Market Power is a new, cleverly named economics blog from Phil Miller in North Mankato, Minnesota. Phil is off to a good start. Indeed, this post on revenue sharing in sports parallels a lecture I gave to my students last week, so he must be right!
With this type of revenue sharing, the value of talent at the margin decreases for every team by the same proportion. It is argued that profit maximizing teams will not alter the amount of talent that they will try to acquire - but that talent will bring less in pay for the players. In other words, relative talent is unchanged leaving no change in competitive balance.
That's the theory alright: revenue sharing has no impact in a league composed of profit-maximizing owners. (Note: a luxury tax, however, by affecting the margin only for high spending teams, can affect competitive balance.)
Phil continues with an empirical observation:
MLB has recognized that there may be a need for an incentive to entice receiving teams to spend some of their shared revenues. The most recent collective bargaining agreement signed by baseball players and owners states that "each club shall use its revenue-sharing receipts... in an effort to improve its performance on the field." "... the Commissioner", Bud Selig, " may impose penalties on any club that violates this obligation."
In most CBAs these days, the player have been able to offset some of the consequences of salary caps and revenue sharing by negotiating a floor for payrolls, or some requirement that owners don't simply pocket the transferred cash. The trouble with the MLB agreement is that the enforcer of the spending floor happens to be Bud Selig. And Bud knows which side his bread is buttered on.