Salary Cap in MLB?

In a world so divided between the haves and the have nots, is there a more glaring issue in MLB than tenfold payroll discrepancy between the top and bottom of the spectrum? Talk long enough with any group of serious fans about what has to be done to fix the game, and you'll find some form of salary cap comes up as often as such debacles as the designated hitter, HFA riding on the ASG (as well as 3-letter acronyms in general), allowing Manny Ramirez to use eBay, and trough-style urinals in ballpark restrooms. They'll toss around a number of points, but invariably, the crux of the argument hinges on the issue of competitive balance. How are teams with $20 million payrolls supposed to compete with teams with $200 million payrolls?

Excellent question (I'll give you the benefit of the doubt in assuming you would have asked it). How indeed? The owners would have us believe that that answer is to cap spending so that no $200 million dollar payrolls, nor anything like them, ever exist again. Ever since the strike of 1994, when the owners pushed hard for a cap, the term "competitive balance" has been strongly associated with the owners' proposals in collective bargaining thanks to an aggressive PR campaign to create such associations, so it's no surprise that so many fans think salary cap when they think of increasing parity. Are their proposals, including a salary cap, really in the best interest of competitive balance, though?

Enter Sen. George Mitchell, baseball's go-to man when it comes to the tough questions. In 2000, he published a report commissioned by MLB examining financial disparity in the game and its effects on competitive balance. His 87 page report detailed the issues and outlined several proposals to improve parity. The report does not mention any form of salary cap once.

He does, however, propose that teams be encouraged to bring spending to a minimum level. No one is spending $20 million because they have to. David Sampson could easily double or probably even triple the Marlins' payroll without any changes in the CBA whatsoever. In fact, when the Marlins won it all back in 1997, they did so with the 5th highest payroll in baseball. In 2008, while revenues and overall payrolls universally rose and with the team now collecting additional funds from the new revenue sharing system, the Marlins sat a full $30 million below what they could afford 11 years ago. Heck, they've even stopped the age-old tradition of dumping stars when they hit free agency--now arbitration-eligibility is enough to send a player out of baseball purgatory in Miami. The discrepancy is not entirely about who has what: it is just as much about who is willing to spend what. Somehow, the focus has shifted from dealing with that part of the issue and increasing spending to just cutting spending of the top teams.

A major issue with a cap in today's MLB (and a key difference between MLB and other leagues for which caps do work) is that MLB is simply not set up to equate spending with success. The remnants of the reserve clause allow for teams that build around young, emerging talent to get equivalent or superior production for significantly lower cost than a team built on established veterans. Players with less than 3 years Major League experience may be resigned by their clubs for minimal cost without any recourse to seek higher salaries or contracts from other teams. Players with 3-6 years experience can't seek contracts from other teams, though they can seek arbitration, which provides production based salaries for the first time in a player's career, but still generally pay well below market value. Or, alternatively, these players can sign long-term deals several times below market value. In other words, the cost of production is not based on the amount of production as a general rule, so spending more money does not necessarily equate to buying more production. This alone makes a salary cap impractical in terms of competitive balance and would have to change before a cap could even begin to enter the discussion of improving competitive balance.

Of course, a cap is not the only thing the owners proposed under the guise of competitive balance, so let's have a look at what their other provisions for the sake of have done to level the playing field. Selig's crown jewel of parity, revenue sharing, was supposed to tear down the walls between the haves and the have nots. It was supposed to let the small market teams spend money like anyone else. So why, Mr. Selig, are the Marlins spending well under half of what they were in 1997, before your godsend of revenue sharing hit full stride? Why is the gap in spending still as high as it's ever been? Why are the same teams still at the top and the same teams still at the bottom for the most part? And why did Sen. Mitchell's report state that "The limited revenue sharing enacted in recent years has failed to promote competitive balance, as intended" and "Some low-revenue clubs, believing the amount of their proceeds from revenue sharing insufficient to enable them to become competitive, used those proceeds to become modestly profitable"?

Okay, we might have to back up. Apparently Bud isn't aware of these minor things called facts, even the ones he commissioned himself. A short year ago, he claimed baseball had more parity than any other sport, saying of his contributions "This is one time I can say that this is exactly what we tried to do." So these questions might be a bit out of left field for the commish. So let's establish what revenue sharing has done. Essentially, it redistributes revenues pooled into a central fund to the teams bringing in less than the league average in their own revenue, with the teams receiving a share inversely proportional to their local revenue. In other words, the less money you bring in on your own, the more you get handed in revenue sharing. Not a bad idea. Except that in effect, it has flipped the economics of small market baseball on their head. Before, they operated on the same principle as any other team: to increase revenue, they had to improve their on-field product and draw in money with the quality of their team. Now, it is actually possible for them to make more money by sucking and tanking their own revenue so they can collect as much as possible from the central fund in revenue sharing. There is no incentive in the revenue sharing plan for them to improve (hey, that was one of Mitchell's proposals!), because if they do, they lose funds from the system.

So why doesn't the plan include incentives for teams receiving revenue sharing payments to actually use those funds to improve the team (as opposed to pocketing them)? The simple fact is, the owners don't want that. The small market owners don't want limits on what they can do with their new money, and the large market owners, while they may not like revenue sharing itself, don't mind the teams getting payments not using that money to compete with them. The former make more money by pocketing revenue sharing funds, and the latter make more money by having fewer teams to compete with for free agents and by winning more games over the weaker competition (which translates into more revenue). Meanwhile, less money ends up being spent on players, essentially reducing salaries as a side effect, and disparity continues. Which is, as Selig so brashly noted, exactly what they were trying to do.

There have been other measures proposed under the guise of competitive balance. Compensation draft picks for free agents are one notable example. They are supposed to protect teams who can't afford to keep free agents from losing their best players and being left with nothing. Like, say, when Johan Santana leaves Minnesota as a free agent, the Twins get a couple first round draft picks back for him. Or when Miguel Cabrera leaves Florida, or CC Sabathia Cleveland, or Carlos Beltran Kansas City. See the pattern yet? The teams who get those draft picks are the ones who can afford to bring them in when they hit free agency. A lot has been written on who compensation picks are helping (Joba Chamberlain, anyone?), so I won't go into the details, but more often than not, it's not the teams who need them to rebuild in order to become competitive. So no competitive balance improvements here either. It does, coincidentally (ahem), happen to keep the teams who do need those draft picks out of the bidding for top free agents, because signing them would take their top pick away. Fewer teams in the bidding (as well as the non-monetary cost associated with signing free agents), once again, leads to lower player salaries in free agency. In fact, getting rid of compensation draft picks was another proposal in Sen. Mitchell's report (you may be starting to wonder why MLB commissioned the report in the first place if they weren't going to try to implement anything in it-if not, you probably should be).

Sen. Mitchell also notes that disparity grew significantly following the 1994 strike, which also happens to mark the point when the owners began getting their measures for competitive balance added to the CBA (those damn acronyms again!). So now we are to expect, after all the owners have done to supposedly increase the competitive balance that also just happens to decrease what they have to pay players, while ignoring the suggestions of their own commission on increasing parity, that they need more measures that weren't suggested as possible solutions in their commissioned report on the matter? Didn't Selig just say they had already accomplished what they wanted without the cap, and that baseball now had more parity than any other sport? Do they really expect us to fall for this again? Apparently so. And judging from what I've heard from fans, we really are.

I get the frustration. I remember going to the Kauffman on free general admission as a kid. Now you can't even park your car or get an order of nachos and a drink for the price most of us remember bleacher seats going for. People look at exorbitant player salaries and think, I'm paying for that. It's easy to think that way. Player salaries are plastered all over local papers, national media outlets, and Cot's Baseball Contracts. A lot of fans can recite their team's payroll figures, and the ones who can't can look them up with a few clicks online. The owners, on the other hand, closely guard information on their profits. As far as Forbes can tell, the Yankees are losing money every year yet still worth over $1 billion. No one seems to think about their ticket prices paying the owners' salaries. But they do. And after the owners have told us for years how much we needed revenue sharing, etc., ticket prices, and pretty much all costs associated with going to a game, continue to rise long after the owners got what they wanted. A salary cap isn't going to change that. Ticket prices aren't set to cover player salaries. They're set to maximize revenue. Regardless of what teams are spending on players, you're going to be paying however much the owners think they can get out of you. When the cap was first proposed in 1994, The Congressional Research Service analyzed the owners' proposal and estimated it would have reduced 1994 salaries by about $200 million. They estimated that about 80% of that would have gone right into the owners' pockets as additional profit. That is where the money saved would go. Not to the fans.

A salary cap may keep the Yankees from spending $200 million a year. It won't keep the Red Sox, or other teams with strong farm systems, from dominating the game. When one team can sign their MVP to a long-term deal in the $40 million range while another has to spend 4 times that, how is making them work on the same total payroll supposed to lead to competitive balance? It doesn't. Of course, there's nothing wrong with teams dominating because they are run better, but part of having better player development involves investing greater resources outside of the payroll on those operations. There is still a matter of financial disparity.

A cap won't keep teams from tanking payrolls either. Teams refusing to spend is as much a problem for parity as the extravagant spending on the other end of the spectrum. Proponents of the cap suggest a league minimum as well. Say you set a minimum at $95 million and a cap at $105 million, just to keep everyone in the same ballpark (which is the idea-setting the minimum at half the cap is still going leave a lot of disparity). What happens when teams that refuse to spend what they have now on payroll have to get up to the minimum? They'll cut costs in other baseball operations, namely player development, scouting, and signing bonus money for draft picks and international signings. Since there is a huge advantage under a cap system to cheap young talent, teams cutting off their development of that talent will still fall far behind the teams investing extra money into those non-payroll expenditures. A new type of competitive imbalance would simply rise to replace the financial disparity in the game now as long as MLB suppresses player salaries for the first several years of a players career.

Maybe a salary cap can help baseball someday. But not right now. There is way too much to be fixed before a cap can even begin doing any good. MLB has still not incorporated most of the recommendations from the Mitchell Report Vol. I. It still hasn't tried to make the proposals they've pushed through work for copetitive balance, despite claims to the contrary by the commissioner (for the record, Mr. Selig, more teams making the playoffs after you doubled the number of teams that make the playoffs from 4 to 8 doesn't mean there is more parity, it just means you lowered the standards of success). As Mitchell says in his report, "any reform of MLB should protect and balance the interests of players, clubs, and fans." So why is everyone pushing for something that only benefits one of those three groups?