The winter months always bring to light the advantages of the rich over the poor in the MLB. Without a doubt, there will, again, be a ring of publications bemoaning the struggles of low-market teams as they fight to compete in their league and division.
The American League East division is, in many ways, a microcosm of the entire major leagues – running the gamut of haves and have-nots as hypercompetitive juggernaughts stand side by side with the financial runts of the litter.
The state of hypercompetition in the AL East is shocking, if not alarming, in the way that it dominates competitive balance within the division. There is no escaping the trends. Any layperson can make the connection between finances and on-field success. The ‘08 Tampa Bay Devil Rays were the only team this decade to win the division other than Boston or New York. Before then, it was the Orioles in 1997. The Blue Jays were the only team of Tampa, Baltimore, and Toronto to even finish second in the past decade, in 2006.
Clearly, there is a competitive balance problem, which is not being helped by the MLB Commish’s office nor the MLBPA. And why not? Sport fans love dynasties and heels – the Red Sox and Yankees fulfill both of these needs – even if they only love to hate them. And the MLB and MLBPA love the ratings, which inflate the sport’s bottom line.
But there is one grave misconception concerning bottom dwellers’ ineptness that must be addressed. Like the ridicule lavished on the middle school “fat kid,” people blame the problems of those unfortunates on laziness or stupidity. Toronto and Baltimore are poorly run. Their owners and GMs are idiots. Fire everyone until we find that Tampa Bay winning recipe.
But that’s where the problem lies.
The fat kid isn’t fat because he wants to be, he’s fat because of uncontrollable circumstances – he just got unlucky with genetics. Like the Blue Jays and Orioles, they aren’t inept because they don’t try hard or won’t spend money – they have to compete with the two titans of the industry on an annual basis.
And, even if Toronto and Baltimore fans plead, write letters to Congress, or criticize Bug Selig, things won’t be changing anytime soon.
Purveyor of America’s Pastime, the MLB is also home to arguably the most brutal economics in all of American sports – economics that create a unique kind of financial darwinism within the league. The financial strong, aka the rich, survive. The poor die, or at least finish last. Every other major sport, even the NHL, has some form of a salary cap in place – whether that be the soft cap of the NBA or the hard cap of the NFL – that keep this condition from cropping up. (As an aside, I have always believed that the NBA’s soft cap is a great example for what the MLB should adopt. More on that some other time.)
However, be it the power of the player’s union or the unwillingness of the Commissioner’s Office to alter the league’s financial structure, the MLB still has no semblance of a salary cap. Sure, there’s a “luxury tax”, but it’s a joke. Meant to encourage competitive balance, it hasn’t had nearly the effect it was expected to have – or we were lead to believe it would have – when it was instated. Instead, it gives the Yankees a yearly slap on the wrist while redistributing the “taxed” money to the rest of the MLB. And, in one last bit of irony and injustice, it least helps the teams who need it most. Sure, the Orioles might get $1 million of redistributed earnings, but so will the Athletics and Twins, who have so little competition in their division that they don’t need it. Sorry guys.
But I digress.
Getting back to the AL East, the outlook is quite bleak for the teams involved. Brutal economics get downright torturous in this division. Since so much of each team’s bottom line (whether that be driven by gate receipts or TV contracts) is driven by their winning percentage, every team in the division intuitively spends all they can on player salaries.
In the AL East, it hits an extreme. As one team spends, the rest spend in a vain effort to keep up. It’s a vicious cycle that has made the AL East the most expensive division to play in – and its not particularly close.
According to Forbes.com data from the 2007 season, the AL East had the top four thriftiest spenders in all of baseball. Yes, that’s correct. Within their means, the Yankees, Red Sox, Blue Jays, and Orioles were the four biggest spenders in all of baseball.
Now, there’s a catch to this. Of course, the Jays and O’s didn’t spend as much as the Mets or Dodgers. There’s just no way they could have. They don’t have enough money.
However, perhaps more intriguing – or concerning – is that these four teams spent a higher percentage of their annual revenues on player salaries than any other team in the MLB. Therefore, when measured by will, desire, and attrition, the AL East featured the four most competitive teams in all of baseball – the Yankees, Red Sox, Blue Jays and Orioles.
According to Forbes.com data for 2007, the Yankees grossed $327 million in revenues, the Red Sox $263 million, the Orioles $166m, the Blue Jays $160m.
Of these revenues, New York spent $253 on player expenses (77.37 percent); Boston, $199m (75.66 percent); Toronto, $104m (65.0 percent); Baltimore, $103m (62.04 percent).
Now, before you go running to Cot’s Contracts to calculate the sum of each team’s player contracts, know that the Forbes’ data is a different, yet more relevant measurement – one that includes bonuses, benefits, and anything else that goes along with maintaining the most expensive work force on Earth.
The MLB average for player expenses as a portion of revenues was 54.81 percent in 2007. Among AL East teams, only the Rays fell below that number, placing third to last in the league, at just 37.68 percent – or $52 million out of their total estimated revenues of $138m.
If you’re blown away by these divisional statistics, you’re not alone. It’s actually one of the most surprising and damning scenarios in all of sports.
Surprising in the sense that the Blue Jays and Orioles are often portrayed as either cheap, inept, or both when, in fact, they are far from it. Discouraging due to the fact that there seems to be no light at the end of the tunnel for these teams – even an event as drastic as an ownership change wouldn’t alter the fate of these teams. They just can’t compete. As demonstrated by the percentage of total revenues spent toward player salaries, these teams are already operating at full capacity, so, in essence, there is nothing that can be done.
Assuming that the Red Sox and Yankees are the two most compulsively competitive teams in the league, it is reasonable to conclude that a high-70s percent threshold is the limit for spending on player expenses while still pulling down a profit. Even if the Blue Jays were to increase their expenditures by another 10 percent to total 75 percent, they would only increase their spending by $16 million. Though a sizeable increase, this wouldn’t go very far in changing the competitive balance within the division.
Likewise, if the Orioles increased their expenditures by 13 percent, their player expenditures would only increase by $22 million. Again, like the Blue Jays, the higher budget would help the team a bit, but wouldn’t be enough to upgrade the club from basement to the middle levels – let alone the penthouse.
…Which brings us to the Red Sox. Though it feels nice to be second in the league in both total player expenditures and percentage spent on player expenditures, the team still lags far behind the Yankees. In fact, it would be virtually impossible for the Red Sox to remain profitable while raising their expenditures to that of the Yankees as they would have to spend over 96 percent of their revenues on players.
Unfortunately, there is no way for the team to operate at this level without going out of business. This, while certainly not as hopeless as being a fan of the Orioles or Blue Jays, still paints a bleak scenario for the ability of the Red Sox to be able to contend with the Yankees on a purely financial basis. Heck, there’s a reason that the Yanks can sign Mark Teixeira, C.C. Sabathia, and A.J. Burnett in one off-season.
Still, this isn’t a death sentence for the team. As an ode to all the Moneyball freaks out there, it is merely an opportunity to operate better and more efficiently than our most hated rivals.
And where does the rest of the league stand? As far away as possible. Only three other teams in the league surpassed the 60 percent threshold, the Mariners, Tigers, and Cubs. Even such economic powerhouses as the New York Mets only spent 55.3 percent of their revenues on player expenses – just a half-point above the league average, in the neighborhood of the Athletics, Twins, and Reds. So much for investing in the product.
But there may be a bit of a silverlining in this whole mess of finances. Revenue streams are largely a product of market size and the willingness for people in that market to purchase the team’s products. In essence, it becomes a practice in who is the most popular with the wealthiest clientele.
Or, looking at it another way, the teams with the largest, most rabid fan bases are the ones who can acquire the resources to make a push for the championship. In one last gasp at redemption, the league’s financial structure seems to create a meritocracy of sorts – the teams who have the finances, and thus the most fans, will also make the most people happy when they do win. At least no one will care when the Royals don’t win, while millions will rejoice every time the Sox bring home the title.