Revenue sharing

Revenue sharing refers to measures taken to pool and redistribute certain revenues among competing teams in a league, in order to lessen economic inequalities among teams.

Among measures that are typically part of revenue sharing are splitting national television rights, pooling of merchandising revenues, and in the case of Major League Baseball, developing and pooling revenues from the internet via mlb.com. Revenue sharing can also include some redistributive measures such as a luxury tax, or even forcing teams to pay a portion of their local television revenues into a common pool (something which has been contemplated but never implemented in MLB). The common thread is that these measures treat richer and poorer teams on an equal footing, or in the case of redistributive measures, take some of the excess revenues of richer teams and provide these to less-favored teams.

Revenue sharing can be quite controversial, as the measures will typically prevent the more successful franchises - which are often in that position because they occupy larger or more lucrative markets - from maximizing the competitive edge they could gain from the revenues they can extract from their position. However, without a form of revenue sharing, a sports league will typically polarize between a few very rich and successful franchises, and all others that struggle year after year. Proponents of revenue sharing argue that while a system where a few franchises are free to maximize their revenues is good for those few owners in the short term, it weakens the fabric of the league in the long term by lessening the level of competition, and that this will eventually erode everyone's revenues. However, there are many counter-examples of sports leagues around the world that endure in spite of domination by a few franchises.

Revenue sharing was a taboo for years in Major League Baseball, apart from the national television contracts that were not particularly lucrative once split among all the existing franchises. The issue of small-market against large-market teams became salient in the 1990s, however, and was at the core of the 1994 strike. That very damaging experience led to the adoption of some of the measures listed above. However, baseball is still well behind the National Football League or Major League Soccer, for example, in terms of revenue sharing.

In Major League Baseball, 48% of local revenues are subject to revenue sharing and are distributed equally among all 30 teams, with each team receiving 3.3% of the total sum generated. As a result, in 2018, each team received $118 million from this pot. Teams also receive a share of national revenues, which were estimated to be $91 million per team, also in 2018.

Further Reading

• Frédéric Daigle: "Baseball majeur: quels petits marchés?", La Presse, March 19, 2019. [1]
• Bob Nightengale: "'Critical' moment arrives for Pirates, other small-market teams", USA Today Sports, January 21, 2016