Owners' decisions key to improved competitive balance
By Darren Rovell
September 2005: The Yankees are fighting the Devil Rays for the American League East title. The Twins are trying to hold off the surging Royals and win their fourth straight division championship. The Marlins and Phillies are neck and neck with the Braves and Mets for the NL East crown.
Owners say the new collective bargaining agreement, with increased revenue sharing and a luxury tax, will hopefully improve the competitive balance of the sport, making the above scenario a possibility.
"We've made clear all along that the issue here was competitive balance and I feel this deal clearly deals with that," baseball commissioner Bud Selig said at Friday's news conference announcing the new labor deal.
Fans might be eager to find out how the new deal will dictate the spending behavior of clubs, and if it will do anything to remedy the perception of competitive balance problems in the sport.
Since the players did not agree to a payroll floor -- they philosophically object to both salary floor and cap -- it remains to be seen how small-revenue clubs will spend their greater shared revenue and how higher-revenue clubs will be affected by the luxury tax.
Devil Rays owner Vince Naimoli, whose team has the lowest payroll in the majors at $34 million, said it is too early to tell if the additional revenue sharing dollars will mean more money pumped into payroll and player development costs.
"Our objective from Day 1 is to have a competitive team," Naimoli said. "I can't tell you exactly how much money is going to be available or when or what the application of those monies are."
"Even though the deal doesn't kick in until next year, the first indication as to whether the (small-revenue) owners are serious about spending will be in the offseason when this year's class of free agents get shopped around," said David Sloane, who negotiated a four-year, $68 million contract for Blue Jays first baseman Carlos Delgado two years ago. "If they are sitting there on the sidelines instead of participating, then you'd have to draw the obvious conclusion that they are pocketing the money."
The Devil Rays, like the other 29 teams, have to contribute 34 percent of their net local revenues (minus ballpark expenses) to a central pool in which the funds will be distributed equally. They will be putting in less, because their revenues are lower, and will not only receive part of the equally shared revenues but also likely benefit from the central fund that will reallocate additional monies from rich to poor.
Naimoli said he figures out his payroll by taking revenues and subtracting expenses. That's why superagent Scott Boras, who negotiated Alex Rodriguez's 10-year, $252 million contract -- says the path of overall revenues in the sport will be the ultimate key as to whether low-revenue teams will spend the larger pot of shared money and the higher-revenue teams will spend on player salaries despite the luxury tax.
"If revenues in the game continue to rise as they did from $1.4 billion in 1995 to $3.5 billion in 2001, teams will find spending more money palatable," Boras said. "If they remain stable, salaries could decrease."
The average salary has more than doubled over the past nine seasons from $1.19 million to $2.38 million, but Sloane says he believes the new agreement -- which runs through 2006, with an option to the 2007 season -- will at least slow down the rise of salaries. Over the next nine seasons, Sloane predicts, the average player salary will be closer to $3 million in 2010, instead of $4.8 million.
Beginning in 2003, teams whose 40-man roster and benefits surpass $117 million, will be accessed a 17.5 percent tax. The thresholds increase from $120.5 million in 2004 through $136.5 million in 2006 and the tax rates vary from 22.5 percent for first-time threshold offenders to 40 percent for those that exceed the threshold three or four times.
Boras said he's more concerned about the lower-revenue teams increasing payroll than higher-revenue teams like the Yankees and Dodgers being confined in spending. He says evidence shows that teams that received a disproportionate amount of revenue-sharing dollars in the past didn't spend it on payroll.
"From 1994 on, there's nothing that points to the fact that those teams that received major revenue-sharing money turned around and put that into payroll," said Boras, who believes lower-revenue teams that accept split revenue-sharing funds should return the money to higher-revenue clubs before they can cash in from selling their team.
Naimoli said fans shouldn't always look for teams to spend, since he's learned that spending correctly is more important.
"It's not only the money that comes to us in the agreement, it's how you spend the money on your payroll and player development and who is involved," Naimoli said. "For instance, we did spend a lot of money in 2000, 65 million bucks or probably closer to 100 (million) and it didn't benefit us all that well. So we have make studious and well thought-out decision in order to lead us to more wins."
"When you look at teams with lower payrolls and their lack of success deep in the postseason, you can see the correlation between spending and winning," Pirates general manager Dave Littlefield said. "But on the flip side, you see what smart spending did in Oakland and Minnesota and then there's definitely a debate to be had."
The Twins have a huge lead in the AL Central -- despite the fact that the $19 million received in revenue sharing from the higher-revenue teams in 2001 accounts for roughly half the amount allocated to their $40 million 2002 payroll, which ranks 27th among all teams. They've won because Torii Hunter, Corey Koskie, Jacque Jones, Doug Mientkiewicz and Brad Radke all came up through the Twins farm system.
Similarly, the A's are legitimate World Series contenders with their $40 million payroll because they've devoted enough resources and made smart decisions with farm-system products like Tim Hudson, Barry Zito, Mark Mulder, Miguel Tejada and Eric Chavez.
The Twins, A's and Angels, who also have excelled in developing their own talent, are the only teams out of the 14 that received $167 million from higher-revenue teams in 2001 that currently have winning records.
But owners hope that will change.
"If the increased revenue sharing does what theoretically it should do, instead of Jason Giambi being only available to the Oakland A's at the hometown discount or the New York Yankees at maximum dollars, perhaps we'll see Kansas City and San Diego bidding for a guy like Giambi," Sloane said.
"I'm hopeful that will happen, but if it does, I'll honestly be pleasantly surprised," Sloane said. "Because if the owners take money from (Yankees owner) George Steinbrenner and use it to buy a Gulfstream jet, we're going to be in trouble."