Baseball Business: What is revenue sharing? Why do MLB teams share money with each other?

Welcome to Baseball Business

Welcome to our series on Baseball Business! In these articles, we explain how money works in Major League Baseball (MLB). We'll cover topics like player contracts, ticket sales, and today's topic - revenue sharing. These articles help young fans understand what happens off the field that makes baseball games possible.

What is Revenue Sharing?

Revenue sharing means that teams in MLB share some of their money with each other. Revenue is the money a business earns before paying its expenses. For baseball teams, revenue comes from ticket sales, TV deals, merchandise (like hats and jerseys), and food sold at games.

Teams in big cities like the New York Yankees or Los Angeles Dodgers often make more money than teams in smaller cities like the Kansas City Royals or Milwaukee Brewers. Revenue sharing helps balance things out.

How Revenue Sharing Works

Here's a simple way to understand revenue sharing:

Imagine two lemonade stands. One stand is on a busy street (like the Yankees) and makes $100 per day. The other stand is on a quiet street (like the Royals) and only makes $40 per day. With revenue sharing, the busy stand might share $20 with the quiet stand. Now the busy stand has $80 and the quiet stand has $60.

In MLB, teams put a percentage of their local revenue into a big pot. Then that money gets divided equally among all 30 teams. This helps smaller teams have enough money to sign good players.

Why Do Teams Share Money?

Competitive Balance

The main reason for revenue sharing is to keep the league balanced and fair. Without it, rich teams could sign all the best players, and the same teams would win every year. That wouldn't be much fun for fans!

For example, when a small-market team like the Tampa Bay Rays develops a star player like Randy Arozarena, revenue sharing helps them afford to keep him instead of losing him to a richer team.

Growing the Game

Revenue sharing helps baseball grow in more cities. If teams in smaller cities can't compete, fans might stop watching baseball. MLB wants fans in every city to feel their team has a chance to win.

Better Competition

When more teams can afford good players, games become more exciting! Imagine if the Minnesota Twins can use shared revenue to sign a pitcher who can strike out the Yankees' best hitters. That makes for better baseball!

Does Revenue Sharing Work?

Revenue sharing isn't perfect. Some people think smaller teams should be spending more of the shared money on players. Others believe the system needs to share even more revenue.

But we have seen smaller teams like the Oakland Athletics and Cleveland Guardians make the playoffs despite having less money than bigger teams. That shows revenue sharing helps create some balance.

Fan Fairness

Revenue sharing is also about being fair to fans. A child who grows up in Cincinnati deserves to see competitive baseball just as much as a child in New York. By sharing revenue, MLB tries to make the game fair for everyone, no matter where they live.

In baseball, like in school or on your own team, sharing resources helps everyone have a fair chance to succeed. That's what makes baseball not just a business, but America's pastime that everyone can enjoy.