Why MLB Does Not Need a Salary Cap

Over the past few weeks, we have had feverish debates on Books on Baseball about the need (or not) for some type of sweeping change to enable the “havenots” (e.g. Pittsburgh, Kansas City) to compete on a more level playing field with the “haves” (e.g. Yankees, Red Sox).

We are very fortunate to have an expert to help us decipher all the nuances of this very difficult question.  Kristi Dosh (see full bio) an attorney and expert on all matters related to the business of sports, has written extensively on the topic.

Kristi has a website (www.itsaswingandamiss.com) writes regularly for SportsMoney on Forbes.com and appears on the TV show SportsNite on the Comcast Sports Southest where she also has a blog called Miss SportsBiz. 

What follows is one of her most recent articles.

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!