The most hotly debated topic surrounding Major League Baseball isn’t about who deserves to be MVP, or who will make the playoffs, but rather the health of the sport in general.
Does baseball have a level playing field? Do all of the teams have a chance of winning the World Series? The topic, which is mostly a side note for the NBA, NFL, and NHL, consumes conversation around the game, from internet chat rooms to the water cooler to the barstool.
Driven by the New York Yankees returning to World Series championship glory last year, fans who don’t follow the “Pinstripe Allegiance” say the Bronx Bombers “buy” the World Series by having player payroll that dwarfs the other 29 clubs in the league. But is that really the case? Does Major League Baseball have a competitive balance problem? Would a hard salary cap such as other leagues have fix this issue, or is it a matter of perception? The answers show that while MLB’s system is not perfect, it is also not as bad as you might think, and certainly not in need of a major overhaul.
Does money buy championships?
It is not easy to remain competitive on an annual basis in baseball. Most clubs work on a five-year development cycle where they hope to be at the highest competitive level with a chance at winning the World Series. Sustaining that threshold is exceptionally difficult, and having money to bolster your lineup with free agents can keep you up in the standings where those that can’t afford to compete for those players often times drop down. Over the last decade, the top nine clubs in payroll made up 58 percent of the postseason appearances. Part of the issue with baseball is the ability — or lack thereof — of young drafted talent being able to make the jump to the big leagues, according to Rob Manfred, MLB's Executive Vice President of Labor Relations.
“I think it is much, much easier in the NFL and the NBA to make good talent evaluations because you are making decisions based on players who have played at a very high level in college,” said Manfred. “Whereas in baseball, you’re evaluating high school — and even college players — where they’re using aluminum bats, the level of competition is not as close to professional play as the other leagues, and as such, the drafting of players is much more difficult.”
With the development cycle and increased playoff opportunities through the addition of the wild card, over the last decade the World Series champion has averaged No. 9 in the league in payroll ranking, with 5 teams having payrolls in the top 10. But big spending does not guarantee winning, as such high-payroll teams as the Chicago Cubs, Los Angeles Dodgers and New York Mets have found out in recent seasons. Furthermore, the other major sports leagues are not impervious to the “spend to win” model. The payroll ranking for the last 10 champions in the NBA and NHL was 10, one spot lower than MLB, with the NBA having six teams with top 10 payroll and the NHL having five. The NFL sees the lowest average payroll ranking of 14 with 5 teams having payrolls in the top 10. So, while each of the sports have ample opportunities for teams to make the playoffs, those with higher payrolls across all the sports more readily do so.
Does MLB need a salary cap?
Fans often cite that MLB is in need of a salary cap in order to keep the Yankees from cherry picking the best talent. Indeed, before the beginning of the 2009 season, the Yankees acquired free agents CC Sabathia, Mark Teixeira and A.J. Burnett for a total of $423.5 million in multi-year contracts, a staggering sum.
As a point of clarification, all four of the major sports leagues in North America have some form of salary cap, including Major League Baseball. The NFL has had a hard cap in place — with the exception of this year where the league will see the cap removed leading up to labor negotiations for a new collective bargaining agreement. The NHL also has a hard cap, which has just been set to move from $56.8 million to $59.4 million next season with a salary floor of $43.4 million. The NBA and MLB both have soft caps in which salary thresholds are set and teams that exceed those figures pay a tax. The idea behind the soft cap is that by penalizing clubs, overspending will be kept in check.
For MLB, this soft cap is called the Competitive Balance Tax, or as it is more commonly referred to as the Luxury Tax. Depending on your point of view, the system works, or it doesn’t. Only four of MLB’s 30 clubs have had to pay the Luxury Tax since it was put in place in 2003: the Yankees, Red Sox, Angels and Tigers. The Yankees have exceeded it every year, paying $25,689,173 last year, a high of $33,978,702 in 2005, and a grand total of $174,183,419 over seven years.
To lend credence to the case that MLB is not in need of a salary cap, it is MLB, not the NFL, NHL, and NBA, that sees the smallest amount of league revenue coming back to the players in the form of salary. Major League Baseball sees 53 percent of revenues coming back to major league players (an additional 5 percent covers minor league players, something the other major sports do not have to pay). By comparison, the NBA sees approximately 57 percent of its revenue go back to the players in the form of pay, while the NFL sees approximately 58 percent.
In addition, MLB has two forms of revenue sharing, including a centralized pool such as national television and radio deals, as well as MLB Advanced Media, the league’s lucrative online arm, merchandise sales, and the new MLB Network. There is also revenue sharing where a portion of the money collected though ticket sales, local television deals, parking and concessions makes its way from the clubs that earn the most to those that make the least to assist in competing for player talent. While each of the major sports leagues have varying degrees of local revenues sharing, it is MLB that sees the largest amount moving from the haves to the have-nots. It is also why there is often a war of words between owners of small revenue making clubs, such as the Brewers and Marlins, and their big-revenue making counterparts in the Red Sox and Yankees. In 2009, $433 million moved from high-revenue clubs to those in need of assistance.
Andrew Zimbalist, the Robert A. Woods Professor of Economics at Smith College and author of several books on the economics of sports does not believe MLB needs a hard cap. “Hard caps have both advantages and disadvantages,” Zimbalist said. “The continued use of a progressive payroll tax together with a restructured revenue sharing system with the proper incentives, modifications in the draft system, tweaks to the divisional alignments and a few other innovations should have the MLB machine sweetly purring.”
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