Rich Team, Poor Team – Part II

by on January 5, 2011 · 0 comments

In part one of “Rich Team, Poor Team”, I compared the financial realities for the Padres and Cardinals and explained why I think the Padres are at a substantial competitive disadvantage as a result of their ownership change.  Until the last $145M owed to the Moores family is paid, the new ownership group expects to see no positive cashflow from the acquisition.  Since they project that it will take them 3 more years to pay, it’s likely that the Padres and their fans will simply have to make the best of a relatively low payroll.  Make no mistake; this was the result of a decision made by the incoming ownership group (of wealthy people), so I’m not calling for a pity party.  If anything, I’m just a bit sympathetic for the plight of the Padres fans at this point, because they are being sold a relatively shoddy bill of goods.  The real point of “Rich Team, Poor Team” is to point out the disparity that can exist between two mid-market teams that may appear quite similar at first glance.  In reality, the local market values for the two teams in 2009 was estimated at about $110M (Padres) and $196M (Cardinals).  If such a disparity can exist between two mid-market teams, then just imagine how large a disparity may exist between a small market team and a large market one.

So, how can MLB eliminate at least some of this imbalance?  Should it even try to “level the playing field” as the saying goes?  Should exceptions be made in instances where ownership transfers are involved?

The issues of financial advantage and competitive imbalance can start a heated discussion like no other (except for maybe the DH).  I don’t think there is any way to absolutely eliminate all advantages that some teams have.  There are simply more external revenue opportunities for players outside of baseball in places like New York and Los Angeles.  MLB has no control over the lack of a state income tax in places like Florida and Texas.  At least for the foreseeable future, San Diego will probably have a lot nicer climate than Milwaukee to some people, and Kansas City will probably never be known for great surfing.  Those things lie outside the influence of MLB (at least I hope so, anyway).  Sure, it could institute a salary cap or a hard cap with max contract limits like the NBA does, but that’s completely moving away from the supply/demand model.  True, professional sports leagues don’t represent a typical “marketplace”, but try convincing the 30 MLB teams of that.  The reality is that they are 30 separate business entities that play against each other but have to work with one another.  That’s not exactly Mac vs PC. 

The best that I can do is offer a limited solution in hopes that somebody with more knowledge on this subject can offer some guidance.  First, I wouldn’t completely toss out the revenue-sharing and luxury tax systems, but I would simplify them.  Here are my suggestions:

  • Increase the amount that teams pay into the revenue-sharing system from 31% to 33% of local revenues.
  • Set a team payroll minimum or “floor” based on each team’s revenue-sharing split.  For example, the floor may be 1.5x each team’s share, and this would help prevent teams from hoarding revenue-sharing money instead of trying to field better teams.  (Looking at you Pirates)
  • Count “negotiating fees” or “rights fees” paid to foreign teams/agents against the cap.  This is a big sticking point for me, because it represents a HUGE advantage for rich teams.  Consider the Daisuke Matsuzaka example.  The Red Sox paid a $51,111,111 negotiating fee to his Japanese team for his rights, but the fee did not count against the salary cap for luxury tax purposes at all.  Sure, Matsuzaka didn’t see a single penny of that fee money, but the Red Sox were only able to acquire him, because they were able to afford the fee.  Since very few MLB teams can afford such a fee, the majority are excluded from even considering players like Matsuzaka.  My suggestion is to prorate the fee evenly over the duration of the player’s contract. 
  • In addition to applying a luxury tax to teams that exceed a specific threshold, I suggest taxing teams on specific player contracts as well.  Consider something like a 5% tax on amounts that exceed an annual average value of 5x the average MLB salary for a given year.  The average salary just hit $3M, so that tax would apply to any salary over $15M per year for 2011 in this example.  If a team had a player making $16M in 2011, the tax would be $50K
  • Alter the free agency system to eliminate the “Type A” and “Type B” elements.  In order for a team to receive draft pick compensation for Type A and Type B free agents, the team must offer the qualifying player arbitration, and the player must decline and sign with another team.  I look at this portion of the system as a “rich getting richer” situation, because of the arbitration part.  Many poor teams cannot afford to risk offering arbitration, because they cannot afford to be stuck with the bill in the event that the player decides to accept the offer.
  • Teams should be allowed to trade draft picks, but some limitations will should be placed on how and when those picks can be traded to prevent the frugal teams from trading away high draft picks just to avoid paying out the money necessary to sign a top end pick. 

Now, I’m sure that other people have much better ideas about how to fix the system, and I’m hoping that some suggestions are sent my way.  Of even greater interest to me is the question of whether or not MLB should try to improve competitive balance or parity through artificial means.  Under normal circumstances, I’m in favor of “economic Darwinism” and allowing the big fish to eat the little fish.  However, MLB doesn’t allow for that, because the big fish now need the little fish.  It’s a total entertainment package thing, because people like to watch the little fish circle the big fish in the playoff tank.  Usually, the little fish will all get “eliminated”, but people go crazy once every 6-10 years when the little fish outwits the big fish and wins the prize.  Oddly enough, the “little fish” are usually referred to as the “Marlins”, and they are almost always immediately disbanded after outwitting the big fish, but that’s another story.  I guess I enjoy watching the little fish win as much as anybody, but I don’t like to see them dissected immediately after the victory parade.  It would be nice to see a repeat performance, but that doesn’t happen for the little fish. 

As for the question of making an exception for when ownership transfers are involved, that one is much bigger than I am.  Ownership changes are relatively rare, so I’m not sure that they deserve special consideration.  Maybe that’s where MLB and the “Bank of Bud” need to step in and do something.  Perhaps MLB should facilitate or require quick ownership transitions to ensure that fans do not suffer during transition periods from “firesales” that tend to occur prior to sales and “payroll inertia” that sometimes occurs after sales. 

Maybe MLB should take the 25% of luxury tax money that it currently uses to fund baseball programs in developing countries (aka grease the wheels for the talent pipeline in foreign places) and use it to fund baseball programs in places like San Diego and Florida. 

You may be wondering about how this topic even applies to the Cardinals.  If the team relies so heavily on drawing as many as 3.3M fans just to stay competitive, then something is just plain wrong.  No team should have to be so close to maxing out capacity in order to fund a payroll that won’t even crack the top 10 in MLB for 2011.  What will the Cardinals do, if they have an attendance off-year?  Is the line that fine between being a rich team and a poor team?  I would hope not.

Like it?  Are you saddened by the thought of a big fish eating a little fish?  Find me on Twitter, and we’ll give the fish some names!

Cardinals fan since I could hold a fishing pole steady. Accidental blogger. Opinionated. I could care less about what you think of me. Constantly confounded, bemused, and confuzzled (ie I'm a pc and a mac). I'm an IT infrastructure analyst with a penchant for breaking tech toys. I ate a sabermetric primer for breakfast. I love playing "All-powerful GM of MLB". The 2010 Cardinals represented a good, practical definition "cognitive dissonance". The 2011 version got by on duct tape and a prayer, and I'm fine with that. They just need new tape for #12 in 12.
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