Major League Baseball has been in desperate need of an overhaul to the economics of the game for a long time. While the league currently allows every team a chance to contend if they wish to contend, the opportunities aren’t the same.
Teams like the Yankees and Dodgers can make the decision to contend with ease almost any given year. Teams like the Pirates and Rays need a plan to build up to being contenders. And then when they’re actually contending, the window to contend for the small market teams like the Pirates and Rays is limited to a few years, while there are no limitations for the large markets like the Yankees and Dodgers.
That last part is key. You can make arguments to make it look like MLB is fair and equal by pointing out how many teams have made the playoffs in the last X years, or how many different World Series winners there have been. A common trend is to compare MLB to the NFL, where the New England Patriots have built a dynasty, while no such recent success exists in MLB. But the argument that MLB has parity falls apart when you really look deep at the chances for success of teams like the Pirates and Rays.
Aside from the fact that these teams have limited windows to contend, they also have different rules. They have budgets that are much smaller than those of the Yankees and Dodgers. Fans of these teams will often say that the budgets are self-imposed. That might be true to a small extent. The Pirates have maxed out at around $110 M in payroll. The Rays have maxed out at $100 M, and that only happened once, with their other highest payroll at $80 M.
Maybe the Rays can spend an extra $10-30 M to match that $110 M ceiling that the Pirates have reached. Maybe the Pirates can spend another $20-30 M to reach a ceiling that another team has reached. We don’t know the answer to that, since we don’t know the revenue numbers of the teams. But even if the Pirates could spend $130 M a year, their payroll would still be about half of what the Dodgers spend.
Let me say that again. The Pirates could increase their max payroll by $20 M, and they’d still be spending about half the amount that the Dodgers would be spending.
Because of this difference, the Dodgers can sign any free agent they want. They can trade any prospect they want, knowing that they can replace that guy with a free agent. They can take on a bad contract and only focus on the production of the player, rather than the value that comes with that production. They can afford to eat a bad contract and replace a guy with someone else.
The Pirates can sign any free agent they want, but signing a guy at $20 M a year to make up about a fifth of their payroll isn’t a smart way to build a contending team. They can trade any prospect they want, but they generally need to rely on prospects, as that is their best chance of getting impact players. Also, if they’re spending $20 M on a free agent, they need a lot of prospects to keep the costs down for the rest of the team. They can’t really take on a bad contract, and need to focus on value. And when they have a bad contract, they can’t just eat the cost easily and find a replacement.
Perhaps the biggest argument that shows the problems with MLB is the specific comparisons between MLB and the NFL and NHL.
Right now, the best team in the NHL is in Tampa Bay. The Penguins don’t have the best record, but constantly have a powerhouse of a team with two of the best players in the league.
In the NFL, the Steelers are constantly contenders. The Buccaneers haven’t been contenders in recent years, but that is more due to poor decisions, rather than inequality in the game.
Teams in Tampa and Pittsburgh can be the best in the other sports. They can constantly contend, with no windows. They can re-sign any player they want. If they struggle for a prolonged period, it’s because of the decision making, and not the market.
This is all because of the structure of those leagues. They both have a salary cap, a salary floor, and equal revenue sharing that allows every team to spend in the range of the cap and floor without losing money. There’s no focus on payroll, other than making sure you’re under the cap and above the floor. The only focus in those leagues is to contend.
MLB doesn’t have that structure. The chances of them adding that structure are slim. The NFL added that a long time ago when Wellington Mara, the owner of the New York Giants, said that the league would be healthier if the big market teams in New York would share revenues and make things equal with the small market teams. The NHL made their changes about a decade ago, after a work stoppage, which followed several teams losing money.
The problem in baseball is that the big market teams in New York and Los Angeles aren’t going to be giving up their advantage. And the league is financially healthy, where no team is losing money. Any push from the league side would require the small market teams to push for change solely for competitive reasons, which would result in a work stoppage and a loss of money.
The players were in a similar situation, with no reasons to push for change. But perhaps the recent developments with the players could lead to some changes from that side. With top free agents being unsigned in early March, and some free agents having almost no market but still having value, there could be a push toward changes. Here are the problems with any push for a change.
The League Basically Has a Salary Cap
There is currently a “soft cap” in baseball. MLB has a luxury tax when teams spend above a certain amount, and big market teams have treated that as a sort of cap. This has taken some of the biggest spenders out of the market, which has led to a big reason the free agents are going unsigned.
The problem is that the MLBPA can’t tell these teams to spend more money. Those teams don’t receive revenue sharing. If they did, the MLBPA could put pressure on those teams to spend that money. But the MLBPA can’t otherwise say that teams need to spend X amount, or that the biggest teams are required to spend above the luxury tax threshold, especially when they agreed to that system.
MLBPA is Trying to Push For a Salary Floor
The one thing that the MLBPA has been trying to do is to put pressure on some of the smallest spenders. They’ve been targeting teams who receive revenue sharing, using that as a tool to argue that those teams should spend more.
But MLB teams aren’t required to spend revenue sharing money entirely on payroll. They also aren’t required to spend to a certain threshold. The revenue sharing money creates a sort of “soft floor”, but it’s in no was as effective as the “soft cap” created by the luxury tax. There are tons of expenses for MLB organizations, and they can use revenue sharing in any one of those departments, other than MLB payroll.
And from a league perspective, even if the Pirates or the Rays spent all of their revenue sharing money on payroll, and even if we add that to their current payrolls (assuming they are currently spending none of their revenue sharing money on payroll), the gap between those teams and the large market teams would still be massive.
Revenue Sharing is the Key
The only thing that makes a salary cap and a salary floor combination work is a revenue sharing plan. A fair revenue sharing plan would allow every team to spend up to the cap, and leave no team in debt if they spent up to the floor.
The problem here is that the big market teams would be giving more money to the small market teams, in order to allow them to contend. The current argument from the big market teams is that the small markets can already contend, and there are already complaints from the big markets over revenue sharing. I don’t see the big markets giving up extra money to put themselves on equal footing with the small markets.
The same thing exists on the other side. A salary cap would also create a sort of cap for players. The rising salaries at the top, where guys like Bryce Harper are expected to receive $35-40 M a year, would be very difficult to accomplish with a cap. The best players would likely have to take a pay cut. And it would be difficult to reach the floor while paying most of the players the current league minimum of around half a million, or arbitration eligible players a few million.
Just like with the league, the top players would have to give up money, the players at the bottom would receive more, and we wouldn’t have that problem of players in the middle being squeezed out in free agency.
There are other challenges involving guaranteed contracts, draft pick compensation, and other factors that impact value. It’s not as clear as making sure every team receives the same amount of money, with every team having the same spending parameters. But the revenue sharing is what makes the cap and floor work in any scenario.
Any one of these things requires a difficult argument in the next Collective Bargaining Agreement (the current one expires after the 2021 season). But there might be hope if the players go through a few more years of a weak free agent market. There might be a work stoppage involved if the players push for change. But that could allow for a better league.
The players have seen their share of MLB revenue falling over the last few decades, especially as MLB teams receive more from BAM Tech, which the MLBPA doesn’t have a share in. In order for change to take place, they would need to argue for teams to spend more.
One possibility here would be that the requirement for teams to spend more would allow the small market teams to display that they can’t spend more and be on equal footing with the big market teams. It isn’t exactly fair to allow the Yankees to cap themselves at $197 M and still make a profit, while saying that the Pirates need to spend every last cent, make no profit, possibly take a loss, and still find themselves spending $50-100 M less than the Dodgers and Yankees.
If the small market teams were required to spend more, they’d need to argue for revenue sharing that would allow for that kind of floor. But any kind of floor would be met with a requirement of a cap from the league.
If MLBPA attacks the small market teams and pushes them to spend more, then it could result in changes that lead to a cap, floor, and revenue sharing.
But the MLBPA could also push to force the top teams to spend. That would lead to the removal of the luxury tax, allowing teams like the Yankees and Dodgers to spend more on the players, without paying taxes to the league. It also would widen the gap between the small and big market teams.
Ultimately, MLB has a problem. The MLBPA has a problem. The teams at the top are fine. The players receiving the most money are fine. But the teams at the bottom are playing a different game, and don’t have an equal chance of contending. The players at the bottom and even in the middle are getting squeezed, to the point where they aren’t receiving fair money for their most productive years, and now aren’t getting signed when they are finally able to make fair market wages.
Basically, the current economic structure, combined with the analytics and focus on contract value throughout the game, have led to a situation where the players are starting to get upset. That could lead to changes in a few years. The hope is that those changes could lead to a better structure for the league, which would level the playing field for small market teams, while also making it possible for younger players and mid-range free agents to receive more money and more contract offers.