Interesting thing from the LAT Times here about revenue sharing between Major League Baseball and the LA Dodgers. Background: MLB teams are supposed to toss in a third of their local TV revenue into a pot so that smaller-market ball clubs can get a piece of the national pie. This actually makes pragmatic sense; smaller clubs get a revenue stream, and larger clubs don’t have to worry so much that the next city over will get a baseball franchise that will be competing for the same fans. However, technology marches on, and with it new wrinkles. Case in point:
As teams have moved from selling their television rights to launching their own television channels, MLB has adjusted its rules. If a team assumes the risk of ownership in a television channel, the team can keep all the revenue. However, MLB can determine what a fair-market broadcast rights fee would be and can assess the team 34% of that amount for the purpose of revenue sharing. In theory, whether the New York Yankees accept an annual rights fee or run their own network, the Kansas City Royals still can get a fair share of the Yankees’ TV money.
As The Times first reported last May, as part of the U.S. Bankruptcy Court settlement between MLB and former owner Frank McCourt, the league agreed that fair-market value for the Dodgers’ television rights would be $84 million per year, plus an annual increase of 4%. Yet those figures came from a proposed 2011 contract between Fox and McCourt that Commissioner Bud Selig rejected in part because he said the Dodgers “would likely be able to command better terms” by waiting.
If the Time Warner Cable deal provides the Dodgers with $7 billion over 25 years, that is an average of $280 million per year. That would appear to demonstrate that the fair-market value of the Dodgers’ television rights is far more than $84 million per year, but MLB is bound by the terms of the bankruptcy settlement.
Via @DrewUnga. Now, I have a stupid question, here: if the television rights are actually worth $280 million a year, and not $84 million, shouldn’t the Dodgers be taxed by the state of California based on the former amount, not the latter? Whether or not there’s an agreement that the ‘fair’ market value was 84 million? Or do decisions made by the US Bankruptcy Court supersede those made by California’s Franchise Tax Board?
Moe Lane
PS: As to whether the question is moot, because no government agency would want to encourage the LA Dodgers to move to, say, Las Vegas in the hopes of finding a better tax haven… well. Even if a crocodile could be a baseball fan, it would still remain a crocodile. And crocodiles and revenue-strapped bureaucracies have one thing in common. Which is to say, they tend to divide the world into two categories: Me, and Meat.
PPS: I’ll be honest: I think that I’m missing something, here.
I always thought sports revenue sharing to be fair because no one is paying $8 billion for the rights to broadcast Dodgers’ intrasquad scrimmages, they are paying to broadcast Dodgers-Pirates games (for instance). But your right, there’d probably be an extra team or two in NY if it weren’t for revenue sharing.
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However, revenue sharing is an internal MLB matter. I don’t see where the State of California gets involved. The state doesn’t care how MLB estimates value. They would tax the actual income of $280m minus allowable deductions and considering whatever sweetheart tax deals the team has signed with local and state governments.