Last year Tony Clark and Scott Boras publicly disagreed about the percentage of overall revenue the players were getting now as opposed to what they received in the past. Clark claimed that, over time, the percentage players received has remained fairly steady. Boras said, no, players were only getting 43% of revenues now when, in the past, they were taking home something like 50-55% of revenues. What gives?
What gives is explained today in an AP article providing financial numbers released by Major League Baseball. The discrepancy is reconciled by virtue of how MLB accounts for the revenue generated by Major League Baseball Advanced Media (MLBAM) and MLB Network. While all other revenue measured against player salaries is gross revenue, the league only includes MLBAM and MLB Network’s net revenues when calculating player share.
This is why they do that:
“We believe that using net income for MLBAM and the network is appropriate for assessing the percentage of revenue that owners pay to players,” [MLB’s chief legal officer Dan] Halem said. “Owners only can spend the net profits of those businesses, not gross revenues which they never receive.”
I am not anything close to being an accountant. It’d be malpractice for me to even balance your checkbook or fill out your 1040EZ form. But how is this different from, say, national TV or marketing revenue? That’s not a rhetorical question. I’m not sure how that stuff works. Do Fox and ESPN cut 30 checks to owners or does the gross go to the league before it’s distributed? In cases where the league lays out some money on the front end before getting sharable revenue (i.e. various investments and initiatives), is it not the case that the owners don’t actually receive the gross, just the net? How about on stadium operations? Owners have to pay lots of other employees and buy stuff before the gross revenue comes in. Why, then, is gross included from all of that stuff but not MLBAM? And don’t even get me started on the debt payments owners make from the purchase of the club. They don’t get their interest backed out of that when it’s time to calculate player share.
Again: there may be good reasons for MLBAM revenue being treated differently, but the fact is that the 30 major league owners are the shareholders of MLBAM. There are legal mechanisms and arrangements in place that make that relationship different than some of the ones I outlined above, but at bottom it’s still revenue they receive which has its genesis in the players’ work. Directly in the case of all baseball-related MLBAM income, indirectly in the case of income from MLBAM’s hockey, basketball and other initiatives (i.e. baseball revenue built the dang business in the first place).
I’m not necessarily contradicting Dan Halem here or saying that this is b.s. I’m just really not seeing why different revenue streams are being handled differently here. As I argued in the past, no, percentage of revenue is not a zero sum game and should not the be-all and end-all of labor negotiations. But it’s still a pretty big deal.
As is the matter of MLBAM revenue. In sports and in business at large, a company’s power to characterize income this way or that way — or, in extreme cases, to characterize expenses as income or vice-versa) — is incredibly strong. Surprisingly strong to those unfamiliar with accounting and the various legal ins and outs of the trade. Simply because someone from the legal or accounting department says “this is accounted for in this way” does not mean that is the only way for which it can be accounted. Or that it’s the best way. The assumptions underlying those choices must be examined.
I hope and expect that the MLBPA is examining those assumptions here in the leadup to the next round of CBA negotiations.