Baseball urged to rethink revenue

Wide changes pushed in cutting wealth gap, including relocations

July 15, 2000|By Peter Schmuck | Peter Schmuck,SUN STAFF

Major League Baseball needs to make sweeping changes in the way it distributes industry revenues and consider moving some franchises to narrow the competitive gap between large-market and small-market clubs, according to an economic report released by ownership yesterday.

The report, produced by an economic study committee that included former Federal Reserve chief Paul Volcker, former Senate majority leader George Mitchell, Yale president Richard Levin and political commentator George Will, calls on Major League Baseball to institute a 50 percent luxury tax on payrolls above $84 million and share a higher percentage of local revenues. It also calls into question the industry's reluctance to move unprofitable franchises.

The panel even suggested that new national broadcasting, licensing and internet revenues be distributed disproportionately to low-revenue clubs to further improve competitive balance.

"We do not pretend to believe these changes will be easy or universally popular," Mitchell said during a news conference at a special owners meeting in New York. "We do believe them to be a solution to the alarming disparities between baseball's haves and have-nots. We offer them to the commissioner, the ownership of major league baseball, the players and to the fans of the game."

The immediate impact of the report figures to be negligible, since most of the changes would have to be made through collective bargaining with the Major League Baseball Players Association, which probably won't resume until late next year. But the conclusions of the committee reinforce the notion that baseball will attempt again to make dramatic changes in the way it does business, which could lead to another labor showdown.

The committee did not recommend that baseball impose a salary cap on high-revenue clubs, but the proposals included in the report would have a similar impact, since a draconian luxury tax would discourage clubs from exceeding the $84 million payroll target.

"There is no hard cap. Obviously, that is good," union head Donald Fehr said yesterday afternoon. "Hopefully, that issue is behind us. As you know ... you can have a series of devices that amount to a cap."

If the panel's luxury tax proposal was in effect this year, the New York Yankees would pay a tax of $15.5 million on their $115 million payroll. Baseball instituted a 30-35 percent luxury tax on excess payroll in the current labor agreement, but it only applied to the five clubs with the highest payrolls and expired last year.

Baseball commissioner Bud Selig responded sarcastically when asked if the old luxury tax plan had made a significant impact on the economic disparity between the richest and poorest franchises.

"My 7-year-old granddaughter, Marissa, I think she's already made that judgment," Selig said.

The committee illustrated the growing revenue disparity between large- and small-market clubs with a chart that showed that the Yankees generated $177.9 million last year, while the Montreal Expos generated $48.8 million.

The Yankees, according to the report, were one of only three teams that generated an operating profit from 1995 to 1999. They netted $64.5 million over that period; the Cleveland Indians netted $45.9 million and the Colorado Rockies generated a profit of $12.4 million. On the other side of the ledger, the San Francisco Giants reported the largest operating loss ($97 million) over that period and the Angels lost $83.3 million.

The industry as a whole reported an operating loss of $212 million last year on revenue of $2.787 billion.

The report also recommended that baseball go to an entirely international amateur draft, suggested that the sport institute a competitive-balance draft and also endorsed franchise relocation as a possible solution for low-revenue teams. The panel shied away from any suggestion that baseball close down some unprofitable franchises.

"Clubs that have little likelihood of securing a new ballpark or other revenue-enhancing activities should have the opportunity to relocate," Mitchell said.

That had to send another shiver through the Orioles organization, since the Montreal Expos seem almost certain to leave Canada, and Washington, D.C., appears to be their most likely destination.

Orioles owner Peter Angelos already has expressed his strong opposition to a second major-league team in the Baltimore/Washington area, but it remains to be seen whether Selig and the other owners will heed his concern about the economic impact of a second team on baseball in Baltimore.

"That doesn't help us, but it doesn't necessarily hurt us," said Orioles president John Angelos. "It doesn't change the fact that we feel that a second team in this area is not good for baseball and certainly not good for the Orioles.

"The Baltimore-Washington area is almost identical to San Francisco-Oakland. You're not going to have two successful franchises. Only one of the franchises is going to be successful, at best."

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