Friday, November 28, 2014

Why MLB Does NOT Need a Salary Cap

May 3rd, 2010 | 26 comments »

Today, I was referenced in an article on It’s About the Money by my new friend, Larry.  I stopped by to give it a read and before I knew it, I had a comment that was too long to post.  So, here I am with a full article as my commentary on Larry’s article.  So, please go read his excellent article first and then come back for my response. [The links are hard to see on some computers, so be sure to roll your mouse over the words "Larry's article" in order to get there.]

Simply put, I do NOT favor a salary cap in baseball.  I actually think baseball is fairly well balanced on the whole if you look at a number of years.  Is it perfect?  Nope.  Are the Yankees able to do things that drive me crazy?  Yes.  Do I wish my hometown team spent more on payroll?  Yes.  Do I believe in limiting the amount of money someone can make?  Absolutely not. 

Baseball is a business…period.  Fans get too caught up in the nostalgia and love of the game and can’t seem to wrap their minds around this fact, myself included.  Fill in the blank: what if your boss came in today and said that no [fill in your job title] could make more than x amount per year?  You’d be outraged, right?

Consider this: even without a cap, MLB players keep the lowest percentage of league revenues of any professional sports players.  In 2008 (the most recent numbers I have), here’s the percentage of revenues the players in each league kept:

NFL: 59%
NBA: 57%
NHL: 56.7%
MLB: 52%

Maybe now you understand why the players are so against a salary cap.  There’s no salary cap and they’re already the worst paid professional sports players!

I used to favor a payroll floor, because I thought the bigger issue was clubs who spend such a ridiculously low percentage of their revenue on payroll.  However, I’ve decided that’s not really necessary either.  It does drive me crazy that some clubs receive more in revenue sharing than they spend on payroll, which means they’re not even dipping into their own revenue for payroll.  It also drives me crazy that clubs are able to divert revenue through related-party transactions with television/radio stations or concession companies that have common ownership. 

All that being said, if you look at baseball as a simple business, you can’t really justify forcing owners to spend a specified amount on payroll.  If they don’t spend on payroll, and they field a losing team, presumably they will lose out on revenue from ticket sales, merchandise sales, and after years of fielding a losing team they will lose their fan base entirely.  Except that rarely ever happens in baseball. 

Time for an example.  The last time the Royals were in the postseason was 1985.  For TWENTY FIVE years their fans have stuck by them despite the fact that they haven’t made it to the postseason.  In fact, they haven’t had a winning record since 2003.  Yet, the team is worth $314 million according to Forbes.  They even increased their value by 4% from ’08 to ’09, despite the fact that their ’09 record was an abyssmal 65-97 and they play in a frills-free 1973 stadium. 

The moral of the story is that you can make money in baseball without fielding a winning team and without building a new stadium.  So, now back to my original point, why would an owner put more money into payroll if they can still make money and increase the value of their franchise without having to do so?  I would imagine you can now see why I might have favored a payroll floor. 

The more I think on it though, the less I can support the floor.  Baseball is a business.  What other industry forces the businesses within it to spend a specified amount on salaries?  If you, as a fan, do not like what your club is doing in terms of payroll, then stop buying tickets, stop buying merchandise, stop supporting them.  The problem is that baseball fans think they have a right to a winning team in their city. 

I’ve thought about it, and here’s an analogy that illustrates the problem.  If your favorite grocery store in town wasn’t giving you what you wanted in terms of stocking your favorite items or keeping the prices competitive, you would simply start shopping in another grocery store.  You could abandon the one you originally preferred with little thought or remorse.  You can’t do that in baseball though. 

I’ll use myself as an example.  I’m a Braves fan.  If the Braves were a club who spent less on payroll than they received in revenue sharing, I would be irritated.  But would I stop going to games or stop being a Braves fan?  Probably not.  See, there’s not another team in town, so I can’t just go watch another MLB team play on Saturday.  And even if there was, I have an emotional attachment to the Braves.  I remember going to games in the late 80s with my dad when the Braves were bottom-dwellers and no one was in the stands.  Then I remember the worst-to-first miracle and all of the postseason games I went to for 14 straight years.  I’ve lived all over the country, and I’ve rooted for several teams, but I’ve never felt about a team like I do about the Braves, because I don’t have the history with the others.  So, even if the Braves owners were spending less on payroll than they received in revenue sharing, I’d probably still be a Braves fan.  That’s why clubs like the Royals still have fans and can still increase in value every year.

So, in conclusion, I don’t think a salary cap or a payroll floor is the answer.  I don’t think there is an answer, there’s only a problem we can’t solve as fans.  Baseball is a business, but it’s one we approach with emotion and history.  That’s why there are so many books and blogs and analysts.  Fans want a salary cap even though MLB players make a smaller percentage of league revenue than players in leagues with a salary cap.  Why?  It’s because you want your team to be competitive, because you’re not willing to switch allegiances to another team.  You want a payroll floor for the same reason. 

The problem isn’t with baseball, it’s with fans.  Baseball has seen eight different World Series champions in the last ten years, with fourteen different teams playing in the series.  So, almost half of all teams have made a World Series appearance just in the past decade.  By comparison, the NBA has only had five different champions in the past decade, and only eleven different teams played in the championship.  The NFL has had seven different Super Bowl champions, with fourteen different teams playing in the series.  Yet, MLB fans cry out about competitive imbalance far more than fans of the other leagues. 

The bottom line is that MLB players share less in the league revenue than the other leagues (without a salary cap) and the championship series has seen just as many, or more, teams compete in the last decade as the other leagues.  I think revenue sharing and the luxury tax have been a part of improving competitive balance over the past decade, as has the Wild Card.  Remember that competitive balance is not perfect balance.  I do think competitive balance could stand some more improvement in baseball, but I would do it through an international draft and perhaps different scheduling, but not through a salary cap or payroll floor.  That being said, I think Larry wrote an excellent article and made some good points, and I thank him for including me in the article!

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26 Responses to “Why MLB Does NOT Need a Salary Cap”

  1. Brien Jackson

    Extremely minor nitpick, but the Royals just opened a new stadium last year.

  2. Kristi Dosh

    I think you’re mistaken. See here: http://kansascity.royals.mlb.com/kc/ballpark/index.jsp. The Royals are entering their 38th season in Kauffman Stadium.

  3. Larry@IIATMS

    Kristi, per usual, this is a terrific post, and thanks for the nice things you said about my post.

    Unfortunately for me, you’ve jumped straight from my introductory post on salary caps into a discussion as to whether baseball should have a salary cap. You’re a lawyer (full disclosure, so am I), so you know that statutes and contracts depend on how you define your terms. It’s going to take me two more posts before I can define what a salary cap (and floor) might look like for baseball. Until you and I can agree on what we mean by a “salary cap”, we can’t fully discuss whether we want one or not.

    A few points in rebuttal. You say that “baseball is a business … period.” It’s more accurate to say that baseball is a highly unusual business. You said it yourself in your University of Denver Sports and Entertainment Law Journal, when you led off with the quote from Simon Rottenberg: in baseball no team can be successful unless its competitors also survive and prosper sufficiently so that the differences in the quality of play among teams is not “too great”.

    You are assuming that a salary cap in baseball would drive down team payrolls. But all depends on how you structure the salary cap and salary floor. It is possible to design a cap and floor to raise team payrolls – just push the salary floor to the highest possible level before you drive the poorest teams in baseball out of business, and couple that strong floor with a weak cap. From all appearances, the NBA and NHL caps effectively guarantee a higher revenue percentage to players than MLB players receive without a cap.

    You use the example of the Royals, a “poor” baseball team with a loyal fan base and a steadily increasing net worth according to Forbes. But arguably, the lion’s share of this increase is due to revenue sharing and the Royals’ guaranteed 1/30 share of national revenues (such as MLBAM). You’re right, a team can make money through these guaranteed sources of revenue, but that doesn’t mean that the team can be competitive on the field.

    We can argue about the level of competitive balance in baseball, versus that in other sports. Personally, the best piece I’ve read on this is from Joe Posnanski at http://bit.ly/2PNlKM. As Joe points out, baseball is a game where the best team wins less often than in other sports. That’s the nature of the game, and not a reflection of competitive balance. In this way, baseball is a bit like playing blackjack at a casino. A pro blackjack player who counts cards and utilizes the most sophisticated system may have an advantage of only a few percentage points over someone like me playing a simple basic strategy. But that doesn’t mean that I can compete at the table with a pro gambler.

    I’ll leave a fuller discussion of the pros and cons of salary caps to a point later in my series. Thanks for posting, Kristi!

  4. Kristi Dosh

    You’re right that I leaped into the whole discussion. I only have time to write here and there though, so I had to get it all out while I had time! :)

    You’re right that “salary cap” has to be defined first, but I can already tell you that I don’t favor anything other than perhaps a tweak in the luxury tax. I’m ok with disincentivizing teams to go above a certain number, but I’m not in favor of a hard cap and disallowing it altogether.

    Also, as I said, I used to be in favor of a payroll floor. However, I no longer am. I look forward to reading more of what you have to say. I am not in favor because I don’t see a good reason for it. You’re essentially saying…hey, if you want to be an owner in baseball, you have to come with x amount of money for entrance into the game. It’s not just about the players. If an owner finds a way to make money without having to expend much on payroll, or even field a good team, then good for him. He’s being rewarded for being a good businessman. If a fan of that club doesn’t like the way he’s running his team, there are 29 other clubs they can root for. But they won’t, because there’s probably not another one anywhere nearby and they probably have a history with the team. So, they’ll moan and groan, but they’ll still go out to the ballpark…thereby perpetuating what the owner is doing.

    I guess I’m just becoming free market all the way…it’s a balancing act between who can be the better business person…the players or the owners. Unfortunately, fans get trapped in the middle. Meanwhile, baseball is experiencing great attendance and revenue, so there aren’t a lot of incentives to do anything more than minor tweaks to the system. Which is why I think the next CBA won’t contain anything more than minor updates.

    And you’re right…baseball is a special kind of business. It’s one that we continue to support even when we disagree with it, even when our team is in last place every single year, and even when we know our team’s owner is lining his own pockets with our money instead of fielding a winning team. I’ve had more than one former baseball insider tell me that any team could have any player they wanted. It’s not about not being able to afford the player, it’s about not thinking the player is worth the expense he demands. I’ve been persuaded this is true.

    Now I have to find time to add some more thoughts to my book! :) Thanks for the debate, Larry, it’s really made me think!

  5. TJ Milo

    I have a theory about why alot of people believe that there is more parity in the NFL then the MLB, even though you can cite many statistics that suggest the leagues are fairly similar in terms of competitive balance.

    My theory: NFL teams play 16 games. MLB teams play 162 games. Therefore, MLB teams play 10x the amount of games. Let’s say that in the NFL a team goes 6-10 (.375) and misses the playoffs. Meanwhile, a team in the same division goes 9-7 (.562) and makes the playoffs. The fans of the 6-10 team can say to themselves: “Man, if we had only won 3 more games, we could’ve made the playoffs.”

    Meanwhile in Baseball, let’s take teams with equal winning percentages. The 91 win team (.562) goes to the playoffs, and the 60 win team (.375) does not. The win/loss numbers in baseball look alot worse then they do in football, even though the winning percentages are identical. Therefore, there is the perception that the NFL has more competitive balance when the reality is different.

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