What Major League Baseball has to say about socialism

The answer, as always, turns out to be “…it’s complicated.”

Major League Baseball has a system in place where teams “share” a portion of their revenue with each other (hence the term “revenue sharing” used to describe this system.) In effect, every team pays a 31% tax on all local revenues (ticket sales, local TV deals, etc.) into a pool of funds that is then divided equally among the several teams. This has the effect of the richer teams subsidizing the poorer teams, since although each team pays an equal percentage into the pot and gets an equal share of the pie in the end, differences in income cause the rich teams to pay far more than they get back, and poor teams to receive far more than they put in. If you don’t immediately see how this is so, imagine that MLB consists of only two teams:  The New York Evil Empires and the Kansas City Poor Bastards.  The Empires bring in $100 million a year in revenue, and thus pay $31 million into the shared pool.  The KC Poor Bastards bring in only $1 million in revenue, and thus pay $310,000 into the pool. The two teams then split the $31,310,000 equally between the two of them, with each team getting $15,655,000.  It doesn’t take a math whiz to see who just made out on that deal. On top of this, MLB also takes all revenue from league-wide sources (national TV contracts, for instance) and splits this money unequally among the several teams, with the poorer teams getting a bigger chunk than the richer ones.  So this means whenever the Yankees play the Red Sox on Fox, or the Cubs play the Cardinals on ESPN, the people taking home the most money from that are the Rays and the Pirates.

This system is in place to foster competitive balance.  The theory is that it’s better for everybody involved when all the teams have a chance to compete.  More markets being involved in playoff races means more potential revenue sources (aka fans) being interested in the baseball season for longer periods of time. If 30% of the teams are out of the race by Memorial Day, those fans will drift away and spend less money going to games and watch fewer games on TV. So, in order to get more fans interested more often, the rich teams subsidize the poor teams so those teams can spend more money on better players, (or build better, more attractive stadiums, or hire better scouts to find more good players, or whatever else it takes to create a baseball team people want to watch) win more games, and make baseball better overall.

Some teams have in fact figured out ways to win baseball games consistently with far less money than the big boys have. However, the Law of Unintended Consequences rears its ugly head, as an equal number of teams have figured out that they can make more money from losing than they can from winning. The Pirates in particular have discovered they can consistently make more money being the worst team in baseball than they can expect to make if they actually try to compete. It turns out that as you try to lift yourself out of baseball poverty, the system acts to keep you in your place. Much like a poor family who finds that welfare pays better and is easier than trying to make more money, the Pirates have discovered that it would likely cost them more money to win more games and compete than they would make back in increased revenue, once you figure in the loss of baseball welfare they would suffer in the process.

So the simple answer to what MLB has to say about socialism is that baseball socialism leads to bullshit nobody likes (well, nobody except the owners of poor teams, I guess) much like real world socialism. The Law of Unintended Consequences always ends up biting you in the ass when you try to engineer a system to get people to do what you want, and it almost always ends up with a lot of people discovering the system in fact does exactly the opposite of what it was intended to do.

Ah, but therein lies the rub. The assumption is that baseball’s version of “sharing the wealth” was created in order to lift poor teams out of the poverty of losing and into the middle class of winning 85 games and almost making the playoffs every few years. But what if that’s not the point of the system at all?  What if the real point of the system is to keep labor costs down? Mr Joe Sheehan argues that the real point of baseball’s revenue sharing is to keep player salaries down by lowering the amount of expected revenue a team will generate per dollar spent on players. He gives the following example:

“For instance, if signing Cliff Lee this winter will make a team six wins better, and those wins produce $4 million in revenue each, Lee is worth $24 million a season to that team, a figure that shapes an offer to him. When a team has to pay 31 percent of that revenue into a pool from which it may get back nothing, then Lee is worth just a bit more than $16 million per season to them, and that figure will shape the offer. This is the goal of baseball’s revenue-sharing plan: to lower the return on player investments for individual teams in a way that keeps them from offering high salaries to top players, therefore tamping down salaries across the board.”

This is undeniably true. Well, except for the part where the team gets “nothing” back from the shared pool.  All teams get something from that pool, as I understand it.  But nonetheless, it is true, as I pointed out before, that the richer teams pay more into the pool than they get back, and poor teams get back more than they pay in, so this doesn’t change that his argument is basically spot on.  Taking away part of the revenue Cliff Lee generates makes Cliff Lee less valuable to his employer when it comes time to negotiate his salary.

Mr Sheehan then goes off on some crazy argument about how baseball should ignore actual revenue and instead look at some mythical “potential” revenue in order to gin up a revenue sharing system that “works.” It’s pretty crazy stuff, go ahead and check it out if you want.  Nonetheless, his main argument would appear to be unassailable.  If in fact the true intent of the revenue sharing system is to suppress wages, then it appears to be working well!  And in fact, the more money you take from the Yankees, the less incentive they have to pay their players more (or hire more expensive players to begin with.)  Similarly, the more money you give to the Pirates for doing nothing, the less incentive they have to pay their players more or hire more expensive players.  If you’re good, why try to be exceptional if doing so costs you more in salaries and luxury taxes than it generates in net revenues?  Similarly, if you’re awful, why aspire to be merely bad or even mediocre if doing so takes more welfare money out of your pocket than the increased revenue would put in?

So in this instance, what does MLB have to say about socialism?  Well, it would appear to indicate that the real point of the “sharing the wealth” part of socialism is to keep the wages of the working class down. Man, that sucks even worse than the first conclusion, doesn’t it? So the lessons we can take from MLB revenue sharing is either that “it does exactly the opposite of what it was intended to do, and that sucks” or “it does exactly what it was intended to do, and that sucks worse.”

Man. Better just stop right here.  This is surely the path to madness!