The New York Yankees recently were hit with a $25.7 million luxury tax bill. They were the only team this year that had to pay a luxury tax and they are the only team that consistently pays one since the tax started seven years ago. Since its inception the tax has raised $190 million with the Yankees contributing $170 million of that total. The Red Sox have paid $13.9 million for the 2004-07 campaigns. The Detroit Tigers paid $1.3 million in 2008 and Los Angeles Angels contributed $927,059 in 2004.
Major League Baseball uses the average annual values of contracts plus benefits for players on the 40 man roster to determine the $162 million cut off for the luxury tax. The Yankees payroll in 2009 including signing bonuses and prorated contracts finished at $220 million. That was $77.8 million more then any other team in the league. The difference is also higher than payroll for each of the bottom 11 teams. Boston was next at $140.5 million followed by the Detroit Tigers at $139.4 million and the Phillies at $138.3 million. Florida again was last in the majors, even though the Marlins raised their payroll by $10.5 million to $37.5 million.
Many people think that the luxury tax system is not achieving the level playing field it set out to make. Only two teams outside the top 11 by payroll made the postseason in 2009: Colorado (16th at $84.5 million) and Minnesota (23rd at $73.1 million). Some like the idea of setting a payroll floor in order to guarantee the revenue that teams receive is used for improving the competitiveness of the big league clubs as opposed to going directly into the profit column for the owners. In essence this luxury tax has the possibility of subsidizing owners that have no desire to “win” in the first place and simply pocket the money.
Just for fun take a look at this. Listed below are the names of the owners currently worth more than Steinbrenner and the teams they are currently in charge of:
- Seattle Mariners: Nintendo Corporation: $257.4 billion
- Minnesota Twins: Carl Pohlad: $3.6 billion
- Washington Nationals: Theodore N. Lerner: $3.5 billion
- Cleveland Indians: Larry Dolan: $3.3 billion
- Atlanta Braves: Liberty Media: $2.3 billion
- Houston Astros: Drayton McLane, Jr.: $1.6 billion
- Detroit Tigers: Mike Illitch: $1.6 billion
- Texas Rangers: Thomas O. Hicks: $1.4 billion
- Chicago Cubs: Thomas S. Rickets: $1.3 billion
Granted MLB is a for profit business and each team is individually owned and operated. They are entitled to their revenue and should be able to spend it as they see fit. However, should they be allowed to profit from teams like the Yankees who do invest heavily in payroll? It will be interesting to see how things are handled with the new collective bargaining agreement that needs to be negotiated in 2011.
How would you handle this situation? Do you share revenue equally across the board or do you cut off the “free” money and let the market decide?
Very interesting post Andrew. I think that you hit the nail on the head with the last paragraph. This is still America and last i checked no one can tell you where, when or how you can spend your money. Major League Baseball is a FOR profit business. The word profit is not a dirty word, its what makes the world go round. If the fans don’t like the way the team is being run or handled then dont go to the game, don’t buy the gear, don’t watch on TV or listen on the radio. Cut off all the teams revenue streams and force the team to put a winning product on the field or lose money. Vote with your dollars, spend them on things you support, it sounds juvenile but its that simple. Think of all the empty seats you saw at Yankee stadium behind the plate when they were asking 2500 a pop and the price dropped (Supply and Demand).
I have no problem with what the Yankees do and i do not hate them for it one bit. They are the definition of capitalism. Free market forces don’t just stop at Wall Street, they carry over in all aspects of life. Supply and demand isnt something thats just in a text book or that they talk about on CNBC, but it is in everything you do. Everything is measured by an opportunity cost and thats where real value is found. The reason you all came into work today was because you value the dollar you are getting and what you can buy with it, more than your time. The Yankees value winning more than they value the all mighty greenback. They spend money and in return make money. At the same time innovation and imagination is alive in the baseball world as well. The Tampa Bay Devil Rays put a winning product on the field by scouting well and retaining young talent! Maybe im in the minority here, but i like the “Evil Empire” i think they are good for the game and they push everyone to be better and more resourceful.
good point Alex, but wouldn’t you agree that the NFL runs a better operation? I mean thats a rhetorical question, we all know the NFL has the best business practices in all of professional sports, thats why they are the most profitable league. They don’t run things any way close to how MLB does.
i was just thinking about something and wanted to see if someone could answer this question. Say me, Bill Gates, Rush Limbaugh, and Ted Turner got together and said we want to make a $100 million donation to the Cubs bc we all love the cubs and it sucks that they can’t win a world series. would the league allow that? and would they allow the Cubs, with that money, to go out and get 4 stud pitchers and a big bat in their line-up?
Clayton I don’t know if NFL is a better operation as far as competitiveness. Yes they earn more money but I think they do a better job marketing their product. There are teams with more than 12 wins and teams with more than 12 losses in just about every season, despite the hard cap and revenue sharing. The Lions are always in the cellar. How many different teams have won a World series in this decade compared to how many have won a Superbowl?
Just stirring the pot
A reply to a couple of your comments and an off topic question of my own. The reason the NFL is such an excellent business model is because of marketing and the revenue that comes in through television. Football is the most watched game in america for two reasons: 1.) the short 16 game scedule, 2.) Plain and simple gambling. It is not because the ownership or the players union is so strong. I mean look at Al Davis and the Players Association just now taking care of its retired players.
Major League Baseball owners are an exclusive club, they let in who they want and keep out who they don’t (i.e. Mark Cuban) but football does the same thing, just in a less political way (i.e. Rush Limbaugh) but i do believe that donations like that could be made. I dont see why not.
Here is my dumb question that ive always wondered (since we are on the topic of donations)and i would welcome any feedback. Sorry if this is off the subject line. I firmly believe that everything is for sale, for a price. My question is this, How much would a person have to pay to suit up for one legitimate professional game. 9 innings in the field and 3 at bats. Not a fantasy camp, or spring training, but an actual slot on the 40 man and one game thats it.
I mean if you are the Pirates ownership and some rich guy wants to give 100 mil to let his 25 yr old college nephew play one game would you be pissed that the integrity of the game was being comprimised or would you say hell yeah we can go get some players in the free agent market now. Would the MLBPA allow this and would a publicity stunt like this be good or bad for the game? I mean everything is for sale for a price right?
I don’t know how much it would cost but the commissioners office frowns on those type of stunts. The White Sox tried to do that with Minnie Minoso in the early 90′s when the plan was (as in 1976 and 1980) to have him play in two or three official games therefore, have another calendar decade to credit in his major league career and the commissioners office refused to allow it to happen.
I would put all of the TV and radio revenue in one pot and split it evenly. That is the Yankees’ edge.
Having an unlimited budget doesn’t guarantee success (see Yankees 2001-08), but it helps.
This is retarded…It’s America spend your money when and where you want. On top of that why should you have to share your money. If small market teams don’t like it then find other ways to win or go to a big city that can bring you money.
Andrew, great point with the Super Bowl/World Series comparison. But I do think the NFL is more competitve and money definitely plays a role. I mean the Oakland Raiders have altered the entire playoff scenario by beating teams like the Eagles, Broncos, Bengals, and Steelers. When was the last time the Royals or Pirates had that kind of say in the MLB playoffs against teams with way higher pay rolls (who are definitely better teams)?
Also just for the record, I do believe if an organization wants to spend outrageous amounts of money on players and/or coaches this is America, so by all means…All I’m saying is that its harder for small market teams to compete when they don’t/can’t spend as much money. And that is not the fault of teams like the Red Sox, Yankees, Cubs, Phillies, etc.
Wow I didn’t mean to throw the Cubs in there. they can’t even compete with a 40 mil+ outfield. lol
Maybe MLB should do like soccer and have different divisions Like a Premier League for those clubs that want to spend alot of money and a lesser championship for those that want to have teams but not spend the money. Kinda like a minor league division in Major League Baseball. Like a class basketball system in highschools sports. I mean i would of watched the Rockies and Twins play for the SingleA championship. Leave the schedule the same but change the post season, the Yankees can still strive to be kings of the world, but maybe it would allow the pirates to have something to play for.