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The Money Pitch

The Widening gap between rich and poor teams means only a handful will have a shot at the World Series
Ken Shouler, Austin Merrill
From the Print Edition:
Cuban Spy Scandal, May/Jun 02

(continued from page 4)

Moreover, pointing to poor teams that succeed doesn't make a convincing case against the importance of money. They are exceptions, nothing more. The reason we can cite the poor teams that conquered adversity is that there are so few of them.

What is the formulaic elixir that will fix this situation of so few haves and so many have-nots? The remedy for baseball's economic ills is not easy to come by.

Major League Baseball tried to right the problems of competitive imbalance in 1996, when the last collective-bargaining agreement was signed. The approach then was to level the playing field with a revenue-sharing system and a luxury tax on those teams with the five highest payrolls in the two leagues. Thus, in 2000, the bottom three clubs in revenue (the Expos, the Twins and the Marlins) received $24 million, $22 million and $16 million, respectively, in transfers from the revenue sharing system.

But to Zimbalist's way of thinking, this falls short in an un-expected way. "Given that the bottom half of teams recognize that they have no hope to compete in the free agent market, their best profit-maximizing strategy is to lowball their payroll, perform poorly, and collect large transfers from the rich teams," he says.

"One of the things that's happened with the revenue sharing is that some of the teams that are getting it are using it just for their everyday operations and not to pay the salaries to be competitive," adds Link. It's possible that one of those teams is the Montreal Expos; in their 81 home games last year, the Expos drew a Major League low of 642,745 fans, less than six Double-A and Triple-A minor league teams.

"So what baseball needs to do is one of two things, in addition to expanding revenue sharing," contends Zimbalist. One option, first espoused by sportscaster Bob Costas, is to "either set a minimum threshold, where they say, 'You either spend $40 million on your players—or whatever the threshold is going to be—or you don't get any revenue-sharing transfer,'" the professor says.

The second solution to the revenue-sharing issue, advanced by Zimbalist himself, seems to embrace all the relevant factors. "You take an equation that estimates team revenues in baseball on the basis of the team win percentage, media size and stadium conditions, and you plug into that equation the assumption that every team has a .500 winning percentage. You use this estimated equation and see what a team would earn in revenue if it had a .500 winning percentage, along with the advantage of its city and the advantage of its stadium conditions. So, for argument's sake, let's say that if the Yankees were .500, that instead of generating $240 million in revenue, they would, at .500, generate $170 million. You would then tax the Yankees for the advantage they have because they are in New York. That is, you tax them on the $170 million.

"Now the net local revenue sharing rate is 20 percent, though the owners are talking about lifting it to 50 percent. Let's say it's 50 percent. You would tax them 50 percent of $170 million, the amount they would earn if they were an average team. And if they only earn $140 million, they still have to pay the tax on that difference of $30 million. On the other hand, if they are very successful, and they generate $240 million, they still only pay a tax on $170 million."

The idea may sound complex to a mind untutored in economics, but Zimbalist insists it is quite doable. It would need to be embraced by the players association and the owners, with a little give and take.

Until that time comes, enjoy the game. This season begins with interesting possibilities. Who will be this year's Seattle and Oakland and outperform their fans' expectations? Will the Braves or the Mets capture a division crown? Can the Red Sox rebound from a season of injuries to overtake the Yankees? Can the Yankees take back their crown and win their 27th World Series? Can the A's or the Cardinals win their 10th?

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