The Indians will not finish first next year. Attendance will be down. Revenues will suffer. This isn't really even debatable - Mark Shapiro has already conceded as much. What is debatable is whether the rebuilding plan will return the Tribe to contention or send them spiraling into a Breweresque oblivion. You have argued that declining revenues leads to lower payrolls which leads to a less competitive team which leads to even lower revenues ... wash, rinse, repeat until the Indians are a single-A franchise. But the reason this logic falls apart is that next year's payroll isn't dependent on this year's revenues.
What induces teams to invest more in players is the potential increase in revenues that can be realized from the investment. In the New York market, the sources of potential revenue are so great that high payrolls (relative to the league) can be sustained and still be profitable. But for the Indians, turning a profit first requires a nucleus of players that outperform their salaries for a number of years. Only then can additional investments can be made in players like Jim Thome and Manny Ramirez, who are among the best in the game but must be paid like that as well.
What limits a team even more than the salaries paid out to superstars are those paid to the lesser lights, "veterans" whose production is essentially replaceable at a lower cost but get paid more because they are perceived as a known quantity.