Major League Baseball

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Major League Baseball
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Major League Baseball

• Teams share central revenues (the national
  television contract and MLB Properties).

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MLB Television Contracts
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Major League Baseball Properties

• Controls marketing and licensing for the league
  and its teams
• Royalty revenue from licensed merchandise goes
  into the central revenue fund. The Commissioner
  distributes these shared revenues
  disproportionately to benefit smaller revenue
  teams.
• In the existing Collective Bargaining Agreement,
  this annual transfer from larger revenue clubs to
  small revenue clubs is 326 million. This amount
  will continue to grow with revenue and changes in
  disparity.

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Major League Baseball

• Each club aggregates local radio and television
  revenues (all those not in the national
  contract), ticket sales, luxury suite rentals,
  concessions, and parking (minus expenses) and
  pays 31 of this pool to the league.
• These revenues, which comprise the Base Plan, are
  distributed equally among the 30 teams.

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Major League Baseball

• No salary cap teams must pay a competitive
  balance tax on player payrolls with annual (148
  million in 2007) and increasing thresholds)
  penalties for exceeding threshold
• 22.5 for the first time
• 30 for the second time
• 40 for the third time
• Base salary amounts are guaranteed and must be
  paid regardless of performance or injury.
• A player will receive the remainder of his annual
  salary as termination pay unless he is picked up
  by another team on waivers.
• Signing bonuses are usually prorated over length
  of contract.

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Revenue Sharing

• Serves as an incentive
• Receive revenues so they can attract free agents
  or retain their star players
• May help attract more fans with better quality
  players
• Contributes to competitive balance

• Serves as a disincentive
• Receive revenues regardless of whether they win
  or lose
• May lead to teams choosing to dump payroll costs
  and keep the money
• Detract from being entrepreneurial

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Major League Baseball

• Allows the public issuance of stock as long as
  the incumbent owner retains 90 voting control
• Example Jacobs issuance of stocks to general
  partners, while retaining 99 of the control as
  the 49 limited partner with limited financial
  risk and the opportunity to benefit handsomely
  from related party transactions

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Free Agency

• Within their first six years, players (about
  two-thirds of the total) are not eligible for
  free agency (to allow clubs to recoup player
  development costs).
• About 16 of these players (with three or more
  but less than six years) are eligible for
  arbitration after three or more years.
• About one third of all players are eligible for
  free agency.
• Long-term contracts have became important to
  owners, whereas prior to free agency only players
  wanted these.

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Major League Baseball

• In arbitration, a player asks for specific
  salary, and the team makes a salary offer. This
  salary arbitration process means that the
  arbitrator must select either the players
  requested salary or the teams offer as the final
  and binding amount of the contract.
• According to the Major League Baseball Players
  Association Since 1974, and including 2006,
  arbitrators have ruled on behalf of the players
  199 times and clubs 269 times. Although the
  number of players filing for salary arbitration
  varies per year, the majority (88 since 1990) of
  cases are settled before the arbitration hearing
  date. (with a player usually benefiting)

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Major League Baseball

• The rise in player salaries (from about 20 to
  about 60 of revenues) during free agency is not
  attributable just to free agency other factors
  include
• Increased broadcast rights fees
• Changes in owners (fewer individuals and more
  corporations)
• The owner who forms a limited partnership for
  financial benefits while retaining general
  partnership control has
• Status and perks of ownership
• Less financial risk should the franchise decrease
  in value or lose money

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Major League Baseball Draft

• Includes 50 rounds, with teams drafting in
  reverse order of finish
• Includes players in the United States, Canada,
  Puerto Rico, Dominican Republic, Venezuela, and
  Panama, but not other foreign nationals
• Players are eligible if their high school classes
  have graduated.
• If a player does not sign with the team who
  drafted him and goes to college, he cannot be
  drafted again until after his junior year.
• Almost every drafted player develops while
  playing Minor League Baseball.