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Wednesday, March 13
Updated: April 17, 5:55 PM ET
 
Explaining the 60-40 rule

By Jayson Stark
ESPN.com

There's nothing new about the 60-40 rule per se. It's all in how the commissioner's office is suddenly defining it.

Revenues are now not being calculated by value of the franchise, nor do they include projections of future income from TV deals or anything else. The "revenue" figure in this formula is simply defined as two times gross revenues.

Liabilities will also be a calculated in a new way. Liabilities include stadium debt (nothing new), bank debt (nothing new) and all long-term contracts (totally new) . Understand that isn't just deferred salary owed. That's included under general debts. We're talking just simple contract money owed.

So a big-market team that's profitable or at least close to profitable -- say the Yankees or Rangers -- is suddenly calculated as having massive liabilities (due to a contract like Jason Giambi's or Alex Rodriguez's). But this system doesn't take into account that those teams knw they're going to take in a ton of revenue to pay for those contracts.

We don't know what the Yankees' annual TV income will be down the road from the YES network. But say it's $50 million to $60 million a year. They know they'll have that money when it comes time to pay the players they've signed for the next two, three, five or seven years. But that money isn't calculated into the formula.

Plus another new wrinkle is that these clubs will have the revenue-sharing money they pay also counted as a "liability." In other words, a large-market team like the Yankees is counted as having revenue so high for revenue-sharing purposes that it pays out money to be shared. But then it gets penalized on the other end for having money and have that revenue-sharing bill counted as a "debt." Fascinating accounting.

So under this new 60-40 formula, even a team like the Yankees -- which is probably the most profitable franchise in the game -- would probably be judged, as I understand it, not to be in compliance.

In other words, MLB would inform them they have too much debt (even though they essentially have no debt), so they're in violation of this rule and subject to the 60-40 sanctions. Meaning they wouldn't be allowed to take on any more "liabilities" -- AKA long-term contracts.

So it's hard to think the union won't read this as a de facto salary cap. But that was never the intention of the rule. It was just intended to identify teams running up enormous debt before they got too far out on the limb of credit risk.

In fact, there was even a grievance filed over the rule in the mid-'80s. And the arbitrator ruled then that 60-40 was legal -- but only as long as it had nothing to do with player compensation. So you should expect another grievance on this attempt to enforce it.

In the meantime, three types of teams are going to be found not in compliance:

1) Teams with big salary deferrals such as the Diamondbacks (although the new influx of cash into their ownership group, from adding partners, is expected to get them off the hook);

2) Teams with really low revenues (Marlins?) or a combination of low revenues and deferrals (Devil Rays?). We can only guess on these clubs for now;

3) Teams with large payrolls due to heavy long-term contracts (Yankees, Rangers, etc.)

Clubs haven't been specifically informed yet who is in compliance and who isn't. They're just guessing based on the new definitions. And some of them, clearly, won't be happy.

Jayson Stark is a senior writer for ESPN.com.






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