The Salary Cap and Major League Baseball

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 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 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 didnÐ''t 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.