1. Baseball Has A Salary Cap
If you’re a Yankees fan, you’ve heard the complaint before: the Yankees buy their championships, the Yankees have an unfair advantage over everyone else, all because baseball does not have a salary cap. Next time you hear this complaint, do this. Repeat after me:
Baseball has a salary cap.
Again.
Baseball has a salary cap. Baseball has a salary cap.
Who says baseball has a salary cap? Baseball business expert and blogger Kristi Dosh. She’s a smart person, the upcoming author of a book about the business of baseball. Kristi said that baseball has a salary cap on Maury Brown’s blog, and Maury is also very smart when it comes to the business of baseball. Actually, Maury’s blog cites a number of analysts who believe that there’s a salary cap in baseball, including Baseball Propectus’ Shawn Hoffman.
You may not have known that baseball has a salary cap, because baseball doesn’t call its salary cap a “salary cap.” Instead, baseball’s cap goes by the name “luxury tax”, or “competitive balance tax”. The tax imposes a penalty on any team whose payroll exceeds a certain amount. This year, the cap is set at $170 million, and the Yankees have to pay a tax of 40% on the amount of its payroll in excess of the cap. The way this tax works, usually only the Yankees have to pay the tax. Arguably, the luxury tax is an effective salary cap for 29 out of the 30 teams in baseball.
Baseball’s “luxury tax” may not cap the Yankees, but then again, not every form of salary cap is a “hard” cap. Which leads us to our next topic.
2. Salary Caps Can Be “Hard” or “Soft”
Caps come in two varieties. If you want a hard limit on a team’s payroll, then you need a “hard” salary cap, like the cap in the National Football League. In the NFL, teams cannot have a payroll in excess of the “hard” cap. No exceptions. If an NFL team tries to sign a player to a cap-busting contract, the NFL will reject the contract. If a team manages to sneak a cap-busting contract past the league, then all hell breaks loose. The team can be fined, or the team’s front office personnel can be fined personally, or the team can lose draft picks. That’s what you call a “hard” cap.
[In this post, we’ll ignore that the NFL team owners have opted out of their collective bargaining agreement, and as a result there will be no salary cap in the upcoming 2010 NFL season. We’ll ignore the opposition to the “hard” cap within NFL circles. We’ll even ignore the ways around the NFL’s “hard” cap. This is a baseball blog. You want to read about football, you’ve come to the wrong place.]
But not all caps are hard caps. The National Basketball Association has a “soft” salary cap, with exceptions allowing teams to exceed the cap. The best-known of these exceptions is the “Larry Bird Exception” – this allows basketball teams to sign their existing players to big contracts, even if the sum of these contracts exceeds the NBA cap. Of course, basketball has other exceptions: the Early Bird Exception, the Non-Bird Exception, the Mid-Level Salary Exception, the Traded Player Exception … you have to be a “capologist” to keep up with all of the exceptions.
(By the way, “capologist” is not a made-up word. It’s a job. You can make good money as an NBA capologist.)
With all of the NBA cap exceptions, it’s common for teams to (legally) exceed the NBA soft cap. In 2005-06, the Knicks’ payroll was $124 million, which was $74.5 million above the salary cap at the time. Last season, at least 7 NBA teams exceeded the cap. If an NBA team exceeds the cap, they pay – you guessed it – a luxury tax.
But the NBA cap has teeth, even if it is a “soft” cap. For example, the N.Y. Knicks are hoping to sign LeBron James to a big free agent contract at the end of this season. Problem is, there’s no “soft” cap exception to cover this signing. So the Knicks had to trade away a bunch of players to clear room under its cap to (maybe) sign James. In contrast, the Yankees did not have to clear cap space before they signed C.C. Sabathia. So even a “soft” cap can restrain the spending of big market teams.
3. Only a “Soft” Cap Is Possible for Baseball
With caps coming in two varieties, does baseball have a choice of caps? No. For a host of reasons, the only possible cap for baseball is a “soft” cap.
To understand why, compare the NFL with Major League Baseball. The NFL has a “hard” cap, but in the NFL, most revenues are shared equally. The NFL’s national TV contract provides 2/3 of NFL revenues, and home and visiting teams split gate receipts on a 60/40 basis.
Shared NFL revenues leads to rough economic equality – there’s only a 65% spread between the highest and lowest revenue-earning teams in the NFL. In contrast, there’s a 65% revenue gap between the richest team in baseball – the Yankees – and the second richest team, the Mets. Yankees gross revenues are roughly three times those of the “poor” Florida Marlins, and that’s the spread AFTER the Yanks pay (and the Marlins receive) revenue sharing. In baseball, the gap between rich and poor is too great to permit all thirty teams to be shoehorned into a hard cap system.
There’s another key distinction between the NFL and MLB: in the NFL, there are no guaranteed contracts. If I’m running the Dallas Cowboys and my team is about to exceed the hard salary cap, I can simply release a player (“buh-bye, Tony Romo!”) and I’m back under the cap. Baseball has guaranteed contracts, and that’s not going to change any time soon. By “any time soon”, I mean not in my lifetime, not in your lifetime, not in the lifetime of a giant sequoia (which is a long time – you could look it up). It is possible to have a hard salary cap and guaranteed contracts at the same time – this is the case in the National Hockey League – but it’s a lot harder to operate under a hard cap when you have limited freedom to jettison player salaries.
If you had your heart set on a “hard” cap in baseball, don’t despair. Baseball can still adopt some variety of “soft cap”. An NBA style “soft” cap would be a stronger cap than the “luxury tax” cap presently used in baseball. The NBA “soft” cap has prevented the Lakers and Knicks from signing free agents with the alacrity shown by the Yankees. And outside of the Bronx, isn’t that how you’d judge a salary cap – by how it restricts the Yankees?
4. Salary Caps Must Come With Salary Floors
You often hear that the MLB Players Association would never agree to a salary cap. This is a statement guaranteed to drive me crazy. First of all, it’s demonstrably wrong. We’ve already established that baseball HAS a salary cap. This statement also drives me crazy because it’s probably true, at least to the extent that the players might never agree to a NFL or NBA style salary cap. The players are philosophically opposed to the idea of a salary cap (we’ll discuss this in more detail in Part 3 of this Series).
Of course, baseball players should hate the idea of a salary cap, as a salary cap would impose a limit on what baseball players could earn as a group. But the correct question is not, would the baseball players union oppose a salary cap. The correct question to ask is: would the union oppose any salary cap established in combination with a salary floor. Because in professional sport, caps and floors go hand in hand. The NFL, NHL, and NBA all have salary floors to go with their salary caps.
The NFL has a “hard” salary floor, just like it has a “hard” salary cap. The gap between the NFL cap and floor is relatively narrow – the floor is set somewhere between 85% and 90% of the cap. In this way, the NFL system ensures that all football teams will spend roughly the same amount on payroll. (This is another reason why baseball could never adopt an NFL-style “hard” cap, as the gap between rich and poor baseball teams is too great for every team to have roughly the same payroll.)
The NBA has a salary floor to go along with its soft salary cap. The NBA floor is set at 75% of the cap level. If a team’s payroll falls under the floor, the NBA forces the team to pay the shortfall to its players. But an NBA team can satisfy the floor requirement if its total payroll exceeds the floor at the end of the season. Is the NBA’s floor a “hard” or a “soft” floor? Hard to say.
Salary caps always come with salary floors, and that was true even for the salary cap that baseball considered in 1994. Back then, the owners fought for a requirement that each team’s payroll fall between 84% and 110% of a specified amount (50% of average team revenues for the previous year). It’s my understanding that the owners argued for a “hard” cap and a “soft” floor (with no mechanism for enforcing the floor). It was a rotten proposal from the standpoint of the players, whose salaries would have been reduced by a collective $198 million.
The union’s rejection of this cap and floor led to the disastrous strike that eliminated the World Series in 1994. But I’m not considering a salary cap for the reasons that motivated the owners back in 1994. I’m interested in a salary cap (and a salary floor) to promote greater competitive balance. In part 2 of this series (coming soon, watch this space), I’ll consider some possible combinations of cap and floor.
Great stuff here. I've repeated this many times to friends and colleagues only to be laughed at. It's good to read well written columns like this.
The luxury tax is not a salary cap.
A luxury tax is a tax on the amount of money spent.
A salary cap is a limit on the amount of money spent.
The two are not even remotely similiar in any way.
Sorry to be harsh, but only Yankee fans would equate the luxury tax with a salary cap.
Ron,
It would be rather harsh if a noted expert on the subject were to pop on here and deliver said judgement. As I've never heard of an economist who goes by the single name "Ron", I'm going to guess that's not you.
As such, you're stuck having to deliver some sort of actual argument. Like Larry has, above, at length. A *hard* cap is a straight limit. A soft cap refers to a situation with economic consequences for crossing some predetermined threshhold. This stuff exists all over–our tax returns are laced with soft caps and hard caps.
If you would prefer to have a strictly semantic argument with your own definition of the term as the ultimate arbiter…you may be at the wrong website. If you're interested in an actual discussion, feel free to explain yourself!
Best,
Will
The luxury tax is supposed to be a salary cap, of sorts, but I wonder how much it really is. The Yankees are the only team to surpass it, and the Red Sox are the only other team to even contemplate passing it. No one else could reasonably spend that much anyway. If it's so far past reasonable spending for 29 of 30 teams, then I'm not sure it really caps spending. In that way, I agree with Ron. The theory behind it is to act like a cap but with revenue being distributed, but in the end, it's too high to practically achieve those ends. Teams would spend the same without it.
If you wanted to actually make it work (I believe there are plans that could make it more of a "cap"), you might have to lower it to about $90MM. Again, it would be a soft cap, but at that point, you might actually restrict some spending. The floor would have to be around $50MM, I guess (you probably have a better idea of that). And of course, the caps would have to be arrived at incrementally to avoid massive cuts or signings just to make the caps/floors. Interesting post, and I look forward to the rest.
The economics are changing so rapidly in baseball… There is a very plausible scenario under which the MLBPA will agree to caps.
One key change that's been happening over the past couple of years, but has been sharply visible this year, is the reluctance of teams to sign veterans to expensive contracts. I think this is largely a result of teams understanding performance (thank you, Bill James and Moneyball) better than they did 10 or 15 years ago.
The result of this is that the total share of MLB revenues that the players get is getting smaller and smaller. After all, why pay $4M to a league average veteran if you can replace 90% of his performance with someone in AAA getting league minimum? This is going to continue and quite possibly accelerate.
If you remember that the MLBPA is solely composed of major league players and overwhelmingly by older veterans, it should be apparent why the union has been quietly supportive of an international draft and will likely support some sort of hard slotting rules for the amateur draft (pick #10 can earn no more than $x bonus)…
As the trend continues, players will be in a position where it will make more sense to agree to a guaranteed, pre-determined split of revenues (what most other leagues do), of say 55% to the players, and floors and caps built on that, than continue with the status quo.
Astonishingly, both the NBA and NFL players get a higher percentage of revenues than the MLB. If I were union member, I wouldn't be very happy with that.
http://jse.sagepub.com/cgi/content/abstract/11/1/…
http://jse.sagepub.com/cgi/content/abstract/11/1/…
I'm the "baseball business expert" referred to in this article…which, by the way, was excellent. Ron, I'm sorry to tell you, but the luxury tax does act as a soft cap. Like Larry said, during the majority of seasons it holds 29 of the 30 clubs under its limit. Google "MLB luxury tax soft cap" and you'll come up with plenty of baseball analysts (most of whom are not Yankees fans, myself included) who refer to the luxury tax as a soft cap…because it is. If you don't believe it is, I'd be really interested to see you define "soft cap" in terms of sports business.
Now on to my thoughts on the article. I started typing them here and my post became too long for a comment. So, I have a response on my website: <a href="http://www.itsaswingandamiss.com. ” target=”_blank”>www.itsaswingandamiss.com. I hope you all will visit, as I think I made some good points. I just couldn't seem to condense it down to fit here. Thanks Larry though for making me really think about this!
Just a few more comments…
Mark, the Angels and Tigers have both surpassed the luxury tax threshold in the past as well, although each only once.
Hantu13 makes some good points, including one I made in my article about how players in the other leagues receive a greater percentage of league revenue than baseball players, even with a cap. One reason why MLB players are understandably against a salary cap.
Joshua, thanks! Now you can point your friends and colleagues over here, and they can laugh at the both of us.
Ron, I’ve cited you to two experts who believe that the luxury tax IS a salary cap. One of those experts (Kristi Dosh) is a die-hard Atlanta Braves fan. So at least one of your statements is demonstrably wrong. I can cite you to more experts who agree with me and Kristi. But I think I understand your point of view; please see my response to Mark below.
Mark, you’re taking advantage of the fact that the word “cap” is both a noun and a verb! No argument, baseball’s luxury tax has not “capped” the Yankees; if you (and Ron) are looking for a cap that bars the Yankees from spending above a certain threshold, then clearly the luxury tax is an ineffective cap (I think that this is the better way to understand Ron’s comments). However, you’re making a very different argument when you state that the luxury tax threshold is “past reasonable spending” for every team other than the Yankees. Isn’t this the whole point behind the luxury tax, to discourage the Yankees (or any team that might emulate the Yankees) from spending above the threshold, and to penalize the Yankees when they (inevitably) DO spend above the threshold?
Mark, we’re going to explore how to set a “soft” salary cap and floor in Part 2 of this series, and I recommend that you read my Part 2 before you propose your own cap and floor.
Hantu, you’re anticipating some of the arguments in Part 3 of this series, when we’ll talk about the Players Association’s opposition to salary caps. You are quite right, the percentage of baseball revenues being paid to players is shrinking, and this percentage is below that paid to players in sports like football and basketball where there are salary caps. It’s possible that the free market does a better job of “capping” player salaries than does an NFL or NBA-style salary cap! But one correction: MLB Players Association President Michael Weiner has come out strongly against any form of hard slotting rule for the amateur draft. If you’re surprised by this, you’re not alone. See http://bit.ly/aUiQfK. I’ll discuss this in Part 3.
I’m now heading over to Kristi’s blog cite to see what she has to say. By the way, Kristi’s web site is one of my personal must-read sites. Highest endorsement! Before I go … Kristi, if players in “capped” leagues make more money than “uncapped” baseball players, isn’t this a reason why baseball players might adopt an NBA-style cap? Why would baseball players stubbornly cling to a system that pays them less?
Well, I still don't like salary caps, I still see no evidence whatsoever that they increase competitive balance, or do anything more than increase the amount of revenue owners get to put in the bank.
I appreciate the effort you put into the post, but I think you're badly misunderstanding the nature of the NBA's cap. The overall purpose of the cap structure is to incentivize teams that aren't going to make the playoffs to send their good supporting cast type players to playoff teams in exchange for worse players with expiring contracts. In theory this frees up cap space for them, but in practice teams rarely have the ability to sign anything but more role players on the free agent market, because most top players either stay with their team (because they can pay them more money), or move through trades, because it allows the teams to manage their cap situation. Free agency just isn't as big of a factor in the NBA as it is in MLB, this summer's class notwithstanding.
I'd also point out that you don't consider the NBA's structured contracts, which basically have the effect of paying at least certain role players (I'm looking at you Hedo Turkoglo and Rashard Lewis) more than they would get if you had a freer labor market like MLB. Because of that, the decision to dump salary usually isn't that painful for teams. You mentioned the Knicks, well it's not like the Knicks were hanging around the bottom of the playoff ladder and decided to give that up for the potential to be better 2 years later; they were an awful team comprised of overpriced role players who dumped a bunch of bad contracts elsewhere. It wasn't exactly passing on Johan Santana.
So yeah, I appreciate the argument, but I'm still not remotely convinced baseball needs a salary cap. If you want to talk to me about revenue sharing or limiting the amount of revenue from team owned media that can be spent on salary we can do that, but I continue to find salary caps lazy solutions that continue to have coin because it benefits ownership.
There's a couple of things at play here. First, most players know FAR less about the business of baseball than we all do. They just want to go out and play, they're not analyzing (and over-analyzing) the business of the game like we all do. They hear the words "salary cap" and mentally shut down and don't hear the rest. They're just programmed to think a salary cap is bad. Not really their fault, I'd feel the same if someone started talking about a salary cap for lawyers.
The biggest impediment to a salary cap is the MLBPA, not the players. I know you're thinking, "Wait, isn't that the same thing?" Nope. The MLBPA does a lot of what they do for the top 1-2% of the players. They oppose a salary cap because it might affect those top top top players, the ones they're always celebrating when they get the record-breaking contracts. I've been told this by more than one former baseball insider.
For the record…if I was a player or with the MLBPA, I would be fighting for a percentage of MLBAM revenue going forward. That's where baseball is making all its money, and it's definitely going to be more true going forward. I think in this next CBA the MLBPA needs to fight to secure players a percentage of that revenue which will allow players in the MLB to earn a percentage closer to what the players in the other leagues earn.
I have to get back to my day job…but one more thing…
Brien, I completely agree with you! Head over and read my post: <a href="http://www.itsaswingandamiss.com” target=”_blank”>www.itsaswingandamiss.com.
Larry- you're right (of course) about the MLBPA and draft slotting…
I guess this is a philosophical argument against salary constraints of any kind??
Anyway, look forward to reading the entire piece. As a Yankee fan and a free market type, I go back and forth about this in my own mind.
Kristi, per usual, has written a terrific post on her blog. Unfortunately for me, it's in rebuttal to my post!
Kristi, you've jumped straight from this introductory post on salary caps into a discussion as to whether baseball should have a salary cap. As a lawyer, 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. In your post, 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 in net worth 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!
I always enjoy discussing salary caps in sports with proponents of the system–
The conversation always takes an interesting turn once I ask them if they support a salary cap at thier company, or how they would feel if one of their companies competitors started hiring the best talent at an elevated price…..
The best point in the article is one that is misunderstood by most– the NFL teams share most of the revenue. While there are some inequities in that system (it presumes the Bills bring as much value to the television contacts as the Giants or Jets), it makes it logical to have a salary cap.
A baseball salary cap would be terrific for the Yankees– they would make a significantly higher profit!! Presume the salary cap is at the luxury tax level ($170 million), the Yankees would have an extra $42 million in EBITDA this year ($30 million less in salary, $12 million saved in luxury payments)
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!
When it comes to the Yankees and the luxury tax, the tax does little to their actual spending. They surpass it and pay the tax. We're in agreement that the tax then doesn't work on the Yankees?
Next comes the luxury tax's effect on everyone else. The Red Sox were somewhat hindered the past off-season (possibly though not conclusively) by the tax because they may have wanted to spend more. The thing is that no one else is really even close to the cap. Even if the Yankees go under the cap, they are still head and shoulders past anyone else (except for 2 or 3 teams). Their advantage still exists, and I thought the reason for a salary cap was to provide some equality.
If the point of a salary cap (soft or hard) is to discourage the Yankees, it has obviously failed. If the salary cap is to discourage other teams, it has failed because few teams can even dream of being affected by it. It doesn't discourage their spending because their highest hopes don't reach that level. Overall, the tax hasn't really seemed to do anything.
As for my cap and floor, I was just throwing out random numbers. But the level it is now doesn't really seem to affect anyone.
Brien, my comment to you parallels my comment to Kristi above: we’re not done yet describing what we mean by a “salary cap”. It’s going to take me two more posts to finish the description. Once I’m done, then we can discuss whether a salary cap is a good idea. However, since I led off my post with my statement in favor of a cap, I can’t object to your comment in opposition!
It’s probably unfair to say that the purpose of the NBA soft cap is to motivate teams to send good players to other teams. This may be the practical effect of the NBA cap, but I doubt that this is the NBA’s intended effect. I agree with you that one practical (if unintended) effect of any salary cap is to distort the market for a player’s services, so that teams will make roster and contract decisions under the influence of a cap that would be nonsensical in the absence of a cap. This is a downside of any salary cap system, and you’re quite right to bring it up.
This is not a basketball blog, but the painful part of the Knicks’ effort to clear cap room came in their trading of young and relatively cheap players (like Jordan Hill), in an effort to get teams to take their older and more highly paid players (like Jared Jeffries).
Brien, I agree that revenue sharing can have a more positive effect on competitive balance than salary capping and flooring. That will be a whole other series of posts here. But baseball’s ability to share more revenue is ALSO limited. If I’d thought that we could substantially improve competitive balance through revenue sharing alone, then I’d probably give up the idea of pushing for a salary cap. The truth as I see it is that baseball has limited options in pursuing greater competitive balance, and our best chance is to pursue all of these options as a package.
" From all appearances, the NBA and NHL caps effectively guarantee a higher revenue percentage to players than MLB players receive without a cap."
But, again, you're just ignoring the fact that the purpose of those caps is to create incentives that end up with a maximum amount of talent in the playoffs each year. It's not about evening the teams out, it's about making good teams better and bad teams worse in any given year.
Anthony, whether I would support a cap and floor at my company is an interesting side argument. However, if we put aside laws governing antitrust and fair competition, it’s the goal of my company to compete so effectively and to serve customers so well that we drive all of our competitors out of business. If we do that, I’ll make a boatload more money.
Derek Jeter does not want to drive the Yankees’ competition out of business. In order for Derek Jeter to make a large salary, he needs baseball to have many other teams that can compete with the Yankees. Not only must these other teams survive, they must thrive to the point where they can provide quality baseball on the field, so that Yankees games are suspenseful and exciting.
In this sense, professional sport is a strange business. If the Yankees crush their competition, then Derek Jeter will make a much smaller salary than he does now. It is in Derek Jeter’s best interest for baseball to have a competitive balance. If this competitive balance is best achieved through a salary cap, then it is in Derek Jeter’s best interest to consider a salary cap.
The argument, of course, is whether a salary cap is the best way to promote competitive balance.
Mark, it is possible that the luxury tax affects the amount that the Yankees want to spend. The Yankees’ payroll has dropped some in recent years. The payroll tax does not appear to be designed to affect any team other than the Yankees.
Brien, I dispute that the NBA cap is designed to move talented players to playoff teams. It may have that effect, but you’ll have to give me proof that this is the intent behind the way the NBA cap was designed. You’ll also have to consider a simple economic fact, one that has been recognized in sport since the days of the reserve clause: good players have greatest economic value to good teams in big markets. http://www.econlib.org/library/Enc1/Sports.html&n…
It’s not a coincidence that the three best baseball teams post-World War II were all based in New York. Yes, you can point to the Lakers’ acquisition of Pau Gasol, or Shaq’s arrival in Cleveland. But baseball has no cap, yet Victor Martinez moved to Boston and Cliff Lee moved to Philly. I agree, this is the natural direction of player movement, but I don’t see how a cap encourages this movement. If anything, an NBA style cap should discourage the movement of good players in free agency, as a “Larry Bird” type rule gives a player’s existing team the ability to pay the player the highest amount.
Perhaps the tax does curb spending a bit for the Yankees. They might have spent more (the equivalent of the taxes they had to pay) than they did. It's a more complex issue that one thing caused this other thing, but I think most of the lessening in spending has more to do with 1) the economy, 2) Cashman taking the reins, and 3) understanding the true(r) value of free-agents and how many dollars and years to give.
I will agree that the tax has some effect on the Yankees, but if it's only hurting the Yankees, then it continues to overlook the disparity between the Red Sox (and Tigers, Angels, Mets) and the Marlins (and Pirates, etc.). There's a pretty big split there as well, and to make the league more equal, it seems as though something needs to be done about that split, too, if we are going to try this.
For the record, I'm not sure about salary caps/floors. I can see the positives of having it, but on the other hand, there are so many other spots of inequality that also need to be changed to make baseball completely equal.
"Brien, I dispute that the NBA cap is designed to move talented players to playoff teams. It may have that effect, but you’ll have to give me proof that this is the intent behind the way the NBA cap was designed."
I don't want to be rude, but please don't be silly. More than half of the teams in the NBA make the playoffs, the calendar stretches for nearly 2 full monts, and a good number of NBA viewers don't even pretend to care about the regular season. Of course the NBA is going to craft policies that put maximum talent in the playoffs, it's in their best interest to. And that's not to say there isn't some benefit to the other teams, but I certainly don't see any evidence that the NBA has a ton of competitive balance.
" If anything, an NBA style cap should discourage the movement of good players in free agency, as a “Larry Bird” type rule gives a player’s existing team the ability to pay the player the highest amount."
I believe I said that free agency generally isn't much of a factor in player movement in the NBA. Trades are where most of the action is.
"The argument, of course, is whether a salary cap is the best way to promote competitive balance."
I'd say the argument is; a) whether baseball has a competitive balance problem and, b) whether or not that's bad for baseball either way. I'm not at all sold on the notion that there's a problem that needs to be addressed.
Brien, I enjoy and appreciate your posts, but I don't want to spend too much time here discussing the NBA. Sure, it's in the NBA's best interests to have the playoffs feature their best and most popular players. There are conspiracy theorists who think that the NBA somehow pressures the refs to call playoff games to arrange playoff pairings (Kobe v. Lebron) that will drive the highest possible TV ratings. Is David Stern scurrying around behind the scenes trying to figure out how to get a young and terrific player like Tyreke Evans out of Sacramento or Stephen Curry out of Golden State? Maybe.
I'm simply looking at the salary cap, and while I've used the NBA as a cap example, I'm trying to focus on baseball. You are arguing that a cap in baseball would serve to concentrate the best players on the most successful teams. I've pointed you to arguments that every sport has an economic incentive to move its best players to its biggest markets, but this incentive exists apart from the salary cap. You simply have not explained how a cap works to move good players to good teams.
Let me see if I can flesh out your argument in terms that I can understand. You are focusing on the effect of a cap on player trades. Let's imagine that terrific basketball player Joe Jones plays for a lousy small market team in Omaha. Joe Jones is the highest paid player on Omaha. The Lakers covet Joe Jones. The Lakers have a lousy old player (let's call him Sam Smith) making too much money, but Smith has an expiring contract. The Lakers also have a promising rookie making relatively little, and Omaha has a bust of a rookie player also making very little. So the Lakers trade Smith and their good rookie to Omaha, for Jones and Omaha's lousy rookie. I'm not an NBA expert, but this hypothetical sounds like it's not far from what you're complaining about in the NBA.
What role did the cap play in this hypothetical trade? Arguably, without the cap, Omaha would have traded Jones straight up for the Lakers' promising rookie. In this hypothetical, the Lakers wanted Jones and Omaha was looking to lighten its salary load and pick up a promising rookie as part of a rebuilding process. The cap necessitated our thinking about things like expiring contracts and dragged Smith into the picture. But your argument is that the cap is designed to help push Jones out of Omaha and to L.A. You may be right, but I'm not seeing it. The way I see it, Jones was out of Omaha regardless of the cap, but the cap caused Smith to move to Omaha.
1. I never said the NBA cap facilitates the movement of superstars, I said it encourages the movement of good role players and supporting cast types to playoff teams.
2. Again, I don't want to be rude, but I submit that you just don't seem to have a very good grasp of the NBA's cap or the nature of the average NBA transaction. For one thing, star players at their peak, or just before, and "promising rookies" are very rarely traded (if by promising you mean "may very well be a legitimate star" not "is a good spot shooter and could make a nice 4th best starter for any team"). For another, the much more likely scenario in your hypothetical is that Omaha trades away a player with a middling contract who becomes the second or third best player on LA in exchange for an aging veteran or an overpaid bust with a middling-or-larger contract that's expiring that off-season to free up room to manuever.
Anyway, I don't want to drag this into a discussion about basketball either, but you're the one who contended a soft cap would be needed, and the obvious model for that is the NBA's cap structure, which simply won't work for what it's supposed to work for because the NBA and MLB have very different competition models.
And again, I think this is all a dubious solution for a mostly non-existent problem anyway.
i'm a yankee fan and what i'd prefer to see is a couple of teams moving into the NY/New England area. perhaps NJ and Connecticut? something that will pull $ away from the yankees and the red sox. it might take 10 years to do it, but eventually it will.
Billy's right, in principle… The metro area that the Yanks play can easily support at least one more team.
Zero chance that the Mets or Yankees (or even most other owners) actually permit it. This is the crux of the argument for more intelligent revenue sharing.
Larry, a belief is not a fact. Show me where it is and I'll agree 100%.
Will, you are correct. Forgive me for having the audacity to express my opnion. I am obviously in the wrong place. I will go ahead and delete this blog from my favorites and never come back again to read or post a comment.
As a Royals fan, I have to listen to people bash my team all the time, and since they are terrible, it's mostly appropriate. Too bad most Yankee fans who watch thier team succed every year can't take any kind of criticism.
But since I won't blindly follow your logic (wait, it wasn't even yours, but no matter), or buy into the Yankee myth, I promise to never darken you door again.
Ron, take a deep breath! Everything is OK. We want you posting comments here.
I didn't simply express an opinion that the luxury tax is a form of salary cap. I backed it up with cites to experts who say that the luxury tax is a form of salary cap. I even got one of these experts to post here. She's offered to provide you with cites to other experts who agree with her (and me).
That does not bar you from expressing a contrary opinion. Perhaps your opinion is, "I don't care what this expert or that expert has to say, to my mind a salary cap needs more teeth than I see in baseball's current luxury tax." Then you've stated a contrary opinion, an opinion that I imagine would be shared by a lot of people, even if it is contrary to the expert opinion. We would then have contrary opinions.
I think what rankles Will, and to be honest rankles me as well, is your statement that what you think is "fact" and what I think is "belief", given that I've cited to other sources and you have not. It's also a little difficult to deal with your assertion that we're a crazy bunch of Yankee fans just throwing stuff out there to perpetuate Yankee dominance, especially since I am personally trying to argue for a cap that you might actually consider to be a cap. One reason why I'd like to keep you around is that in Parts 2, 3 and 4 of this series, you just might find yourself defending me against the anti-cap forces that surround us both! More likely you'll be attacking my cap as being too weak or not really being a "cap", and that's cool too.
But I can't force you to stay.
“Zero chance that the Mets or Yankees (or even most other owners) actually permit it. This is the crux of the argument for more intelligent revenue sharing.”
And until small market owners start making a fuss about that and ESPN talking heads and sports columnists start agitating about it, I just can’t fully take pro-salary cap arguments seriously.
Ron and I go way back, in terms of Internet "life"…. Ron's not going anywhere. He likes to stir it as much as Will does.
If Ron was truly going to disappear, I'm fairly sure I would have gotten an email expressing his disdain.
Rather… he's going to lurk and wait for the chance to strike. Keeps us on our toes.
Brien, I’m not trying to demonstrate a knowledge of the NBA cap or of a typical NBA transaction. I was trying to come up with a hypothetical to better understand the point you were trying to make about caps. It’s fine if you don’t like my hypothetical. Actually, I looked quickly through the list of ACTUAL trades over the last year at http://www.cbssports.com/nba/transactions/trades, to try to find a trade that fits your pattern. At what point this year did a non-playoff team trade a “nice 4th best starter for any team” to a contender? If I’d seen a trade like this, I would have used it instead of my hypothetical example.
I count 38 two-way trades this year. Most are between contenders and non-contenders — a point in your favor, I guess. But there aren’t a lot of trades where the contender picked up a nice 4th best starter. The best illustration I can find is Portland picking up Marcus Camby from the Clippers, in exchange for Steve Blake, Travis Outlaw and cash. I hate to use the Clippers as an example for anything, but that trade best fits your description. You might also point to Dallas picking up Caron Butler, but the Wizards eventually ended up with Al Thornton in return, and I don’t think Thornton fits your scenario. Stephen Jackson to Charlotte? Maybe. Quentin Richardson to Miami? That’s pretty marginal.
I’m really a lot less argumentative than I sound. Point me in the right direction.
In response to those who’d like to see more teams in New York and New England: there’s no guarantee that these teams would be successful and draw revenue away from the Yankees. Again, consider basketball, where (according to Forbes) the Knicks are the second most valuable franchise in the NBA, while the New Jersey Nets rank 26th. Or hockey, where the Rangers are the second most valuable franchise in the NHL, and the Islanders rank 28th.
First off, good post, thanks for writing it.
Second, here are my preferences, in order:
1) More teams in NY area (pipe dream). The problem is the Yanks & Mets will fight like hell and the public isn’t going to pony up 2 more ballparks.
2) More revenue sharing. Lots more.
3) Soft salary cap (beefed up lux tax), no floor (or, if there is to be a floor, it should include spending on signing draft picks and international signings). I think a floor hurts intelligently-run small market teams. Forcing them to go sign a mediocre free agent when they’re in rebuild mode is dumb.
4) Hard cap, with floor. Ugh.
I do think the financial playing field is out of wack. The reason is obvious: the Yanks and Mets get to split an absolutely *massive* market, and thus have huge revenues. That in and of itself is no guarantee of success, for obvious reasons (randomness of baseball, the draft, injuries, etc), but it clearly helps a lot. You can’t “buy a championship” but you pretty much can buy a playoff spot. Anyway, you fix it by attacking those revenues (obvious problem: how to you get at the YES/NESN/etc revenue?).
That said, I don’t actually think it’s bad for baseball for the Yankees to be rich and successful. They are the marquee franchise, playing on the biggest stage, with the most fans. I think a league that enforces total revenue parity is making a mistake.
-Rob (Yankees fan)
Rob, terrific comments (IMHO) as usual.
We have more ground to cover before we can debate solutions. I’m only focusing on a cap for the moment, and I have a few more posts before we can consider revenue sharing (which is a more difficult topic).
Everyone, please check this space on Wednesday for Part 2 of this series!
I'm not sure adding a 3rd team in NY is going to work.
When NY had 3 teams, it was all good in the hood. The die hard fanaticism was regional, preferential and/or hereditary.
Since the Dodgers and Giants left, the Dodgers and Giants fans did one of three things:
1) Follow the squads to California.
2) Pick either the Yankees or latch onto the newly created Mets and see which was the lesser of two evils.
3) Pretend nothing after 1958 ever happened and still talk about Brooklyn and Manhattan has having baseball teams.
I don't see where the 3rd newly proposed NY baseball team would draw its fans. Northeast America is far too hostile and tribal to take in a new team.
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.
Thomas, agreed. See my earlier comment about the Nets and Islanders not sharing in the financial success of the Knicks and Rangers.
TJ, that's a good theory. You are anticipating one of my points, which is that we need to address both the reality and the perception of competitive balance in baseball. You're right, the smaller number of games in the NFL means that fans of all but the worst teams in football can legitimately hope for a few extra wins to make it to the post-season.
I know this is slightly off topic, but I hope it's enough of a corollary to be considered… If the ultimate goal is increased competitiveness couldn't realignment go a long way…?
After years of being the perennial basement dwellers of the AL East, the Rays are currently in first place. Sure, it's early, but I expect them to finish 1st or 2nd (buhbye Boston!) They've been able to load up on talented young prospects, and have clearly demonstrated that there are other models for success other than spending a ton of money. (I guess the qualm here is that they're unlikely to repeat this success year in and year out, since they won't have the cash to resign players who'll eventually become to expensive for them.) But I have to believe, in at least some part, their success is due to a smartly managed and scouted organization that's done 'it' right. I'm tired of Baltimore fans complaining about being in a tough division, the Rays should be enough to shut them up. IT CAN BE DONE. (And frankly Bmore looks about 2-3 years away from a potential contender)
But I guess my point is, why not unleash the Yankees/Red Sox talent/payrolls on everyone and really set their feet to the fire? Wouldn't it force teams to shift to other strategies to compete?
Proposal: Toss out divisions. Back to just AL/NL and balanced scheduling. 6 team playoffs, #1 and #2 get a first round bye. 3v6, 5v4 in the first round. Let's be honest, the AL east is going to have a 3rd (and maybe even 4th) place team who are better than other teams coming out of weaker divisions, why should they be penalized for being a great team, who put together a strong organization and competed well in the toughest division in baseball, to have a 90 win season and not make the playoffs, meanwhile an 84 win team gets a bid from the AL West….? The smaller market teams will be able to compete for 4th-6th spots and if they get hot in the playoffs, who knows what will happen.
Ultimately, I think it'd be a way to give smaller teams more access to the playoffs, and the WS, and they'd be able to repeat it year after year, as they'd then be competing with other more similarly sized budgets for the last few playoff spots. (Keep it in a 5-5-7-7 format for that volatility that allows 'anything to happen in the playoffs' and get rid of all the off days!)
Sorry if it's too far off topic, but it's another solution, I think, which avoids the toxic 'salary cap' words, potentially giving it more traction with all of the stakeholders. For your consideration…
What about another way to "fixing" the disparity of rich and poor teams. I have read int he past an idea of making MLB similar to premire league soccer in Europe.
You take the top 16 teams in payroll for the first year and call them MLB Division A and the remaining teams are in MLB Division B. At the end of the season the top 2 teams in MLB Division B move into Division A and the bottom 2 teams in MBL Division A move down to B.
You would have seperate TV contracts and it would make it important to fight for the top 2 spots in division B and fight against being the last 2 spots in division A. Spending should increase and product on the field in both divisions would benefit.
Unfortunately I dont think that the owners would go for this because of the teams that would be lumped into division B to start off. You might also have a year before it starts to determine the teams in A & B. You could have interdivision play so that those teams in Division B would get home games against the top Division A teams to increase their attendance.
Just a thought.
Mike, I've promised a post (or series of posts) on realignment, just as soon as I finish the series on salary caps, and ANOTHER planned series on revenue sharing. However, both your ideas are terrific IMHO — well worth going slightly off topic.
I've personally suggested an idea along the lines of your soccer league plan. Rather than divisions A and B, I've proposed a Major League and a Mid-Major League. (Everyone loves mid-major college basketball teams in the NCAA tournament, right?) Agreed, there'd be interdivisional play. I'd also guarantee one or two post-season spots to the top teams in the Mid-Major League – we could call these the "Cinderalla Entries". In this way, we can let the mid-market teams play mid-market ball, with reasonable ticket prices, without luxury boxes — the mid-market brand of baseball might be a lot truer to the game we love than the big market version.
I don't think my proposal (or yours) stands a chance of being considered, but I'll consider them both when I consider realignment.
Your first idea, eliminating divisions, is more realistic. Balanced scheduling won't be popular in certain circles — more long-distance travel, might make life difficult for west coast teams. There might be an NBA-style compromise possible, with divisions and conferences and an unbalanced schedule.
Stay tuned to this space. We'll get to realignment, as well as revenue sharing. Please give a listen to all possible means to improve baseball's competitive balance. My preliminary guess is that there are limits to any single solution, and that we may be best served by using these limited solutions in combination.