It’s time: The MLB needs a salary cap
Published: Friday, March 15, 2013
Updated: Friday, March 15, 2013 02:03
Fans of the Kansas City Royals were fed up.
In a game against the New York Yankees on May 1, 1999, fans at Kauffman Stadium donned T-shirts that read “$hare the Wealth.” They staged a protest against the financial disparity in Major League Baseball. That year, the Yankees had the highest team payroll in baseball at $88.13 million. Compare that to the Royals’ fourth-lowest team payroll of $16.53 million. The Yankees were coming off their 24th World Series title; the Royals hadn’t made the playoffs since 1985.
Royals fans turned their backs every time a Yankee hitter stepped up to bat. They threw fake $100 bills into the outfield. The group of 3,000 walked out of the stadium together in protest. Mark Kennedy, one of the walkout organizers, described the root of the problem as “. . . not a normal business situation. There is a finite number of teams. If another team can’t get in the market, then the normal rules don’t apply.”
Fourteen years later, the Yankees won three more World Series titles. They have made the playoffs in 16 of the last 17 years. And they still lead the league in team payroll at a whopping $197.96 million. The Royals still hold the fourth-lowest payroll, $60.92 million, and still haven’t been to the playoffs since 1985. The 27-year postseason drought is the longest in the MLB.
Major League Baseball should implement a salary cap of $125 million to increase parity among all 30 teams in the league.
The Only American Professional Sport Without a Salary Cap
The NFL, NBA and NHL all have a salary cap system in their collective bargaining agreements. The difference between the highest- and lowest-payroll teams in the MLB is $142.72 million. The closest comparison is the NBA at $46.8 million. The same disparity in the NHL is just $17.95 million.
The year of the walkout in Kansas City, the Major League Baseball Players Association (MLBPA) created the Commissioner’s Blue Ribbon Panel on Baseball Economics to evaluate the financial discrepancy between teams. The panel was prompted because in the five years following the strike, none of the 14 teams in the bottom half of payroll spending won a single playoff game. A team with one of the top seven payrolls won every World Series.
Former U.S. Senator George Mitchell presented the panel’s findings: “Baseball’s current economic system has created a caste system in which only high revenue and high payroll clubs have a realistic opportunity to reach the post-season. That is not in the best interests of baseball fans, clubs or players.”
One result of the panel was the establishment of a luxury tax, used as a penalty for any team exceeding payroll threshold. The luxury tax threshold was set at $178 million for 2013. The luxury tax requires teams to pay a percentage of all money spent above that threshold. The money funds the MLB Industry Growth Fund, player benefits and developing baseball in other countries.
The goal of implementing the luxury tax was to give teams an incentive to not spend money. The result: The Yankees have surpassed the threshold every year and have accumulated $224.2 million in luxury tax penalties. The Boston Red Sox, Los Angeles Angels and Detroit Tigers are the only other teams to have taken a luxury tax hit. Since the luxury tax was implemented, those four teams have represented the American League in the World Series in seven of the last 10 years.
The luxury tax has proven largely unsuccessful, and the threshold only affects the Yankees. But another outcome of the Blue Ribbon Report that has helped increase parity in the MLB is revenue sharing.
All 30 MLB teams pay 34 percent of their net local revenue, and then that money is divided up and equally distributed among all 30 teams. The effect was clear.
In 1999, the average revenue differential between the seven richest teams and seven poorest was 118 percent. By 2007, it dropped to 67 percent. But that’s still unacceptable.
Owners Don’t Need Persuading, Players Do
When MLB Commissioner Bud Selig insisted on a salary cap in the 1994 labor talks, the MLBPA balked. Ongoing arguments between the commissioner, owners and players resulted in the strike, considered the lowest point in baseball history. Serious discussions about a salary cap were never brought up again.
While the Players Association is stubborn, owners are surprisingly in favor of a cap.
In a 2009 interview with MLB.com, Red Sox principal owner John Henry said, “I think we all agree that competitive balance is an issue. If there was a way to put together an enlightened form of a salary cap, I think everybody among the owners would probably support that.”
The Red Sox are routinely second or third in team payroll, so this statement comes as a revelation. Owners are willing to establish a salary cap, following the footsteps of the NFL, NBA and NHL.
Here are some elements that should sway the Players Association:
1. Salary Floor
A minimum salary for teams could be a part of implementing a salary cap. Setting a salary floor of $65 million, with a cap of $125 million, will give every team an incentive to spend more money on salaries.
In the NFL, as a part of its salary floor, teams are required to spend nearly 90 percent of the cap on player compensation. This would allow for players in small markets to make more money, because their team would need to spend the money or face penalties.
2. Eliminate Arbitration
All players are under team control on the league-minimum salary of $480,000 during their first six years. After three years of service, players are eligible for arbitration. If teams and players can’t come to an agreement, they go to an arbitration hearing.