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Sox owner wants to overhaul MLB's revenue sharing system

Posted by Nick Cafardo, Globe Staff  December 1, 2009 10:00 AM

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Red Sox principal owner John Henry is calling for Major League Baseball's revenue sharing system to be overhauled and replaced with a "competitive balanced payroll tax" in an effort to create competitive balance in baseball.

Henry's comments via e-mail came after he was asked to respond to agent Scott Boras' comments to the Globe two weeks ago in which the super agent said teams aren't spending their revenue sharing money and central funds on player salaries, which is what revenue sharing was intended to do for small market teams. Boras received backlash for his comments from MLB executive vice president Ron Manfred, who said Boras' figures of teams receiving $80-$90 million from revenue sharing and the central fund "not based in reality" and "fantasy land."

But Henry is certainly going his own way on this very sensitive subject and is certainly not in lockstep with some of his fellow owners on the revenue sharing plan that was adopted in 1997 and distributes the wealth from large market teams to small market teams.

"Change is needed and that is reflected by the fact that over a billion dollars have been paid to seven chronically uncompetitive teams, five of whom have had baseball’s highest operating profits," Henry responded in an e-mail. "Who, except these teams, can think this is a good idea?"

Henry added, "While the Red Sox are in the 16th largest media market we’ve found a way to be very competitive even though we are funding other teams. At the end of the day, the small market clubs still cannot begin to compete with the Yankees and have a very hard time competing with the teams that are struggling to pay them so much. Consequently, a system that directly impacts competition has to replace the current system, that hoped to, but ultimately did not cure competitive imbalances."

About $400 million – 34 percent of each team's net local revenue – will be distributed to small market teams this year. Most of that percentage comes from the Yankees, Red Sox, Mets, and other high-revenue teams.

"We've seen a number of teams that are just sitting back," Boras told the Globe at the General Manager's meetings in Chicago last month. "We have clubs who aren't successful getting $80 million before they ever sell a ticket. The question is always going to be in the end, what are they doing with that money? For most of them, they're paying off their debt to purchase the franchise. So they become owners, debt-free but they have not done a lot to contribute to the success of the game. Those are the things as an industry, certainly the fans have to look at it and realize that kind of revenue is available. The other part of it is I think we've proven time and time again that investment in players produces revenue streams and success points for franchises. Even in an economy where many businesses are struggling in our industry, as I said last year, we've been able to keep revenues at a record level."

Henry wrote that baseball "needs slotting for amateurs, a worldwide amateur draft and most importantly, an effective competitive balance tax that directly addresses disparity once and for all for baseball."

The Red Sox principal owner reiterated that baseball's free market system should continue and that teams should be able to operate as they please, but that those who spend a lot will pay a lot of payroll taxes. "If the Yankees and the Mets spend a billion dollars plus of their investment dollars to build new ballparks, they should be allowed to keep their revenues from that," Henry wrote. "But if they want to spend $200,000,000 annually on payroll, they should be heavily taxed directly on that – and if they want to spend more than that, they should be even more heavily taxed. So should all clubs who spend heavily on payroll – to the extent necessary – to bring the system into balance."

Here's how Henry's system would work:

"It’s a very simple approach in which payroll tax dollars replace revenue sharing dollars and go directly to the clubs that need revenues in order to meet minimum payrolls that should be imposed on each club receiving revenue. Further, players would have to be protected with a guaranteed minimum percentage of overall revenues. This would be a very simple and effective method in reducing top payrolls and increasing bottom payrolls with no tax on revenues," Henry wrote.

Henry added that "The World Series should be determined by fully competitive teams on the field - not by how much particular clubs can afford to spend. A better solution is to address competition directly so that clubs can generate revenue more equally as teams become competitive across baseball."

While Henry, a former part-owner of the Yankees, has no love-loss for his biggest rival, he does believe that the current revenue sharing formula unfairly penalizes the Yankees and other big market teams which generate big revenues.

"Baseball has determined that the best way to deal with the Yankees is to take as much of their revenue as possible. I see that in direct opposition to the ideals this country was built on. Baseball is a business and should be treated as such. Baseball is also a sport that needs competitive balance in order to prosper. Taxing their revenues and other “large markets” in the way it is presently done, is simply confiscation on an order of magnitude never seen in any industry in America," Henry said.

Henry finds the system counter to the manner in which most owners operated in the industries in which they became rich men.

"It's amazing because owners, some of the most ardent capitalists in the country – who have all made their fortunes through capitalism, have imposed a tax system on baseball they would never sit still for in any of their industries," Henry said.

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