Baseball Owners Face Revenue Sharing Conundrum

With the Winter Meetings taking place this week, there are probably some off-the-record discussions going on regarding comments made about revenue sharing last week.

Red Sox owner, John Henry, recently emailed the Boston Globe with his comments on revenue sharing in Major League Baseball. Some of his key points:

His plan to overhaul the current system.

“It’s a very simple approach in which payroll tax dollars replace revenue sharing dollars and go directly to the clubs that need revenues in order to meet minimum payrolls that should be imposed on each club receiving revenue. Further, players would have to be protected with a guaranteed minimum percentage of overall revenues. This would be a very simple and effective method in reducing top payrolls and increasing bottom payrolls with no tax on revenues,” Henry wrote.

Later on, he comes out and says the system is flawed.

“Baseball has determined that the best way to deal with the Yankees is to take as much of their revenue as possible. I see that in direct opposition to the ideals this country was built on. Baseball is a business and should be treated as such. Baseball is also a sport that needs competitive balance in order to prosper. Taxing their revenues and other “large markets” in the way it is presently done, is simply confiscation on an order of magnitude never seen in any industry in America,” Henry said.

I think John Henry is correct in his assessment, and his plan might be a reasonable option to consider. As long as the new system changes from it’s current state, which is basically giving from the rich to the poor, it would be an improvement. If you look into teams that have received revenue, that revenue hasn’t been poured back into their team or it has, but with just one big contract along with dozens of small contracts. The small market teams are generating revenue, but not a lot. Why should lower revenue teams receive funding, if it’s not being used to make the team competitive? The entire discussion may begin and end with the reality that you can’t expect to determine what exactly investing consists of, as plenty of teams invest in player development, scouting and other area that cannot be analyzed as easily as payroll numbers.

However, for the sake of argument, how does a team defend their investment plans? The Pittsburgh Pirates president, Frank Coonelly, responded this week to John Henry’s comments about cash-strapped teams by explaining his team’s income scale to the Pittsburgh Post-Gazette.

The first figure is operating income, which is simply money in vs. money out. He would not divulge that figure for either year but characterized the 2009 figure as “significantly” lower than $14 million.

Next, any cash paid on debt is subtracted. In the Pirates’ case, the cash paid on debt — roughly $6.5 million each of the past two years — has covered nothing more than interest charges on debt of a little more than $100 million, Coonelly said. The Pirates have made no payments on the debt’s principle the past two years and, in fact, the debt has increased slightly because of those capital investments.

The new Major League Baseball Players Association (MLBPA) executive director, Michael Weiner(replacing Donald Fehr), has already stated that the players would object to any salary floor, as it could be the first step towards a salary cap. With other looming concerns such as extending the Division Series to 7 games while preventing baseball in November, the revenue sharing situation may end up on the backburner for some time.

There has not been a great deal of public response from other owners, but public discussions about this issue are bound to pick up before the current union contract is up in 2011.

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