Article: Does MLB Need a Salary Cap?

[Matthew Trueblood]

Recently, in response to an offseason of unprecedented spending and the relentlessness of the Mets’ and Padres’ owners, MLB formed an economic reform committee. Their eventual goal is to establish a salary cap. Would that be good for the sport?

Image courtesy of © Roy Dabner, for the Milwaukee Journal Sentinel, Milwaukee Journal Sentinel via Imagn Content Services, LLC

Obviously, the MLB Players Association will fiercely resist any effort to implement a cap. If that weren’t self-evident, MLBPA executive director Tony Clark said as much in the wake of the news of the committee’s inception. By now, most fans realize that if the fight really is to be one between millionaires and billionaires, then the right side to take is that of the millionaires–the players. That would incline many fans to mistrust advocates of a cap, and there are good reasons to do so. 

In truth, though, we need to avoid oversimplifying complex issues like this one as a matter of owners and players in direct and dual confrontation. There are more constituencies to consider. The owners are far from monolithic in their interests or their preferences. Small- and mid-market teams will always push for a cap if they have an opportunity to do so, but deep-pocketed, aggressive owners like the Mets’ Steve Cohen, San Diego’s Peter Seidler, and Philadelphia’s John Middleton are much less likely to support one.

More importantly, fans have a right to think of themselves as a party to these deliberations, and not to merely align themselves with one of the two more powerful blocs at the bargaining table. We should all demand that players receive a fair share of the revenue generated by the game, and we should all want to ensure things like player safety and the eradication of human trafficking or the exploitation of children. 

When it comes to something like a cap on major-league payrolls, though, the absolutes of right and wrong fall away. In fact, even the financial and economic impact of a cap is less clear than some of its more fervid opponents would have you believe. Any cap system would also involve setting a salary floor, likely in excess of 50 percent of the cap. Right now, six or seven teams spend less than any likely floor would compel them to spend each year. Moreover, putting a cap in place would require clear definitions of baseball revenue and a fixed percentage of that revenue being distributed to players. Under the current system, owners have found more and more ways of making money they can semi-credibly declare not to be related to their teams, and thus, the share of revenues and profits that players receive has steadily shrunk.

Finally, and perhaps most urgent of all to Brewers fans, there’s this: a salary cap inevitably lessens the impact of market size on perennial competitiveness. As many have observed, the major American sports leagues that do employ a cap hardly have perfect parity. Nor does the lack of a cap prevent teams from spending competitively or winning often even in smaller markets, as the Padres, A’s, Rays, Brewers, and others have proven in various ways and at various times over the last quarter-century. Still, the correlation between payroll and competitiveness is stronger when the gap between high and low payrolls is wider, and as long as there’s no cap in place, those wide spreads (and the resultant advantages for teams in bigger markets) will persist.

If there were a salary cap in MLB, the Brewers would still face tough choices. They might still need to spend less than most of their rivals, since their revenues are relatively small–albethey ample, especially when combined with the enormous personal fortunes of their owners. The cap probably wouldn’t permit teams to retain more than two or three players on the kind of market-rate, high-dollar deal to which the Brewers already have Christian Yelich signed, and for which Corbin Burnes, Brandon Woodruff, and Willy Adames will be looking over the next two years. With those limitations working to tamp down the potential value of seeking their paydays elsewhere, though, it would probably be easier for the team to sign at least one of the three to a long-term deal. 

The strength of the club’s scouting and player development infrastructures would also be more valuable, since every constraint on on-field spending makes the advantages teams derive from non-player expenditures more pivotal. Many of the things we love about baseball would only become more indispensable in a capped league.

Again, that doesn’t mean the cap is a panacea. There are plenty of reasons to worry about abuses or cheating by owners, because baseball owners have abused and cheated every set of rules to which they have ever agreed. A cap would slow the growth of player salaries, especially at the higher end of the market, and could result mostly in billionaires sitting on larger piles of cash. If taking the risk of that could yield a better, fairer game, however it might be worth rolling the dice.

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Where do you fall in this debate? Would a cap have enough of a moderating impact on the importance of market size and revenue to make up for whatever evils would come with it? Would it be the cataclysm Clark describes? Let us know what you think in the comments.

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[SF70]

Teams need to share more of their revenue among teams with a salary floor. This is the only plan with a chance to get the players approval that also helps competitive-balance, imo.

Keep the CBT, but make the penalties stiffer in an attempt to curb outlier spending.

 

 

[Matthew Trueblood]

47 minutes ago, SF70 said:

Teams need to share more of their revenue among teams with a salary floor. This is the only plan with a chance to get the players approval that also helps competitive-balance, imo.

Keep the CBT, but make the penalties stiffer in an attempt to curb outlier spending.

 

 

That’s a good vision! Significantly increased revenue sharing is as tough a sell with big-market owners as the cap itself is with the players, but it might be the thing with the best chance to satisfy all parties—even if imperfectly. 

[endaround]

The CBT is a de facto salary cap which has kept down salaries and yet here we are again talking about transferring more money from players to owners. Salary caps do not increase competition, they only limit player earnings.

And the Rays are not a small market team.  They are a low revenue team in a rather large market. 

 

 

[Brock Beauchamp]

Right now, home teams share gate revenue with their opponent. Get rid of that. 100% of gate goes to the home team.

In place of this, share 50% of home team television revenue with the opponent.

Teams like the Brewers - who have historically done pretty well with attendance - benefit from the local outreach efforts they make with fans. Inversely, it punishes the A's and Rays of the world for offering home field experiences more akin to a trashfire than a premier sporting event. It also directly - and severely - punishes teams for completely tanking and driving fans away from the ballpark.

If MLB owners presented a salary floor of $140m and fix it to league revenue, I suspect players come around pretty quickly to a salary cap. Players bluster about being against a salary cap but I suspect that's primarily because the owners' offers of a floor have been quite pathetic to this point. Make a real offer of a floor that guarantees players a portion of revenue and suddenly a cap isn't out of the question. In fact, it makes sense for the players.

[Brewcrew82]

One word should suffice here: YES. Turn MLB into NFL/NBA.

[Brock Beauchamp]

1 hour ago, Matthew Trueblood said:

That’s a good vision! Significantly increased revenue sharing is as tough a sell with big-market owners as the cap itself is with the players, but it might be the thing with the best chance to satisfy all parties—even if imperfectly. 

The fix to this is to create a revenue sharing system that benefits or remains revenue neutral for 24 teams. Then the six owners of the largest revenue teams can't prevent it.

[brewmann04]

Yea a cap with a high and low that teams can spend 

[mtsportsfan]

Absolutely need a cap and a floor ! Don't understand how a fan of a small market team would not want this . There is nothing like watching the big market teams gobble up all the top end free agents while we pick up scraps ! Or lose our best players because we can't afford them (supposedly) !

Admittedly I don't know all the in's and outs of the financial end of baseball and whether small market owners can spend more or not , but at least with a floor they would have to spend more . at the same time with a cap , large market teams can't sign everybody, better players can trickle down . Would need stiff penalties for violators of cap and floor !

 

[nate82]

MLB doesn't really have a spending problem the majority of the teams are near $100m in payroll.  The teams at the bottom of the list though definitely have a spending problem. 

These nine teams are the problem especially the A's, Orioles, Pirates and Rays.  The Rays look like they will be getting a new stadium soon so they should be able to spend more once that is in place.  The Orioles should really be where the Brewers are in terms of team payroll and them being at $50m is just a joke.  The A's are in a bad spot right now with no new stadium and uncertain on where they are going to move.  The most likely destination is Las Vegas but I wouldn't rule out Nashville or Charlotte.  Nashville makes the most sense for the A's too move to as that makes the most sense financially.  If the A's move to Las Vegas they are basically in the same situation they are in now but with a new stadium. 

To fix this spending issue the minimum floor needs to be set at $100m and then climb $10-20m depending on league revenue every two years this would be for both the floor and ceiling. 

 

There are some simple solutions to this if you are below the league minimum cap you don't receive revenue sharing from the league.  If a team is below the league minimum for two years (can be a combination of back to back years or in a span of 5-years) then you lose your 2nd round pick and 10% of their international bonus money.  If a team is below the league minimum for three years then that team loses their 1st and 2nd round picks and 50% of their international bonus money.  If a team is below the league minimum for four years then the team loses all of their draft picks and all of their international bonus money.  If a team is below the league minimum for five years then that team is now a AAA affiliate and will have to reapply to become a MLB affiliated team in 10-years.  If a team doesn't receive revenue sharing and they are below the minimum for one year in a 10-year span they will pay a fine of $100k per $100k under the minimum floor there is an escalator for the fine of $1m per $100k for 2-years, $10m per $100k for years 3-4 and year 5 is the team becomes a AAA affiliate and then can reapply to be a MLB team affiliate in 20-years or pay a fine of $100m. 

For teams that go over the cap for years 1-3 they forfeit their 1st round pick, 25% of their international bonus money and pay a fine of $1m per $100k over the cap.  For years 4-5 over the cap teams forfeit their 1st and 2nd round picks, 100% of their international bonus money and pay a fine of $10m per $1m over the cap.

All fines are paid to the teams that receive revenue sharing and are above the minimum salary floor by at least $10m.  All revenue sharing that is received must be used for payroll if the funds are not used for payroll the team forfeits their revenue sharing for the next five years and will have to reapply for revenue sharing.  All draft picks are redistributed to all teams with revenue sharing teams getting a higher percentage of chances to win (revenue sharing teams that spend more on payroll get a higher percentage).  International bonus money is redistributed to teams that receive revenue sharing only with teams that have a higher payroll getting the majority of the international bonus money. 

There fixed the cap issue.  Now just need to fix the revenue problem for the small market teams.  I see someone mentioned having teams receive 100% of their ticket sales which would be a good idea I am just not sure that would be enough.  It maybe enough if there were a lot of teams paying into the luxury cap each year.  The easiest solution would be to just pool all of the leagues TV revenue and have it evenly distributed to all of the teams with each team receiving 100% of their home ticket sales.  With that change that should even the playing field for the teams revenue streams.

[Brock Beauchamp]

25 minutes ago, nate82 said:

I see someone mentioned having teams receive 100% of their ticket sales which would be a good idea I am just not sure that would be enough.

It may not be enough but it'd create quite a bit more parity. I'm dropping off the top and bottom two teams in this post to prevent outliers from skewing how this would impact the majority of teams. If you remove the top two and bottom two teams from MLB attendance in 2022, the gap between #3 and #28 is about 2,000,000 paid fans.

If you figure each fan is worth about $30 to the team, that's a $60,000,000 gap in revenue.

If you do the same for television contracts, the gap between #3 and #28 is about $90,000,000.

The median attendance was about 2,300,000 fans in 2022, or about 190% that of the #28 team.

The median television contract was about $60,000,000, or about 215% that of the #28 team.

It won't be killing every problem with a single solution but it increases parity while also promoting better on-field product and fan engagement.

The Brewers are the #28 team in local TV revenue, for the record.

[brewcrewdue80]

They have a cap before luxury tax.  Yankees make so much money, you can't cap and penalize them hurting players potential salaries. I like how Brock made the Television revenue shared point vs the tickets revenue sharing. One would be fixed and more predictable.  And I think something more predictable would go a long way towards a salary floor proposal.

That's my feeling since retraction isn't an option. I'd personally like to see 2 teams removed from bottom 1/3rd markets and their portions of revenue sharings is spread more to the already receiving teams. 

 

 

[nate82]

7 minutes ago, brewcrewdue80 said:

That's my feeling since retraction isn't an option. I'd personally like to see 2 teams removed from bottom 1/3rd markets and their portions of revenue sharings is spread more to the already receiving teams. 

If that were to happen the Brewers/Pirates from the NL would be contracted and A's/Royals would be contracted from the AL.  More than likely it would be the Brewers and Royals being contracted as they are the two poorest teams in MLB.  The history for the Pirates and them being on the east coast eliminates them from being contracted and the A's can be easily moved to Las Vegas, Nashville, Portland or Charlotte.  The same with the Rays they could easily be moved to Charlotte, Las Vegas, Nashville or Portland.  The Brewers are stuck where they are until their current stadium deal is done.  So you can't move them and the same with the Royals and Pirates I believe.  That leaves you with only two easily moved teams in the Rays and A's that will eliminate both from contraction.  The Rockies are another possibility in the NL but I think the league would want to keep the Rockies because of their location it is a nice buffer to the west coast teams. 

[Brock Beauchamp]

4 hours ago, brewcrewdue80 said:

That's my feeling since retraction isn't an option. I'd personally like to see 2 teams removed from bottom 1/3rd markets and their portions of revenue sharings is spread more to the already receiving teams.

It won’t really work that way, though. Contraction simply eliminates a bunch of baseball money. National revenue would be distributed to a smaller pool but national revenue would also decrease. It’d probably be a net gain for each remaining team but not enough to move the needle. 

[edfunderburk]

Yes … MLB needs a salary cap 

[sveumrules]

From 2002-21, the Yankees and Dodgers paid a combined $500M in luxury taxes (for one WS each & a pandemic weirdened one at that for LAD).

The Red Sox paid $50M. Another seven teams combined for about $40M in payments.

Before Cohen and to a lesser extent Seidler & Middleton started spending like crazy, the luxury tax was essentially a soft cap for the 27 non-NYY/LAD/BOS teams. Calling it a soft cap is even a misnomer as the majority of teams have never exceeded it and many teams in the league have never even seriously approached it.

The NBA has a salary cap. That hasn’t stopped the Warriors from racking up a $170M luxury tax bill this year that is higher than the payroll of 24 teams in the association.

The NFL has a salary cap too. That didn’t stop the Rams ($272M) from almost doubling the Bears ($138M) in actual spending last year.

No matter what kind of system and cap is in place, teams will figure out ways to get around it.

What MLB really needs is a mechanism to better address the revenue disparity between teams & institute an accompanying floor that teams receiving funds must meet.

Curious to see what the committee comes up with.

[SF70]

8 hours ago, sveumrules said:

From 2002-21, the Yankees and Dodgers paid a combined $500M in luxury taxes (for one WS each & a pandemic weirdened one at that for LAD).

The Red Sox paid $50M. Another seven teams combined for about $40M in payments.

Before Cohen and to a lesser extent Seidler & Middleton started spending like crazy, the luxury tax was essentially a soft cap for the 27 non-NYY/LAD/BOS teams. Calling it a soft cap is even a misnomer as the majority of teams have never exceeded it and many teams in the league have never even seriously approached it.

The NBA has a salary cap. That hasn’t stopped the Warriors from racking up a $170M luxury tax bill this year that is higher than the payroll of 24 teams in the association.

The NFL has a salary cap too. That didn’t stop the Rams ($272M) from almost doubling the Bears ($138M) in actual spending last year.

No matter what kind of system and cap is in place, teams will figure out ways to get around it.

What MLB really needs is a mechanism to better address the revenue disparity between teams & institute an accompanying floor that teams receiving funds must meet.

Curious to see what the committee comes up with.

Which is what I said in my OP and the only plan the players would accept. Unfortunately, baseball financially, moves at a glacial pace and we are likely a generation of time or more from ever realizing this obvious solution to the future stability of the game.

Between now and then, we’ll have to suffer through superficial remedies in attempting to improve competitive-balance like adding 2 more playoff teams, giving the small-market teams more draft-picks, more draft-pool money etc.

What baseball reality needs is another “Bud Selig” type small-market owner with the salesmanship and consensus-building skills to convince the 3 or 4 large-market owners needed to make this plan a reality. This is baseball’s only hope to remain relevant a generation or two from now.