Tags

, ,

J.C. Bradbury is skeptical that as currently practiced, MLB’s revenue sharing system has had an appreciable impact on the competitive balance of the league:

[C]ompetitive balance improved from the 1930s until leveling off in the late-1980s and early-1990s. Much of this improvement was likely a natural consequence of more high-quality talent becoming available to more clubs, the addition of the amateur draft in 1965 (the mechanism Branch Rickey felt was most important for leveling the financial playing field across teams), and other minor structural tweaks to the league. Why would the improving trend disappear just as revenue sharing came into existence? While I’m not certain that revenue sharing stopped the progress, I doubt it was instituted just in time to counteract a trend reversal.

In my view, if revenue sharing worked, there would be some evidence of it working over the past two decades that it’s been tried under various formats. How much longer are we supposed to give it, especially when what we observe is exactly what theory predicts we should observe? If we think it’s important to correct inherent differences in revenue potential across teams, I think revenue sharing is a poor tool for achieving that goal.

For MLB teams, Bradbury shows that revenue earned on wins is pretty stable between 60 and 80 wins (approx. $100M).  80 wins represents an inflection point at which revenue in relation to wins climbs rapidly–e.g. teams that win 100 games can earn 80% more than teams winning only 85 games.  The problem is that many teams can spend relatively little and turn a solid profit by fielding a team that finishes the season 20 games under .500.  Rather than poor the shared revenue into their teams, owners have found it easier and safer to field a sub-.500 team.

 

It strikes me that MLB needs to think harder about the choice architecture it puts in place with revenue sharing. If teams can make a profit without being competitive and the returns on winning do not kick in until you surpass the 80-win mark (and, therefore, incur greater risk and less guaranteed profits) why not break up the disbursement of revenue sharing funds?

For example, why not disburse the funds in tranches? You could make additional tranches dependent on hitting certain win milestones and with a higher number of wins comes greater fund sharing (e.g. as teams approach 80 wins they are provided with an additional kicker that can be put toward the following season). It may also make sense to make the revenue shared less than the profits obtained at >80 wins. This way, teams are provided with an incentive to take greater risks and build more competitive teams and not fall back on the shared revenue.

Once you can incentivize a team to make an investment in talent above and beyond what they currently provide the team may take on a life of its own, creating a positive feedback loop that could catapult it into the 80+ wins area and thereby generate greater profits which allows for greater investment which provides greater talent, etc, etc.

Just a thought.

Advertisements