In MLB, It’s Getting Tougher for Small-Market Teams

More than a decade ago, the Cardinals were able to cherry-pick great players from other teams because those teams couldn’t afford to sign an impending free agent. Mark McGwire wasn’t going to stay in Oakland, so Walt Jocketty was able to work a deal with the A’s and get him to St. Louis in exchange for prospects. Edgar Renteria wound up a Cardinal because the Marlins couldn’t afford him. The Cardinals got Larry Walker from Colorado that way. The same thing happened when the Cardinals acquired lesser lights such as Jason Christianson from the Pirates and Jeff Brantley from the Reds.

The Cardinals were a small-market but high-revenue team that was able to compete with the bigger market teams then. The Cardinals drew a lot of fans, they did OK with their radio and TV rights, and they did a good job of marketing their franchise in the region. The Cardinals were unique because of their fan base. Franchises like Pittsburgh, Florida, Milwaukee and Kansas City had no chance, because higher revenue and/or bigger market teams simply could afford to pay players more, and those teams didn’t draw enough fans to make big money.

That gap between teams diminished for a while, as baseball implemented a revenue sharing plan that forced the top 15 revenue teams to pay 40 percent of their local revenue into a central fund, with the 15 smaller revenue teams contributing 48 percent of theirs. As an example, team A, with revenues of $200 million, would pay in $80 million, and team B, with revenues of $100 million, would give $48 million. When everyone had paid in, the pot was split into 30 equal shares and doled out to the 30 teams.

While the plan was punitive for higher revenue clubs, it helped out the small-market franchises. It allowed San Diego to sign Brian Giles to a big-money deal, it allowed the Pirates to sign Jason Bay for a few years, and, for better or worse, allowed Kansas City to sign Benito Santiago and Juan Gonzalez as free agents. The plan allowed the smaller revenue teams to at least generate some income to sign or keep a key player, and it worked for a while.

Two things have happened that have allowed big market teams to re-establish their dominance, and turn Major League Baseball into a haves-have nots scenario once again. The first occurred in 2007, when the split of revenue was changed. With that collective bargaining agreement, each team was required to pay 31 percent of their revenue into the pot, and then it was split. Going back to our previous example, team A would now pay $62 million into the pot, saving themselves $18 million. Team B would pay $31 million, saving $17 million. The overall pool shrunk significantly. So revenue sharing was still in place, just not on as grand a scale.

Recently, local baseball television rights have skyrocketed. The Yankees, with their YES Network, have always done well, raking in hundreds of millions of dollars. With baseball’s renewed popularity, the quality programming it provides and the threat of competition for Fox Sports from regional networks and cable systems, some teams are hitting the jackpot. The Texas Rangers, whose current contract with Fox Sports Southwest gives them between $17-$20 million a year, have agreed to a new deal that will pay them $80 million a year starting in 2015. The Angels, as you may have read, got a bump of $100 million a year from Fox, going from $50 million to $150 million annually.

The Tigers are getting $40 million a year. The Dodgers contract calls for them to get $45 million before their contract expires in 2013. By comparison, the Cardinals are believed to receive $15 million annually from Fox Sports Midwest. That makes sense, because there are a lot more TVs in the L.A. metro area, Dallas, New York and Detroit than there are in St. Louis, or Kansas City, or Pittsburgh. Even though the Cardinals draw very well, there’s no way they can compete with the TV money of big-market teams.

The new MLB collective bargaining agreement reached in December doesn’t change revenue sharing at all. Interestingly, the threshold for paying a “luxury tax” goes up from any payroll above $178 million the next two seasons, to $189 million thereafter. Thus, the lower salaries for the first two years in the contracts of Albert Pujols with the Angels and Prince Fielder with Detroit won’t have a bearing.

With no revenue sharing change and a new TV deal, think of what happens for the Angels. Rather than keeping $34.5 million previously, now they’ll keep $103.5 million a year. In Dallas-Ft. Worth, what was a keep of perhaps $14 million before is now a keep of $55 million annually. With the revenue sharing plan in place, there’s virtually no way that smaller market teams can afford to keep their players. With 2.8 million people in St. Louis, and 6.3 million in Dallas, there’s no way the Cardinals can, or should, get the kind of TV money the Rangers get. Or the Dodgers, Angels, Mets or Cubs.

Look at it this way: If the Angels were the average big-market club, and the Cardinals were the average small-market club, and we were just talking about splitting TV revenue, each team would get roughly $25 million a year. That would be a total of $128.5 million for Anaheim, and $35 million for the Cardinals.

ESPN’s Buster Olney reported that the Royals, with Eric Hosmer having completed five months of major-league service, are already trying to determine how long they can keep him because of outrageous arbitration requests. The Mariners moved right hander Michael Pineda after his rookie year because they were worried about what he would command in arbitration in two years, and their ability to pay it. As Olney pointed out, the A’s traded starting pitchers Trevor Cahill and Gio Gonzalez before they even got to arbitration, and the Reds are considering how to deal with Joey Votto, who is two years away from free agency and a Pujols or Fielder type deal.

What this means is that even teams that do a good job of developing players won’t have them around long enough to build a championship quality ballclub. If you can only afford to keep a player for a maximum of four years before you’re practically forced to trade him, you have no chance.

It used to be, when baseball would have labor strife, it was considered to be the Yankees and the union against the 29 other teams. Times have changed. The big markets are in control again. When Yadier Molina is a free agent next year, and Adam Wainwright the year after that, do you think the Cardinals have a chance to compete financially? It’s over for the little guy, and the Cardinals are now a little guy. Until this brand new collective bargaining agreement ends in five years.