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Derek and the Dominoes I've
2002-08-18 01:42
by Mike Carminati

Derek and the Dominoes

I've just read Derek Zumsteg's revenue sharing plan on Baseball Prospectus and must say that I agree wholeheartedly with its two main conclusions. The first conclusion is that a system based on expected revenue per capita is the fairest way to compensate small-market teams that grow their revenue. The second conclusion is that "it has no chance." Unfortunately, that is true as well.

First, the plan itself is wonderfully fair and simple-well, maybe not simple, but direct. Take the revenue that all of the teams generate and determine a per capita threshold, the dividing line between the top two-thirds and the bottom third, here $23 per capita. Determine the population base needed to sustain a team in today's player market again with the two-thirds dividing line-here 4 million. This creates a sustainable revenue base of $92 million. Multiply the sustainable revenue base with the number of possible franshises per city and then divide by the current number of teams. Subtract the sustainable revenue base, and you have the contribution for that team. Teams are paid according to the difference between the sustainable population (4 million) and their actual population multiplied by the sustainable per capita ($23).

I like that it is not based on the actual revenue generated, which is subject to poor management and the vicissitudes of business. It is based on potential revenue of the team. Large-market teams (read the Phillies) are not compensated for their inability to generate revenue. Small-Market teams (e.g., Cardinal and Mariners) are not penalized doubly for being able to generate revenue in a small market. If George Steinbrenner won't allow another team in the New York metro area, then he has to pay and pay dearly for that privilege. Also, as Zumsteg points out, there is no reliance on owners to report revenue properly.

The reason that the owners will never go for it is that it flies in the face of everything they hold dear about owning a team. When you buy a team, you buy territory. Not only should you not have to pay for that territory, other people should pay you to cede control of it. It's how baseball views expansion. And the big-market teams who paid for big-market teams are not going to be pushed toward opening their markets to avoid a tax.

Besides, in my opinion, the owners as a whole do not want real revenue sharing. They like their revenue, thank you, and want to keep it to themselves. If the sport were in such dire financial straits as the owners love to profess than this is the sort of equitable plan they would be pursuing. Linking revenue sharing to salary is a means to slow salary growth. The Blue Ribbon Panel states as much and declares the last CBA a failure because its revenue sharing and luxury tax plans failed to slow salary growth, not because revenues are more equitable. If there were a competitive imbalance, wouldn't you expect the reverse?

It's too bad because it could really justify the baseball monopoly and make baseball into a more equitable business, precisely the reasons why it would never be implemented.

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