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Salary caps make poorer teams worse off

Dec 1, 2010, 11:59 AM EST

stack of money

Practically speaking, the idea of a salary cap in baseball is dead. Deader than vaudeville. It blew up the game in 1994-95, and the owners and Selig blinked rather than try it again in 2002.  Since then the money has been flowing, competitive balance has been better than most people will admit, and the owners seem to have very little desire to fight that fight again.  It’s not going to happen.

But that won’t stop some people from calling out for it.  Every time the Yankees sign someone people scream salary cap. Every time a homegrown star leaves a small market team they do the same.  I can assure you, I get at least one comment or email a week from someone that contains a sentiment akin to “. . . this will continue to be a problem until baseball has a salary cap.” Otherwise smart people claim to shun baseball based on it not having one. From what I can gather, the thought process goes “Football popular. Football have salary cap. Baseball have salary cap too or me no like baseball.”

But guess what: the salary cap doesn’t help. To the contrary, they have made matters worse. That according to Matt Ozanian of Forbes, who has studied the matter and reports that salary caps have “served to make high-revenue teams enormously profitable and low-revenue teams unprofitable, or marginally so, relative to their rivals. The growing distortion in profitability has resulted in a bigger gap in team values.”  The rich get richer?  Wasn’t that supposed to be the problem salary caps designed to solve, not the outcome they sought to promote?

But even they weren’t bad ideas economically speaking — which they certainly are — they’re awful from an aesthetic perspective as well. They insert unsightly, unwieldy, and downright complicated concepts like “franchise tags” and “expiring contracts” into the sporting discourse. Sure, that stuff is comprehensible — every team can hire a cap guru if they felt the need and most of us could get our heads around caponomics if we had to — but it’s just depressing business.  One team trading its dead weight to another team is simply dreary. I mean, we hate it now when some teams make great efforts to acquire all the best players. How would we feel about it if they spent a lot of time trying to get the worst, most overpaid ones? Blah.

Anyway, I know some of you have been brainwashed into thinking that salary caps = fairness and parity. If you have, please take a closer look at the linked article and the NFL, NBA and NHL as a whole and ask yourself if their systems really make things better than baseball’s admittedly imperfect system.

  1. apbaguy - Dec 1, 2010 at 12:13 PM

    The lower revenue franchises are, or can be, very profitable thanks to revenue sharing. As a result there really is no “competitive” argument for a salary cap in baseball. With all the exceptions and loopholes to the NFL salary cap, it’s like the speed limit in some of the wide-open Western interstates: more a suggestion than a hard limit.

  2. mfgesq - Dec 1, 2010 at 12:19 PM

    I think this item is confusing the purpose of a salary cap. The purpose isn’t to stop the rich teams from getting richer in the purely economic sense. Rather, the purpose is foster greater competitive balance on the field. Under a salary cap, sound business decisions determine the on-field success of franchises. Without a salary cap, the Tampa Bay Rays can make all of the sound business decisions they want, but they still have to face a team with Teixeira, ARod, CC, etc. while at the same time losing Crawford. Whether a salary cap means the Yankees are “forced” to hold onto a larger share of the profits is beside the point.

  3. BC - Dec 1, 2010 at 12:28 PM

    So if the salary cap means better competitive balance, why have the Patriots, Steelers and Colts been among the best teams each year for a decade? Any why do the Lions always suck? Its the way you run your organization and the way you draft that makes the difference in the NFL, the salary cap has little effect.
    How many different World Series winners have we had in the past decade? A lot. And with no salary cap.
    I honestly think a cap makes no difference.

    • ThatGuy - Dec 1, 2010 at 12:37 PM

      World Series winners shouldn’t be the final determination, because as has been shown once the playoffs starts its a crap shoot. The Patriots, Steelers and Colts have dominated for a decade because they have great managment, good coaches and a Franchise quarterbacks( a QB in football means way more than any one position in baseball). Those things should have a far greater effect in sports then the salary. The Yankees have made the playoffs 14 out of the last 15 years because they can spend more money than everyone else simply based on revenue. The problem is that the Yankee’s can make mistakes, and just spend more to minimize them. AJ Burnett making 16 million this year would have crippled any other team in the league with his ineffectiveness. They had the top 4 player salaries this year, Half the teams in the league couldn’t afford to play one player that much, let alone four. It is my opinion baseball needs a cap and a floor(to ensure the players share stays the same). something likt 65 mil – 150 mill. There would still be a disparity in salary related to the revenue a team produces, but it would not be as great as the Yankees spending 50 million more than the next highest payroll.

      • churchoftheperpetuallyoutraged - Dec 1, 2010 at 1:01 PM

        Salary floors don’t solve the problems either. What’s to stop a team like the Marlins, with their twelve dollar payroll, from merely overpaying one or two veterans to get above the floor? They still aren’t fielding a competitive team, but they are following the “rules of the game”.

        The only reason it works in the NFL is almost all the money (TV, merchandise, etc) is pooled and doled out evenly amongst the teams. You’d never be able to get that agreement in MLB because a bunch of teams have their own TV deals (Yanks, Sox, Mets, Rangers to name a few) which would be a net loss for them.

      • BC - Dec 1, 2010 at 1:18 PM

        The Braves made the playoffs a kajillion years in a row and were never the biggest spenders.

      • ThatGuy - Dec 1, 2010 at 1:37 PM

        BC- Its not that its impossible to make the playoffs that many years in a row, the Braves had an extremely good rotation throughout that run that they were able to keep together. The inherent advantage that the Yankee’s have in revenue is huge, and has only gotten larger. In 1996 when The Yankees dynasty started their payroll was 61 million, only 5 million higher than the next team. Over the next 15 years it has skyrocketed to over 200 million. Now no team is within 50 million. They have always been near the top of payroll, only in the last 10 years or so has it become so outragous.

      • ThatGuy - Dec 1, 2010 at 1:44 PM

        Also your statement that the Braves were never big spenders is just plain false. They were top 5 in MLB payroll every year from 1995-2004. After that they started falling towards middle of the pack, is it a coincidence that 04′ and ’05 were the end of the NL East dominance?

      • BC - Dec 1, 2010 at 1:58 PM

        Is a coincidence that Maddux, Glavine and Smoltz just all got old at once?

      • mschempp - Dec 1, 2010 at 3:00 PM

        AJ Burnett making 16 million this year would have crippled any other team in the league with his ineffectiveness.

        So, you want a salary cap so that other teams can feel free to make the mistake of signing AJ Burnett? I’d rather the Yankees be the suckers.

        You can’t stop other teams from making tough decisions on who to keep and who not to sign by forcing the Yankees to spend less money. It just makes the Yankees job easier. And who’s to say that wasting all that money on Burnett this year didn’t matter? They had to pitch him, after all.

    • mfgesq - Dec 1, 2010 at 12:37 PM

      BC-

      Regarding the Pats/Steelers/Colts vs. Lions, I think we all could point out that sound business/personnel decisions are the difference. Regarding WS winners, or MLB playoff participants, I think the evidence is pretty clear that sound business decisions AND the disparate financial ability to sweep poor business decisions under the rug conspire against low-revenue teams.

      Having said that, I’m not a saying a salary cap is the Holy Grail of sports leagues or anything. Just wanted to point out that the Forbes piece seems to rely on profit margins as the evidence that salary caps “don’t work.”

  4. Jack Marshall - Dec 1, 2010 at 12:38 PM

    The salary cap is offensive to principles of American democracy, frankly; a vestige of Sixties era Mao-think, where there are no losers and the smart and strong kids have to compete with their brains or arms tied behind their back. Football et al. are all mob-based authoritarian sports; no wonder they embrace caps. When the thinking public turns on the NFL because they realize it involves paying men to pound their brains into mush, leaving them morons or invalids by the age of 50, baseball will have the last laugh. And I am only half kidding. The question is..which half?

    • Lukehart80 - Dec 1, 2010 at 3:41 PM

      Though I enjoy the characterization of football as a “mob-based authoritarian sport,” I hope the half you were kidding about includes the “Mao-think” mumbo-jumbo at the top, because if you were serious about that, you severely misunderstand MLB’s place in the American democracy.

  5. wonkypenguin - Dec 1, 2010 at 1:24 PM

    I definitely agree on the “expiring contracts” being an annoying part of discussions, particularly in the NBA. I guess I like sports to hide the “it’s definitely all about money” part of the game as much as possible. The Yankees are a natural enemy and if a salary cap is instituted, they will probably remain that way because it’s fun to have someone to cheer against as much as one to cheer for.

  6. Panda Claus - Dec 1, 2010 at 3:10 PM

    Craig, I have to admit I never thought anyone would be able to convince me a salary cap is bad for baseball. There are two sides to it of course: how it affects the product a team puts on the field and how profitable teams are to their owners.

    Ironically the NFL is not under salary cap rules this year and their product is as competitive as ever. An argument can be made about notoriously cheap teams like Arizona and Cincinnati falling back from the pack (on the presumption they’re spending less because they can).

    However the real difference between the leagues in terms of parity may be in how they schedule. The NFL has a balanced schedule and in typical years you have to think the salary cap helps the smaller market teams. How else would a town like Green Bay compete against Chicago given the market size?

    I’m not fully convinced a salary cap would be horrible for baseball, but for now there are ways around that for the bottom feeders. The Tampas and Floridas of the world can slowly build up a winner, blow it up when it becomes too expensive to profit, then start all over again. Unfortunately because of player development times it takes closer to a decade to fully rebuild from the bottom. NFL teams can retool in a matter of 2-3 years.

    But we already know that baseball moves at a slower pace.

  7. Lukehart80 - Dec 1, 2010 at 3:37 PM

    While I don’t think a salary cap is the solution, the argument that salary caps are bad because they let some owners get wealthier than others doesn’t move me.

    If the options were: ‘the Yankees only make the playoffs once every three years but their owners get even richer’ OR ‘the Yankees make the playoffs every year but their owners are only kinda rich,’ it wouldn’t be hard for me to choose.

    The article didn’t have much to say about a salary cap’s impact on the balance of competitive opportunity, which is what’s in need of fixing.

  8. Rosenthals Speling Instrukter - Dec 1, 2010 at 4:13 PM

    I am not a big cap guy but if you also put in a floor (Though that creates a city of loopholes) it could work. Key word Could .

  9. ta192 - Dec 1, 2010 at 4:27 PM

    Craig’s article includes a reference to an independent study that concludes that salary caps don’t increase, and may even worsen, competitive balance. Yet, about half the posts continue to support a salary cap for the express purpose of “improving competitive balance” while none of the posts even gives mention to the study. Once again, we see a peculiarly American phenomena, that of ordinary people siding with billionaires against millionaires…never ceases to amaze me…

    • Lukehart80 - Dec 1, 2010 at 4:44 PM

      The study Craig mentioned (and linked to) really has nothing to do with competitive balance, it’s just discussing the financial value of franchises.

      As for siding with billionaires against millionaires, I don’t think average Americans feel they’re on EITHER side of that fight. They’re all filthy rich as far as I’m concerned, I just wish the Indians had a better chance of being competitive. Ownership isn’t going to spend money that it doesn’t have, and Cleveland isn’t in a fair position to bring in revenue when compared with many other franchises.

    • ThatGuy - Dec 1, 2010 at 4:47 PM

      Im not sure what your seeing, i’ve read the article twice now and all I see are mentions of revenue and franchise value. Nowehere do I see one mention of competive balance or a reference to another article about it. Fans generally don’t care how much the billionaires team is worth, they want a competive league.

      • ta192 - Dec 1, 2010 at 10:18 PM

        I stand corrected. There’s nothing in that article about competitive balance. That evil Calcaterra did me in with his last paragraph (bad Craig, bad)…own damn fault…hate reading Forbes…
        Anyway, I’m sticking with my “billionaires vs millionaires” statement. You can see what I’m talking about in many of the comments on this blog entry.

  10. bigharold - Dec 1, 2010 at 5:33 PM

    “The rich get richer? Wasn’t that supposed to be the problem salary caps designed to solve,…”

    In ANY type of salary cap the only group that will see their wealth enhancement negatively impacted is the players, which is exactly why they would fight one to their last breath.

    And, unless the “haves” with their own cable network or outrageously profitable cable deals share all the broadcast rights equally, like the NFL does, you still will have rich clubs and less rich clubs. But, let’s be clear, there are no poor clubs. There are already clubs, (the Yankees and Cowboys), that are sheltering as much of their concessions revenue, (which in MLB is subject to revenue sharing), as possible by creating companies to run concessions. Then they “award” the concessions to their own company at a lower than market rate price and the extra profit is exempt from MLB revenue sharing. The Yankees were the first MLB team to do it, I believe, but they certainly won’t be the last. So the owners clearly don’t think much of revenue shaing, whch is essentially an “owners salary cap”.

    See what happens after you tell the owners with their own big cable networks/contracts, they now have to share it. They’ll fight that to their last breath.

    It would seem ONLY the fans, (and then mostly the ones that aren’t Yankee fans), think a salary cap is a good idea. The players hate it. The owners don’t think it’s worth fighting for nor are they interested in subjecting all or, at a minimum, any more of their revenue to revenue sharing. And, if this article is to be taken at face value the economics are questionable too. If competitive balance is the goal perhaps a salary cap is not the answer.

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