The Tax Code and Baseball, Ctd.


Yesterday, riffing off a Fay Vincent op-ed in the Wall Street Journal, I wrote about how the tax code might help small-market baseball teams to compete: by offering high-priced free agents an ownership stake. Vincent thought free agents should demand this for tax reasons; I thought small-market teams should offer it for competitive reasons. A couple emailers and commenters weren't convinced, but I still think it's an interesting and workable idea. Here are some rebuttals and my thoughts on them:

-Why Would Big-Market Teams Offer Ownership Stakes? Because they'd have to, eventually. Dollar for dollar, the Yankees can outspend anybody, so they and teams like them grab most of the high-priced talent. If, say, the Pirates decided they wanted Cliff Lee, they could offer a lower salary along with a slice of the (profitable!) team, which not only provides tax advantages (read: more money for the player), but could potentially be worth a great deal more money in the future. At some point, if this were to begin happening, big teams like the Yankees would have to offer a stake, though possibly a smaller one, to land top players.

-Well, Okay. But Then You're Stuck With Those Players--The Rules Say So. Not necessarily. According to Vincent, the rules currently state that player with an ownership stake must give it up if he wants to play for another team. So that player could either sell his stake, and pay a lower capital-gains tax rate, or decide simply to stay put. That would have the effect of making good players less likely to bail on small-market teams, bringing MLB teams into balance, or closer to parity, much like the NFL.

-But If a Player Turns Out to Suck, You're Stuck With Him. True. Let's call this the Dice-K Matsuzaka scenario. But it's not a bad thing at all. It's actually a helpful check on the process. Sure, there will be cases of buyer's remorse (owner's remorse?), but that will only serve to limit the practice. Ownership stakes will be doled out sparingly, probably only to proven, top-flight free agents like Vincent's example, Albert Pujols.

-No Way Would Owners Go For This--There Are Only So Many Shares To Go Around. True, but see the previous item: the system would be self-limiting. You'd have to use it sparingly, or you'd not only get stuck with dud players but also debase your own ownership stake. And, per the first item, it's not clear how team owners who wanted to remain competitive could avoid this. All it would take is one small-market team to offer such a deal, and this practice would be off and running. What shrewd, aggressive agent (Scott Boras?), what money-grubbing superstar (Mark Teixeira? Whoops, too late.) might propose this?
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Joshua Green is a former senior editor at The Atlantic.

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