Baseball is the new football
Some are getting worried about economic imbalance in the NFL just as baseball is moving past those concerns.
NEW YORK (CNNMoney.com) -- Baseball is enjoying such unprecedented economic success and labor peace that it starts the new season Sunday doing a pretty good impression of the National Football League.
Meanwhile, NFL owners are signing free agents to big dollar deals while at the same time complaining about competitive imbalance and runaway salaries. All of which makes them look like, well, the traditional image of baseball owners.
Baseball is concluding an off-season that saw some small market teams spending money like the Yankees, while the deep-pocket Yankees were dumping high-paid veterans for cheap, unproven prospects.
The new labor deal reached during last year's World Series gives the low-revenue teams greater incentive than ever before to increase their payrolls, rather than simply sit back and cash the revenue sharing checks of the big dollar teams. In the past, the have-nots got less of the haves' money if they increased their own revenues significantly.
In addition, new sources of national revenue from companies such as DirecTV (Charts) and the sports' fast-growing Internet operations, means more money that is equally shared between all 30 teams. So many teams, both rich and poor, responded by drastically increasing payroll.
The Kansas City Royals, owned by former Wal-Mart Stores (Charts) CEO David Glass, had long seemed to use his discounter's mentality when he was signing players. Without question that philosophy changed this year, as the team spent freely in the free agent market, lifting its payroll 22 percent to an estimated $58 million this year. Whether that's enough to lift the team out of last place is a more open question.
Then there's the Oakland Athletics, the team that became famous in Michael Lewis' book "Moneyball" for using statistical analysis to find bargain-priced players. This offseason, the A's had the benefit of new ownership as well as plans for a new stadium. As a result, the team raise its payroll by 12.5 percent to about $70 million.
Granted those payrolls combined don't equal the payroll of the Yankees or their deep-pocketed rivals, the Boston Red Sox. The Red Sox spent almost twice the Royals' total payroll to sign one pitcher, Daisuke Matsuzaka, a Japanese star who has yet to throw a major league inning.
But the cries of competitive imbalance have quieted in recent years. The defending champion St. Louis Cardinals are the seventh team to win the World Series in seven years.
Even though the NFL talks about "parity" so much, you'd think it was the league's official religion, the league has never gone seven years without a repeat winner in the Super Bowl.
Tilting the NFL's level playing field
Meanwhile, the complaints about an uneven playing field have started to increase in the NFL. This week, the NFL owners approved a plan to shift an extra $430 million from large revenue teams to low-revenue franchises such as the Buffalo Bills over a four-year period starting with the just-completed 2006 season.
The smaller teams had argued that having the 32 teams equally share about 80 percent of national and local revenue was no longer enough, because of the growing disparity in the local revenues which are not shared.
Football's financial parity used to come primarily from the fact that about 70 percent of the revenue comes from broadcast rights, sponsors, licensed merchandise and other sources that go straight to the league to be split evenly.
And with only one game a week on a weekend, it was easier for many small market teams to sell out their stadiums, meaning the local revenue that wasn't shared wasn't all that different from the top to the bottom of the league.
But with the growth of luxury suites, club seating and signage deals inside the stadiums in the past 15 to 20 years, there is a growing gap between the local revenue generated by the haves and the have nots.
Of course the NFL Network doesn't have to hold telethons to raise donations to help the "struggling" teams with bad stadium deals. That's because each team gets more money from the league in revenue sharing than they're allowed to spend on player payroll under the league's salary cap.
But under the league's labor deal, the salary cap is growing at a pace that would be the envy of any labor boss not named Marvin Miller. The extra "cap" room has enabled a lot of NFL free agents to cash in big time in the current signing period.
That's because the cap is based upon total revenue, both local and national. In 2005, the cap stood at $85.5 million per team. In the upcoming season that will be $109 million, and it's expected to at $139 million by the 2008 season. That would be an increase of 62 percent over the four seasons, compared to only a 14 percent rise in average baseball salaries from 2003 to 2006.
So just because there is a limit on how much any team can spend, that doesn't mean that it guarantees parity, as many teams won't be able to afford the maximum allowable payroll.
But teams without a good stadium deal are going to have a harder time being competitive if the cap keeps growing faster than their revenue, according to some involved in the league.
"Revenues aren't rising uniformly, and that's the problem," said one investment banker who works for professional sports teams and asked not to be named. "In very few instances are they looking at losses, although that's a rarity. The logical upshot of this is you can't continue to have the salary cap grow the way it is unless you share more of the local revenue."
Some suggest the revenue disparity is overstated, especially since some of the the most successful teams in the NFL this season, such as San Diego and New Orleans, are saddled with less competitive stadium deals.
"It's carping around the edges. I don't think the the disparity is seriously steep," said Mark Yost, author of a book about the NFL's finances, "Tailgating, Sacks, and Salary Caps."
"Most are not bitching about losing money. They're bitching about their level of profitability," he said. "I have trouble having a lot of sympathy with owners who are carping. Tell me one other business whose payrolls are covered before their first sale."
But the growing disparity is there, and it has teams in cities like San Diego and New Orleans pushing for new taxpayer bailouts, in addition to asking the league's richer owners for a few more million dollars a piece. And if they don't get what they want at home, they'll likely get it somewhere else.
So even if the NFL's economics don't end up playing out in the win/loss columns of a team, fans of poor teams could end up paying higher taxes or even see their team leave town for greener pastures.
And the fact that this baseball season begins with little talk about competitive balance at the same time it is getting more attention in the parity-minded NFL suggests that all the unlevel playing field talk is really about dollars and cents more than it's ever been about wins and losses.