Where Do Revenue Sharing Funds Go?

As one of the slowest times on the sports calendar, the Major League Baseball All-Star break brings about a lull that often leads to the discussion of off-the field topics. Sure, many fans would prefer to focus on what’s happening on the field, but with no games to be played, attention tends to shift for a couple of days.

The Pirates were surging heading in to the break, and I was starting to wonder if I had to reverse course and instead look at payroll commitments for potential trade targets. Unfortunately, for as hot as the team went into the break, they came out just as slow, and with the slightest of playoff hopes fading fast, it was time to look for a different feature topic. Fortunately, Tony Clark came to my rescue.

As baseball can’t seem to get out of their own way from time-to-time, instead of celebrating the great young talent permeating the league over the All-Star break, off-field consternation was a hot topic of discussion, and the still pending MLB Players Association grievance against four teams—the Pirates among them—popped up again as it has every now and again over the year and a half since it was filed.

Clark, the MLBPA executive director, explained to the Pittsburgh Post-Gazette that the union had concerns about how some teams were allocating revenue sharing funds, which isn’t really a new revelation of any kind. Then, on the other side of the aisle, former Florida Marlins president David Samson told 93.7 The Fan that the Pirates “are not pocketing money,” and that “whatever money [Frank Coonelly] can reasonably put into that team he is putting into that team.” Two sides of the debate creating plenty of discussion points, right?

I’ve given my thoughts, opinion, and analysis of the grievance online before—I found it silly, calling it “a farce” and “extraneous”—and you can find and read them if you so choose. I don’t want to focus on these few quotes, especially out of context, as they aren’t really my main idea. Rather, I wanted to use them as a jumping off point to analyze the deeper issue—just where do revenue sharing funds go? That’s (supposedly) the entire crux of the grievance, so it’s a fair question to discuss and dissect.

For complete transparency, this is a topic I’ve visited before, and I will be repeating some of the analysis, but it is a topic I wanted to share with a new set of readers, especially given that it popped back up into the news stream recently.

First, it would be important to determine what the MLBPA and Major League Baseball have agreed to as far as what Revenue Sharing Funds can be used on; however, the Collective Bargaining Agreement (CBA) does not specify what teams can use these funds on. Rather, it simply states that “each Club shall use its revenue sharing receipts…in an effort to improve its performance on the field.” Article XXIV(B)(5)(a) does, however, specify what teams can’t use these revenues on:

payments to service acquisition debt or any other debt that is unrelated to past or future efforts to improve performance on the field; payments to individuals other than on-field personnel or personnel related to player development; payments to entities that do not have a direct role in improving on-field performance; and distributions to ownership that are not intended to offset tax obligations resulting from Club operations.

So, if we know what teams can’t use revenue sharing funds for, we can speculate with a fair amount of certainty what they can spend it on by working backwards.

The grievance was filed in February 2018, alleging that 2017 funds were misappropriated. I have already analyzed the 2017 expenses in my aforementioned piece, so there’s no sense to retread that ground. Therefore, we’re going to dive in to expenses for the 2018 season to use as an example for this exercise.

For reference, the CBA states that a “Revenue Sharing Year” is “the fiscal year of the championship season that falls in that year.” A fiscal year differs from a calendar year in that it can be any 12-month period in which a business chooses to report their finances, while a calendar year is obviously January to December. According to the leaked financial documents from 2008, the Pirates’ fiscal year at the time ran from November 1st to October 31st. This obviously could have changed since then, but I will work off the assumption that it is still the case, so all expenses from November 1, 2017 to October 31, 2018 are prevalent.

Payroll: According to my calculations, the Pirates spent $103,197,074 in cash on payroll costs, which includes major and minor league pay, as well as cash considerations and incentives, but not prorated portions of signing bonuses or buyouts. It does, however, include a $2 million signing bonus for Felipe Vázquez and $300,000 of 2018 contract buyouts for Chris Stewart and Wade LeBlanc. Also included are $14,044,700 worth of benefit costs, which was the amount reported by the AP and are included in the official calculation of payroll in the CBA.

Draft Bonuses: For the 2018 Draft, the Pirates had a $10,390,400 pool allotment, with the right to spend up to 5% more without losing draft picks. The Pirates spent $421,100 of that overage, plus a 75% penalty on that overage of $315,825, accounting for pool expenditures of $9,409,425, which doesn’t even account for additional draft bonuses that aren’t tied to the pool. The final total is less than the total pool amount because the team failed to sign comp pick Gunnar Hoglund.

International Bonuses: This is kind of uncertain, as international signing periods go from July 2nd to June 15th, which doesn’t fall in to the already established Revenue Sharing Year. Basically, this would cover the back eight months of the 2017-18 International Signing Period and first four months of the 2018-19 period. The pool for 17-18 was $5,750,000, while the 18-19 pool was $5,504,500. Using the signing trackers, we can see that at least an estimated $4,965,000 was spent to kick off the 18-19 period, which is when the majority of the funds are exhausted. An exception to this rule needs factored in to the back half of the 17-18 period, when the team signed shortstop Ji-Hwan Bae for $1,250,000, totaling at least $6,215,000 during the 2018 Revenue Sharing Year. This again only accounts for the pool itself, as—like the draft—not all international signings come out of the pool.

Personnel: This encompasses any individual tasked with on-field or player development. This would include coaches and scouts, and while I’m not sure it would include Neal Huntington’s salary—which would be among the largest—it would certainly include Clint Hurdle’s reportedly $3 million salary, as well as many on the Baseball Operations side.

Player Development: The Pirates have four full-season affiliates, along with five short-season affiliates. This not only accounts for salaries of these roughly 275 players, but also any player development costs related to the affiliates.

Debt: It’s true that the agreement says the funds can’t be used to service debt, but that’s acquisition debt or any other debt not related to on-field performance. Therefore, something like payments to pay down any liability taken on for a project such as the new academy in the Dominican Republic in 2009 or renovations to McKechnie Field (now LECOM Park) in 2013 would qualify. These expenditures cost roughly $5 million and $10 million, which surely weren’t cash expenditures.

Waiver Claims: According to Major League Rule 10(c), “the consideration for the assignment as a result of an Outright waiver claim of any player contract other than ones described in Rules 10(c)(4)(A) (When Unconditional Release Waivers Are Requested) and 10(c)(4)(B) (Selected or Draft-Excluded Player) shall be $50,000.” By my count, the Pirates made seven waiver claims during the 2018 Revenue Sharing Year, which would be $350,000 spent on waivers; however, it’s uncertain whether that would be offset in the calculations by consideration for players the Pirates placed on waivers and got claimed, which also happened to be seven occurrences.

Everything Else: While I tried to point out the biggest and most noteworthy expenses, with a definition so vague, any number of expenditures could probably be classified or manipulated to fit revenue sharing regulations. The important thing to remember is that there are all kinds of expenses associated with running a baseball team, not just payroll.

Add all the numbers that we are even remotely sure of, and it’s a rough estimate of $122 million. Revenue Sharing totals aren’t known, but it’s a safe guess that they are nowhere near these levels (in 2017—the year in question—the Pirates reportedly received $20 million). While we may be able to assume that the total Revenue Sharing funds are being used, what isn’t clear is whether the Pirates could reach the same spending levels or not without these funds, at least without a further look into the books.

In this discussion, whichever point of contention the union is questioning isn’t necessarily as important. What is important is context of the financial side, which hopefully provides more insight and understanding on the topic as a whole.

A longtime Pirates Prospects reader, Ethan has been covering payroll, transactions, and rules in-depth since 2018 and dabbling in these topics for as long as he can remember. He started writing about the Pirates at The Point of Pittsburgh before moving over to Pirates Prospects at the start of the 2019 season.

Always a lover of numbers and finding an answer, Ethan much prefers diving into these topics over what’s actually happening on the field. These under and often incorrectly covered topics are truly his passion, and he does his best to educate fans on subjects they may not always understand, but are important nonetheless.

When he’s not updating his beloved spreadsheets, Ethan works full-time as an accountant, while being a dad to two young daughters and watching too many movies and TV shows at night.

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