Competitive Balance in Major League Baseball

Competitive Balance in Major League Baseball

There has been a large amount of controversy over competitive balance in major league baseball. It has been a critical problem facing the sport. The scale has always been tipped to one side. The big money teams tend to consistently prevail. There are a few significant problems that contribute to the uneven balance of the teams in major league baseball. Some of the reasons the balance is harmed is a result of the little revenue sharing, inexistent salary cap, a weak luxury tax, and a reverse-order draft system that fails to accomplish what it has been set to achieve.

The major league baseball team payrolls vary drastically from a big market team to a small market team. In 2004 the top team's total payroll was about $184 million and the lowest team's payroll was about $27 million. This is an unbelievable difference and it alone can be an indication of how the balance of teams is significantly uneven. The problem with Baseball is that they have very few systems intact to help alter their competitive balance. There is a revenue sharing system where teams need to put thirty-four percent of their net local revenues, including gates revenues in a common pool. The problem is that this revenue sharing is such a little part of the overall money some teams are making that it does little to help the teams on the bottom of the scale. If baseball incorporated a system such as the revenue sharing the NFL does, then the sport could move towards having a greater balance.

Another policy a league can put into place to help competitive balance is a salary cap. A salary cap sets a maximum that a team may spend on player salaries in a given year. If the team spends over the cap then they are subject to fines. The fines are then dispersed among the smaller money teams. Unfortunately major league baseball does not have a salary cap. If the league implemented a hard salary cap that would not allow any team to go over the salary cap regardless of their willingness to pay a penalty, then the balance could possibly improve. Currently a small money team does not even have a chance to compete with a team like the Yankees because there is no cap in place.

A luxury tax agreement has been implemented into the league. As of 2003 if a team's total payroll exceeds a certain number then they are required to pay a tax. For 2004 the luxury tax threshold was $128 million. This means that only the New York Yankees at a total payroll of $184 million were the only team to have to pay this tax. In 2003 when the tax began only two teams went over the threshold. This means that not only is this threshold too high for it to be really beneficial but it also does not help the other teams directly. The tax paid is used for player benefits (50%), the industry growth fund (25%), and developing players in countries lacking organized high school baseball (25%). The small money teams will get some benefits but not the entire luxury tax pot. In order for this tax to be increasingly successful they would need to significantly lower the threshold.

One system that major league baseball has into place and should be a major aid in achieving competitive balance is reverse-order entry draft. How could the league go wrong? In the case of baseball, they