Watching the Money Flow

One of the many things missing in the discussion about the new contract for Clayton Kershaw–a mere $30 million annually–is how much money the Dodgers have to throw around. The money the Dodgers got from Time Warner for media rights last season–reputed to be $7 billion over 25 years–gives the old Brooklyn franchise $280 million annually just from TV revenue.  $30 million here, $30 million there–what they could easily pay for Masahiro Tanaka–and pretty soon even Stan Kasten can find a acorn or two. What would George Steinbrenner say if he were still alive?

Old George would say that his Yankees are doing just fine, thank you.  Bloomberg estimates that the Yankees total revenue for 2013 was $570 million, so the money the Dodgers are getting from TV is exactly half that.  The Yankees had $265 million in gate revenues, which ranks at the top of that pyramid.  They had $158 in “media rights,” which taken with the gate provides the lion’s share of the total.  Contrast those numbers to those of the other richest team, the Boston Red Sox who had estimated media revenue of $89 million and gate receipts of $174 million; not even close.   The Texas Rangers and the Houston Astros have signed media deals worth $80 million annually to put them near the top also, but only the Rangers–5th in attendance in 2013–can compete with the other teams in terms of gate revenues.

It should come as no surprise then that the two franchises said to be in the finals for Masahiro Tanaka are the Dodgers and the Yankees.  The Rangers, the Cubs and the Red Sox–poor pretenders to being the richest team–have dropped out.  It stands to reason that one of the two top dogs will walk away a winner in this sweepstakes. Money is still the best predictor of success in sports which means for Tanaka that the Dodgers or the Yankees are his best bets in today’s world.

What continues to amaze is how deep the disparities really are.  For a reality check, the Washington Nationals have one of the worst local cable deals in baseball that brings in $21 million annually. The nature of the deal between the Orioles and the Nationals has been the subject of one of the longest negotiations in history as Bud Selig tries to decide whether Washington deserves more. The distance between the $21 million and $280 million is rather stark.  It should be impossible to make up that kind of difference, but as we all know it is not.  But it is fun to consider that it would take the Nationals 330 years to amass $7 billion in television revenues at their current rate.  Competitive balance indeed.

When on the way down to visiting the Oakland Athletics and the Tampa Bay Rays, who check in below Washington, you pass the St. Louis Cardinals who have been one of the best franchises of all time and who have won consistently during the recent decade.  They have a paltry $27 million dollar media deal and place their greatest pride in their ability to generate sell out crowds and therefore gate revenues.  They were second in attendance in 2013 with 3.4 million fans, so they are still winning baseball games the old fashioned way.

And that is the really amazing fact that never gets lost in all of the swirl of money.  Money is a great predictor of success, but there are so many other variables.  No the poor teams seldom make the World Series, but the Rays and the Athletics win ball games and the Cardinals still can win a World Series even though they are distinctly second tier in overall value despite their ability to draw fans.

What money does in the end is corrupt absolutely.  It is no coincidence that Alex Rodriguez is going out as Clayton Kershaw is coming in. As the previously most over-paid ball player, dubiously enriched by the ugly disparity in MLB revenues, Rodriguez is all of the things that Kershaw can hope he doesn’t find in the mirror at the end of his rainbow. 

The good news is that a big chunk of the $7 billion that the Dodgers got is estimated to go into luxury tax payments to other teams.  With Kershaw’s extension, the Dodgers will likely spend more than $240 million for their players in 2014, which means they will pay a whopping luxury tax.  And if they land Tanaka their taxes will make Old George Steinbrenner blush. While the impact on salaries generally will not be good, there are really only a few teams that can drive salaries up to Kershaw’s level.  There are only five spots in the Dodgers’ rotation, so other teams will still be able to find quality starters for half as much.

If the Dodgers and Yankees end up giving the other teams significant amounts of money from their TV contracts (and the amazing money they charge for admission to Yankee Stadium), then the other 28 teams will see some real bucks from all of it.  That may mean that even the A’s and Rays will make a few more World Series appearances. Will there actually be occasional poetic justice? I certainly hope so.