Baseball Musings
Baseball Musings
October 30, 2005
Welfare Reform

One thing we'll need to deal with next year is an expiring collective bargaining agreement. The current CBA runs on on Dec. 19, 2006. I don't know the time tables for striking vs. locking out vs. declaring an impasse, but my feeling is the 2006 season is in no danger. Anyone who knows more about labor law might want to argue that in the comments.

I'm really not sure if there are any sticking points between the union and the owners now. Given the last agreement, the owners appear to have accepted the current structure of arbitration and free agency. They'll argue about the drug testing policy, but I suspect it will get tougher, especially the penalties for the 2nd and 3rd offenses.

The real problem facing MLB is that revenue sharing isn't working. As Andrew Zimbalist points out in his book, National Pastime, the current system discourages low revenue teams from getting better. Basically, if they spend more money on players to increase revenue (fans in the seats, e.g.) they lose money on revenue sharing. The increased revenue cuts down on their share of the pot, to the point that they make more money by not trying to improve the team. That's what you're seeing in Tampa Bay and Kansas City. These teams are living on welfare, and there's no reason for them to get off the dole.

What seemed to work when the US government instituted welfare reform were rules that required work, but did not penalize recipients for working. The Earned Income Tax Credit makes it worthwhile to work instead of collecting assistance:

In 2003 more than 21 million working families claimed this tax credit. The purpose of the program is to reduce the tax burden on low income working people and to supplement their wages. Workers with dependent children usually receive refunds of $1,000 or more for each year in which they are qualified for the program. In some cases, the refunds are equal to—or even exceed—federal income tax payments withheld from these taxpayers’ paychecks.

Workers whose earnings are too low for them to pay income taxes can get cash back from the EITC program by filing federal income tax forms. This is true even if they have no tax liability and no money was withheld from their paychecks for taxes. The EITC also is available retroactively for up to three years for qualified taxpayers who file amended returns or who were not required to file but later learned that they were eligible for the credit.

The EITC program is credited with helping more children escape poverty than any other government initiative. Yet many researchers and advocates believe that the EITC is under used by qualified taxpayers—15% to 20% of eligible taxpayers may fail to claim the credit.

MLB needs something like this. If we want Kansas City and Tampa Bay to be successful franchises, then money from revenue sharing needs to be spent on making their clubs competitive. MLB needs to implement rules that allow the revenue of poor clubs to grow as they improve, and support them until they can support themselves. But the clubs must be required to work toward improvements. Basically, if a club receives money and spends it to improve the club (better record or more gate receipts, e.g.), their share of revenue won't go down the following year. Likewise, a club that takes money and cuts payroll should have their level of support drop as well, and shared money should go to zero in a short time if the practice persists.

All sides should want such an agreement. Low revenue teams doing better means a healthier game. That's better TV and Radio ratings all over, more money for the central fund, more money for salaries, and an increasingly popular game. The current system flushes money from one set of owners into the pockets of others with little impact on improving the sport. Rather than abandoning the system, it's time to put incentives in place to force teams to better their play and grow their markets.


Posted by David Pinto at 04:30 PM | Management | TrackBack (0)
Comments

Nothing much to say here except that I agree with you 100%. In many ways we're seeing a lot of parity in baseball, but there are still a handful of teams that are going nowhere fast.

Posted by: Adam Villani at October 30, 2005 06:09 PM

And don't forget, when the new Yankee Stadium gets built, Steinbrenner's slice of revenue sharing will go down dramatically, because he can offset those costs vs. his income. (And I'm glad that the money for the stadium is coming from his pocket, not the taxpayers').

In one sense, the current CBA has been successful, from 2000 - 2005 there have been 6 different WS champs, although in the same time span the AL East has finished virtually exactly the same each year.

I don't see either the owners or players wanting a lockout/strike; they both seem relatively content with the way things are going. IMO.

Posted by: rbj at October 30, 2005 06:53 PM

According to Gammons, there would have been a strike/lockout in 2002 if not for the PR of post-9/11.

Posted by: Yankee Despiser at October 30, 2005 07:25 PM

This should also be something that the players would like because forcing the small market teams to spend that money would help raise the salaries of the non-superstar players. Also, I could see owners like McCourt, Steinbrenner and Henry being in favor of getting small-market teams to actually spend that money and not pocket it.

Posted by: Adam B. at October 30, 2005 08:25 PM

Indeed. At this point, I'd see the players as having a significant ability to exploit differences in perspective between the big successful owners in Boston, New York, and LA and the pporly run and ineffective teams in Kansas City, Tampa Bay, Colorado, etc. At this point, the owners of big, successful teams aren't subsidizing competition, they're just lining the pockets of small-market teams.

Posted by: NBarnes at October 30, 2005 10:44 PM

Hiding revenue has been a huge problem for revenue sharing as well. Someone (I think it was on Baseball Prospectus, but I could be wrong) has suggested revenue sharing based on population in home area, not actual revenue. Although I can't see the geniuses who run baseball going for it, I think it would be great for the game. This approach would prevent any real need for revenue hiding, encourage teams to maximize their actual revenues, and stop silliness like the Angelos/Selig discussions over the Nats invading "his" territory.

Posted by: Craig A. Damon at October 30, 2005 10:58 PM

The problem with these arguments is that Tampa Bay going from $30 million to $60 million will not win them the pennant. Same with Pittsburgh and KC. That's why you need a salary cap.

Posted by: Yankee Despiser at October 31, 2005 09:11 AM

Simply, baseball doesn't get it. The powers that be honestly believe that people from "have-not" cities like KC, Pittsburgh, and Cinci pay to see Barry Bonds, Derek Jeter, and Roger Clemens.

They do not.

They pay to see these players LOSE to their home teams, while doing something spectacular in defeat. No one...I repeat....NO ONE pays to see their home team get punked by the Yanks, Red Sox or Braves. It's one of the biggest falacies of baseball's unspoken undercurrent of thought.

Really, I don't blame the players. They're simply playing by the rules, trying to get the best deals they can for themselves. But the disparity between organizations is so pronounced (will Kansas City ever be able to field a team with a $200 million payroll....before there are flying cars?), and the system is so broken, that over half of the teams operating have no realistic hope of post-season in any year, let alone championship aspirations.

Sure, there have been six different champs. How many of them come from the lower third of television market size?

That leads to my solution. Owners need to share more, not less, if you really want competitive balance (and I'm not at all convinced they do, despite the fact that the lowest-rated WS was the relatively recent "Subway Series").

The biggest disparities come from local broadcasting rights. And the answer for the small markets is easy: demand half of the ad revenue from each game broadcast from their (the small markets' teams') parks, or tell YES Network, NESN, and SuperStation TBS to leave their cameras at home. No dough, no show. Learn to live with the radio....or take that away, too.

Short of that, salary cap is the only means (if artificial) to keep competitive balance.

As I said, though, I'm not convinced at all that MLB is interested in balance at all. Besides, what would Buster Olney do with himself if every intimate detail of the whims of the Yankees and Red Sox weren't ESPN.com front page-worthy?

Posted by: Mark O. at October 31, 2005 12:38 PM

If you went by population, there'd be all sorts of arguments about how big a team's territory is. Do the Mariners get the entire Northwest? Are the Angels L.A.'s team or Orange County's? If you go by the Census Bureau, some of the metropolitan areas are huge. The Baltimore-Washington Metro Area extends all the way to Harper's Ferry, WV.

Posted by: Adam Villani at November 1, 2005 04:06 PM

Finding the size of a broadcast market is simple. They are ranked in terms of size (or DMA-Designated Market Area). Nielson ranks them here:
http://www.nielsenmedia.com/DMAs.html

Again, the answer is simple, but hard to convince the Steinbrenners, TimeWarners and NESNs to agree: we (small market owner) get half of the ad revenue generated by the coverage of games at our parks, or you can get a CourtTV sketch artist to come in and supply the pictures, descriptions and accounts of each game the "Haves" play there.

Small and medium-sized markets, without trying TOO hard to be punny...need to play hardball.

Posted by: Mark O. at November 2, 2005 12:02 AM
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