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.

Limitations:
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.

Conclusions:
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, http://www.bizofbaseball.com/index.php?option=com_content&task=view&id=470&Itemid=35 , 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.