Sunday, December 2, 2007

Correlating Revenue Sharing and Market Size

So, now let's see if adding in some revenue sharing data will help to clarify things. The Revenue Sharing Plan is rather complex, but basically, it is designed to redistribute funds from wealthy teams to less wealthy ones. In other words, revenue sharing is supposed to provide some balance, so that even teams in small markets can compete with those with much larger resources. The base plan has every team pay 31% of its positive net local revenues into a central fund, which is then redistributed to teams with a negative net local revenue. The money that teams receive is supposed to be used "in an effort to improve its performance on the field" ("2007-2011 Basic Agreement," 112), and teams must report what they use their revenue sharing money on. In fact, the commissioner has the authority to impose penalties if teams do not use their revenue sharing funds to improve on-field performance. While I am focusing on local net revenue here, teams also receive money from the central fund based on MLB's revenue such as from national TV contracts and MLB Advanced Media. Also, it is important to note that the 2007 CBA changed the formula slightly from the 2002 CBA, but the basic system remains in place.

It is important to note that the amount a team receives is based on local revenues, not market size. Michael Lewis recently wrote an excellent op-ed piece that examines this issue (Michael Lewis, "Baseball's Losing Formula," The New York Times, 3 November 2007). He argues that the system disincentivizes success. He proposes basing revenue sharing "on a statistical analyses [sic] of teams’ payrolls, winning percentages and attendance." While Lewis does not elaborate at length on his formula (which is understandable since The New York Times is not the best place for statistical analyses), he focuses on rewarding teams that improve attendance.

I agree with Lewis's criticism, but let's see if that's born out in the data. Here's a table sorted by market size including 2005 revenue sharing income. Unfortunately, 2005 is the last year I can find a complete data set for. If you have more recent data or know where I can find it, please let me know: Revenue Sharing data comes from (Stefan Fatsis, "Playing Hardball," The Wall Street Journal, 28 April 2006)

Market Size Rank Revenue Sharing Income Rank Team Market Size 2005 Revenue Sharing Income
1 30 New York Yankees 10988112 -76000000
2 26 New York Mets 10988112 -24000000
3 21 Los Angeles Angels of Anaheim 8887992 -11000000
4 25 Los Angeles Dodgers 8887992 -20000000
5 29 Boston Red Sox 7465634 -52000000
6 14 Philadelphia Phillies 6382714 5800000
7 18 Texas Rangers 6359758 -35000
8 20 Houston Astros 5641077 -11000000
9 19 Atlanta Braves 5478667 -10000000
10 3 Florida Marlins 5463857 31000000
11 5 Detroit Tigers 5410014 25000000
12 2 Toronto Blue Jays 5113149 31000000
13 28 Chicago Cubs 4862658.5 -32000000
14 23 Chicago White Sox 4862658.5 -18000000
15 17 Baltimore Orioles 4105606.5 2000000
16 16 Washington Nationals 4105606.5 3900000
17 12 Arizona Diamondbacks 4039182 13000000
18 27 Seattle Mariners 3876211 -25000000
19 22 San Francisco Giants 3614474 -14000000
20 9 Oakland Athletics 3614474 19000000
21 8 Minnesota Twins 3502891 22000000
22 15 San Diego Padres 2941454 5700000
23 10 Colorado Rockies 2927911 16000000
24 13 Cleveland Indians 2917801 6000000
25 24 St. Louis Cardinals 2858549 -19000000
26 1 Tampa Bay Rays 2697731 33000000
27 5 Pittsburgh Pirates 2462571 25000000
28 11 Cincinnati Reds 2147617 16000000
29 4 Kansas City Royals 2034796 30000000
30 7 Milwaukee Brewers 1706077 24000000
Some observations:
1. The Philadelphia Phillies and Detroit Tigers received a large amount of revenue sharing funds, but this is likely due to the ability to incorporate debt service into their local revenue calculation.
2. The Toronto Blue Jays also received an unexpectedly large amount of revenue sharing funds, but this is likely due to the formerly weaker Canadian dollar (particularly since their payroll was in U.S. dollars). However, now that the Canadian dollar has reached parity, this shouldn't affect calculations in 2007
3. Despite being the 10th largest market, the Florida Marlins received the 3rd most in revenue sharing.
4. It's interesting to compare the revenue sharing data of the Oakland Athletics and San Francisco Giants. Despite sharing a very large market, the Giants have a relatively new stadium, and I would speculate, a larger fan base. It'll be interesting to see if the Athletics' planned new stadium will change the revenue sharing picture.
5. The Cardinals more than pay their share, undoubtedly in part to an extremely large fan base.

There are many:
1. I'm mixing different years' data. In each case, I tried to get the best and latest available, but I haven't been able to find it.
2. The market data is somewhat arbitrary. Some teams have fan bases that far exceed their home territories, and dividing shared markets in half is an approximation at best.
3. I don't have complete revenue data. Obviously, neither Major League Baseball nor its teams have an interest in letting the general public examine their books.
4. I am an amateur. I have no experience with statistical evaluation, and am not a trained economist.
5. There is no direct cause & effect relationship between payroll and winning.

I don't think there's any strong, definitive conclusion that can be reached, but I do think this study points out that being a "small-market team" is too often an oversimplified excuse. The Phillies, Rangers, Astros, Braves, Marlins, Tigers, and Blue Jays all have home markets of over 5 million people. The Minnesota Twins are the 21st largest market, which puts them closer to the middle than the end. Obviously, there are many other factors that contribute to a team's revenues and its success. However, I think that we, as baseball fans, should be more critical when teams ask for taxpayer subsidies for a new stadium or when a team claims to be unable to keep a player because it is in a "small market." I would suggest that what limits a team's payroll is more the effective utilization of its resources and less its market, a point Michael Lewis made in Moneyball, and one worth repeating. Again, this is far from a definite study, but I think it may provide a little to think about.

For further reading:
1. Brown, Maury, " Interview - Andrew Zimbalist - New CBA," The Biz of Baseball, 19 November 2006, , Accessed 3 December 2007.
2. Brown, Maury, "The Upcoming CBA and the Battles Within it," The Hardball Times, 27 February 2006.
3. Gustafson, Elizabeth and Hadley, Lawrence, "Revenue, Population, and Competitive Balance in Major League Baseball," Contemporary Economic Policy, Vol. 25 No. 2, 250–261.
4. Lewis, Michael. Moneyball: The Art of Winning an Unfair Game, New York: W.W. Norton, 2003.
5. Maxcy, Joel G, "Progressive Revenue Sharing in MLB: The Effect on Player Transfers," Working Paper Series, Paper No. 07-28, October 2007.

Saturday, December 1, 2007

And just for fun...

The amount spent per win:

Team Market Size Payroll $/person Wins $/win
1 Tampa Bay Rays 2697731 24123500 8.94214 66 365507.58
2 Florida Marlins 5463857 30507000 5.58342 71 429676.06
3 Washington Nationals 4105606.5 37347500 9.09671 73 511609.59
4 Pittsburgh Pirates 2462571 38537833 15.64943 68 566732.84
5 Arizona Diamondbacks 4039182 52067546 12.89062 90 578528.29
6 Colorado Rockies 2927911 54424000 18.58800 90 604711.11
7 Cleveland Indians 2917801 61673267 21.13690 96 642429.86
8 San Diego Padres 2941454 58110567 19.75573 89 652927.72
9 Milwaukee Brewers 1706077 70986500 41.60803 83 855259.04
10 Minnesota Twins 3502891 71439500 20.39444 79 904297.47
11 Texas Rangers 6359758 68318675 10.74234 75 910915.67
12 Cincinnati Reds 2147617 68904980 32.08439 72 957013.61
13 Kansas City Royals 2034796 67116500 32.98439 69 972702.9
14 Toronto Blue Jays 5113149 81942800 16.02590 83 987262.65
15 Philadelphia Phillies 6382714 89428213 14.01100 89 1004811.38
16 Atlanta Braves 5478667 87290833 15.93286 84 1039176.58
17 Oakland Athletics 3614474 79366940 21.95809 76 1044301.84
18 Detroit Tigers 5410014 95180369 17.59337 88 1081595.1
19 St. Louis Cardinals 2858549 90286823 31.58484 78 1157523.37
20 Los Angeles Angels of Anaheim 8887992 109251333 12.29202 94 1162248.22
21 Chicago Cubs 4862658.5 99670332 20.49709 85 1172592.14
22 Houston Astros 5641077 87759000 15.55714 73 1202178.08
23 Seattle Mariners 3876211 106460833 27.46518 88 1209782.19
24 San Francisco Giants 3614474 90219056 24.96049 71 1270690.93
25 New York Mets 10988112 115231663 10.48694 88 1309450.72
26 Los Angeles Dodgers 8887992 108454524 12.20237 82 1322616.15
27 Baltimore Orioles 4105606.5 93554808 22.78709 69 1355866.78
28 Boston Red Sox 7465634 143026214 19.15795 96 1489856.4
29 Chicago White Sox 4862658.5 108671833 22.34823 72 1509331.01
30 New York Yankees 10988112 189639045 17.25856 94 2017436.65

MLB Market Data

It has become a common refrain of sportswriters and others to bemoan the fate of small market teams. Their argument, to summarize, is that the financial system of Major League Baseball is fundamentally unequal, and that certain teams possess resources that other teams cannot. I intend to explore this argument through a combination of market and financial data.

Peter Gammons, in his latest blog entry, summarizes the perceived problem of inequality in baseball well:

"It doesn't matter how much luxury tax the Yankees pay or how much Steinbrenner money goes to Kansas City, Minnesota or Tampa Bay. Hank Steinbrenner is going to use his AmEx to win. He gets a year's grace from some of the taxation because of the new stadium that opens in 2009, but if you're out there in a small market, how scary is this winter, with the realization that the Yankees and Mets are both about to open new revenue-cow ballparks?"
(Peter Gammons, "The Rich Get Richer," subscription required, Accessed 1 December 2007)

Gammons and others argue that teams in the largest markets, defined by them as Boston, Chicago, Los Angeles, and New York have an inherent advantage. Let's look at some data to see how big these markets are relative to others.

The Baseball Almanac has already done an analysis based on 2000 Census Data (Al Streit, "Baseball Markets," Baseball Almanac, , Accessed 1 December 2007)

Unsurprisingly, New York and Los Angeles are far and away the largest markets, followed by:
Chicago, Baltimore/Washington, Oakland/San Francisco, Philadelphia, Boston, Detroit, and Texas (presumably Dallas/Fort Worth).

First, let's update Streit's data with the 2006 population estimates (only MLB markets included):

(U.S. Census,, Accessed 1 December 2007)

RankCombined Statistical Area2006 Population Estimate
1New York (Mets, Yankees)21976224
2Los Angeles (Angels, Dodgers)17775984
3Chicago (Cubs, White Sox)9725317
4Baltimore/Washington (Nationals, Orioles)8211213
5Boston (Red Sox)7465634
6Oakland/San Francisco (Athletics, Giants)7228948
7Philadelphia (Phillies6382714
8Dallas-Ft. Worth (Rangers)6359758
9Houston (Astros)5641077
10Atlanta (Braves)5478667
11Miami (Marlins)5463857*
12Detroit (Tigers)5410014
13Toronto (Blue Jays)51131491
14Phoenix (Diamondbacks)4039182*
15Seattle (Mariners)3876211
16Minneapolis/St. Paul (Twins)3502891
17San Diego (Padres)2941454*
18Denver (Rockies)2927911
19Cleveland (Indians)2917801
20St. Louis (Cardinals)2858549
21Tampa Bay (Rays)2697731*
22Pittsburgh (Pirates)2462571
23Cincinnati (Reds)2147617
24Kansas City (Royals)2034796
25Milwaukee (Brewers)1706077

*No Combined Statistical Area defined, so Metropolitan Statistical Area used
1. Census Metropolitan Area data used from Statistics Canada

Some initial observations:
1. There is a massive disparity in market size among the top 8 teams and between the top 8 and other 22 teams.
2. Boston is the largest single team market
3. The Minnesota Twins could best be described as a mid-market team.

I thought it might be useful to divide the dual markets in half so that I could look at a team by team listing. This is obviously very rough, though of course, the home markets themselves are rough (just look at the reach of the Braves, Cardinals, Red Sox, and Yankees). Then, I used the team payroll data from (CBS Sportsline, "MLB Salaries," Accessed 1 December 2007), and divided the amount spent by the number of people in the home market. The results are below:

RankTeamMarket SizePayroll$/person
1Milwaukee Brewers17060777098650041.60803
2Kansas City Royals20347966711650032.98439
3Cincinnati Reds21476176890498032.08439
4St. Louis Cardinals28585499028682331.58484
5Seattle Mariners387621110646083327.46518
6San Francisco Giants36144749021905624.96049
7Baltimore Orioles4105606.59355480822.78709
8Chicago White Sox4862658.510867183322.34823
9Oakland Athletics36144747936694021.95809
10Cleveland Indians29178016167326721.13690
11Chicago Cubs4862658.59967033220.49709
12Minnesota Twins35028917143950020.39444
13San Diego Padres29414545811056719.75573
14Boston Red Sox746563414302621419.15795
Avg.Mean Average4878178.2382633066.2319.05252
15Colorado Rockies29279115442400018.58800
16Detroit Tigers54100149518036917.59337
17New York Yankees1098811218963904517.25856
18Toronto Blue Jays51131498194280016.02590
19Atlanta Braves54786678729083315.93286
20Pittsburgh Pirates24625713853783315.64943
21Houston Astros56410778775900015.55714
22Philadelphia Phillies638271489428213 14.01100
23Arizona Diamondbacks40391825206754612.89062
24Los Angeles Angels of Anaheim8887992109251333 12.29202
25Los Angeles Dodgers888799210845452412.20237
26Texas Rangers63597586831867510.74234
27New York Mets1098811211523166310.48694
28Washington Nationals4105606.5373475009.09671
29Tampa Bay Rays2697731241235008.94214
30Florida Marlins5463857305070005.58342

Of course, the value of this data is limited, since it doesn't take into account revenue sharing. My next post will attempt to correlate market/payroll data with revenue sharing. In the meantime, I hope this provides some food for thought.