On Competitive Balance and the AL East

I may be a Yankee fan, but there are some things here I agree with. And some maybe not.

 Re #3. Concomitant with the salary explosion has been a revenue explosion in baseball. Baseball revenue has increased by at least 3 times in about 10 years. NY has had lean times in the earlier part of the free agent era – but their revenue streams and that of all clubs has seen massive growth. Frankly its nearly as interesting to me that Tampa took on the salary level they did – and I recognize that was a financial mistake – 10 years ago when game revenues were a fraction of today’s. You guys should recognize that your beloved owners have presided over one of the 3 most profitable – in dollar, not percent terms – baseball franchises in the last few years. At least some of this crying poor stuff falls on deaf ears to me. But with significant payroll growth in the last couple of seasons those numbers may have narrowed some. Your org still isn’t Jeff Loria’s Marlins.

Revenue sharing may actually drive up NY’s payroll. If the Yanks didn’t spend their revenue on payroll and other baseball related expenses – like the stadium, though there are caps on how much of that goes against RS contributions – they would enjoy spectacular profits, but also 31% of that gross marginal local revenue would go to the revenue sharing pool, making the other teams more able to compete financially. What would you do if the Rays were in this scenario – spend it on top free agents or give 31% of it to your competitors?

On #2, I do agree the luxury tax is too lenient. It’s difficult to reach the levels in place now – it really is a Yankee tax. The lux tax threshold for 2010 is $170 Mil! It may not be completely fair (not that I expect those here to worry about being fair to the Yankees) from a purely business perspective to dramatically shift the rules starting immediately with the next CBO, but a ratcheting down or at the very least holding the line so it doesn’t continue to rise through the agreement would give teams (ok, NY) time to adjust to the new reality.

The Lux tax threshold increases are outrunning the growth rate of player salaries. That’s not the way it should be. In the first 3 years of its institution, 5 teams paid each year, even the Marlins in 1997! From 2003 to 2009, NY paid every year. Twice they were the only payer, and there were more than 2 payers (others were Boston 4 times, Detroit 1, La Angels 1) only in 2004 (NY, Bos, LAA). But I agree NY should be paying – and that the threshold isn’t quite punitive enough. But the other reality is that being more aggressive here will only increase profits by holding down salaries, and profits aren’t a critical problem in baseball right now.

As I’ve also said many times, I think there should be a tax on revenue sharing for teams with low payrolls. They could choose to go low when rebuilding – or if your owner is Jeff Loria – just like NY chooses to go over, but the other clubs shouldn’t have to finance that business choice. Those unpaid RS dollars could be distributed to unpenalized teams that exceed the “Floor Tax” threshold on some basis that doesn’t simply pay the rich clubs back. If teams want to compete in the player markets(draft and Int’l FA costs should be considered here too), they could get some more bucks back. The larger payors like NY, Boston, etc. shouldn’t get cash back.

I don’t think you’ve spent enough time on solutions though. Comments like “figure out how to reduce their power”, “Solve the FA distribution disparity”, and “Figure out how to reverse the salary explosion” don’t offer solutions. All of these are a result of the revenue explosion, which has likely (I’ve got no numbers here) been disproportionate. There are mitigating salary trends taking place – salary growth is slowing with the constrained FA markets of late, excluding the increasingly more rare monster contract. And the fastest growing revenue sources in baseball are in the equally shared Central fund (Internet, national TV, merchandise, etc.). A good capitalist or better economist than me (Andy H.? Kericr?) might argue that it’s an infringement on businesses to redistribute revenue more aggressively. It would certainly have a negative impact on asset value – so the smaller revenue club owners would absolutely love it, since they bought in under the prior rule set.

But enough of this. Baseball maybe just needs a little stretch where NY and Boston simply screw up royally. It has happened in the not too distant past.