November 17, 2009

Money and Winning

The Harvard Sports Analysis Collective looks at the probability that more money means more wins in baseball. It seems 1994 was the clear dividing line, with seasons before that year showing success having little to do with money spent. What happened in 1994, of course, was that the national cash cow went dry. CBS bought four years of rights to the World Series in 1990 for $1 billion dollars, which turned out to be a disaster for the network. At the time of the deal the high salary in MLB was around $3 million a year. So teams were looking at $10 million a year from CBS each, enough to sign three superstars. Local revenue mattered less, because any team could afford to sign any player they wanted.

When the deal ran out, MLB received less money, and there were two more teams dividing the revenue. Star salaries quickly rose to $10 million per year after the strike, Albert Belle receiving $10 million for the 1997 season. With a superstar now costing over $20 million a year and two more teams, MLB would need to earn $7.2 billion dollars over four years to match the $1 billion contract they received from CBS in 1990 in terms of buying superstars.

One thing that is different now, however, is that MLB has multiple sources of national income. In 1990, money came from CBS and ESPN. Now the World Wide Leader still pays a share, but Fox, TBS and MLBAM also bring in revenue. The good thing about that is there are more chances to grow revenue, and there will be less of a shock should one of them be lost.

It also suggests besides local revenue sharing, growing the amount of money that is equally divided among the teams might do more to even the playing field.

2 thoughts on “Money and Winning

  1. WillClark4HOF

    I think the “growing the amount of money that is equally divided among the teams” is really the key here. The Yankees are always going to generate more local revenue than the Orioles; that’s a function of the Yankees having a MUCH bigger local market than anyone else. But with MLBAM just barely scratching the surface of its potential, the clubs really have a chance to earn signifantly more in shareable income than they do now, even with no structural changes.

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  2. Ed

    I’ve never seen this analysis before and learned quite a bit from it. Thanks. Too many pieces on MLB’s revenue structure just scratch the surface.

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