Does the MLB Revenue-Sharing Model Require Adaptation?

Hello and welcome! Today we’ll be taking a dive into the current revenue-sharing model in the game we all love, amid the ever growing disparity in spending between baseball’s big-market and small-market clubs. In doing so, we’ll review:

• The purpose of the revenue-sharing model, and its current status
• The loopholes within the current model
• Should additional sources of revenue be included within the model?
• Is it likely to change?

I’ll probably get into the financial weeds in the rest of this article, but any and all questions in the comments about the finances or calculations, I’m more than happy to address!

What Does The Current Revenue-Sharing Model Look Like, And Where Did It Originate?
The initial revenue-sharing model for Major League Baseball was a method by which the league tried to share a portion of the local TV revenue brought in from the larger markets with those in smaller markets. The idea was, everyone would take 34% of their local revenue (TV rights, gate, concessions, and more) and put it into a pot, which would be evenly distributed among all teams.

The reason for this is that local revenue is, at least in part, attributable to the brand of baseball. A portion of its value is inherently tied up in the financial success of other teams across the league, and as such, it made sense to distribute a portion of that (while still allowing big-market teams to function as big-market teams, with higher revenues).

Providing a measure of stability to smaller-market clubs allows MLB to gradually increase the fandom of a team and improve its relationship with the area in which it operates, building a fan base and improving the product off the field, leading to larger TV deals across the board for all teams in both local and national media deals. 

The rate of pay was altered in 2017, increasing to 48% of all teams' local revenues, which seems a large number on the face of things—but as always, there are loopholes being exploited.

This article is one in a four-piece collaboration across three DiamondCentric sites. For more on the current system's mechanics and viability, check out Matthew Lenz's piece today at Twins Daily. Meanwhile, at North Side Baseball, Brandon Glick writes about the viability, now or in the future, of a salary cap and floor system. Later this week, we'll share a roundtable between Lenz, Brandon Glick and McKibbin, about what they learned from this process and what they think ought to be done moving forward.

The Two Big Loopholes Within The Current Model
The first, and perhaps most fortunate one, is that of the LA Dodgers. In the early 2010s, with furor roiling over Frank McCourt siphoning off money, the sale to the Guggenheim group and the Dodgers being on the verge of bankruptcy, Major League Baseball cut them some slack. Before signing their new local TV deal, MLB said that for revenue sharing purposes, the value of the deal in 2013 would be capped at $84m, and increase by 4% year on year.

The problem with that is that the Dodgers' TV deal with Spectrum Sportsnet LA has the potential to reach up to $8.5 billion over a 25-year period, depending on reach. That would have equated to $332 million per year. We know they made at least $196 million that way in 2022.

There were struggles, and continue to be some to a lesser extent, for the Dodgers in getting the Spectrum product shared amongst other networks. The Spectrum cost per viewer was too high for other media sources to take on the coverage, so the deal is now more conservatively estimated at $7 billion over the 25-year period.

In fairness to MLB, they did partially rectify their mistake and alter the starting point to $130m in 2013 after the deal was signed, however as you can see below, the Dodgers have saved almost $600m in the last 11 years:

These are estimates, of course, but they give the gist. You can't blame the Dodgers for taking advantage of this scheme, but MLB most certainly gave them too much leeway, given that the deal extends over 25 years. It could be understood for the first two or three years to remove themselves from their borderline bankrupt status, but beyond that, it's contrary to the ethos of revenue sharing.

The other loophole available is that revenue from local media deals can be manipulated if the club assumes part ownership of the broadcaster. While the value of local TV rights is still subject to revenue sharing, the profits made through part ownership of the network itself are not. The biggest exploiter of this is the New York Yankees with YES network, which rakes in about $500 million annually for them. Only around $200 million is estimated to have been included in the calculation for revenue sharing.

Other clubs taking advantage of this are:

• Chicago Cubs (Marquee Sports)
• Boston Red Sox (New England Sports)
• Chicago White Sox (NBC Sports Chicago, and now CHSN)
• Atlanta Braves (Bally Sports South/South East)
• Detroit Tigers (Bally Sports Detroit)
• St Louis Cardinals (Bally Sports Midwest)
• Houston Astros (AT&T Sportsnet South West)
• Miami Marlins (Bally Sports Florida)

Some of these teams have higher proportions of ownership than others, with the Marlins having less of a stake in BSF than the Cubs do with Marquee, as well as the wrinkle in how much success Bally Sports and the Sinclair Group are actually having as things currently stand. There is a risk factor attached to these teams in assuming part ownership, but in the bigger markets, that risk seems to be far smaller and the rewards more lucrative than in the smaller markets, and it’s allowing them to dodge significant revenue-sharing payments—particularly in the cases of the Yankees, the Cubs and the Red Sox.

The biggest problem with both of these loopholes is not the added cash that your team would receive, which would be less than $10 million per annum in equal shares with the rest of the league, but the missed opportunity to reduce the cash available for big-market teams to splurge with. In doing so, the top-tier talent would have a greater chance to spread among the top 10 richest teams, rather than the top three or four. It’s allowing more monopolization to occur within the biggest markets. Going some of the way to close at least these loopholes would be positive steps for Major League Baseball as a whole. 

Can Other Forms Of Revenue Be Included In Revenue Sharing Agreements?
Each team has a variety of revenue sources which can broadly be broken down into four categories:

• Ticket sales and concessions/game day experiences
• Local Media
• National Media
• Advertising and Sponsorship

Local TV media being shared, as mentioned earlier, makes a lot of sense. You’re allowing teams to retain some of the advantage they’ve created from building a brand in their market, fielding competitive teams on a regular basis and showcasing a good product, while at the same time sending a portion of that to the other teams who have contributed to that product.

Merchandise and advertising revenue doesn’t quite fall into the same category, with each team profiting off of their product and using the increased marketability of their stars to help cover the costs of those stars' salaries. In a way, it’s a natural offset, and sharing such revenue in greater proportion than they already do would feel heavily punitive.

National Media is already shared equally among all 30 MLB teams, regardless of their time spent on screen in that particular year. The league distributes those fees after collecting them directly from national partners.

That leaves us with ticket sales and other in-stadium revenue. This is a difficult topic, as it has a direct correlation to the product that a team puts on the field. For example, sharing the Dodgers' gate receipts in 2024 with the A’s arguably detracted from the point of revenue sharing, which is to allow more teams a capability of staying fiscally safe and creating competitive rosters. If an owner isn’t attempting to compete, then they shouldn’t be a recipient of additional funding.

That being said, there is a disparity in the cost of tickets and stadium capacity of big-market teams, compared to their smaller counterparts. The Dodgers lead the league comfortably in average gameday attendance, while also charging a lot more than the MLB average per ticket:

The league's average ticket price was around $38 in 2024, meaning the Brewers are significantly below the norm compared to the product they’ve put on the field, while the Dodgers' price of $54.22 on average blew that out of the water. As a result, they raked in over $130 million more than the Brewers did in 2024 from gate receipts. Bear in mind, the Brewers will have analytical models to pinpoint the ideal price point that will maximize profitability in any given year, so being on the cheaper end doesn’t mean you should treat it as a goodwill gesture (though they may have elected to slightly favor higher attendance, depending on the model's top 10 results).

Given both sides spent between 50% and 52% of their overall revenue on payroll in 2024, you could argue that both teams spent largely within their means while attempting to remain competitive. Both teams reached the playoffs. I believe there is a strong argument for greater sharing of gate receipts among teams who meet certain criteria for attempted competition in a given year.

Sharing 48% already makes it sound like the league is practically socialist as it is, but in truth, the yawning distance between their attendance revenues means that even after each chipped in their 48%, the Dodgers got $68 million more from ticket sales alone than the Brewers did last year. That's a big gap to leave. Maybe more should be shared to the pool, or maybe bigger-market teams should have to put a higher percentage of their revenues into the pot than smaller-market teams do.

Let’s hypothesize, for a moment, that should a team:

• Spend 50% of its revenue on MLB payroll
• Achieve 78 wins or more in season
• Have an average capacity of 80% or higher

Then such teams would be eligible to receive extra revenue sharing from the teams with the 10 highest game-day revenues, paid via a luxury tax on those revenues that goes beyond the flat 48%. Maybe that's 20% of the remaining 52%. Maybe it's less. Either way, more money would flow from rich teams to poor ones, providing the poorer teams were mounting a reasonable effort.

Can the Revenue-Sharing Agreement Be Changed?
As things stand, teams like the Yankees and Dodgers are unlikely to want to share more of their revenue with other teams. I firmly believe that either shutting down the Dodgers loophole based on a bankruptcy case that’s obviously no longer relevant today, sharing a proportion of local TV revenues (or losses, should they occur) that come from ownership of the network, or a second-level pool of gate receipts among teams meeting set criteria to determine an intent to compete would be beneficial in slightly hampering those in the biggest markets, while slightly improving the outlooks of those at the lower end of the market size spectrum.

Any changes to revenue-sharing agreements would fall under the Collective Bargaining Agreements, the next of which will be negotiated in the 2026-27 offseason. The largest markets only have one vote per team, so it's possible that an attempt is made to rebalance the scales somewhat in the face of the growing gap between MLB’s smallest and largest markets.

Any questions on any of the matters above, do feel free to ask in the comments below!