The MLB Prize Money Solution

First things first, I’m an Englishman and baseball is my favourite sport [I’m English, so Americans, you’re getting an extra “u” there]. This makes me rather unusual in my home country. Most popular in English sport is soccer, a ball game you play with your foot [let’s not go there]. I’m guessing there may be a few Premier League fans here who read Fangraphs, but with the assumption that most of you won’t have much interest it, I have a suggestion to fix some of MLB’s financial problems by importing an EPL solution. MLB needs proper prize money.

I’ll address the elephant in the room. It might sound a bit mad to try and fix MLB’s financial problems by importing strategies from the Premier League, where free-market capitalism is stronger than in MLB and player contracts on small teams can be bought out by rich teams in player transfers. It made it hard to compete if you weren’t a rich team, until recently. In 2016, Leicester City became the only team in 20 years to break the strangle-hold the four richest teams have had on the Premier League title. One reason they managed it might be the way the EPL shares its money out.

Most money made in sport today comes from the TV rights deals made so fans can watch their teams play without needing to go to the stadium. The EPL does this better than any other sport, so despite coming from one of the world’s middle nations in terms of population, it brings in more money per team than almost any other. It does this by the league selling all the commercial rights collectively. This income gets shared out as prize money between the teams based on their records at the end of each season, with a good baseline for all. This meant that last year, Sunderland, finishing as the worst team in the league, got £93.5m ($132m – I’ll convert all figures to dollars from now on) and Chelsea, who won the league, got $212m in prize money. The worst team received around 62% of the prize money the best team did.

Baseball’s TV rights money is (mostly) negotiated separately team-by-team and is one major cause of the variance between incomes of the rich teams and the small teams. One reason the Yankees and Dodgers have the highest payrolls is because of the huge chunk of TV money they collect. The reason the Rays, Pirates and Marlins are at such a disadvantage is because they can’t collect anything like as much. The result is, in order to be competitive at all, they might need to consider losing more, draft well and return to competitiveness in a few years with good, cheap, young players. Financially, they don’t really lose out much by doing so and there are great risks in spending beyond their means in free agency to try and improve (both in results and financially).

It might also lead small and mid-market teams to be conservative in the free agent market. A lower income team might not risk signing a player to a big contract as one big mistake prevents them having the money to fund a good team with their financial burden. A common belief amongst Braves fans was their rebuild in 2014 was in part precipitated by the two big contracts that started producing little on-field value in Melvin Upton and Dan Uggla (together $25m for around zero WAR in 2013 and 6 years left on their contracts). With their good performance, the Braves might have made the playoffs. Without it, they didn’t have the money to replace them, leading to mediocrity or a rebuild. The risk of a big contract failing to provide value dissuades small-market teams from signing free agents much more than big market teams. This off-season’s cold stove has also seen high-income teams saving rather than spending. But there may be a way to encourage the lower-income teams to spend more:

Distribute significant prize money based on winning percentage at the end of each season, funded by collectivizing the TV rights money for all MLB teams. [You could also add a bonus pool for playoffs]

This would do a number of things. Assuming a breakdown of prize money like in the EPL, outlined above (worst team gets 62% prize money of the best team), it would give a higher baseline income to the very low-income teams like the Marlins/Rays/Pirates/A’s. The Marlins new management claimed the club’s losses required them to lay off their expensive contracts this winter. They flooded the market with good players which helped suppress the FA market. The Rays wouldn’t need to trade Longoria for money reasons. The A’s wouldn’t need to trade any good player they have who gets too expensive in arbitration.

The prize money would also provide better financial incentives for teams to try to win more games. The Royals made some significant payroll increases when they started winning in 2014-15 because of the extra revenue it generated. But the majority of that revenue came from their playoff appearances. This method would also provide some incentive to the mediocre teams. The last few years have seen mediocre teams like the Braves, Padres, White Sox and now the Marlins and Pirates trade away some decent core players through having little incentive to remain mediocre and aim upwards. Having good players on the trade market every offseason has (in part) led to the “super-teams” and “rebuilding-teams” dynamic and is likely helping suppress free agent contracts. Let’s say that being mediocre led to $30m more in prize money than being awful. That money might motivate some middling teams to spend and push upwards to the playoffs rather than trade downwards to a rebuild. Middling teams spending more might also threaten the positions of the “super-teams”, pushing them into spending more in the free agent market.

Coda:

The EPL still hasn’t fully overcome its problem with rich teams winning the league every year and poor teams having no chance. Manchester City is amongst the league’s richest teams and are top of the league by a long way this season. Chelsea (another rich team) won last year. The original winning/financial inequality came about because the top four teams (Man U, Arsenal, Liverpool, Chelsea) qualified for the Champions League every year so got significantly more income (through its TV rights) than those who didn’t qualify. This led to the same four rich teams filling the top four positions in the league from 2003 to 2009, often because they could afford to buy other team’s best players. That aspect hasn’t really changed; only five teams have won the title in 20 years. However, as the prize money in recent years went above $80m for the bottom placed team, the mid- to lower-income teams were able to afford really great players too. If you watch every week you can’t help but notice how much more competitive every game is now. Rich teams are often beaten by poorer teams; Manchester United dropped out of the top four, so did Liverpool, replaced by Spurs and Manchester City; Leicester won the title. It made the league more competitive and better to watch. Perhaps until this year when the transfer market went bananas and suddenly $132m might not buy much anymore. This year’s Man City team could be like this year’s Yankees team. Rich and dominant. I’m sure fixes will be needed in future to stop the dominance of money. But baseball could still learn a thing or two from the Premier League.

Resource:

http://www.telegraph.co.uk/football/2017/05/16/premier-league-2017-prize-money-much-club-line-earn-season/

http://www.bbc.co.uk/sport/football/40125394

https://www.forbes.com/teams/kansas-city-royals/

https://en.wikipedia.org/wiki/List_of_professional_sports_leagues_by_revenue

https://www.fangraphs.com/blogs/estimated-tv-revenues-for-all-30-mlb-teams/