1. Major League Baseball

2. Major League Baseball • Teams share central revenues (the national television contract and MLB Properties).

3. MLB Television Contracts

4. Major League Baseball Properties • Controls marketing and licensing for the league and its teams • Royalty revenue from licensed merchandise goes into the central revenue fund. The Commissioner distributes these shared revenues disproportionately to benefit smaller revenue teams. • In the existing Collective Bargaining Agreement, this annual transfer from larger revenue clubs to small revenue clubs is $326 million. This amount will continue to grow with revenue and changes in disparity.

5. Major League Baseball • Each club aggregates local radio and television revenues (all those not in the national contract), ticket sales, luxury suite rentals, concessions, and parking (minus expenses) and pays 31% of this pool to the league. • These revenues, which comprise the Base Plan, are distributed equally among the 30 teams.

6. Major League Baseball • No salary cap; teams must pay a competitive balance tax on player payrolls with annual ($148 million in 2007) and increasing thresholds); penalties for exceeding threshold: • 22.5% for the first time • 30% for the second time • 40% for the third time • Base salary amounts are guaranteed and must be paid regardless of performance or injury. • A player will receive the remainder of his annual salary as termination pay unless he is picked up by another team on waivers. • Signing bonuses are usually prorated over length of contract.

7. Serves as an incentive Receive revenues so they can attract free agents or retain their star players May help attract more fans with better quality players Contributes to competitive balance Serves as a disincentive Receive revenues regardless of whether they win or lose May lead to teams choosing to dump payroll costs and keep the money Detract from being entrepreneurial Revenue Sharing

8. Major League Baseball • Allows the public issuance of stock as long as the incumbent owner retains 90% voting control • Example: Jacobs’ issuance of stocks to general partners, while retaining 99% of the control as the 49% limited partner with limited financial risk and the opportunity to benefit handsomely from related party transactions

9. Free Agency • Within their first six years, players (about two-thirds of the total) are not eligible for free agency (to allow clubs to recoup player development costs). • About 16% of these players (with three or more but less than six years) are eligible for arbitration after three or more years. • About one third of all players are eligible for free agency. • Long-term contracts have became important to owners, whereas prior to free agency only players wanted these.

10. Major League Baseball • In arbitration, a player asks for specific salary, and the team makes a salary offer. This salary arbitration process means that the arbitrator must select either the player’s requested salary or the team’s offer as the final and binding amount of the contract. • According to the Major League Baseball Players Association: “Since 1974, and including 2006, arbitrators have ruled on behalf of the players 199 times and clubs 269 times. Although the number of players filing for salary arbitration varies per year, the majority (88% since 1990) of cases are settled before the arbitration hearing date.” (with a player usually benefiting)

11. Major League Baseball • The rise in player salaries (from about 20% to about 60% of revenues) during free agency is not attributable just to free agency; other factors include • Increased broadcast rights fees • Changes in owners (fewer individuals and more corporations) • The owner who forms a limited partnership for financial benefits while retaining general partnership control has • Status and perks of ownership • Less financial risk should the franchise decrease in value or lose money

12. Major League Baseball Draft • Includes 50 rounds, with teams drafting in reverse order of finish • Includes players in the United States, Canada, Puerto Rico, Dominican Republic, Venezuela, and Panama, but not other foreign nationals • Players are eligible if their high school classes have graduated. • If a player does not sign with the team who drafted him and goes to college, he cannot be drafted again until after his junior year. • Almost every drafted player develops while playing Minor League Baseball.