The Socio-Economic Failings of Sports

Over the past two decades, as the hyper-monetization of sports occurred, an element of politics entered into the conversation. Suddenly, the difference in sports franchises stopped being measured in success on the field and started becoming a function of “market size.” In a nutshell, the argument works like this; the “small market” teams cry they can’t compete with the “big market” teams as the “big market” teams have a financial advantage. In the “Big Four” major sports leagues, the tone of this argument varies greatly, and the reasons for that variance actually lie at the soul of the discussion.

First of all, it is is crucial to understand the criteria upon which market size is determined. Contrary to popular belief, the size of the market is not determined by population. The primary criteria is the amount of television money a team can generate. Granted, there is a connection between population and money, but it isn’t a direct correlation.

This fact helps to explain why there is a major difference in the volume of this discussion amongst the four major sports leagues.

  • National Football League: Volume Level 0 – because there is no individual TV money; everything is controlled by the league and therefore shared across the league. Market size matters little.
  • National Hockey League: Volume Level 2 – because revenue distribution isn’t the NHL’s problem; it’s total revenue. The NHL spends more than it makes. Market size matters somewhat.
  • National Basketball Association: Volume Level 5 – Only because there is a new Collective Bargaining Agreement coming, and it seems everything will be fair game in the negotiations. Market size now is marginally important.
  • Major League Baseball: Volume Level 9 – Because baseball has the greatest disparity between “big and “small,” and that difference is base on television revenue, ticket sales, and merchandise. Market size is a major factor.

For the sake of this discussion, let’s look at the polar opposites; in sports, football and baseball, and in philosophies, revenue sharing vs. a laissez-faire model. Upon looking at this, it doesn’t take long to see where this quickly becomes a clash of political ideologies. Revenue sharing makes perfect sense to those of a liberal persuasion; it is the classic redistribution of wealth model that has given them an economic hard-on ever since Robin Hood. Meanwhile, so-called conservatives are proponents of a laissez-faire system.

The liberals believe that competitive ability is tied directly to the dollar, and that having parity amongst the franchises is good for the entire league because nobody is ever really eliminated from competition. The revenue sharing proponents point to the model of the National Football League. They believe that eliminating the difference between rich and poor and leveling the economic playing field drives growth by giving equal opportunity to all.  The National Football League has the most thorough revenue-sharing arrangement of any sport, and it’s the most successful by far.  Too many people would have you believe those two facts are connected; they absolutely are not.

The fallacy of the NFL’s revenue-sharing/salary cap model works like this – since all the revenue from television is controlled by the league, the size of a team’s home market is irrelevant. Proponents of this system point to the Super Bowl champion Green Bay Packers and the perennial play-off contender Indianapolis Colts as examples of the “small-market” team being allowed to compete as market size has been removed as a criteria for success. You will note that proponents of the NFL’s current system absolutely never mention three facts:

  • The NFL has created a nice bit of revenue for itself at taxpayer’s expense through public financing of stadiums, then they doubled-down by charging “personal seat licenses;” essentially forcing fans to pay for the right to buy tickets.
  • The NFL has gotten fat ($9 billion per year) pedaling an incredibly TV-friendly product, hence why it’s television revenue outstrips the other sports. In other words, football is huge because television made it huge. It’s no accident that football developed two multi-billion dollar vendors (The NFL and the NCAA) after the advent of cable television in the late 1970’s.
  • The “parity” that the NFL prides itself on because of it’s revenue sharing model is a myth.

When you put it all together, the NFL would have you believe that it doesn’t have money troubles because of how egalitarian it is with its money.

Except there’s two problems with that theory: The NFL owners are, as we speak, crying a tune about poverty in their lockout situation with the player’s union. Face it, $9 billion is “Titanic-proof” money, especially when you add to it all the off-book revenue having somebody else build your stadiums is worth.  What that means is when you are dumb enough to run into the iceberg again, you’ve got enough money to where you can literally plug the holes with wads of $100 bills and keep on sailing.

Then there’s whole “parity” myth; let’s look at how that doesn’t hold water. Since the advent of the NFL salary cap in 1994, while there there have been eleven different teams to win the Super Bowl, the vast majority of playoff appearances in that time belong to a select group of teams. In each conference in that time frame, half of the playoff spots have been captured by five teams; in the AFC, it would take the combined playoff records of seven teams to match the number of playoff appearances of the Indianapolis Colts. The NFC boasts a bit more “parity;” it only would take the combined records of four teams to equal the trips into January made by either Green Bay or Philadelphia.

Meanwhile, major league baseball plays the other side of the ideological coin. Baseball sticks to a conservative model, where for the most part, anybody is allowed to get rich, but if a team gets too successful, they will be taxed. Baseball even calls its version of a salary cap a “luxury tax.” It is even graduated like the current American progressive income tax.  Its based on the conservative “trickle-down” theory; that growth generated by the franchises most capable of generating it eventually provide a benefit as the wealth generated today will be distributed over time so long as there are no encumbrances on the generation of wealth.

The fallacy of this model in sports comes straight out of the mouth of the “small market” guy; the guy who will point to a team like the New York Yankees and say “they can buy any player they want, how can that be fair?” It sounds good, and it appeals to that populist “David vs. Goliath” mentality, but it misses two points.

First of all, it is the only model currently in play amongst the four major sports leagues that allows a little guy to become a big guy.  If you are an owner of an NFL franchise, your salary expenditure is capped, but so is your revenue. This means if an another owner decides he wants to put his “persona”l fortune behind an investment (Jerry Jones/Robert Kraft, I’m looking at you…), he takes us right back to the big guy/little guy discussion despite any revenue sharing.  In other words, no matter what you do, there’s always going to be a guy with more dough who is willing to throw it around.

This means under the current NFL model, you cannot have an ascension like that of the Los Angeles Angels.  Under Gene Autry, the-then California Angels were the red-headed step-child of Southern California baseball. 20 years ago, despite being in Southern California, the Angels were the definition of a “small market team,” inasmuch as the Dodgers choked them out of television money. But a cash infusion under the ownership of Disney, then a purchase by an owner who funded both a marketing campaign to capture a market shared with the Dodgers and build-up to make the team competitive on the field has transformed the one time “little brother” into a team that gets mentioned alongside the Yankees, Red Sox, and Cubs when it comes to franchises that have the wherewithal to sign “big time” free-agents.

Then there’s that whole concept of “fairness.” It always blows me away when I hear sports fans inject “fairness” into this conversation. The world of sports is full of stuff that isn’t fair; hell, the world is full of stuff that isn’t fair.  Like the old saying, nobody said life is fair.   Making a lot of noise about “fairness” is just wasting everybody’s time because money doesn’t equal success.  Let’s look at the teams that made the baseball play-offs last season relative to their payroll rankings:

  • New York Yankees – #1
  • Philadelphia Phillies – #4
  • San Francisco Giants – #10
  • Minnesota Twins – #11
  • Atlanta Braves – #15
  • Cincinnati Reds – #19
  • Tampa Bay Rays – #21
  • Texas Rangers – #27

Now, look at the top ten teams by payroll and their resultant won-loss record:

  1. New York Yankees – 95-67, 2nd place – Wild Card, lost ALCS to Texas
  2. Boston Red Sox – 89-73,  3rd place, 7 games back
  3. Chicago Cubs – 75-87, 5th place, 16 games back
  4. Philadelphia Phillies – 95-67, won NL East, lost NLCS to San Francisco
  5. New York Mets – 79-83, 4th place, 18 games back
  6. Detroit Tigers – 81-81, 3rd place, 13 games back
  7. Chicago White Sox – 88-74, 2nd place, 6 games back
  8. Los Angeles Angels of Anaheim – 80-82, 3rd place, 10 games back
  9. Seattle Mariners – 61-101, 4th place, 29 games back
  10. San Francisco Giants – 92-70, won NL West, won World Series

This clearly shows money isn’t the only criteria for success. Anybody who can’t see what damning evidence that is against the “money is everything” argument can’t be convinced otherwise. There are as many play-off teams in the bottom half of the payroll list as in the top half, and out of the top ten in total payroll, only three teams even qualified for the post-season. Worse yet, half of the top ten weren’t even competitive, finishing at least double-digit games behind their division leaders.

Just like in the political arena, a populist idea like a luxury tax gets traction by demonizing the “big guy,” and in the case of the Yankees, a loudmouth like Hank Steinbrenner makes it all too easy.

“We’ve got to do something about [revenue sharing]… At some point if you don’t want to worry about teams in minor markets, don’t put teams in minor markets or don’t leave teams in minor markets.  Socialism, communism — whatever you want to call it — is never the answer.”– Hank Steinbrenner

Forget about whether his point on ideology is valid. Rather, look at why it doesn’t work in sports. Essentially, what Steinbrenner is saying that he would rather get rid of teams rather than pay a luxury tax. He tries to cover that sentiment by offering the idea of relocation, but let’s be honest, it simply isn’t feasible to have 24 teams in New York.

So, let’s play the contraction game. First, the obvious targets would be the “small-markets” which for openers would be the bottom five in attendance – Kansas City, Pittsburgh, San Diego, Oakland, Milwaukee, and Cleveland.  Minnesota and Tampa Bay are also “small-market” teams, but they’ve managed to be competitive on the field. However, they were both in the contraction discussion when it was happening for real a few years ago, so we can axe them. Nobody lives in Cincinnati, so they can go too.

Is this enough to satisfy Hank? Probably not, because there’s more weak franchises out there. The Marlins, Astros, Rangers, Rockies, and Diamondbacks are in major markets, but their fan bases and financial resources are clearly “small-market.” We’ve already cut one of the markets with multiple teams, so there’s no reason to have any multiple-team markets.  Now we can get rid of the Dodgers (because they are a train-wreck), the White Sox (because the Cubs still make money), either the Nationals or the Orioles (because the Washington/Baltimore market simply doesn’t need two teams), and the Mets (they are going to become a financial black hole, and then Hank gets New York all to himself).

I don’t think we are done yet. Let’s be honest, Detroit is merely on life-support as long as their owner is keeping them competitive by spending lots of money. That won’t last forever.  Seattle also spends a lot of money, but their heyday was a decade ago. Besides, that is such a long flight from New York.

Now, we have Major League Baseball down to ten franchises: The Yankees, Red Sox, Cubs, Phillies, Angels, Giants, Cardinals, Braves, Blue Jays, and either the Nationals or the Orioles. Let me ask you a question, Hank… How many franchises do you think baseball needs to stay relevant? What a guy like Hank fails to realize is the Yankees need the teams like Cleveland and Kansas City, otherwise baseball will become something more resembling the Harlem Globetrotters and the Washington Generals. Not to mention how much interest in the sport would drop off with the majority of this country not being anywhere near a major league franchise.

I’m not here to debate the efficacy of those approaches in the socio-economic world.  In the sports world, it is clear they are both wrong.

The “revenue-sharing approach” fails in sports because it is based on a false premise. Money is only one piece of the competitive puzzle. Being a competitive franchise in any sport involves developing, acquiring, and retaining on-the-field talent, and the size of your bank account really only involves two of those three. The laissez-faire approach fails in sports because it fails to realize that the Royals and the Yankees are franchises in the same business; it doesn’t help one McBurgerQueen to run another McBurgerQueen out of business.

As of yet, I haven’t figured out all the parts that would be included in a model that works, but I do know three things a successful model would include:

1) The Freedom to Fail – The best way to get a lot of mediocrity is to reward it.  This is the problem with revenue-sharing plans as they exist now, like baseball’s luxury tax; it removes the incentive for a team to be competitive because they can still be profitable by keeping salaries low, such as in the cases of Florida, Kansas City, and Pittsburgh.  It is time to let the “bad” owners fail and be forced to sell.  Don’t tell me baseball wouldn’t be better off without owners like Fred Wilpon and Frank McCourt. The same can be said for the NBA and Donald Sterling, or the NFL and William Clay Ford.

2) Eliminate Salary Maximums and Minimums – Because they don’t work, every owner and agent seeks ways around them when needed, and they aren’t where the problem is anyway. It isn’t the cost of stardom that is killing sports; big-time jocks have always been paid high salaries. Rather it is the cost of mediocrity that is a drain; Alex Rodriguez getting $32 million is one thing, Nick Swisher getting $9 million is another because there are a lot more Swishers than A-Rods. The worst part is salary restrictions are simply a canard used by owners to hide from the fact they created the salary problem in the first place.

3) Change the Culture of Ownership – This hopefully happens with #1. In short, sports in this country needs more owners like Mark Cuban, guys with new ideas and the energy to get them done.

No matter what, one thing we have to realize is that the current model has outlived its usefulness. If something doesn’t change in the near future, the world of professional sports may look very different ten years from now.

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13 responses

  1. You gotta love the fact that MLB has its own form of socialism with its idiotic tax revenue sharing scheme ? 20% of the teams are taxed so that the small market teams can still eke out some form of a profit . At least Selig has been good for something …………. shoveling this _hit down the fans’ throats and the vast majority of them don’t even understand it or the overall repercussions .

    Have you by any chance read Mark Ozanian’s piece in Forbes Magazine about some owners wanting to see a number of teams being contracted ?

    http://tophatal1.wordpress.com/2011/04/05/its-their-time-to-shine-whos-in-it-to-win-it/

    Merely click on the link to view .

    Let me know what you think of the following ?

    tophatal …………….

    1. Here’s the fun part. It’s not even 20% of teams paying the luxury tax – only four teams have ever paid the tax (Yankees, Angels, Red Sox, and Tigers) and only the Yankees have ever paid it more than once.

      Contraction is a pipe dream – the chance to do it passed in 2002. The model is already established with the Expos/Nationals as to what to do with a dying franchise; The league will either broker a sale, or assume ownership outright in order foster a sale to another owner who will relocate the team. Ozanian may be right that baseball will be leaving Tampa (after all, the whole reason that team is in Tampa was George Steinbrenner, and now that he’s gone…let’s just say this discussion likely isn’t a coincidence), but there are too many reasons why contraction just is not an option.

      The real question then becomes: Where does this team go? Which then begs some of the following:

      – Does baseball still have dreams of another franchise outside of the U.S.? If so, where?

      – Does baseball have the cojones to be the first major league to put a team in Las Vegas?

      – Would baseball go back to the ’50’s and allow a third team in the New York market?

      – What’s the real pool of U.S. cities for a relocated franchise?

      1. JW

        The Rays will probably the team that’ll move which’ll be to the disappointment of Chris (Sportschump ) because he’s under the impression that city of Tampa , Hillsborough County , Pinellas County and the state will come to their rescue by building them a new venue .

        There has been an offer on the table from Oscar Goodman Mayor of Las Vegas inviting the Rays to move there . But I think that Sternberg (Rays’ owner) felt he could use that as a bargaining chip in terms of getting either Hillsborough or Pinellas County to build them a new venue . Given those counties’ financial plight it seems unlikely that will materialize where a vote will be taken to build the Rays a new venue .

        Rick Scott as governor is looking at ways of slashing the state’s budget and thereby it’ll dash the hopes of the Rays. I’ve long maintained that if the owners aren’t even willing to fund a new venue in part then no way in hell should taxpayers’ funds be used ! Bloomberg in NYC tells everyone how the Mets and Yankees aided in the funding of their respective ballparks . That was a crock of sh_t to begin with as both were granted special tax deferments and dispensations never mind the fact that the $2.45 billion bond issue by the city to build both Citi Field and Yankee Stadium . This from a city with a $5.5-$7.5 billion budget deficit ?

        Tell me where the common sense is said to be coming from concerning the business template for the game ?

        The number of teams paying the tax sharing revenue scheme has in fact increased . And that has been the case for the last five consecutive years .

        tophatal ………………

  2. JW

    If you really want to blame someone for the spiraling salaries then look no further than the dumb a_s GM’s around the league and the fact that they all cower in fear of an agent like Scott Boras .

    Boras has twice negotiated guaranteed contracts that will pay A Rod in excess of $500 million over the course of his career. He’s also the agent for several others stars around the league including Zito who got that 7yr $126 million contract with the Giants .

    tophatal

    1. Blaming GMs rather than owners is like blaming colonels for a war planned by generals. Sure, the GMs do the dirty work, but the GMs get their marching order from and pay in checks written by the owners.

      Remember back in the late 90’s when White Sox owner Jerry Reinsdorf gave that table-pounding speech at the Owner’s Meetings about controlling skyrocketing salaries all while he had his GM quietly negotiating a deal to make Albert Belle baseball’s first $10 million player?

      That mentality still exists, and it is the heart of the problem.

      1. JW

        The vast majority of the owners in the game know as much about baseball as they’d do about the mating habits of a gerbil or pachyderm ! Do you honestly believe that Red Sox owner John Henry knows how to spot talent than his GM Theo Epstein ? Owners may well sign the checks but they’re not at all that smart !

        All the owners are enamored with is that they can simply use their teams as a tax right off as and when they please and there’s not a damn thing the IRS can really do about it !

        These owners we’re allegedly told are captains or Titans of industry ? Hell …… these moronic owners wouldn’t know the difference between a balance sheet and a baking sheet !

        You’ve only got to look at those two thieving bast_rds Saul Katz and Fred Wilpon of the Mets to see how badly a baseball franchise can be ran . But that’s with due respect to McCourt and the Dodgers where the team has now amassed a debt in excess of $800 million while seeing their value decrease . And at the same time you have Nutting with the Pirates pleading poverty but yet the team hasn’t had a winning season in two decades but he and his executives have pocketed over $45 million alone in the last two years and their roster resembles a bucket full of cow manure !

        If it wasn’t for Kenny Williams the White Sox would be an after thought in most peoples’ minds ! He’s the guy who has the difficult task of having to keep Ozzie Guillen .

        tophatal ………………..

        tophatal ……………

  3. Great post! I always struggle with the structures of leagues. It’s tough because you can argue them to death and still have no real good answers to which model works better. It’s interesting to see what teams take advantage of it like when they leaked how much each team brought in for baseball, and which teams are actually trying to spend to win.

    The really important thing in any sport is making sure your stars are healthy. There’s a fine line between winning and losing, but if your best players aren’t out there you won’t win…

    1. chappy

      If that’s the case then how is it a team like the Mets has continued to fail repeatedly over the past few years with its star laden roster ? It’s not simply about having the best players but the players themselves actually performing !

      Healthy or not if a team has no depth that is in essence is the real issue !

      tophatal …………….

      1. Are you saying that Bay, Beltran, Reyes, and half their pitching staff isn’t injured every year? If those guys are all healthy and playing well there’s no way they finish so far out of first…

  4. First of all, hockey fan, there are no longer FOUR major sports leagues. They’re haven’t been for quite some time. The sooner that you deal with that, the better.

    No disrespect to Paul Newman, but having ‘Slapshot’ win your best-ever sports movie won’t change that fact.

    I do, however, agree with you that market size does not determine success, i.e., Minnesota Twins, Oakland Athletics, Orlando Magic, Oklahoma City Thunder, need I go on. Population does not alone mean success or failure. Heck, the Clippers play in a the nation’s second largest market but suffer, as have the Mets lately, of playing second fiddle. (Personally, I find the discussion of adding a third team to either L.A. or New York absolutely offensive).

    I’m as avid as sports fan as anyone out there but I’m not blind to the fact that money dictates the goings on.

    I’ll be bold enough to say I enjoy about the (THREE) major sports as they currently exist. Some have salary caps, some don’t. Some reward rookies with monster contracts, others don’t. Some have guaranteed contracts, some don’t. Some test for certain drugs, others allow.

    They all operate in their own vacuum.

    To make the big three – notice again how I said three – work under the same guidelines, would make them all uniform… and who in their right mind would want that?

    It would give us nothing to argue about.

    So, when do those NHL playoffs start?

    1. 1) I can’t really disagree that the NHL is largely insignificant. When a league has a marquee franchise in a place like Tampa… :)

      2) Why the opposition to more teams in the uber-large markets? Curious as to your thoughts…

  5. Actually, Dub, in the wake of all this Kings jumping ship talk, I just think it’s fucked up that L.A., and its surrounding areas, get three teams while other cities get screwed.

    But I also understand that dollars make the world go around. And hey, at least the Clippers won’t be the worst team in L.A. anymore.

    1. I get that, but I also don’t feel sorry for cities like Sacramento. Right or wrong, the relationship between franchises as cities is now as tenuous as that between franchises and players.

      First off, Al Davis’ lawsuit against the NFL set legal precedent that effectively destroyed the league’s ability to stop an owner who wants to relocate. It’s even worse in the NBA’s case because they own the Hornets and they can’t wait to get them out of New Orleans. Every reason for leaving that the ownership in Sacramento gives the NBA knows first-hand as they have the same issues from owning the Hornets.

      The fact remains that places like Sacramento and New Orleans simply aren’t viable markets for the NBA anymore. They aren’t “getting screwed,” rather they haven’t held up their end of the bargain – lack of fan support, antiquated arenas, and/or some other economic factors combined with bad ownership on the part of the franchise all spell relocation. If you are Sacramento or New Orleans, you have to realize there are too many other markets out there that can be the “greener grass” on the other side of the fence.

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