|How MLB Reached its Financial Situation||| Print |||Send|
Written by Jonathan Leshanski (Contact & Archive) on July 29, 2011
There was a time when baseball was truly a fair and balanced sport.Â There were no big market teams, no small market teams and no mid market teams.Â Admittedly there was no free agency either, but when the 1891 season rolled around, baseball was perhaps for the last time balanced in terms of revenue.
On the whole this was a good system.Â Teams in what we'd call small markets could afford to pay the same salaries as teams in larger ones.Â Thus teams in places like Cleveland or Kansas City could afford to compete with the teams based in larger cities where more fans were likely to head through the door. Â Players in those cities benefited and since most players worked in smaller cities it was good for the players as a whole.
Sadly it didn't last.Â Clubs in big cities felt they were entitled to bigger shares, and they got it.Â Instead of all teams dividing revenue equally, it became a matter of dividing the gate of any specific game between the two contesting teams.
Of course that greatly helped larger market teams where more tickets were sold and higher prices were the norm and started the great divide between baseball's haves and have nots.Â Eventually even the 50-50 split of gate receipts between the two teams became too onerous for the larger market teams to bear.Â So they pushed, and once again got concessions and over time a larger and larger percentage of gate receipts would go to the home team.
Not surprisingly, New York, the biggest of the baseball markets, emerged as the baseball capital of the world.Â It had bigger stadiums, larger attendance and eventually more major league teams than any other city.
In 1997 the split of gate receipts was roughly 70/30 and large market teams, especially those in premium markets, had home gate receipts that dwarfed those of teams like the Rays, Marlins, Expos, Royals and many others.
The introduction of revenue sharing and luxury taxes, as we know them today, meant the end of any form of gate split.Â But the introduction of what is currently a roughly 31% tax that every team pays into a common pool based on ticket sales, national television and radio deals, merchandising and a few miscellaneous other items goes into a revenue sharing pool from which each and every team gets $30 million.
That sounds pretty fair and certainly isn't don't hurt competitive balance, although the middle market do take a small hit -- especially when the additional revenue handouts are giving to the smaller market teams.Â This enables them to compete on a more level playing field for free agents with the middle market teams and leave neither of those markets really able to match up at all with the ability of the big boys to spend for top talent.
And while the difference between the gate split of 50-50 and the split now hurts teams outside the largest markets the big killer isn't gate receipts or national television or radio rights but local ones, something not included in the revenue sharing scheme, and which adds up to huge dollars, sometimes in the hundreds of millions in the New York market (the YES network is projected to earn over $175 million this year), but which may only be a $12-14 million dollar market in places like Pittsburgh or Arizona.Unless that money is included in revenue sharing, something the big market teams will fight tooth and nail, the financial parity to compete with the big market teams as once existed, can only be a thing of the past.