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John Henry’s $500K Fine Implicates MLB Revenue Sharing & Bud Selig More

Times ticking for MLB to fix the revenue sharing shortfall (photo courtesy of ESPNBoston.com)

Earlier this week John Henry told WEEI that he was fined $500,000 in 2009 for criticizing MLB and their revenue sharing model. Specifically, this is what he had to say: “Over a billion dollars has been paid to seven chronically uncompetitive teams, five of whom have had baseball’s highest operating profits. Who, except these teams, can think this is a good idea?” Well if you put it that way John, that actually makes a whole hell of a lot of sense.

First of all, 500k MLB? Pump the brakes. To give you a little context, $500,000 is the same amount that Belichick was fined for ‘Spygate.” And that was cheating! This is actually calling someone out for good reason. Sounds like someone has a sore spot, eh? More on that to come. But this is like getting fined $10,000 for calling your boss out for throwing like a girl in the company softball game.

Second of all, I thought this was America! You know, where freedom, and specifically freedom of speech reigns? All types of yahoos get to speak their mind in this country with no consequences. Just watch Fox News some night. So why penalize someone that has a lucid, intelligent remark? Well, if I could fine people for calling me out publicly for my inadequacies I probably would too. But, let’s take a close look and what Mr. Henry is all hot and bothered about.

Revenue Sharing: A History 1995-2002

Revenue sharing began in its infancy in 1995 but didn’t really resemble the form it is now until 2002 during the Collective Bargaining negotiations. The idea is simple. Improve the level of competition amongst the teams in the league. Personally I think people just got sick and tired of seeing the Yankees win World Series. I know I did. As we all, begrudgingly, remember from 1995-2000 the Yankees won 4 out of the 6 championships. And, as we all know, if there is one thing people hate more than a team that loses all the time it’s a team that wins all the time. In all seriousness, though, an imbalance was recognized by all the smarties over at the league office. Basically, they saw that the ratio of payroll spending by the top seven revenue teams versus the bottom seven went from less than 2-to-1 in the 1980s to 3.5-to-1 in the 1990s. The rich were getting richer and the poor poorer. So, on some level I commend MLB for stepping in and trying to rectify this proactively. Perhaps our great nation could take some queues? I say some queues because the problem that John Henry is talking about is 100% MLB’s fault. But, I’ll get to that.

What revenue sharing dictates is that there is a pool of money formed and managed centrally by MLB. That pool has two sources. The first is the national contracts MLB signs (i.e. TV, radio, merchandise etc.). This money is distributed evenly to all the teams. For instance in 2009, each club received a check for $30 million. The second source is from the individual teams. Each team pays a certain percentage of their local revenue which comes from broadcasts, ticketing, concessions etc.). This money is then divided up amongst the teams disproportionally with lower revenue teams receiving more.

The first iteration of the modern revenue sharing model ran from 2002-2006. On paper it looked like the problem was being addressed. The higher revenue teams were to pay 40% of their local revenue into the MLB central fund while lower revenue teams paid 48%.  The real problem was that there were some deadbeat owners screwing the system.

Teams Screwing the System

The whole point of revenue sharing was to improve your team, thus making it more competitive right? In fact there is specific language in the Collective Bargaining agreement that points that out.  It states teams must use revenue sharing money “in an effort to improve its performance on the field.” Ok, makes sense.

However, in 2007, Forbes reported that from 2002 to 2006, the Royals’ revenue-sharing dollars doubled to $32 million, while their player costs increased only 6 percent. Similarly, in 2006 and 2007, the Florida Marlins (a team John Henry is probably intricately familiar with) reportedly received more than $60 million in revenue sharing, according to The Hardball Times, but the team had opening day payrolls totaling $45.5 million.

Keep in mind that even though the lower revenue teams are paying a higher percentage into that central fund the disparity in the amount paid is literally tens of millions of dollars if not more. So, if I’m the Red Sox or Yankees and I’m paying in $75 million a year into this fund while the Marlins pay in $750,000 I’d be fairly pissed if this money wasn’t even being used to improve their team. I would imagine any of you red-blooded Americans out there who love money would feel the same way. And if you don’t, move to Norway and stop drinking my Budweiser.

The messed up thing about this model was that there was a disincentive for a lower revenue club to field a better team. Under the 2002-2006, deal more money coming in from ticket sales meant less money coming in from revenue sharing. So if you owned and team and realized you weren’t going to make a run, why bother? Well, some would call that shrewd while others would like to slap those owners in the face with a week-old halibut. I consider myself amongst the latter.

However, the current deal, started in 2006, rectifies this a bit. The percentage paid by teams into the communal MLB fund has been lowered to 31% for both higher and lower revenue teams. Therefore the more money teams bring in locally the more they have to keep.

A Difference Of Opinion

A big issue with how teams ‘improve on-field performance’ is up to perspective. As someone who doesn’t know crap about running a baseball team, I would think that has to do with signing better players, improving scouting, gathering more-talented personnel, or even improving your stadium. But, the shrewd business owners lobby that paying down club debt is just as valuable.

“The MLBPA’s position is that revenue sharing should not be used to pay down club debt,” union executive director Michael Weiner said. “We have consistently expressed to the commissioner’s office that using revenue-sharing proceeds to pay down debt does not improve a team’s performance on the field.”

As I mentioned before, I would agree with this.

On the other hand, here’s what some teams argue. When you’re at that low-revenue period, you’re still going to be getting your revenue-sharing. So, if you can develop some young studs and get rid of some club debt, you can position yourself for a much higher player payroll when that roster becomes older and legit superstars. So, when your team is sick after a number of years of development (i.e. Tampa Bay Rays) you can spend some cash on getting free agents etc., and not have to worry about paying debt.

I think that’s fine, and I’m positive that ideology is NOT what John Henry is pissed about. The Tampa Bay Rays did it right. They had some down years, retooled and are clearly a powerhouse (or at least were for the past several years). Henry’s beef is with teams that NEVER get better. I’m looking at you Royals and Pirates. What gives? Where is all this money going to? Are you that woefully inept at running a baseball team? If so, hit the bricks and get someone in there who can handle the job (more on this later). Or, are you just a lazy fat cat using that money to line your pockets? Either way something has to be done.

Will This Problem Get Fixed Soon?

Well, if revenue sharing money is being managed centrally, then this problem should be dealt with centrally. Sadly this is easier said than done. According to Baseball Prospectus: ”In 2001, MLB’s most profitable team was none other than Commissioner Bud Selig’s own Milwaukee Brewers, who play in the majors’ smallest market. Even with a new ballpark, the Brewers’ local revenues remained below the industry average, so the Brewers received a revenue-sharing check despite turning a $14 million profit without it.” Oh hold on, it gets more screwed up.

That same year, six other teams (the Cubs, Orioles, Cardinals, Mets, Indians, and Red Sox) saw their operating profits turn into multimillion-dollar losses after they had paid their ‘dues’ to revenue sharing.  Wait, what?!

So, after knowing this type of information, does John Henry’s comment seem so out of line? What about the fine levied by Bud Selig and MLB? I smell something that stinks worse than baby diapers.

If Selig is the guy who should take a look and fix this problem while at the same time is one of the guys profiting the most, then what is his incentive? I don’t have an MBA but I’d say there’s not a whole hell of a lot. I’d say there might be a little conflict of interest there. I also don’t have a lot of faith in this problem getting fixed expeditiously.

What Should Happen?

Let’s get something straight. I’m an American and a fan of revenue sharing, welfare and all other things that improve competition and create a level playing field. It makes a better marketplace for the consumer. I’m a consumer, I like when things are better for me. If you’re a consumer, I bet you like it when things are awesome too.

So, if I had a meeting at MLB central offices, I’d go in there with two proposals. But, first off, I’d stop in at Harold Reynolds’ office and hang out there for a bit. He seems like a cool guy and I think he got a bum deal from ESPN and I’d tell him so. After that I’d walk into Bud’s office and plead with him to get a new haircut because I couldn’t take him seriously otherwise.

But, when we finally got down to brass tacks, I’d have two proposals.

The No-Brainer:

Put someone NOT running a team in charge of this and have them monitor the teams you dope! Set strict guidelines on how teams should use the money to improve their on-field performance. If the teams don’t adhere to these rules on a yearly basis, they get a lesser chunk of the revenue sharing money. For repeat offenders, they gradually get a smaller and smaller percentage until they get nothing unless they play by your rules. Duh. Why is this not happening? Maybe because the guy making the decisions would stand to lose out if this was implemented? Call me crazy.

Relegation:

Listen, there are a ton of professional baseball leagues in the country. It should be viewed as an extreme privilege to be playing at the top (MLB) level. If teams don’t want to work their asses off and spend their money in a smart way, they should be relegated to the minors. Those of you familiar with the English Premier League will be familiar with this concept.

Instead of team owners just facing another losing season, if they don’t give it 100%, they would face a downward spiral that would have them facing the Toledo Mud Hens on Opening Day next season. Plus, if there are some young, aspiring front office types at the minor league level that are clearly outperforming their major league peers, reward them for it! Imagine that, reaping what you sow!

Normally if there was a late September game between the Pirates and Mets and both teams were 30+ games out of first, that game would suck to watch right? Both teams would have mailed it in. BUT, if they were fighting to stay in the majors and not be dropped down to AAA, they would play their asses off. Thus, the fans stay interested, go to games and see a quality product even without their team fighting for a playoff spot.

Granted, there is a lot more that goes into this model that I won’t get into here, but I think it could work. As I mentioned before, there is enough baseball being played in this country to make this happen.

Conclusion

If you weren’t already familiar with the quasi details of revenue sharing, I hope this helped shed a little light. And keep in mind revenue sharing is completely different from the luxury tax. The money for each comes from different sources and is distributed differently.

But, knowing what I know now, I don’t blame John Henry at all for his comments. In fact, I probably would have said something much more vicious. Especially on a morning show. I’m a hot head that enjoys a few beers with his eggs and tend to get extra vigorous in the a.m. But, the fact that he was fined $500,000 says more about Bud Selig’s insecurity with this issue than it does about Henry’s bravado.

Let’s review Henry’s comments:

“Over a billion dollars has been paid to seven chronically uncompetitive teams, five of whom have had baseball’s highest operating profits.”

Based on that information from Baseball Prospectus mentioned above, whom do you think Henry is talking about specifically?

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