Major League Baseball Salary Cap Analysis
The completion in Major League Baseball has been greatly imbalanced since the strike shortened season of 1994. Competitive balance should exist when there are no clubs chronically weak because of Major League Baseball's structural features. Proper competitive balance will not exist until every well-run club has a regularly recurring reasonable hope of reaching postseason play which is parity. One of the primary reasons for the competitive imbalance that does occur in Major League Baseball is difference in how much revenue teams bring in. Large market teams such as the New York Yankees, Boston Red Sox, and New York Mets are able to bring in large amounts of revenue. Small market teams such as the Minnesota Twins, Milwaukee Brewers, and Montreal
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Expos can only generate small amounts of revenue. This has created a situation where teams that can generate a large amount of revenue have the best teams because they have the money to sign the best players and have the highest payrolls. The teams that have the highest payrolls also tend to have the highest winning percentages and they tend to be the teams who win playoff games and championships. The teams who have the lowest payrolls on the other hand tend to have winning percentages that are below 50%. There are many measures that could be used to make teams more competitively balanced. These include the reverse order draft, revenue sharing, and the salary cap. The question I will address is, would the institution of a hard salary cap in Major League Baseball solve this problem of disparity among teams with high payrolls and low payrolls?
A salary cap can be defined as a limit that teams can spend on player contracts.
There are two types of salary caps a hard cap and a soft cap. A hard cap does not allow a team to exceed the limit for any reason. An example would be the National Football League. A soft cap has exceptions which allow teams to exceed the cap for certain reasons. The National Basketball Association is a league which has a soft cap. I will look at how a hard salary cap would affect parity in Major League Baseball. There would also be a minimum salary limit to keep teams from having low in order to maximize …show more content…
profits.
The criticism that the New York Yankees organization, whom I am a fan, hears about every year is that they are buying a World Series when they have a payroll that is much higher than anybody's in baseball, which obviously didnt happen last year.
The Yankees payroll was 156 million last year compare that to the team with the second highest payroll the Los Angeles Dodgers at 115 million and it is easy to see that the Yankees are able to spend much more money on their team than any other organization. Then compare the Yankees payroll to the lowest 21 team payrolls and the Yankees payroll more than doubles any of these teams. This shows that teams on the high end of payroll have much more money to work with when signing players to play on their teams. Competitive balance focuses on whether the salary cap would be able to allow all teams, particularly teams with the bottom ten payrolls to be competitive or would it have no affect or would it make the situation that exists worse. The production function for success of a club is: Success = (payroll + player talent + coaching talent + scouting talent - injuries). This is the production function for success because these are the factors that lead to successful winning seasons. Payroll is high on the list because it directly affects other factors in the production function. The way that payroll correlates with the success of a team is that teams with high payrolls are more likely to have successful seasons. It affects all other
factors on the list because it can be presumed that a team that spends a large amount on payroll will have more player talent, should be able to hire a more distinguished and more skilled coach, and should be able to hire a general manager and scouting department that is considered very talented. The last factor in the production function is injuries. Injuries play a part of the success of a team because if high paid star baseball players are hurt it will affect a team's ability to win. This model should be accurate because the factors listed play the important roles in the success of a baseball club.
The reason that a salary cap would help increase competitive balance is because it would limit the amount of money a team could spend on their payroll which is an important factor in the production function. This model would also force teams to spend more money on players or increases payroll which will lead to more wins for that team. If teams such as the Yankees are limited to spending 80 million on their payroll it would allow some of the great players that the Yankees stockpile to be picked up by other teams. This is important because expansion in baseball has created a situation where there is not as much concentrated talent in Major League Baseball. Therefore teams are being forced to sign players who would have never made the major leagues ten years ago. It would also create a situation where the Yankees could not simply pay a coveted free agent more than any other team in order to sign him because they would have to keep their payroll under the salary cap. This will benefit coaches for other lower payroll teams because they can now use their talents of persuasion to sway a free agent to play for the city that the coach's team is located in, thus increasing the role that the factors scouting talent and coaching talent have on the production function.
However the salary cap would also create a situation where high revenue teams such as the Yankees will cheat to try to sign more high priced players. They can do this by signing players to back loaded contracts or by hiding how much a player is earning through the use of bonuses. Low revenue teams will also try to cheat but in the opposite manner. They will try to have a payroll that is less than the salary cap and then use the money shared throughout the league to try to make their team profitable. If this situation started to develop the salary cap would not be a very useful way to increase competitive balance because the same problem that occurs now would emerge. In order to try to erase this problem the salary cap would have to have strict enforcement controlled by the Major League Baseball front office. Possible sanctions could be the loss of the contract of a player, essentially forcing a player to go into free agency, if a team signed that player through means that are not in compliance with the salary cap rules. Another possible sanction may be to force that team to share more revenue based on how far over the cap the team is based on the contract of the player in question.
The establishment of a Salary Cap in Major League Baseball would bring a competitive balance to the league. Competitive Balance is understood to be where there is no chronically weak team in the whole entire league, as stated earlier. Proper competitive balance cannot happen until every ball club has a realistic chance every year of making the postseason. This is a very big problem today in Major League Baseball and the phrase "the more you spend the more you win" is starting to become true. This is evident when looking at the ten lowest and the five highest payrolls (in 2003), while comparing them to the winning percentages of those teams.
When looking at the lowest ten payrolls you don't see too many teams that made the playoffs in 2003. Actually there is only one team and that is Oakland the tenth lowest payroll (49,277,634). The other nine teams did not make the playoffs and the majority of them didn't win too many games either. However, in the top five payrolls, four of the five teams made the playoffs. The one team that didn't Los Angeles had a legit shot at the playoffs too. Here is a chart that shows the ten lowest and five highest payrolls, games won, and the winning percentage of each team:
Rank Team Payroll Games Won Winning Pct.
Lowest Tampa Bay 18,730,000 63 0.389
2nd Lowest Toronto 27,523,500 86 0.531
3rd Lowest Milwaukee 27,887,000 68 0.42
4th Lowest Pittsburgh 42,106,059 75 0.463
5th Lowest Kansas City 43,323,500 83 0.512
6th Lowest San Diego 44,524,500 64 0.395
7th Lowest Montreal 45,564,000 83 0.512
8th Lowest Detroit 46,610,134 43 0.265
9th Lowest Cleveland 47,610,134 68 0.42
10th Lowest Oakland 49,277,634 96 0.593
Highest New York Yankees 156,948,495 101 0.623
2nd Highest Los Angeles 115,764,287 85 0.525
3rd Highest Boston 100,651,177 95 0.586
4th Highest Atlanta 99,195,593 101 0.623
5th Highest San Francisco 89,052,167 100 0.621
After looking at this chart is obvious to see a few things that stand out. The main point is that not one of the top five payroll teams had below a .500 winning percentage, which is not apparent when looking the ten lowest payrolls. There was actually only four teams that were above a .500 winning percentage in the ten lowest payrolls. Another point is that the average of wins and winning percentage has a real large gap between the five highest and ten lowest payrolls. The five highest payrolls averaged winning 96.4 games with a winning percentage of .595. These range much higher when compared to the ten lowest payrolls which averaged only 72.9 wins and a winning percentage of .45. This goes to show that spending money will get wins and a better winning percentage and not spending will keep the club from doing so. Therefore if the MLB was to institute a Salary Cap these huge margins of disparity in wins and winning percentage could be closed and competitive balance could occur. However, if the MLB decides not to put in a Salary Cap this disparity will continue and the phrase "the more you spend the more you win" will continue to stay true.
To answer are essential question we do believe that a salary cap would increase the competitive balance in Major League Baseball. To illustrate this with teams say that the salary cap in our model is $80 million and the salary basement is $40 million. This would affect the Yankees very much because they would be forced to drop quality players that other teams can pick up and sign for their team. Tampa Bay on the other-hand will be forced to sign more players and they will have the opportunity to sign the quality players the Yankees let go of. Although teams could try to cheat to avoid the salary cap that is not supposed to happen and with strict enforcement will not happen. If the league is able to keep teams from cheating to spend more and less then the salary cap it will lead to Major League Baseball having competitive balance.
Expos can only generate small amounts of revenue. This has created a situation where teams that can generate a large amount of revenue have the best teams because they have the money to sign the best players and have the highest payrolls. The teams that have the highest payrolls also tend to have the highest winning percentages and they tend to be the teams who win playoff games and championships. The teams who have the lowest payrolls on the other hand tend to have winning percentages that are below 50%. There are many measures that could be used to make teams more competitively balanced. These include the reverse order draft, revenue sharing, and the salary cap. The question I will address is, would the institution of a hard salary cap in Major League Baseball solve this problem of disparity among teams with high payrolls and low payrolls?
A salary cap can be defined as a limit that teams can spend on player contracts.
There are two types of salary caps a hard cap and a soft cap. A hard cap does not allow a team to exceed the limit for any reason. An example would be the National Football League. A soft cap has exceptions which allow teams to exceed the cap for certain reasons. The National Basketball Association is a league which has a soft cap. I will look at how a hard salary cap would affect parity in Major League Baseball. There would also be a minimum salary limit to keep teams from having low in order to maximize …show more content…
profits.
The criticism that the New York Yankees organization, whom I am a fan, hears about every year is that they are buying a World Series when they have a payroll that is much higher than anybody's in baseball, which obviously didnt happen last year.
The Yankees payroll was 156 million last year compare that to the team with the second highest payroll the Los Angeles Dodgers at 115 million and it is easy to see that the Yankees are able to spend much more money on their team than any other organization. Then compare the Yankees payroll to the lowest 21 team payrolls and the Yankees payroll more than doubles any of these teams. This shows that teams on the high end of payroll have much more money to work with when signing players to play on their teams. Competitive balance focuses on whether the salary cap would be able to allow all teams, particularly teams with the bottom ten payrolls to be competitive or would it have no affect or would it make the situation that exists worse. The production function for success of a club is: Success = (payroll + player talent + coaching talent + scouting talent - injuries). This is the production function for success because these are the factors that lead to successful winning seasons. Payroll is high on the list because it directly affects other factors in the production function. The way that payroll correlates with the success of a team is that teams with high payrolls are more likely to have successful seasons. It affects all other
factors on the list because it can be presumed that a team that spends a large amount on payroll will have more player talent, should be able to hire a more distinguished and more skilled coach, and should be able to hire a general manager and scouting department that is considered very talented. The last factor in the production function is injuries. Injuries play a part of the success of a team because if high paid star baseball players are hurt it will affect a team's ability to win. This model should be accurate because the factors listed play the important roles in the success of a baseball club.
The reason that a salary cap would help increase competitive balance is because it would limit the amount of money a team could spend on their payroll which is an important factor in the production function. This model would also force teams to spend more money on players or increases payroll which will lead to more wins for that team. If teams such as the Yankees are limited to spending 80 million on their payroll it would allow some of the great players that the Yankees stockpile to be picked up by other teams. This is important because expansion in baseball has created a situation where there is not as much concentrated talent in Major League Baseball. Therefore teams are being forced to sign players who would have never made the major leagues ten years ago. It would also create a situation where the Yankees could not simply pay a coveted free agent more than any other team in order to sign him because they would have to keep their payroll under the salary cap. This will benefit coaches for other lower payroll teams because they can now use their talents of persuasion to sway a free agent to play for the city that the coach's team is located in, thus increasing the role that the factors scouting talent and coaching talent have on the production function.
However the salary cap would also create a situation where high revenue teams such as the Yankees will cheat to try to sign more high priced players. They can do this by signing players to back loaded contracts or by hiding how much a player is earning through the use of bonuses. Low revenue teams will also try to cheat but in the opposite manner. They will try to have a payroll that is less than the salary cap and then use the money shared throughout the league to try to make their team profitable. If this situation started to develop the salary cap would not be a very useful way to increase competitive balance because the same problem that occurs now would emerge. In order to try to erase this problem the salary cap would have to have strict enforcement controlled by the Major League Baseball front office. Possible sanctions could be the loss of the contract of a player, essentially forcing a player to go into free agency, if a team signed that player through means that are not in compliance with the salary cap rules. Another possible sanction may be to force that team to share more revenue based on how far over the cap the team is based on the contract of the player in question.
The establishment of a Salary Cap in Major League Baseball would bring a competitive balance to the league. Competitive Balance is understood to be where there is no chronically weak team in the whole entire league, as stated earlier. Proper competitive balance cannot happen until every ball club has a realistic chance every year of making the postseason. This is a very big problem today in Major League Baseball and the phrase "the more you spend the more you win" is starting to become true. This is evident when looking at the ten lowest and the five highest payrolls (in 2003), while comparing them to the winning percentages of those teams.
When looking at the lowest ten payrolls you don't see too many teams that made the playoffs in 2003. Actually there is only one team and that is Oakland the tenth lowest payroll (49,277,634). The other nine teams did not make the playoffs and the majority of them didn't win too many games either. However, in the top five payrolls, four of the five teams made the playoffs. The one team that didn't Los Angeles had a legit shot at the playoffs too. Here is a chart that shows the ten lowest and five highest payrolls, games won, and the winning percentage of each team:
Rank Team Payroll Games Won Winning Pct.
Lowest Tampa Bay 18,730,000 63 0.389
2nd Lowest Toronto 27,523,500 86 0.531
3rd Lowest Milwaukee 27,887,000 68 0.42
4th Lowest Pittsburgh 42,106,059 75 0.463
5th Lowest Kansas City 43,323,500 83 0.512
6th Lowest San Diego 44,524,500 64 0.395
7th Lowest Montreal 45,564,000 83 0.512
8th Lowest Detroit 46,610,134 43 0.265
9th Lowest Cleveland 47,610,134 68 0.42
10th Lowest Oakland 49,277,634 96 0.593
Highest New York Yankees 156,948,495 101 0.623
2nd Highest Los Angeles 115,764,287 85 0.525
3rd Highest Boston 100,651,177 95 0.586
4th Highest Atlanta 99,195,593 101 0.623
5th Highest San Francisco 89,052,167 100 0.621
After looking at this chart is obvious to see a few things that stand out. The main point is that not one of the top five payroll teams had below a .500 winning percentage, which is not apparent when looking the ten lowest payrolls. There was actually only four teams that were above a .500 winning percentage in the ten lowest payrolls. Another point is that the average of wins and winning percentage has a real large gap between the five highest and ten lowest payrolls. The five highest payrolls averaged winning 96.4 games with a winning percentage of .595. These range much higher when compared to the ten lowest payrolls which averaged only 72.9 wins and a winning percentage of .45. This goes to show that spending money will get wins and a better winning percentage and not spending will keep the club from doing so. Therefore if the MLB was to institute a Salary Cap these huge margins of disparity in wins and winning percentage could be closed and competitive balance could occur. However, if the MLB decides not to put in a Salary Cap this disparity will continue and the phrase "the more you spend the more you win" will continue to stay true.
To answer are essential question we do believe that a salary cap would increase the competitive balance in Major League Baseball. To illustrate this with teams say that the salary cap in our model is $80 million and the salary basement is $40 million. This would affect the Yankees very much because they would be forced to drop quality players that other teams can pick up and sign for their team. Tampa Bay on the other-hand will be forced to sign more players and they will have the opportunity to sign the quality players the Yankees let go of. Although teams could try to cheat to avoid the salary cap that is not supposed to happen and with strict enforcement will not happen. If the league is able to keep teams from cheating to spend more and less then the salary cap it will lead to Major League Baseball having competitive balance.