Tuesday, April 13, 2010

Competitive Balance

For years, baseball teams from smaller markets have been crying foul over larger market teams buying championships via the larger resources they earn by being in bigger cities. So you knew when the Yankees won the World Series last year with a bunch of new free agents, that the howls and shrieks from Milwaukee, San Diego and the like were going to be louder than ever. Over the winter there has been a lot of talk about addressing this problem. Let’s see what the best baseball minds out there have come up with.

First up is the idea floated by Bud Selig’s “Special Committee for On-Field Matters:” Floating Realignment.

Floating Realignment
For those who haven’t heard, the idea goes something like this: Floating Realignment allows teams to be shifted to different divisions. Therefore powerhouses could be broken up—New York or Boston could be shifted to the Central Division, so Baltimore and Toronto would have a better chance of competing in the East. Also, Kansas City and Minnesota—small market teams—would have many more dates with the Yankees or Boston which should help alleviate any attendance issues those markets might have.

OK, ignoring potential problems with the idea coming to fruition; such as would the Players Association actually agree to this (No.), or would teams such as Minnesota or the Indians voluntarily move to the East (No.), Jason Stark writes this week on why this realignment plan will never happen.

“Isn’t it insane to mess with the fabric of your entire sport because you can’t figure out what to do about two of the most successful franchises on Earth?”

Stark is exactly right. The issue is a non-starter. Why would you separate one of the best, most storied, most watched and attended rivalry in all of sports? Answer: you wouldn’t.

There is no possible way that MLB, FOX, ESPN, not to mention the Red Sox or the Yankees would ever agree to less games played between these two teams. Ever. As Maury Brown writes in BizofBaseball.com:

“...there are some rivalries that transcend all sports, and there is no bigger rivalry than the Yankees and Red Sox. Theoretically, you could have one of these clubs jumping divisions. Fans would raise eyebrows, but the networks would flip.”

There’s also another reason not to agree to the Floating Alignment plan. Which Stark goes on to write about: shortsightedness. He quotes one GM:

“To me,” he said, “it would be embarrassing to make rules around the Red Sox and Yankees and then turn around in maybe seven, eight or nine years and find that the Mets, Cubs and Phillies are like the Yankees and Red Sox are now. Then would we have to make rules for those teams, too?”

True. Cleveland, rebuilding now, was not so long ago, a powerhouse team. The Blue Jays won two championships in the AL East. Would they have moved the Atlanta Braves when they were ruling the NL East? What about now? Also, the “small market” Twins have won the Al Central 5 out of the last 8 years—would you move them so Detroit could compete?

There is no way this plan ever comes to fruition. And Selig knows that. One wonders why he even floated it out there. Probably to show the world that baseball is diligently working on it, even if he knows that, most likely, nothing will be done for the time being.

OK. What to do then?

Capping the Wealthy
Recently, I wrote about the revenue disparity issue—an issue related hand-in-hand to the competitive balance issue—and wrote that a hard salary cap would never happen in Major League baseball. Why? For the simple reason that baseball needs the Red Sox and Yankees to be successful. Those teams draw fans and TV ratings wherever they go. They are the cash cows. Why would baseball try to make them just like every other team?

To put it gently, I doubt Fox and ESPN and the networks would be in favor of the plan. They want interest in Boston and New York to forever remain high—it means ratings. Now, this is not to say that Milwaukee, Kansas City, San Diego and Pittsburgh should never be in the playoffs—just that if they do become competitive, they should not do it at the expense of Boston and the Yankees. That just wouldn’t make financial sense. And it wouldn’t be fair to the big market clubs.

And to be honest, it’s not like the Steinbrenner family is the richest family in baseball—so it’s not like a lot of teams don’t have a lot of cash. According to the 2008 Forbes List of the richest people in America, George Steinbrenner’s net worth ($1.3B) trails those of Carl Pohlad (Twins – $3.6B), Ted Lerner (Nationals – $3.5B), Mike Ilitch (Tigers – $1.6B), Drayton McLane (Astros – $1.6B), Carl Linder (Reds - $1.4B) and Tom Hicks (Rangers – $1.4B). Oakland A’s owner, Lewis N. Wolff has assets over 1 billion dollars and Baltimore’s Peter Angelos was worth 1.2 billion. And this doesn’t even include the corporations who own teams like Liberty Media (Braves), Rogers Communications (Blue Jays) and Nintendo (Mariners).

So if financial equality isn’t the big problem—why does baseball need a cap?

Simple answer, they really don’t.

Ideas Abound
There are lots of plans out there to solve the competitive balance issue; some truly inventive. For instance, some have proposed a NBA-like system of divisions; where there are no hard and fast American and National Leagues, but 6 regional divisions that interplay throughout the season, again like basketball and hockey. The benefit, they propose, would that the big salaried Northeast teams—both New York teams, Boston, Philadelphia and Detroit—would be bunched together, and would fight amongst themselves in that division—and other smaller salaried cities would have more of a chance of winning their respective divisions.

Another proposal, pitched in a 2007 article in the New York Times by Michael Lewis—where he decried the current revenue sharing system as inadequate—is his own, population-based revenue sharing plan.

The problem is that transfers are based on local revenues. Teams that receive money are encouraged to invest it in their payrolls. But if a team actually attracts fans by fielding a winning team, its revenue-sharing receipts will be reduced....revenue sharing, as it is now structured, actually makes lasting success less likely....

Lewis then goes on to promote his idea for revenue sharing.

To create a more balanced playing field, revenue-sharing payments should be increased for teams that attract more fans. I have devised an approach for doing this based on a statistical analyzes of teams’ payrolls, winning percentages and attendance. It takes into account the size of the team’s local population, to acknowledge that teams in places like New York and Chicago have greater financial incentives to invest in players than teams in places like Milwaukee and Kansas City do.

Lewis posits that his theory would give incentives to clubs to take their revenue sharing proceeds and remain competitive. Possibly. But would larger MLB teams go for it? Places like Boston and New York already feel that they are doing enough for small market teams. Asking them to potentially do more would probably not wash. You could hear them saying, “Other teams are attracting more fans—presumably by winning—and we have to pay them more? Don’t think so.”

Capping The Poor
This winter, the aforementioned Jason Stark gave forth his own plan. And simply put, baseball keeps the luxury tax, but adds a basement tax. It’s not a hard salary floor, but like the luxury tax, for any team that goes beneath a payroll threshold, they have to pay a fine like the luxury tax.

Starks reasoning is that the smaller market teams, before they sell one ticket, should have around $80 to $90 million dollars of revenue, courtesy of revenue-sharing, the central fund and their local TV, cable, and radio deals. When you consider that nearly one-third of the teams in baseball spend less on player payroll and player development than they receive in revenue sharing, giving those teams a financial “incentive” to get them to spend their money—such as a salary floor tax—would help alleviate a lot of the competitive balance issues, according to Stark.

And that doesn’t address the fact that some of these small market owners aren’t spending the money they have outside of baseball—which brings up the question that do some of these owners even want to field a competitive team. No, Stark’s plan is simply a way to get some of the smaller teams to spend the money they get through the baseball welfare system, and to put a better product on the field.

A similar idea was written about in Itsaboutthemoney.com where their list of proposals is similar to Stark’s:

• Lower the luxury tax threshold (more teams paying)
• Continue to escalate the penalties for exceeding that threshold (offending teams’ payments increase every year)
• The top 5 teams that take in the revenue sharing/luxury tax payments must provide audited financial statements to MLB to “prove” they spent the handouts on improving the club via “sources and uses” schedules. If the team can’t prove they used the funds to improve their clubs, they either forfeit the following year’s payments or must refund the current year’s payments.
• Teams that are amongst the bottom 3 in terms of payroll for five years in a row are prohibited from receiving payments for the following year (a motivation to spend)
• Get a slotting system in place for the MLB draft so teams won’t bypass superior talent due to cost

Some good ideas there—many them among the “incentive” based variety that Stark’s had. Also addressing the draft was a very good idea—something other sports like football have to do as well.

First, Do No Harm
But perhaps the most realistic solution is one that Joe Sheehan of Baseball Prospectus wrote almost a decade ago when he was writing about the “Competitive Balance Draft” Bud Selig was at the time proposing. His article still has some truth for today’s issues.

"Addressing the emerging gaps in revenue growth, ensuring that all teams have an equal economic incentive to succeed, forcing out ownership groups that aren’t motivated to win, abandoning markets that don’t support the game (emphasis mine)….”

Correct. The main problem isn’t big market teams “buying a championship” while small market teams can’t. In fact, it’s not even about “small market” teams. Rather it is about small market owners. Owners who aren’t interested in winning, or even being competitive, but in pocketing the most money.

Say what you will about the Yankees or Red Sox “buying” a championship, at least their owners are willing to do just that—go out and spend the money to get players to win ballgames. George Steinbrenner bought the Yankees for $10 million dollars. He created their present day net worth of 1.6 billion dollars by putting a great product on the field, something that caused him to spend. But in spending, winning follows and thus, more money.

There is to be a consensus growing that there needs to be an incentive for owners to spend the money they have—or at least the money they get from other owners—on the product they put on the field. And if they aren’t interested in doing that, MLB should find owners who will. And if the fans aren’t interested in supporting their local team, move the franchise to a city that will.

In conclusion, it is important that if, and when, baseball addresses the problems of competitive balance that they don’t ruin the great product they have. Baseball is in very good shape; fans are coming, revenues are up and the game—cranky umpires aside—is in good shape. 8 different teams won the World Series in the 2000s. 23 of the 30 teams reached the playoffs with only the Expos/Nationals, Reds, Royals, Rangers, Orioles, Blue Jays and Pirates not making it. (Funny how many of the richest owners’ teams didn’t make the playoffs.) The game is competitive and healthy. Could it be tweaked? Of course. But baseball should be careful not to throw out the baby with the bath water. Whichever plan they choose, they must be careful not to destroy the very thing that draws fans to the game in the first place. They should pay heed to the first lesson all doctors learn—”First, do no harm.”

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