Baseball Commission Calls for More Revenue Sharing

Luxury taxes, splits of local revenues proposed

New York, July 18, 2000 -- Major League Baseball's blue ribbon panel on baseball economics, after an 18-month study, has offered up a variety of suggestions designed to restore the financial well being of the game. The commissioner charged a four- man independent committee with the task of analyzing the apparent economic and competitive disparities which have developed between the league's high-revenue and low-revenue franchises in the five seasons since the 1994 strike. Headed up by Yale University President Richard Levin, the panel also included former Senate Majority Leader George Mitchell, political commentator George Will and former Federal Reserve Chair Paul Volcker. Cultivating possible remedies, which would allow baseball to persist as an accessible, affordable and competitive entity was the goal of the independent panel.

Since the 1994 strike, clubs with payrolls in the upper half of the league have won every playoff game. Furthermore, nine of the ten clubs participating in the last five World Series had payrolls ranking in the top 25 percent of the league, according to Baseball America Online. Given access to financial statements, the consultants concluded that over the course of the last five seasons since the strike, MLB owners have lost a collective $1.4 billion, and that only three teams - New York Yankees, Cleveland, and Colorado - have been profitable. According to several leading sports economists, however, sports teams often legally rework the numbers to reflect a purported loss. Nevertheless, it seems that many of the panel's recommendations were inspired by the notion that, for the good of the sport, the owners must pool together their resources.

While admitting that no single change in MLB would alone remedy the growing competitive and economic disparity among its members, the panel advocates a comprehensive and sweeping plan. Firstly, a program under which clubs would share between 40 and 50 percent of all local revenues, less ballpark expenses, would mainly serve to assist the weaker franchises, which benefit little from the current 20 percent local revenue sharing plan. The panel also suggested that MLB encourage a minimum payroll of $40 million for all teams, while simultaneously levying a competitive-balance tax of 50 percent on all club payrolls in excess of $84 million. Under the current collective bargaining agreement, only the five highest-spending teams paid a luxury tax of not more than $4 million each, according to the Washington Times.

It is also argued that low-revenue clubs would benefit from a favorable, and possibly uneven, allocation of resources from an expanded central fund, in which monies gained from broadcast, Internet and licensing agreements would be collected. According to the committee, "strategic" franchise relocation should remain as an option for those clubs that cannot compete financially in their current market. Such a provision may lend credence to the allegations which characterize the agenda of the panel as focusing more on developing programs to aid the so-called "middle-class" teams, rather than reaching down to the league's poorest clubs.

The Goal is Parity

In addressing the issues of parity and competition, the panel proposes including international players in the first-year player draft, eliminating compensation picks for the loss of free agents, and sanctioning the trading of draft picks. In permitting clubs to swap draft picks, currently a proscribed practice, the less-moneyed clubs, which often pass on signing top prospects seeking large bonuses, may be able to receive a better value for their premium picks. Additionally, "chronically uncompetitive"
clubs should be granted extra draft picks. The panel also advocated an annual competitive-balance draft, in which the clubs with the worst eight records would select from a group of players belonging to the eight playoff teams, but who are not on or eligible for a 40 man roster.

With the conclusions of the panel having been rendered, now a greater challenge looms before MLB, how to implement the recommendations, if at all. While no changes are likely until the current CBA expires, probably after the 2001 season, many speculate that the panel's findings will provide the basis for management's approach in the anticipated labor showdown. [click here for Mark's View] Certainly, heavy resistance against the panel's suggested "luxury tax" can be expected to come from the Major League Baseball Players' Association (MLBPA). As a reform of the entry draft and free agent compensation system are likely to be considered a fundamental change in the existing framework between the owners and the players, the MLBPA would have to approve such measures as well.

Baseball, however, may see clashes on both sides of the bargaining table, as the powerful Players' Association and the owners of the high-revenue teams would see their dominance diminished in the face of the proposed changes. As the inherent distrust between the owners and the MLBPA is likely to serve as a major stumbling block in an attempt to implement any of the panel's
recommendations, the decision not to include any representatives from either camp the on the blue ribbon panel has been criticized by many.

Andrew Goodman