What Baseball Can Learn From The NFL

I’ve written a great deal here about salary caps in baseball.  Also, here, here and here.  I looked at salary caps from every which way I could.  I wrote how salary caps always come with salary floors. I wrote how the revenue-poor teams in baseball (many of which are profits-rich, but that’s another story) could not afford much in the way of a salary floor, so baseball could not afford to have much in the way of a salary cap. So I did say it: baseball cannot afford an effective salary cap.

Unfortunately, I also said that I wished it were not so.  I said that baseball needs an effective salary cap, that I wished baseball split its revenue so that it could afford an effective salary cap. It seemed right to me that baseball should be played on a more even financial playing field, that some teams (like my beloved Yankees) should not be able to spend 5, 7, even 10 times the amount that their revenue-poor (if sometimes profit-rich) cousins in Pittsburgh and Tampa Bay were spending. A salary cap (and floor) would do something to narrow the gap between Pittsburgh and New York.  Narrowing this gap seemed fundamentally fair to me.

And it still does.

But there’s a better way to narrow the gap, and that way is to share revenues as fairly as we can between rich and poor baseball teams.  I will talk a lot about revenue sharing during the upcoming baseball season.

The current NFL labor woes highlight why baseball does not want a salary cap, or a salary floor: in order to have a salary cap and floor, the teams and the players have to agree on a fair division of the revenues.  The cap represents the high end of this split, and the floor represents the bare minimum that the owners have agreed must go to the players.  Once a sport puts a salary cap (and floor) in place, this split must be agreed to each time the owners and players negotiate a new collective bargaining agreement.

The problem is, there’s no obvious formula that owners and players can use to split league revenues.   The NFL owners are claiming that their expenses are rising and that they need a greater share of revenues to restore their teams to their former profitability.  But even if this were true (and naturally, the players do not believe that the owners have proved their claim), there’s nothing written in stone saying that the players have to make less so that the owners can make more.

This is why salary caps (and floors) are a bad idea, always a bad idea.  The idea of caps and floors is nothing more than an uncomfortable partnership between owners and players, where the partners are destined to bicker forever over how to divvy up the partnership revenues.  As a former lawyer, I can dutifully report that there ARE plenty of partnerships with bickering partners.  Some partners loathe each other, yet have to work together.  If you’re the lawyer representing such a partnership, the last thing you’d ever do is force the partners to renegotiate their partnership agreement every four years.

It’s common sense: when you’re dealing with a problem relationship, you don’t add issues to compound the problem.  If your marriage is a little shaky, that’s not the time to adopt a child. If things are testy with your next door neighbor, maybe you postpone your run for president of your neighborhood association.  And if you’re running a multi-billion dollar sports league where owners and players have a history of conflict, maybe you don’t make the league dependent on the owners and players agreeing every four years how to split the revenues.

Baseball has done this better.  At the moment, the “partnership” between MLB and the baseball players’ union is functioning reasonably well, but it will not always be so.  There will come a day when labor relations in baseball are as terrible as we’re presently seeing with the NFL. When that day comes, MLB and the baseball players’ union will have plenty of issues to divide them: luxury tax levels, and years to free agent eligibility, and “hard slots”, and the like. But they won’t have to argue how to split up the revenues, because (owing to luck, or foresight, or just the players’ ability to have their way back in 1994) baseball does not have a salary cap.  For which we should be grateful.

People like me, who would like to see baseball played on a more level economic playing field, will need to look to revenue sharing – a revised form of revenue sharing that improves competitive balance in an efficient and cost-effective way – as the principal means to achieve greater fairness in baseball.

Because salary caps are a bad idea.  Always were.  Sorry I ever said otherwise … but thanks to the NFL, I’ve seen the light.

43 thoughts on “What Baseball Can Learn From The NFL

  1. Thanks for seeing the light Larry. This whole NFL situation can lead to a lockout. Which bums me out. I would hate for baseball to have a similar fate.

  2. Larry – I DON'T WANT FAIR. I like the Yankees spending ten times as much. AFAIC, they should remove the luxury tax – I want a 120 win season.

    Money does NOT buy rings. Every year "poor" teams get into the playoffs. It ain't broke. Don't fix it.

  3. I say the players' union should agree to a salary cap when the owners agree to a profits cap.

  4. I'll go one step further and say that baseball would be worse off if it had a "fair salary cap" and complete revenue sharing. Why? Because that would kill incentive to grow the game. Even though we bemoan that sports is "about the money", that's why we have so much access to the game. A fair salary cap with universal revenue sharing might seem fair, but it would amount to a "tax" on the more productive, which would kind of be like throwing motor oil in the engine to slow a car down.

    Secondly, why do the Pirates need to close the gap with the Yankees? Shouldn't their sights be set on beating out the small market Brewers, Reds, Cardinals, etc.? Baseball doesn't need revenue sharing to even the playing field. The 25-man roster, reserve clause, Rule IV draft and wild card playoff system all do a very good job of that.

  5. From my perspective, it seems quite possible that the strategy (more likely from the players than owners) is to wipe out part or all of spring training this year. The games are full-priced for the fans and the veterans barely play.

    With that said, the NFL and players' union should have learned the lesson that the NHL taught everyone. When they start skipping games, their fans patience for either side will evaporate … even if they choose to not battle it out in the media. (I wouldn't want to put money on the fight not being in the media if it comes to this.) Every professional sport has a replacement if you absolutely must see the sport in action. It may not be a perfect replacement, but it does exist. It's called College sports.

    At least with hockey, what I personally found was that I enjoyed the game more than I did at the professional level. That's the risk any professional sport runs if they stop playing games. The fans will look for alternatives and may find they like them better.

    The NHL had the stoppage in play for a long-term view on trying to make the league more viable…. although they really didn't fix their tv revenues by much in doing so. It still doesn't seem that the they have regained the fans they alienated in having the stoppage. Given this does it really make sense for a long-term strategy to go without playing games?

  6. Why is it less true in pro sports? The Yankees had to spend money to build the new ballpark; they had to spend money to create YES; they had to spend money to build a quality team that could sustain fan interest. These endeavors involve a ton of risk. Just ask the Mets.

    Also, how does a total revenue sharing arrangement mitigate risk? Revenue sharing doesn’t collectivize losses. Any business that entered into such an agreement would be doomed to failure. It would be like giving your teenage son a credit card. Talk about moral hazard!

    You seem to be talking about “the league” as if it is one entity, but that couldn’t be further from the truth. American sports consist of franchises that spend their own money and bring in their own revenue. This is heightened in baseball, where revenue is mostly derived from local sources. In other words, baseball needs its individual clubs to grow the game, and limiting the amount of money they can keep from their own investments is the best way to ensure it slows to a crawl.

  7. Gee, if you live in California and you sleep a little late on a Friday, you can miss a full-blown comment fight between William and Brien.

    William, I come closer to siding with Brien on this one, though I understand your point. You're saying that revenue sharing is in essence a form of taxation, and that taxation tends to discourage whatever activity it is that we're taxing. Quite true. So when we slap the revenue sharing tax on certain activities of the Yankees and Red Sox, the Yankees naturally focus on non-taxed activities, like Stadium-building and the YES network, and the Red Sox go and buy an English-league football team. This distorts the way these teams would have spent their money in the absence of revenue sharing, and probably causes these teams to invest in less-productive (if untaxed) activities.

    But we're looking at just half the picture so far. The proceeds of revenue sharing CAN be spent in ways that accomplish some good. Then all we're dealing with is a classic cost-benefit analysis, where revenue sharing can be justified if the benefits of revenue sharing (greater fairness and competitive balance) outweigh the costs we've discussed above. This is part of the reason why I screamed as loud as I did last summer, when the deadspin.com documents revealed that some teams were merely pocketing the lion's share of their revenue sharing, while a team like the Rays could not get enough in revenue sharing to hold onto their core group of players.

    Two other things to mention. Brien has argued that revenue sharing should take the form of teams like the Yankees paying something for their exclusive market rights (shared only with the Mets) to the largest metropolitan and media markets in the U.S. There's something to be said for this. Brien, FWIW, Jonah Keri agrees with you in his latest book (he doesn't discuss this in depth, but he clearly agrees). Also, there's always been revenue sharing in baseball — until relatively recently, this revenue sharing took the form of splitting gate receipts.

  8. Plus you need to account for the fact that the Yankees owners have a substantial investment in YES Network, whose revenues they aren't required to share with the rest of baseball either.

  9. Thanks for the warm welcome. I was not aware of the study on J-Doug's Rational Pastimes blog, but I am in agreement with it. I think upward mobility is the most important measure of competitive balance; without it, fans have nothing to look forward to. As I think about this subject more, I realize that there may be no viable solution. The problem is structural more than anything else; in basketball one good draft pick or free agent can change a last place team into a playoff team the next year. Baseball gets hit with a double whammy; very rarely are draftees ready to contribute on the big league level within a year, and even the best free agent pickup can only improve a last place team by a limited amount.