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Pete Toms Article Archive
Written by Pete Toms   
Monday, 08 March 2010 00:00

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall”, the potential ramifications of both record revenues and record revenue sharing in MLB, speculation on the future of college baseball plus the weekly tidbits.

RECORD REVENUES AND RECORD REVENUE SHARING

LWIB, Baseball America published a piece by BizofBaseball Founder Maury Brown on the state of revenue sharing/competitive balance in MLB. Mr.  Brown’s analysis is particularly timely and relevant given his recent reports that the 09 season brought both record revenues and record amounts of revenue sharing to MLB. The former development was a mild surprise while the latter development furthers a trend that is problematic for some in MLB. Keeping in mind that the current CBA expires in less than two years, what are the potential ramifications of both record amounts of revenue and revenue sharing?

Gross revenues in 2009 were up 1. 5% compared to the year prior, a record $6. 6 billion.  Senior MLB officials had stated earlier this off-season that 09 revenues were expected to be very near 08 revenues but the final, confirmed tally ends any conjecture. Given the recession, decreased attendance for 22 of 30 franchises and a league wide decline in attendance of approximately 6. 5%, MLB is no doubt rightfully proud of the results. That there was revenue growth this past season, albeit slight, should likely result in increased discontent from player agents and the MLBPA over the depressed free agent markets of recent off-seasons. In November Last Week in BizBall reported on the unresolved allegations by the MLBPA of collusion in the free agent market of the 08/09 off-season.  That LWIB installment included this quote from Ronald Blum of the AP on the “standstill agreement” between the MLBPA and MLB:

Players and owners have agreed to push back the deadline for a collusion grievance over last winter's free agents until the end of this offseason.

Agents for players have been asking the union for several months to file a grievance.

"It preserves the players' claims, and the commissioner's office hasn't admitted any wrongdoing," union general counsel Michael Weiner said Tuesday.  "I would characterize this as a standstill agreement. "

How the “end of this offseason” is defined in the “standstill agreement” is unknown but the record $6. 6 billion revenues of the 09 season discredits to some degree management’s claims that the depressed free agent market is caused in part by concerns over the impact of the recession on their top lines.  The MLBPA constituency already convinced that there has been collusion in the free agent markets of recent years will point to the record revenues of the 09 season to further enhance their claims and lobby for the filing of a grievance.

SELECT READ MORE TO FOR ADDITIONAL DETAILS ON REVENUE SHARING, THE FUTURE OF COLLEGE BASEBALL, AND THIS WEEK'S "TIDBITS"

In a November interview with Bob Costas, Commissioner Selig proudly stated that “$440-450 million” would be re-distributed this off-season via revenue sharing.  The final figure ended up being $433 million, a record one season amount since revenue sharing was introduced in 1996. While industry revenues grew 1. 5% in 09 over 08, the amount of revenue sharing dollarsredistributed outpaced revenue growth substantially. According to sports economist Andrew Zimbalist, “In 2008, approximately $400 million was transferred from the high- to the low-revenue teams. ” With a year over year increase in revenue sharing transfers of approximately 8%, it is little wonder that Red Sox owner John Henry was publicly critical of MLB’s revenue sharing structure this off-season. Mr.  Henry was quoted in the Boston Globe, “Over a billion dollars has been paid to seven chronically uncompetitive teams, five of whom have had baseball's highest operating profits.  Who, except these teams, can think this is a good idea?"In September, Last Week in BizBall reported that during the 09 season both Brewers owner Mark Attanasio and Pirates CEO Frank Coonelly expressed publicly that MLB needs to take action to promote greater competitive balance in the game. Those remarks were interpreted as thinly veiled calls for increased revenue sharing in the next CBA.

As the amount of revenue sharing dollars re-distributed each season escalates, there is increased scrutiny from the MLBPA on how those dollars are spent. The CBA stipulates that revenue sharing payees must use those receipts, "in an effort to improve its performance on the field. "Years of grumbling form large revenue franchises, media and the PA that some small revenue franchises were “pocketing” their revenue sharing cheques culminated in real action this January. An agreement was struck between the Marlins, the commissioner’s office and the PA that the Marlins would increase their spending on big league payroll. It has been widely speculated that this agreement avoided the filing of a grievance by the union. Maury Brown reported in his aforementioned piece in Baseball America that there is a stark philosophical disagreement between the PA and MLB concerning the interpretation of the CBA rules governing use of revenue sharing receipts. As more and more dollars are re-distributed via revenue sharing this issue will become increasingly important and contentious. From Mr.  Brown:

While both the league and union agree that clubs need flexibility in how they use revenue-sharing money, they do have some philosophical differences on certain specifics, one of which is paying down club debt. 

"The MLBPA's position is that revenue sharing should not be used to pay down club debt," union executive director Michael Weiner said.  "We have consistently expressed to the commissioner's office that using revenue-sharing proceeds to pay down debt does not improve a team's performance on the field. "

For management, however, the issue revolves around what they view as practicality.  Rob Manfred, MLB's executive vice president of labor relations, says reducing debut can help a club become more competitive.

"Overall, the Commissioner's view is that revenue-sharing recipients have made appropriate use of revenue-sharing proceeds over a very long period," Manfred said.  "Clubs at low-revenue spectrum have always gone through cycles when they develop with less expensive young talent, in a way like Tampa Bay did, that moves them along to field a very competitive team.  When you're at that low-revenue period, you're still going to be getting your revenue-sharing.  Clubs can then position themselves for a much higher player payroll when that roster matures, and one of the ways you may decide to position yourself is reduce your debt load so that you don't have to pay debt when your roster then matures. "

As the CBA expiration deadline of December 2011 approaches, the large revenue franchises opposing greater revenue sharing have an important ally in the MLBPA. The MLB players share of industry revenues peaked at 67% in 02 and had tumbled to 51% by 07. (Those percentages rise significantly if the, on average, $20 million per year spent per club on player development is included)Not only is this dramatic decrease contributing to the call for the filing of a collusion grievance, it will also make it more difficult to negotiate increased revenue sharing in the next CBA. Sports economist Andrew Zimbalist explains that the changes made to revenue sharing in the 02 CBA have been a key factor in the diminishing percentages of revenues being paid to players. “This decrease is a function of new provisions in the 2002 CBA (sharply increased revenue sharing with high marginal tax rates, a higher luxury tax on the top payrolls, and debt limitation rules)….

In a nutshell, it is increasingly difficult for MLBPA ED Michael Weiner to ignore those agents calling for a collusion fight when industry revenues have never been greater. By the same token it is increasingly difficult for Commissioner Selig to persuade large revenue franchises that increased revenue sharing is necessary when the already record amounts re-distributed have not resulted in the desired goal of improving the on field performance (thereby increasing theirlocal revenues) of a significant number of consistently uncompetitive franchises.  And the players, who have seen their share of industry earnings sink to the lowest amongst the “big 4”, will be loathe to agree to any additional disincentives to clubs to spend on big league payroll. Nonetheless, the recent history of harmonious and productive labour relations in MLB leads us to believe that the next CBA negotiations will be concluded without a work stoppage. As the deadline grows closer, the details of the needs of all involved in concluding that agreement are becoming more and more evident.

THE FUTURE OF COLLEGE BASEBALL

Last month LWIB reported on the speculation that drastic changes to the landscape of college baseball are in the offing. Buster Olney reported that MLB has a real interest in bolstering the college ranks in reaction to their need to develop a “feeder system” in the same manner that college football produces NFL players. Kiley McDaniel of Baseball Prospectus has argued that the introduction of mandatory slotting in the amateur draft (most pundits agree that it will be introduced in the next CBA) will result in an influx of high school talent to the college ranks.

LWIB John Manuel the Editor in Chief of Baseball America wrote that the actions of MLB in the near future will have a major impact on college baseball.

The next Collective Bargaining Agreement expires after the 2011 season, and because MLB and the players union have found some labor peace, they finally have pushed the draft and player procurement toward the top of the CBA agenda.  Draft changes should have a profound effect on college baseball, and the range of changes could have unforeseen consequences.

AND

MLB could make the draft shorter and incorporate international players into the draft.  Both changes could lead to more players staying in college ball, rather than signing as de facto lower-minors roster filler. 

Or MLB could adopt the National Hockey League's rule that allows teams to draft high school players and control their rights while they play in college.  Think that would be good for the college game? I do, and I definitely could see players choosing the Southeastern Conference over, say, the South Atlantic or Gulf Coast leagues.

Or, MLB could sign more and more of the top prep players.  The Tigers have seen early, obvious benefits from signing righty Rick Porcello away from his North Carolina scholarship, even if it cost them $7 million.  He's a bargain at that price, and more teams have come to see high draft bonuses as an investment, rather than a sunk cost.  The next decade could see talent dip in the college game as more teams get on the player-development train.

WEEKLY TIDBITS

  • Keith Thibeault of Sports Media Journal and Ken Fang of Fang’s Bites interviewed the SportsBusiness Journal’s media reporter John Ourand in this podcast. The conversation is wide ranging but the baseball topics discussed include national TV ratings for the upcoming season (Mr.  Ourand has high expectations), the heated battle for Astros local TV rights and the role of league owned channels, including MLB Network, in the upcoming 13 national TV rights renewals negotiations.
  • In the Forbes SportsMoney video segment Selling The Texas Rangers, Mike Ozanian interviews professor Michael Cramer of the sports management program at NYU. Mr.  Cramer believes that it is “not hard to justify” the reported $550 sale price of the franchise and surrounding real estate. Mr.  Cramer describes Rangers Ballpark in Arlington is a “great ballpark” and the Rangers as a “great brand”. Mr.  Cramer reminds us that in the late 90s the Rangers drew “2. 8 - 2. 9” million fans and he foresees future attendance of 3 million “easy with a winner”.
  • In late February LH James Paxton announced he was leaving the University of Kentucky baseball program as a result of his ongoing legal battle with the NCAA over the “no agent” rule. LWIB Bob Elliott reported that Paxton will follow the same path as fellow pitchers Max Scherzer, Luke Hochevar and Aaron Crow by playing independent baseball this season.
  • The Cubs and the PNC Financial Services Group announced details Thursday about the ballpark's new suite, the PNC Club of Chicago.
  • MLB Network and Fox Business Network are partners.
  • MLB and their ticketing subsidiary Tickets. com were amongst the victims of a $25-million fraud ring aka Wiseguy Tickets.


Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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