Comments on: Revenue Sharing, Incentives, and Competitive Balance http://www.sabernomics.com/sabernomics/index.php/2010/08/revenue-sharing-incentives-and-competitive-balance/ Economic Thinking about Baseball Sun, 09 Jan 2011 17:16:18 +0000 hourly 1 https://wordpress.org/?v=4.6 By: Bill Petti http://www.sabernomics.com/sabernomics/index.php/2010/08/revenue-sharing-incentives-and-competitive-balance/comment-page-1/#comment-109917 Thu, 02 Sep 2010 13:46:31 +0000 http://www.sabernomics.com/sabernomics/?p=3067#comment-109917 It strikes me that MLB needs to think more clearly about the choice architecture it puts in place with revenue sharing. If teams can make a profit without being competitive and the returns on winning do not kick in until you surpass the 80-win mark why not break up the disbursement of revenue sharing funds.

For example, why not disburse the funds in tranches? You could make additional tranches dependent on hitting certain win milestones and with a higher number of wins comes greater funding (i.e. as teams approach 80 wins they are provided with an additional kicker that can be put toward the following season). It may also make sense to make the revenue shared less than the profits obtained at >80 wins. This way, teams are provided with an incentive to build more competitive teams and not fall back on the shared revenue.
Once you can incentivize a team to make an investment in talent above and beyond what they currently provide the team may take on a life of its own, creating a positive feedback loop that could catapult it into the 80+ wins area and thereby generate greater profits which allows for greater investment which provides greater talent, etc, etc.

Just a thought.

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By: Matt http://www.sabernomics.com/sabernomics/index.php/2010/08/revenue-sharing-incentives-and-competitive-balance/comment-page-1/#comment-109905 Thu, 02 Sep 2010 01:55:37 +0000 http://www.sabernomics.com/sabernomics/?p=3067#comment-109905 I certainly understand your point, but I can’t imagine that removing revenue is the path to remedy competitive imbalance. Your analysis does not seem to factor in the overall revenue disparity, which Dave points out has been increasing. I would put that change in contracts right around the time of the up-tick on the graph. It seems like removing revenue sharing would increase the incentive to win, but massively increase the risk of trying to win. The result, as you suggest, is probably that most markets would go bankrupt. I will certainly give the chapter a read…

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By: Dave http://www.sabernomics.com/sabernomics/index.php/2010/08/revenue-sharing-incentives-and-competitive-balance/comment-page-1/#comment-109895 Wed, 01 Sep 2010 17:59:17 +0000 http://www.sabernomics.com/sabernomics/?p=3067#comment-109895 Go to the Pirates’ financials and subtract out their revenue sharing money. Even if you eliminate all profit, where do they find the money to take advantage of the reserve system? Cut payroll to 15 million? Scouting and amatuer bonuses are a major expense, its not as if small market teams can afford to skimp in this area if they expect to improve.

Also, the past couple of decades have witnessed the revenue gap expand between small and large market in large part due to regional TV networks. That may be a substantial part of the reason for the decline in competitive balance.

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By: Jonathan http://www.sabernomics.com/sabernomics/index.php/2010/08/revenue-sharing-incentives-and-competitive-balance/comment-page-1/#comment-109891 Wed, 01 Sep 2010 14:39:30 +0000 http://www.sabernomics.com/sabernomics/?p=3067#comment-109891 To compare anecdotally across sports, the NFL is the archetype of revenue sharing, and they don’t even mind not having a team in the second largest city in the country.

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