[SIZE=9pt]Back in March, Forbes produced revenue figures for the 30 MLB teams, which totaled about $6.8 billion. Maury Brown, a couple of months prior, estimated that MLB's total revenues
ran to about $7.5 billion[/SIZE]. (Some share of the difference between the two figures is money that goes to the league itself.) Regardless of which number you take, we know that the figure will be going up; new local-television contracts will be kicking in, with revenue sharing spreading that money around the league. The new national deals with Fox and Turner start in 2014. Brown estimated that revenues could reach $9 billion in 2014. Foreshadowed last week in Georgia, it may not be long before the next wave of ballpark extortions hits land. US Cellular Field and Rogers Skydome are approaching their silver anniversaries, the Oakland situation continues to fester, and while Dodger Stadium is a jewel, the $2.15 billion the Guggenheim Group paid for the Dodgers seems to have the expectation of a new downtown venue built into it. There's no reason to think that MLB's revenues will be slipping in the short and medium terms.
[SIZE=9pt]The Associated Press collected the salary data for all players on Opening Day rosters. That data, published in a number of places, showed that teams were on the hook for about $3.2 billion in salaries and bonuses. That means that MLB was paying out about 43% of its revenues to the players; the NFLPA got its ### handed to it in the 2011 lockout and came away with 47%, and the NBA players didn't do much better after their own lockout, as they get about half of league revenues, as do NHL players. As a percentage of revenue, MLB players get less money than do their counterparts in the other leagues. Taking the long view, this is the end product of losses in CBA negotiations that have expanded revenue sharing and penalized teams that exceed payroll thresholds, with extremely punitive penalties for teams that do so repeatedly. Make no mistake: over the last decade, MLB has clawed back many of the gains the players made in the first 30 years of free agency. MLB has also leveraged its position in labor negotiations -- against those cheating, druggie untrustworthy ballplayers, dontcha know? -- to cap its expenditures in talent acquisition, with limits on what teams can spend in the draft and the international market, so the money they're saving on player salaries isn't leaking out to college kids and teenagers.[/SIZE]
[SIZE=9pt]Four percent of $7.5 billion -- the difference between the percentage of revenue NFL players are guaranteed and what MLB players are getting, is $300 million. If half the money -- what NBA players get -- seems right, then we're talking about $525 million. That's the money burning holes in 30 pockets right now, money that can be banked as profit, as in Houston and Miami; used to pay down debts generated outside of baseball, as in Queens; or thrown at ballplayers. Teams can say anything they want about what they can and cannot afford, but merely looking at revenues, it's clear that MLB teams aren't coming close to spending what they can reasonably spend on payroll. This doesn't even factor in the ability to borrow against ever-rising franchise values (or RSN values) to generate cash. At least ten teams are estimated by Bloomberg to be worth more than a billion dollars.[/SIZE]
[SIZE=9pt]It is so much money that it has a distorting effect on the market for talent, not just breaking our models, but arguably invalidating the first principle: that the opportunity cost of spent money matters. The combination of so much extra cash combined with so little talent becoming freely available -- due to teams locking up the best players in baseball long-term through their peaks -- means that there isn't much opportunity cost to spending. The money is there, and if it isn't spent on free agents it's not going to be spent in the draft or in the Dominican or on a superstar because the next superstar might not hit the market for another two years.[/SIZE]
[SIZE=9pt]The money doesn't matter. It's not about whether the marginal cost of a win on the free-agent market is five million bucks or $7 million or $13 million; it's about that framework no longer being the way to evaluate signings. The extra dollars a team might spend to bring a player into the fold -- and turn a contract from a sabermetric win to a sabermetric loss -- are meaningless in the big picture because there's just no other good application of those dollars. The opportunity cost of not signing the player isn't "having the money to sign someone else", it's "having cash and no good way to use it." [/SIZE]