MLB: San Francisco Giants at New York Yankees

For years — probably since the advent of free agency — there has been a clamor for baseball to enact a salary cap in the name of competitive balance. Star players went on an annual exodus from the small markets of the midwest to the major cities of the coasts, and thus came the concern every World Series would pit the New York Yankees against the Los Angeles Dodgers, as if the Yankees weren’t by far the most powerful team in the days before players could negotiate their own salaries.

Monday, the Yankees announced the plan to spend $12-15 million in bonuses on international free agents according to Kiley McDaniel of Scout.com. Such spending would incur an extra $10-12 million in penalties as the Yankees would rocket past the $2.9 million international free agent spending limit. And this news should help show just why a salary cap — hard or soft — is extremely limited in its ability to enforce competitive balance.

Perhaps Major League Baseball was hoping its $189 million luxury tax limit would act as a salary cap. It’s effectiveness in that light seems limited — the Yankees plan to get under the cap as soon as possible, but the Dodgers couldn’t seem to care less. But for the Yankees, this isn’t about getting under $189 million for the goodness of their heart, or to make it easier for other teams to win. It’s about using the money better and smarter. McDaniel lays it out:

“Given the stricter limitations on spending in the draft (loss of first round pick(s) and forfeiture of corresponding bonus pool allotment) and the cutting of big league payroll to get under the $189 million luxury tax threshold for 2014, the international amateur market emerged as the most logical place for the Yankees to spend their massive revenues.”

The suggestion, for the cap proponent, would be the hard cap. Hard cap on salaries, hard cap on amateur bonuses, hard cap on draft spending. But then what? The Yankees (a convenient example here; replace with rich team of your choice if you prefer) will still bring in hundreds of millions in revenue. They will still care about winning. What do you think they’ll do with the money?

The money will go into facilities, or scouting, or academies overseas, or advanced video equipment. The money will still be invested in helping the Yankees win, but only indirectly. Money will be deflected away from players and into the hands of ownership, executives, managers and others. And competitive balance won’t change a bit — if anything, it will go down, because the Yankees, like every other team, will be limited in its player budget, and can use more of its remaining revenue to improve the franchise in other ways.

Don’t believe the argument? Check the research. Studies agree, salary caps don’t do anything for competitive balance. Some research, such as this from Evan Totty and Mark Ownes of Middle Tennessee State University, even suggests salary caps reduce competitive balance, as they make it easier for high-revenue teams to focus their revenue on non-player projects where small market teams can’t.

What does impact competitive balance? According to the Totty and Owens study, only revenue sharing — actually getting rid of that money advantage and sharing it with the rest of the league — had a positive effect. Sports fans want money out of the equation. The salary cap acts as if it removes money by putting a limit on the amount that goes to players. Revenue sharing actually helps even out the money imbalance between markets like Milwauee or Cleveland and New York or Los Angeles.

Competitive balance is a nice buzzword, and sports owners do a great job of using it to make salary caps sound palatable to mouthpieces in the media and fans at home. But on substance, there’s nothing there. That Yankees money would still in the Steinbrenners’ bank accounts after a salary cap, and they’re either going to spend it on winning more games where other teams can’t or they’ll shove it into their own pockets. Quite frankly, neither sounds particularly balanced to me.

Comments (3)

  1. I have to say I don’t really agree with you there Jack. Hockey has a hard cap and teams accrue revenue based more on their local revenue than any national revenue, making it more like baseball than football.

    Like baseball, hockey has a few teams (*cough* Maple Leafs *cough*) that bring in gallons more in revenue than other teams. Do they spend more on their facilities and their staff than other teams? Probably, I’m too lazy to look up the numbers. But does that make one iota of difference to the rich teams’ ability to dominate the league? Judging from 10 years of evidence I would conclusively say that no, it doesn’t.

    I actually love baseball’s system because it allows fan support to directly determine the competitiveness of their local franchise and provides teams the opportunity to maintain a successful core even if their salaries escalate. But I think it flies in the face of evidence from every other hard cap sport to say that it would not increase “competitive balance” as defined by the ability for small market teams to compete more effectively.

  2. I have to admit I do like the spending caps on the amateur draft in one way, it’s stopped teams like the Yankees and Sox from getting guys who drop 20 places or so on draft day because of signability concerns. I don’t think it’s been long enough to see a huge effect yet, but teams like the Yankees are already starting to show signs of not being to replenish their system like they once did after spending their prospects on mid season additions so blatantly for a number of years.

    Unfortunately, it hurts the smaller revenue teams (or at least slow them down) that want to rebuild quickly through the draft.

    I really wish they would let teams trade their draft picks.

  3. I can easily agree that revenue sharing makes a lot of sense. But there is a range of research in better journals than the one you reference, not conducted primarily by an undergraduate student, suggesting caps do work. This looks a bit like picking a study you like.

    This particular statement is perplexing: “… suggests salary caps reduce competitive balance, as they make it easier for high-revenue teams to focus their revenue on non-player projects where small market teams can’t.” ‘Makes it easier’ suggests this enhances their ability to do so, and that this makes them stronger — if this were true, why wouldn’t teams do it in the first place and forego spending on players? It seems odd to suggest a clear competitive enhancement is being foregone because of the ability to spend in less efficient ways.

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