As the owner lockout drags on and negotiations on baseball's new collective bargaining agreement do the same, you've probably become familiar with the finer points of the dispute. Most of it is readily understandable enough – MLB players want to claw back the share of revenues that they've lost over the years thanks to owner behavior, and MLB owners want to prevent them from doing so.
One specific point of contention that may have struck you as curious is the union's desire to alter the structure of MLB's revenue-sharing system. Why, one is likely to ask, do the players care how revenues are shared among teams? While that questioning instinct is understandable on the part of fans and outside observers, the matter at hand isn't so difficult to understand after all. Indeed, the union has very clear and eminently justifiable reasons for wanting to discuss revenue sharing as part of the current negotiations.
Before we explore those reasons, let's undertake a brief explainer of MLB's revenue-sharing construct. When we talk about revenue sharing in baseball, we're talking about the sharing of local revenues – i.e., revenues from local television contracts (as opposed to the national television contracts with networks like ESPN and FOX) and gameday revenues from each team's home contest (ticket sales, parking and concession revenues, etc.). MLB's constituent teams have shared those revenues at ever-increasing rates since the 1990s. During the span of the recently expired CBA, teams shared 48 percent of those local revenues save for the 2020 season, when the sharing of local revenues was paused because of the global pandemic.
In more normal years, those local revenues are pooled and distributed to all teams in varying amounts depending upon market size. Teams like the Yankees and Dodgers receive far less than they put in, for example, while teams like the Rays and Guardians receive far more than they contribute.
Now for those reasons the players have for wanting to alter the revenue sharing system.
1. The current system keeps small-market teams from competing
Frankly put, the recent high rates of sharing – 48 percent of local revenues, to repeat – means that small-market teams have very little skin in the game. The best way to boost gameday revenues is to invest in the on-field product and improve the roster. Small-market teams, however, receive so much money via revenue sharing that they have little incentive to invest in player payroll. Basically, teams on the lower end of the revenue continuum are guaranteed profitability regardless of on-field results. That's not healthy.
Yes, the CBA has stipulated that teams use revenue sharing monies "to improve its performance on the field," but in practice that rather vague mandate hasn't been satisfied. It's no coincidence that the Players Association has a pending grievance against the A's, Rays, Marlins, and Pirates over their use of revenue-sharing income. This is not something that any kind of draft lottery designed to soften tanking incentives is going to fix. In order to move those small-market teams to operate in good faith, you either need to put some fangs into that directive above or share less money so that teams have the motivation to, you know, try to win baseball games. The union should absolutely care about and seek to improve such non-competitive behavior.
2. The current system also works against large-market spending
Revenue sharing as presently constructed also provides some perverse incentives on the other, more lucrative side of the tracks. When well-heeled teams like the Yankees, Dodgers, Red Sox, and Cubs are forking over almost half of their local revenues (minus debt service payments and stadium operating expenses), that's money they can't commit to payroll. That wouldn't matter so much if the revenue-sharing payees were plowing the money they receive into the roster, but as noted that's largely not happening.
From the standpoint of the large-market team, Joe Sheehan provided an illustrative hypothetical in a recent edition of his very excellent newsletter:
"Revenue sharing hurts the players by reducing the economic value of a player to a team. If signing Joe Shlabotnik makes you five wins better and you can make $50 million more by signing him, he's worth $50 million to you. If you can only keep two-thirds of that $50 million, he's worth a lot less to you."
Throw in the way the competitive balance tax (CBT) is being treated like a semi-hard salary cap by teams, and the usual big spenders these days are big spenders only in relative terms.
3. Revenue sharing is costing players money and not improving the game
Here's a (probably causal) relationship of note:
If you're curious about the relationship between CBA terms and player salaries in MLB, here's a graph of player's share of revenue by CBA from 1990-2015. Clearly, something changed in 2003. pic.twitter.com/rkGYFfAqWC— J.C. Bradbury (@jc_bradbury) November 30, 2021
What happened in 2003? Revenue sharing increased greatly. If you're sharing more revenue, winning is less important to your bottom line, so you have less incentive to bid for players. Here's a summary table of some of the key provisions. pic.twitter.com/vK8z8nnaY1— J.C. Bradbury (@jc_bradbury) November 30, 2021
This isn't particularly surprising because revenue sharing has always been about keeping money away from the players, and as you can see above it's very good at doing that. Yes, owners costume the system as a means to ensure competitive balance, but that's a calculated deception. It's also doing little to promote competitive balance. As Rob Mains of Baseball Prospectus recently proved, there's almost no relationship between market size – whether measured by city population or metro-area population – and success in MLB. That's been the case even before putative cures like revenue sharing and the CBT were put into place.
Some sharing of local revenues is fine in principle and likely in execution. However, the current rates are far too high – again, it's almost half of local revenues being taken from large-market teams – and there's no evidence the practice is doing anything beyond reducing labor costs for team owners. In order to restore the proper competitive incentives – particularly among revenue-sharing recipients – the union is right to be targeting the current structure. There needs to be less revenue sharing, and what there is of it needs to come with much more team accountability attached.