Should Baseball Put a Third Team in New York?

In a very thought provoking post on his Economics Unbound Blog for Business Week, Michael Mandel sets out the proposition that based on personal income per team, New York and Boston should each receive get a new baseball team to restore competitive balance to the Major Leagues. He analyzes the personal incomes of each major league city, dividing the markets with two teams by half and finds that New York and Boston are far in front of the rest of MLB.

We all know that the Yankees payroll far exceeds all other MLB teams and that the Red Sox are not coincidentally number 2. It is not however just because the personal income of the Boston market is great that causes the Red Sox to outspend the balance of the American League. It is the great rivalry with the Yankees and being in the same division as the team in the hated pinstripes. Boston has the second highest payroll in the Major Leagues and it is still just 60% of the Yankees.

This is not simply a market size phenomenon, although that is certainly part of it. The Mets have not benefited from the market size of New York in quite the same way as the Yankees and there is no reason to expect that a third team in New York will make a significant dent in the Yankees enormous local television revenue which is the key to their ability to spend so freely on payroll. The Yankees and the Red Sox are both sitting home thinking about next year(and the Mets haven't made the post-season in so long I can't remember when it was). Of the remaining teams in the playoffs, the Angels represent the third largest market and have the fifth largest payroll, although they play in Anaheim despite what they call themselves or it says in your newspaper. However, the other teams are not quite from the upper echelon of markets based on Mandel's personal income test. Their payroll's, however, are in the upper tier. The White Sox are the lowest at 13th, with St. Louis 10th and Houston 11th.

I don't believe the answer to moderating the Yankees payroll is placing another team in New York. I don't doubt that the metropolitan New York could probably support another team but I am doubtful that it would make a significant enough dent in the Yankee fan base to have Mandel's desired effect. To truly bring more parity to Major League Baseball requires the introduction of greater revenue sharing of local television and cable revenue. It is this revenue stream that marks the difference between the haves and the have-nots of baseball. It is the YES, the cable network that the Yankees control and which carries Yankee games, which provides the revenue stream that enables the Yankees free-spending ways. Were MLB to insist on greater revenue sharing of local revenue, I believe the results on the field would be visible almost immediately, as small market teams would have greater resources to spend on free agents and to invest in scouting and their farm systems. The true path to parity lies not in expansion or franchise movement but in revenue sharing.