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Rethinking MLB TV Revenue

I came across a small post about new MLB media deals by Maury Brown at Biz of Baseball. The national MLB media contracts will essentially double. Major League Baseball currently splits the revenues evenly with all 30 MLB teams, which makes some intuitive sense even though some teams (ahem, Red Sox and Yankees) have more national broadcasts than others. Major League Baseball takes an equality-based approach with national media revenues right now.

What could MLB do if they took an equity-based approach? What I am talking about is if Major League Baseball thought more about providing equal opportunities to franchises instead of dispersing equal resources. Essentially, I am arguing that national TV revenues ought to be treated much like competitive balance funds.

I took a look at Forbes team valuations to get a sense of what an equity-based approach could look like.  The franchise values are cool but what I was really interested in were the revenue estimates. Revenue should represent the money that a team can actually spend in a given year. I made a pretty major assumption and subtracted $24 million from each team's revenue total, assuming this amount is about what MLB teams currently get and that Forbes included that money in each team's revenue. Then I went to work. My premise was simple: balance out revenue as evenly as possible.

I was astonished at what I could do using only the pool of national media money. I could disperse the cash in such a way that 27 of the 30 teams had the exact same revenue, $227 million. The only exceptions were the top three clubs, the Yankees ($415 million), Red Sox ($286 million), and Cubs ($242 million), even though I gave no money from the national media deal to any of those teams.

Keep in mind that this is a pool of money that is currently distributed evenly with all MLB franchises. In other words, the competitive balance monies handed out, which are not distributed evenly, come from elsewhere. They haven't been used at all in this hypothetical scenario.

I would take this re-thinking of media funds a step further though. The whole idea of equity-based dispersal is that teams will have the same resources to compete with, which in turn implies that teams will use the money to compete. Franchises should not be able to pocket money handed out to them, or use shared revenue to pay for everything while they pocket their local revenues. I don't think it is too hard to build in some natural accountability measures.

Major League Baseball could treat national media revenues as a grant fund. Franchises could essentially apply for annual grants. Team proposals would include how much money they are asking for and what the money would go towards. There could be a few simple stipulations that teams must meet:
  1. A franchise can ask for up to 100% of their local revenues. In other words, a team can't ask for more money than it makes on its own.
  2. The grant can only cover up to 50% of the total expenditures for the budget line it supports. This would in essence make grants matching offers. For every dollar a team spends on something, they can get a dollar from MLB.
Grants would be awarded based on how well they support the competitive balance of the game. Franchises would have to argue in their grants why the money they are asking for would give them a more fair chance to compete than they would without the money.

Let's take the 2012 Marlins as an example. They made approximately $124 million in revenue according to Forbes. They started the year with a payroll over $100 million, so they could have asked MLB for $50 million to put towards payroll. However, when the Marlins payroll went down at the trade deadline they would have had to give some of MLB's money back thanks to the 50/50 stipulation.

On the flip side, the Dodgers would have been eligible for up to $103 million in this system, but probably would have only received $15-$20 million because that's the amount that would have leveled their revenues in line with the rest of baseball (save the top three teams discussed). Their spending spree at the deadline would not be supported more by MLB because of the 50/50 rule. They were already handed much less money than they were eligible for.

The Yankees would be eligible for over $200 million, but I would be stunned if they could write a viable case as for why competitive balance would increase if they were given more money.

The sports and media businesses are at an interesting crossroads right now. Teams are literally doubling their local television contracts as they renew in the current landscape. That is creating huge spikes for teams as their contracts expire and they sign new ones. Major League Baseball could mitigate these spikes by allocating the national media money differently from year to year to balance out team revenues.

Equity-based media allocations would drastically alter baseball economics for the better. The fundamental principle behind competitive balance, as I see it, is that every team has a fair chance to be as good as any other. Providing the same resources achieves that goal in a way that preserves flexibility and creativity that can get stifled when spending limits are imposed. Baseball has an unprecedented chance in its history to ensure that the vast majority of its teams have the same amount of money to work with. Wouldn't it be interesting to see what happened if everyone started with the same pile of cash?