Then why are they in it? (and yes, nopsin - I remember that he's awesome chasing those ambulances. Must have an office set at the ER door!)
Under Selig's Revenue Sharing Ponsi Scheme, low-attendance teams make more money than the winning ones. Note that it's revenue sharing, not profit sharing. That is the reason why, in 1997, Marlins then owner Wayne Huizenga switched all revenue from sky boxes, club level, parking, advertising, and concessions to a stadium corporation. By not being part of the Marlins revenue, even though the Marlins were then one of the most profitable teams, they received revenue sharing money. That lease is what has crippled the Marlins since. It was recently estimated that the lease costs the Marlins over $62 million a year compared to every other team.
Thirteen years later, economist Andrew Zimbalist reviewed the Florida Marlins' claim to have lost $34 million in their World Championship season of 1997. Zimbalist found that Marlins owner Wayne Huizenga, who also owned Pro Player Stadium through a different entity, attributed about $38 million of luxury suite, club seat, parking, concessions, advertising, and naming-rights revenues to the stadium rather than the team. This finagling made a profitable venture appear to be hemorrhaging money, and was used to justify Huizenga's gutting of the team and subsequent demands for a new taxpayer-funded park. When Huizenga sold the Marlins, new owner John Henry inherited the revenue-sucking lease. As a result, the Marlins rank next to last in other local operating revenue despite playing in a modern facility.
Baseball ProspectusWisconsin still has a suit going against Selig because, when he owned the Brewers and the state build Miller Stadium, a requirement was that the Brewers put a competitive team on the field. Yet, Selig cut payroll every year because that made him more profitable. This is because a lower attendance means lower local revenue, which makes for a bigger revenue sharing check. For a $15 million increase in payroll, and even excluding all other related expense, and even if the team nets $20 per seat, it would have to increase attendance by 750,000 to pay for it. It's a lot easier to just take in a revenue sharing check. Two weeks after being sold by Selig, the Brewers had doubled their payroll.
This is how such actions helped Selig and the Brewers:
At last we've reached the bottom line. The table below ranks the 30 major league clubs from most to least profitable, net of revenue sharing.
Team Income from
baseball operations 2001 revenue
sharing Income from
baseball operations
after revenue
sharing
Milwaukee Brewers $14,385,000 $1,744,000 $16,129,000
Seattle Mariners $34,266,000 ($18,791,000) $15,475,000
New York Yankees $40,859,000 ($26,540,000) $14,319,000
San Francisco Giants $19,000,000 ($6,308,000) $12,892,000
Detroit Tigers $533,000 $5,127,000 $5,660,000
Oakland Athletics ($7,113,000) $10,520,000 $3,407,000
Cincinnati Reds ($11,056,000) $13,404,000 $2,348,000
Minnesota Twins ($18,533,000) $19,089,000 $536,000
Anaheim Angels ($9,569,000) $9,594,000 $25,000
Kansas City Royals ($16,134,000) $15,997,000 ($137,000)
Pittsburgh Pirates ($2,984,000) $1,782,000 ($1,202,000)
Chicago Cubs $4,797,000 ($6,568,000) ($1,771,000)
Baltimore Orioles $1,460,000 ($6,807,000) ($5,347,000)
St. Louis Cardinals $1,869,000 ($8,229,000) ($6,360,000)
Houston Astros ($1,214,000) ($5,185,000) ($6,399,000)
New York Mets $8,292,000 ($15,669,000) ($7,377,000)
San Diego Padres ($16,151,000) $8,668,000 ($7,483,000)
Philadelphia Phillies ($20,865,000) $11,752,000 ($9,113,000)
Florida Marlins ($27,741,000) $18,561,000 ($9,180,000)
Colorado Rockies ($3,415,000) ($6,029,000) ($9,444,000)
Chicago White Sox ($5,687,000) ($4,201,000) ($9,888,000)
Montreal Expos ($38,519,000) $28,517,000 ($10,002,000)
Tampa Bay Devil Rays ($22,843,000) $12,384,000 ($10,459,000)
Cleveland Indians $1,881,000 ($13,254,000) ($11,373,000)
Boston Red Sox $2,712,000 ($16,438,000) ($13,726,000)
Texas Rangers ($15,689,000) ($8,744,000) ($24,433,000)
Atlanta Braves ($14,380,000) ($10,647,000) ($25,007,000)
Arizona Diamondbacks ($32,152,000) ($4,432,000) ($36,584,000)
Toronto Blue Jays ($52,927,000) $9,830,000 ($43,097,000)
Los Angeles Dodgers ($45,343,000) ($9,107,000) ($54,450,000)
Net Operating Loss ($232,241,000)
That's right: 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.
The Brewers were one of 11 clubs to report an operating profit before revenue sharing. Of the 11, only the Brewers and the Tigers also received revenue sharing money. Four of the other 12 revenue-sharing recipients became profitable as a result of it (the Athletics, Reds, Twins, and Angels), while the remaining eight (the Royals, Pirates, Padres, Phillies, Marlins, Expos, Devil Rays, and Blue Jays) saw their losses reduced.
On the other side of the equation, 13 of the 16 clubs that paid into the revenue-sharing pool wound up in the red. Just three--the Mariners, Yankees, and Giants--earned enough to remain profitable after their revenue-sharing payments. Six other teams (the Cubs, Orioles, Cardinals, Mets, Indians, and Red Sox) saw their operating profits turn into multimillion-dollar losses. Finally, seven clubs (the Astros, Rockies, White Sox, Rangers, Braves, Diamondbacks, and Dodgers) suffered the double indignity of having their operating losses compounded by revenue-sharing payments.
As implemented for the 2001 season, MLB's revenue-sharing formula required each club to pay 20% of its local receipts, net of stadium expenses, into a common pool. Three-quarters of the money in the pool was divided equally among all 30 clubs. The remaining 25% was shared only by clubs with below-average local revenues, distributed so that the lowest-revenue teams received the most.
Revenue sharing is often defended as necessary to "give small-market teams a chance to compete." Measured against that standard, MLB's revenue-sharing plan contains two serious flaws. First, it doesn't require recipients to try to compete: owners can simply pocket the money, treating it as a no-obligation subsidy. In some circles this is known as the "Montreal business plan," which has reportedly caused several eruptions of Mt. Steinbrenner at owners' meetings.
As an extreme example, in 2000 the Minnesota Twins received $21 million from the revenue-sharing pool--$5 million more than the salaries paid to their entire 25-man roster. Not surprisingly, they turned a profit... and not surprisingly, their brethren eventually concluded it would be cheaper to contract the Twins than to continue subsidizing their parasitic billionaire owner. If revenue sharing is ever to serve its intended purpose of making small-market clubs more competitive, recipients must be required to reinvest the proceeds in their team.
The second problem results from a definitional ambiguity. "Small-market team" can mean either "low-revenue team" or "team that plays in a small metropolitan area." Since a team's revenues are largely dependent on its marketing and on-field performance, the second definition is the more meaningful... but MLB's revenue-sharing formula uses the first definition exclusively. As the table below shows, these definitions are far from synonymous.
Team Local revenue Metropolitan
population Per capita
local revenue Revenue
sharing
Milwaukee Brewers $88,949,000 1,689,592 $52.65 $1,744,000
Seattle Mariners $178,033,000 3,554,760 $50.08 ($18,791,000)
Cleveland Indians $137,841,000 2,945,831 $46.79 ($11,373,000)
Colorado Rockies $107,412,000 2,581,506 $41.60 ($6,029,000)
St. Louis Cardinals $108,058,000 2,603,607 $41.50 ($8,229,000)
San Francisco Giants $145,894,000 3,519,861 $41.45 ($6,308,000)
Pittsburgh Pirates $84,305,000 2,358,695 $35.74 $1,782,000
Arizona Diamondbacks $106,653,000 3,251,876 $32.80 ($4,432,000)
Atlanta Braves $122,450,000 4,112,198 $29.78 ($10,647,000)
Boston Red Sox $152,581,000 5,819,100 $26.22 ($16,438,000)
Tampa Bay Devil Rays $62,337,000 2,395,997 $26.02 $12,384,000
Cincinnati Reds $46,486,000 1,979,202 $23.49 $13,404,000
Chicago Cubs $105,373,000 4,578,770 $23.01 ($6,568,000)
Kansas City Royals $39,295,000 1,776,062 $22.12 $15,997,000
Houston Astros $100,228,000 4,669,571 $21.46 ($5,185,000)
Texas Rangers $110,509,000 5,221,801 $21.16 ($8,744,000)
New York Yankees $217,807,000 10,599,933 $20.55 ($26,540,000)
San Diego Padres $55,321,000 2,813,333 $19.66 $8,668,000
Chicago White Sox $87,281,000 4,578,770 $19.06 ($4,201,000)
Detroit Tigers $82,390,000 5,456,428 $15.10 $5,127,000
New York Mets $158,230,000 10,599,933 $14.93 ($15,669,000)
Los Angeles Dodgers $119,206,000 8,186,823 $14.56 ($9,107,000)
Oakland Athletics $51,068,000 3,519,861 $14.51 $10,520,000
Baltimore Orioles $103,901,000 7,608,070 $13.66 ($6,807,000)
Toronto Blue Jays $54,078,000 4,763,200 $11.35 $9,830,000
Minnesota Twins $31,865,000 2,968,906 $10.73 $19,089,000
Florida Marlins $36,146,000 3,876,380 $9.32 $18,561,000
Philadelphia Phillies $57,114,000 6,188,463 $9.23 $11,752,000
Anaheim Angels $67,330,000 8,186,823 $8.22 $9,954,000
Montreal Expos $9,770,000 3,474,900 $2.81 $28,517,000
Average $94,264,000 4,529,342 $23.99
(Populations adjusted to reflect number of teams in market.)
By focusing entirely on the amount of local revenues a team generates, MLB's revenue sharing formula shortchanges popular, well-run teams in smaller cities while rewarding incompetently managed big-market clubs.
For example, compare the St. Louis Cardinals and the Philadelphia Phillies. Though both play in 30-year-old stadia, the Redbirds generated $50 million more in local revenue despite playing in a market less than half the size of Philadelphia. For their trouble, the Cardinals paid more than $8 million into the revenue sharing pool, while the Phillies collected almost $12 million. Other pairs of similarly-sized markets--Seattle and Miami, Cleveland and Minneapolis-St. Paul--reveal similar inequities.
MLB needs to realize that badly run teams should lose money. Very badly run teams should lose even more, yet eight teams lost more money than the 2001 Expos, winner of the Triple Crown of Haplessness: lowest attendance, worst local media contracts, and lowest revenues. In fact, thanks to their $28.5 million of revenue-sharing subsidies, if the Expos had reduced their player payroll to the Twins' level they would have been more profitable than the Mets and Cardinals.
This problem can be addressed by adjusting the revenue-sharing formula to include market size. For example, based on the 2001 MLB average per capita local revenue of about $24, clubs falling below $20/person could lose revenue-sharing money proportionate to the shortfall, while any revenue-sharing recipient taking in more than $30/person could exclude the excess from their income for purposes of the formula. This would give more money to the Brewers and Pirates, whose 2001 revenues were artificially inflated by their new parks, and significantly less to the likes of the Marlins, Phillies, and Expos.
Commissioner Selig told Congress that MLB lost $519 million in 2001. Operating losses account for just $232 million of this sum. My next column will explain where the other $287 million went.
Baseball ProspectusThe tables are messed up, and I have to run out for a while. I'll clean them up later. In the interim, you can go to the link above and see them in a more presentable order.
