the most part. 

The problem with the Dodgers isn't their payroll actually. They lucked out because 3 top Japanese talents all decided to play there regardless of salary. Ohtani is probably one of the most UNDERPAID athletes in the world, as hard as that might be to believe. Meanwhile they've been handing out fair market value contracts to complimentary players, like in their bullpen. 

As most post are going to be  , they will all concur a change of something is necessary for a balanced roster for all teams to be competitive  ...

Interesting.  Thanks for a lot of information that many of us didn't know. 

Professional sports leagues that require two or more parties to work together at every single event (game) need to share the resources or inevitable the market differences blow away the opportunity for relative competition.

I'm not sure (guess we know) how the New York or Los Angeles teams would feel about putting three additional teams in their market areas. New York has roughly 24 million people in the Greater New York or Tri-State area and the Greater Los Angeles area has over 18 million people. By comparison, the greater Kansas City area is around 2 million people. Putting 3 more teams in the New York and Los Angeles areas would still leave all of those teams with more access to revenues as per population than Kansas City.

Granted there are a number of teams that are either uninterested or poor in maximizing their regions economic potential to support the local baseball team as well as owners who are not active in working to put the best possible team on the field, which reduces interest. However it still takes two teams to play the game and the different sizes of markets is important.

The initial changes in sharing revenue were made before the media contracts became huge. Now it is very likely to be quite a fight to get all stadium revenues and media monies put in a pot and distributed evenly across all teams. Sharing 50% of your media revenues is not anywhere near sharing. If the Twins share their media money of say $80 million (is it that much?), they keep $40 million. If Los Angeles shares their media money of say $300 million (Is it more?), they keep $150 miilion. Sharing as we can see is not exactly sharing but more like when I give myself 75% of the chocolate bar and kindly hand my girl friend the 25% left over.

Where this goes is a guess and it seems like a few of the teams who may be just collecting revenue checks without even attempting to invest or improve the fortunes of their teams is a problem too. Perhaps the biggest problem is the ongoing existence of the exemption that MLB has to the Sherman Anti-Trust Act, one of the weirder occurrences in legislative history.

The answer to this has always been easy, but the execution is extremely difficult:

The regional broadcast approach that baseball takes has created an uneven playing field for their teams.  A national, leaguewide broadcast approach similar to the NFL and NBA creates parity.  How else can a football team from Green Bay be insanely popular nationwide while (up until this year) a basketball team in New York be lost in the entirety of the sport.

Once you have a semblance of income parity, you can discuss salary caps, etc.  Baseball has dug this huge hole where a small handful of large-market teams drive the entire market.

The Twins sign Correa to a huge contract, and Minnesota news explodes for weeks.  If the Yankees signed Correa to that contract, it would be a normal Tuesday.

The local revenue is what drives the valuations of these teams. Drastic, even if it gradual, will decrease the value of those franchises. Somebody would have to pay for that. The current rule of 150% of shared revenue must go to payer contracts might to go down slightly. It needs to e in place as the Asro’s made 96 million one year in their tank to rebuild years.  NBA style 4 year graduated increase type contracts, and super max with the current team being able offer more would clean up a few things The George Steinbrenner idea of limiting free agent contracts to one year would be even better, but that is even more unlikely than a 4 year limit 

1 hour ago, Fire Dan Gladden said:

The answer to this has always been easy, but the execution is extremely difficult:

The regional broadcast approach that baseball takes has created an uneven playing field for their teams.  A national, leaguewide broadcast approach similar to the NFL and NBA creates parity.  How else can a football team from Green Bay be insanely popular nationwide while (up until this year) a basketball team in New York be lost in the entirety of the sport.

Once you have a semblance of income parity, you can discuss salary caps, etc.  Baseball has dug this huge hole where a small handful of large-market teams drive the entire market.

The Twins sign Correa to a huge contract, and Minnesota news explodes for weeks.  If the Yankees signed Correa to that contract, it would be a normal Tuesday.

Not to mention the "regional" approach makes no sense in our global world.

100% sharing of broadcasting money (video and audio). 0% sharing of in-stadium attendance-based revenue (tickets, concessions, parking). That's the way to incentivize teams to try to put fans in the seats.

I agree that something needs to be done, but I'm not sure what it is the best appropriate action.  I'll go through by subject on things that I see and some changes that could be made.  I'm not sure how this would affect the players and/or what concessions will need to be given to the players to get these though.

Deferrals: This seems to be a large contention point at the moment.  If I am reading Sportrac correctly, deferred contracts like Ohtani's are recalculated in full when calculating the luxury tax.  I'm unsure I want to take this tool away from the players as this is more of a personal income tax move that benefits the player more than it does the organization, especially if the full amount is still be used to calculate the luxury tax.

Luxury Tax: While we are on the topic, there are some tweaks to this that can be addressed.  I believe some of the other teams (Yankees, Red Sox, Phillies, Mets) abuse this system by paying a low luxury tax percentage the first year, a slightly higher amount the second year, then skirt just under the tax threshold the third year so the luxury tax penalties reset.  This should be tweaked to a rolling average of 3 in 5 or 4 of 5 years in order to trigger the more rigorous luxury tax penalties.  The concession to the players should be a luxury floor as well where if teams continue to abuse the floor, a percentage of their revenue sharing should be taken away as well.  Revenue sharing should be used for player salaries.

International Revenues: Another issue has been that there is a significant advantage in revenues from players, specifically Japanese players, generate 10s to 100s of millions of dollars to an individual team by signing up for networks like Sportsnet LA, YES, or Marquee for examples.  One tweak that could be made is that 100% of these international subscriptions should be the property of MLB and distributed to all 30 teams in addition to 48% the domestic TV revenues.  I don't know how much money this amounts to, but it would help reduce the vicious circle of paying for international superstars and essentially funding it by international subscriptions.  Tickets and merchandise sales should stay 100% with the club.

Others: Per McKibbin's article, which was linked above and definitely encourage to go read it, the Dodgers currently are exploiting a loophole which was specifically created for them at a time when they needed it.  They don't need it now and it needs to be closed.  Other penalties which can be addressed may be instead of dropping a team's position by 10 spots, just straight up taking away the draft pick.  Removing a team's international pool money could be another penalty.

Finally, unfortunately none of these ideas will actually help the Twins in the near or distant future.  We currently don't spend enough to attract the best talent consistently nor do we spend so little that an additional fusion of revenue sharing will actually help.  I would like to see more guardrails put into place so that all revenue sharing should be required to be used for payroll.

Pooling all of the broadcast revenues might have worked but it's complicated substantially by teams like the Yankees owning their own network, which generates substantial revenue for them, but can be hidden quite easily with various accounting tricks, much like Hollywood studios manage to have wildly successful movie somehow "lose" money so they don't have to pay anyone net participation points.

but they need to do something because the gulf has grown so wide.

the player's association isn't going to be much help on this either; they've been complicit for decades because as long as their top players keep getting massive numbers, they'll keep playing nice about luxury tax numbers and things like that. Their leadership wants LA, NY etc to have a big advantage to keep pushing the markets higher, and their leadership has been significantly controlled by the top players & their agents rather than representing the association as whole. Now, their version of "trickle down economic" has in fact resulted in higher salaries for the middle class, but you're also seeing some of those guys get priced out of the game sooner too. Expect that trend to get worse.

not sure what the solution is; the NFL's model works a lot more easily when you only have national TV contracts. the NBA's model has worked, but they're looking at some real problems with their model going forward, even with the increases in national TV contracts they've put together. (how many players can be "max" players in this size of a league? and look at how restrictive the "second apron" actually is for team salaries)

1 hour ago, jmlease1 said:

they've been complicit for decades because as long as their top players keep getting massive numbers, they'll keep playing nice

Complicit? This is just a terrible way to discuss it. They're not going to bankrupt a single owner, so the players are under no obligation to take a pay cut so cheap billionaires can make more money. And they'd obviously be under no obligation even if their fair pay would bankrupt an owner. I don't concern myself with how my salary affects my employer's bottom line. 

1 hour ago, jmlease1 said:

but you're also seeing some of those guys get priced out of the game sooner too.

I don't see that being the case at all. If a player is willing to work on a minor league contract, players can get work. I point to Jose Iglesias last season, as I often do. He signed a minor league deal and then forced his way onto a major league team and then became a huge difference maker. 

9 minutes ago, Karbo said:

Thats their job to put $$ into the owners pockets.

That's technically every employee's job. Now, if we want to move to a socialist system, I'm all for it. But I'd rather see that in real life than in sporting competition. 

1 hour ago, NYCTK said:

That's technically every employee's job. Now, if we want to move to a socialist system, I'm all for it. But I'd rather see that in real life than in sporting competition. 

The U.S. has never been further away from an equitable system than right now in its history and it is quite natural to see the big market teams lord it over the bottom 18-20. Expansion. Put three more teams in the New York area and another 3 more in LA and correspondingly in other big markets. Not going to happen. The Rays and Brewers are trying to compete but they get very little credit. I'm not sure Miami, Pittsburgh, and the CWS care. Same old, same old.

45 minutes ago, tony&rodney said:

The U.S. has never been further away from an equitable system than right now in its history and it is quite natural to see the big market teams lord it over the bottom 18-20. Expansion. Put three more teams in the New York area and another 3 more in LA and correspondingly in other big markets. Not going to happen. The Rays and Brewers are trying to compete but they get very little credit. I'm not sure Miami, Pittsburgh, and the CWS care. Same old, same old.

The world's richest man (and cosplay nazi) effectively leading the government is gonna do nothing but exasperate this issue. But it'll all be worth it as long as we give more tax cuts to those fearless job creators. 🫡

Everything in the article and in the comments is just fine and dandy.  But until they model their system after what the NFL does they will never be as successful as the NFL.  That's why the Vikings are worth $5 Billion and the Twins will be lucky to sell for a third of that. 

19 hours ago, Blyleven2011 said:

As most post are going to be  , they will all concur a change of something is necessary for a balanced roster for all teams to be competitive  ...

I'm with you Capt. Bly. Something has to be done to help parity as far player availability. Revenue sharing is the key. Should the luxury tax be higher? I think so. And I think there should be a floor. The way that it is set up the FA players that are more in demand get all the money & those who don't, get comparably nothing, A higher luxury tax & a higher floor IMO would give more parity. 

Another thing, the World Series champs or any high-finishing team should not have a shot at a player like Sasaki. The Foreign draft should be operated more like the domestic draft. More than anything this what burns me. I know this is absurd, but IMO, there should be a limit on how many top-ranking Japanese players can be on a roster. 

16 hours ago, NYCTK said:

Complicit? This is just a terrible way to discuss it. They're not going to bankrupt a single owner, so the players are under no obligation to take a pay cut so cheap billionaires can make more money. And they'd obviously be under no obligation even if their fair pay would bankrupt an owner. I don't concern myself with how my salary affects my employer's bottom line. 

the player's association hasn't been interested in serious revenue sharing. they've always preferred that the richest clubs retain their revenue and spend wildly because that benefits the top end of the players the most. Better revenue sharing would benefit more players, but wouldn't necessarily keep the top-end salaries rising as fast. So yes, complicit.

I'm not suggesting the players or their union should be accepting a cap or playing pocket protector for the owners. but they'd be better positioned for their overall membership if more teams had higher payrolls and that's going to be harder to achieve without better revenue sharing and last contract negotiations was the first time the players association actually started taking that somewhat seriously. because the biggest clubs can only sign so many players.

3 minutes ago, jmlease1 said:

the player's association hasn't been interested in serious revenue sharing

They agreed to a CBA that cut every team a $200 million check last season, so I don't know that I agree with the premise of your argument. 

And revenue sharing is basically entirely an owners issue. Those lazy, welfare queen billionaires that took massive gifts from local governments and sit on a passive 10% investment interest may actually need to think about someone other than themselves for a single minute and figure their crap out. 

1 hour ago, PatPfund said:

Deferrals are big

The issue with deferrals is completely overblown. Yes, his actual pay is only $2M but the Dodgers are being treated as though his salary is $47M, the 2+ the present value of the deferred money. And if a new owner is too stupid to look at the organization's debt obligations, well, that's on them. 

1 hour ago, PatPfund said:

And constantly growing contract spending

MLB pay increased less than 3% last season, about on par with inflation. It was up 7% the year prior...again, about on par with inflation. 

Before the advent of big media money there were a number of ways teams could compete in theory, whether via attendance, sponsorship, or energetic management. Think St. Louis. There are 30 teams in MLB and the rough average metro area is around 4.6 million people. The metro numbers vary from place to place but I used very conservative figures. Half the teams are above the line and half below. The current world is hyper related to marketplace and thus those teams in smaller market cannot do anything more than tread water to compete. This is admirable but teams like Milwaukee, Cleveland, Cincinnati, Kansas City, and Pittsburgh can and will eventually be buried if all media monies are not shared; system stays relatively the same. I'm not sure a salary ceiling is needed but a salary floor would absolutely be required if revenues are shared in order to stop hoarding of dispersed money by owners. 

Some of the benefits the Dodgers are benefitting from currently are due to their astute management, but it is also true that they benefitted hugely from MLB decisions.

Among a pile of other dysfunctional decisions, the Manfred era bailed out the Dodgers in 2011 by an agreement that placed a value far below the eventual media deal and made percentage agreements as part of the 2011 bankruptcy. This served to basically give LAD somewhere around $600 million in profit above if they were playing by the same rules as the Yankees. So, yes, the Yankees are not happy right now with how this development has turned out. Fixing Manfred will be a Herculean task, unless ..... unless ...... Manfred takes some Draconian actions. What? Not likely to upset the status quo too much.

13 hours ago, Doctor Gast said:

I'm with you Capt. Bly. Something has to be done to help parity as far player availability. Revenue sharing is the key. Should the luxury tax be higher? I think so. And I think there should be a floor. The way that it is set up the FA players that are more in demand get all the money & those who don't, get comparably nothing, A higher luxury tax & a higher floor IMO would give more parity. 

Another thing, the World Series champs or any high-finishing team should not have a shot at a player like Sasaki. The Foreign draft should be operated more like the domestic draft. More than anything this what burns me. I know this is absurd, but IMO, there should be a limit on how many top-ranking Japanese players can be on a roster. 

Nit in the least absurd  , it's good sensible reasoning ...

20 minutes ago, PatPfund said:

And maybe it doesn't matter how payroll matches inflation, but how it matches income. MLB attendance peaked in 2009, and last year's post-pandemic high of 71.3 million is still 8,000,000 lower than the high water mark. Most clubs including the local one are taking serious media revenue hits.

 

This is a bigger deal than is often thought. 

I'm a diehard baseball fan and specifically a Twins fan since the first game of the 1961 season. However, my fandom is not exclusive to just the Twins. I was a huge fan of Koufax, Mays, Aaron, Spahn, Stengel, and others. I love watching good baseball and have never hated or despised any teams, not even the dreaded Yankees, although I didn't even try to catch the home run that Mark Teixeira hit to me in the right field seats in the 2010 playoffs because it was such a downer. The game of baseball is nuanced and I'm fascinated by VFW games as well as MLB. 

It hurts to see St. Louis come down even a bit and Pittsburgh fans are suffering. The massive dose of media money has caused a huge separation in just the last half dozen years and the collapse of the RSN has only hurt the smaller markets. This cannot be a good development for baseball in general. Concentration of wealth is always deleterious throughout human history. In baseball we have recently seen huge contractions of minor leagues that cost communities and individuals joy as well as some employment. The cost to MLB was pennies. The cost to the quality of the game is being debated quite a bit among those who scout and report on the development of players; its a negative in every way with no positive outcome except to put another Snickers bar in some owner's pocket.

Sadly I don't expect change for another decade. Meanwhile I will go to college, high school, youth, and senior baseball games as well as watch some minor league games. Retirement is great. I regret not coaching any longer and my body is long since trampled from playing. Life is good.