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Part One
Part Two
Part Three
Part Four
Part Five

At last we’ve reached the bottom line. The table below ranks the 30
major league clubs from most to least profitable, net of revenue sharing.


Team

Income from
baseball operations

2001 revenue
sharing

Income from
baseball operations
after revenue
sharing

Milwaukee Brewers

$14,385,000

$1,744,000

$16,129,000

Seattle Mariners

$34,266,000

($18,791,000)

$15,475,000

New York Yankees

$40,859,000

($26,540,000)

$14,319,000

San Francisco Giants

$19,000,000

($6,308,000)

$12,892,000

Detroit Tigers

$533,000

$5,127,000

$5,660,000

Oakland Athletics

($7,113,000)

$10,520,000

$3,407,000

Cincinnati Reds

($11,056,000)

$13,404,000

$2,348,000

Minnesota Twins

($18,533,000)

$19,089,000

$536,000

Anaheim Angels

($9,569,000)

$9,594,000

$25,000

Kansas City Royals

($16,134,000)

$15,997,000

($137,000)

Pittsburgh Pirates

($2,984,000)

$1,782,000

($1,202,000)

Chicago Cubs

$4,797,000

($6,568,000)

($1,771,000)

Baltimore Orioles

$1,460,000

($6,807,000)

($5,347,000)

St. Louis Cardinals

$1,869,000

($8,229,000)

($6,360,000)

Houston Astros

($1,214,000)

($5,185,000)

($6,399,000)

New York Mets

$8,292,000

($15,669,000)

($7,377,000)

San Diego Padres

($16,151,000)

$8,668,000

($7,483,000)

Philadelphia Phillies

($20,865,000)

$11,752,000

($9,113,000)

Florida Marlins

($27,741,000)

$18,561,000

($9,180,000)

Colorado Rockies

($3,415,000)

($6,029,000)

($9,444,000)

Chicago White Sox

($5,687,000)

($4,201,000)

($9,888,000)

Montreal Expos

($38,519,000)

$28,517,000

($10,002,000)

Tampa Bay Devil Rays

($22,843,000)

$12,384,000

($10,459,000)

Cleveland Indians

$1,881,000

($13,254,000)

($11,373,000)

Boston Red Sox

$2,712,000

($16,438,000)

($13,726,000)

Texas Rangers

($15,689,000)

($8,744,000)

($24,433,000)

Atlanta Braves

($14,380,000)

($10,647,000)

($25,007,000)

Arizona Diamondbacks

($32,152,000)

($4,432,000)

($36,584,000)

Toronto Blue Jays

($52,927,000)

$9,830,000

($43,097,000)

Los Angeles Dodgers

($45,343,000)

($9,107,000)

($54,450,000)

Net Operating Loss

($232,241,000)

That’s right: in 2001, MLB’s most profitable team was none other than
Commissioner Bud Selig’s own Milwaukee Brewers, who play in the majors’
smallest market. Even with a new ballpark, the Brewers’ local revenues
remained below the industry average, so the Brewers received a
revenue-sharing check despite turning a $14 million profit without it.

The Brewers were one of 11 clubs to report an operating profit before
revenue sharing. Of the 11, only the Brewers and the Tigers also received
revenue sharing money. Four of the other 12 revenue-sharing recipients
became profitable as a result of it (the Athletics, Reds, Twins, and
Angels), while the remaining eight (the Royals, Pirates, Padres, Phillies,
Marlins, Expos, Devil Rays, and Blue Jays) saw their losses reduced.

On the other side of the equation, 13 of the 16 clubs that paid into the
revenue-sharing pool wound up in the red. Just three–the Mariners, Yankees,
and Giants–earned enough to remain profitable after their revenue-sharing
payments. Six other teams (the Cubs, Orioles, Cardinals, Mets, Indians, and
Red Sox) saw their operating profits turn into multimillion-dollar losses.
Finally, seven clubs (the Astros, Rockies, White Sox, Rangers, Braves,
Diamondbacks, and Dodgers) suffered the double indignity of having their
operating losses compounded by revenue-sharing payments.

As implemented for the 2001 season, MLB’s revenue-sharing formula required
each club to pay 20% of its local receipts, net of stadium expenses, into a
common pool. Three-quarters of the money in the pool was divided equally
among all 30 clubs. The remaining 25% was shared only by clubs with
below-average local revenues, distributed so that the lowest-revenue teams
received the most.

Revenue sharing is often defended as necessary to "give small-market
teams a chance to compete." Measured against that standard, MLB’s
revenue-sharing plan contains two serious flaws. First, it doesn’t require
recipients to try to compete: owners can simply pocket the money, treating
it as a no-obligation subsidy. In some circles this is known as the
"Montreal business plan," which has reportedly caused several
eruptions of Mt. Steinbrenner at owners’ meetings.

As an extreme example, in 2000 the Minnesota Twins received $21 million from
the revenue-sharing pool–$5 million more than the salaries paid to their
entire 25-man roster. Not surprisingly, they turned a profit… and not
surprisingly, their brethren eventually concluded it would be cheaper to
contract the Twins than to continue subsidizing their parasitic billionaire
owner. If revenue sharing is ever to serve its intended purpose of making
small-market clubs more competitive, recipients must be required to reinvest
the proceeds in their team.

The second problem results from a definitional ambiguity. "Small-market
team" can mean either "low-revenue team" or "team that
plays in a small metropolitan area." Since a team’s revenues are
largely dependent on its marketing and on-field performance, the second
definition is the more meaningful… but MLB’s revenue-sharing formula uses
the first definition exclusively. As the table below shows, these
definitions are far from synonymous.


Team

Local revenue

Metropolitan
population

Per capita
local revenue

Revenue
sharing

Milwaukee Brewers

$88,949,000

1,689,592

$52.65

$1,744,000

Seattle Mariners

$178,033,000

3,554,760

$50.08

($18,791,000)

Cleveland Indians

$137,841,000

2,945,831

$46.79

($11,373,000)

Colorado Rockies

$107,412,000

2,581,506

$41.60

($6,029,000)

St. Louis Cardinals

$108,058,000

2,603,607

$41.50

($8,229,000)

San Francisco Giants

$145,894,000

3,519,861

$41.45

($6,308,000)

Pittsburgh Pirates

$84,305,000

2,358,695

$35.74

$1,782,000

Arizona Diamondbacks

$106,653,000

3,251,876

$32.80

($4,432,000)

Atlanta Braves

$122,450,000

4,112,198

$29.78

($10,647,000)

Boston Red Sox

$152,581,000

5,819,100

$26.22

($16,438,000)

Tampa Bay Devil Rays

$62,337,000

2,395,997

$26.02

$12,384,000

Cincinnati Reds

$46,486,000

1,979,202

$23.49

$13,404,000

Chicago Cubs

$105,373,000

4,578,770

$23.01

($6,568,000)

Kansas City Royals

$39,295,000

1,776,062

$22.12

$15,997,000

Houston Astros

$100,228,000

4,669,571

$21.46

($5,185,000)

Texas Rangers

$110,509,000

5,221,801

$21.16

($8,744,000)

New York Yankees

$217,807,000

10,599,933

$20.55

($26,540,000)

San Diego Padres

$55,321,000

2,813,333

$19.66

$8,668,000

Chicago White Sox

$87,281,000

4,578,770

$19.06

($4,201,000)

Detroit Tigers

$82,390,000

5,456,428

$15.10

$5,127,000

New York Mets

$158,230,000

10,599,933

$14.93

($15,669,000)

Los Angeles Dodgers

$119,206,000

8,186,823

$14.56

($9,107,000)

Oakland Athletics

$51,068,000

3,519,861

$14.51

$10,520,000

Baltimore Orioles

$103,901,000

7,608,070

$13.66

($6,807,000)

Toronto Blue Jays

$54,078,000

4,763,200

$11.35

$9,830,000

Minnesota Twins

$31,865,000

2,968,906

$10.73

$19,089,000

Florida Marlins

$36,146,000

3,876,380

$9.32

$18,561,000

Philadelphia Phillies

$57,114,000

6,188,463

$9.23

$11,752,000

Anaheim Angels

$67,330,000

8,186,823

$8.22

$9,954,000

Montreal Expos

$9,770,000

3,474,900

$2.81

$28,517,000

Average

$94,264,000

4,529,342

$23.99

(Populations adjusted to reflect number of teams in market.)

By focusing entirely on the amount of local revenues a team generates, MLB’s
revenue sharing formula shortchanges popular, well-run teams in smaller
cities while rewarding incompetently managed big-market clubs.

For example, compare the St. Louis Cardinals and the Philadelphia Phillies.
Though both play in 30-year-old stadia, the Redbirds generated $50 million
more in local revenue despite playing in a market less than half the size of
Philadelphia. For their trouble, the Cardinals paid more than $8 million
into the revenue sharing pool, while the Phillies collected almost $12
million. Other pairs of similarly-sized markets–Seattle and Miami,
Cleveland and Minneapolis-St. Paul–reveal similar inequities.

MLB needs to realize that badly run teams should lose money. Very
badly run teams should lose even more, yet eight teams lost more money than
the 2001 Expos, winner of the Triple Crown of Haplessness: lowest
attendance, worst local media contracts, and lowest revenues. In fact,
thanks to their $28.5 million of revenue-sharing subsidies, if the Expos had
reduced their player payroll to the Twins’ level they would have been more
profitable than the Mets and Cardinals.

This problem can be addressed by adjusting the revenue-sharing formula to
include market size. For example, based on the 2001 MLB average per capita
local revenue of about $24, clubs falling below $20/person could lose
revenue-sharing money proportionate to the shortfall, while any
revenue-sharing recipient taking in more than $30/person could exclude the
excess from their income for purposes of the formula. This would give more
money to the Brewers and Pirates, whose 2001 revenues were artificially
inflated by their new parks, and significantly less to the likes of the
Marlins, Phillies, and Expos.

Commissioner Selig told Congress that MLB lost $519 million in 2001.
Operating losses account for just $232 million of this sum. My next column
will explain where the other $287 million went.

Doug Pappas is chairman
of SABR’s Business of Baseball Committee. His writings on the subject are
archived at http://roadsidephotos.com/baseball/.
Although his early professional experiences included helping the USFL win $3
in its antitrust suit against the NFL and watching Bowie Kuhn flee to
Florida one step ahead of his bankrupt firm’s creditors, he continues to
practice law in New York.