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September 7, 2000

The Imbalance Sheet

Rebuttal: Revenue-Sharing

by Peter Schoenke

(Peter Schoenke, President of RotoNewsDirect.com, provides a guest column this week that serves as a rebuttal to Keith Law's two recent articles on revenue sharing.)

We're one week into the NFL season and football fans everywhere can get excited. Just about every fan at this point thinks their team can make the playoffs.

So your team went 6-10 last season? A few free-agent signings, a few good draft picks and you could be playoff-bound. Ask Bears fans! Heck, even the lowliest of teams can look at the Rams for inspiration after going their rise from 4-12 in 1998 to 1999 Super Bowl champs. The only teams that don't have hope are teams on the rise who need some more seasoning (Cleveland), those on the downside of a good run (Pittsburgh, San Francisco) or those who have totally inept management (Cincinnati).

Even for those who don't think their team has a chance to win this year, it's not crazy to think a little progress from the rookies this season and some good work from the general manager in the offseason could get your team back in the hunt.

Contrast this opening day with that of baseball. How many fans think their team has a shot at winning? How many think a year of getting the rookies ready will make any impact the following year? Face it, if you are a small-revenue team (notice I didn't say small "market") you rightfully believe your team has no shot. Even if the White Sox or A's or some other team not in a "big market" makes the playoff, the record since baseball screwed up its infrastructure after the 1994 strike is damning.

Since 1994, every team that has made it to the World Series has been in the top ten in payroll. None of the bottom ten in payroll has made the playoffs. Maybe the White Sox make the Series this year and end this run. That doesn't exactly inspire confidence. I'd like my team to have a shot at the finals more than once per decade. And if you are a bottom-revenue team, you're still waiting for your "White Sox" breakout season to give you hope.

Let's face it: many of us think baseball is the better sport, but football has the better system.

So why can't baseball switch to this system? The reasons against it usually focus on how it would be unfair and unjust for George Steinbrenner to give his money to those "small market" clubs that simply mismanage their operations. But what if baseball had the foresight long ago to realize that local television revenue would distort the competitive balance? What if they realized that not splitting local media revenue would hurt a team's chances to win? Would people be worrying about the money Steinbrenner was losing? Does anyone have sympathy for the millions Dallas Cowboys owner Jerry Jones isn't making?

The salary cap and competitive balance have helped both the NFL and NBA surpass baseball by many measures of popularity. The reason is simple: your team has hope.

In a recent column, Keith Law argues that the salary cap in the NBA doesn't do this because a few teams have dominated the league for the past few decades. This is true, but it's not because the salary cap wasn't working. With only five starters, it's easier for one dominant player to make a difference in basketball. Michael Jordan, Larry Bird and Magic Johnson come to mind. Every NBA final since 1979 has had at least one member of the 1992 "Dream Team", for example. The cap can't compensate for that. Nor should it. That's the nature and the excitement of the game.

The Clippers are the Clippers because they have the dumbest owner and general manager in history. Vancouver has no chance because it blew so many drafts. No one says their team can't win because they don't have the "means". A good GM and a good draft and you could be right back in it.

Baseball Economics 101

"Here's a dirty little secret, wrapped up for Messrs. Steinbrenner and Angelos: revenue sharing is nothing but a euphemism for the other 28 teams coming after your money" -- Keith Law, August 17, 2000

"If George Steinbrenner would rather spend his money on Derek Jeter than shove it into his Cayman Islands IRA, isn't that good?" -- Ray Ratto, ESPN, August 26,2000

Statements like these infuriate me. They have a fundamental flaw: baseball is not a regular business. Baseball is a quasi-public confederation of private businesses. It gets a special clause from the government to be a limited monopoly. Baseball needs its other members to survive for everyone to thrive.

Contrast this with the real business world. I like a lot of my competitors. They often offer me synergies and many have nice people. But the goal of my company, RotoNewsDirect, is to gain 100% market share and make as much money as possible. If we could come up with the überproduct that would leave ESPN and Sportsline totally bankrupt, don't you think we'd do it?

However, in baseball the goal of the New York Yankees is not to crush the Minnesota Twins into financial submission. They need the Twins to be a healthy organization in order for them to make money as well. I seriously doubt George Steinbrenner is going to make a lot of money if he makes his team the Harlem Globetrotters of baseball. He needs the rich history, tradition and infrastructure the rest of the teams provide. It's why we care about the game. Kill off the Twins, Pirates and Padres and you hurt that 150-year brand equity. Maybe moving a few teams from cities where things just are not working out (Montreal) is OK, but the point is that the other teams are needed for much more than just the opposition on the field.

Law does have a point when he says that George Stienbrenner shouldn't have to pay for mismanagement of other teams. If some owner uses his revenue-sharing funds to pay big salaries to his cronies in the front office or builds a big yacht--that's always a risk. But that's the point. Baseball and all professional sports are basically a kind of cartel. If Saudi Arabia opens the floodgates on oil production, OPEC sinks. If Tampa Bay absconds of their revenue-sharing funds, the system dies and all are worse off.

I'm certainly not arguing for 100% revenue sharing. Steinbrenner can have a break. He can have 50% more revenue that the smallest team. Fine with me. If the lowest-market team can have a chance at the playoffs every three to five years, that will work. That's enough margin of error that the development and judgment of talent may cover the difference. But at the current 10-to-1 difference or more, that team has no chance, even if they are the best at judging and developing talent.

There are plenty of ways to do this, whether it's in combination with a salary cap or straight revenue sharing. The details are not the issue here. The point is that equal distribution of resources to spend on talent needs to take place for baseball to thrive. It's helped the NBA. It's got me psyched for my NFL team this season. I can't say the same about opening day for my favorite baseball team next spring.

Peter Schoenke can be reached at schoenke@rotonews.com.

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