As Evidence Mounts, MLB Needs a Salary Cap

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As Evidence Mounts, MLB Needs a Salary Cap
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Evidence – The Game is Suffering

America’s Pastime has seen popularity declining for decades.  Not in the blink-of-an-eye, but slowly and steadily right in front of us.  Countless articles and books have been written on Baseball’s decline, offering theories and reasons as to why.  Blogs are full of opinions.  Last fall, the book Baseball In Crisis: Spiraling Costs, Bad Behavior, Uncertain Future – Frank P. Josza (a professor of Economics and Business Administration) was published, for instance, suggesting that rising costs, urban congestion, negligent/criminal actions of league officials, players and owners, and the maldistribution of power among major league franchises are to blame.

There is no arguing that Major League Baseball and baseball in general are suffering:

·    Little League enrollment has been steadily declining (by 1 percent per year) since 1996

·    A Harris Poll from 2008 shows that among American’s who follow one or more sports, Football is still the most popular at 30 percent , up six points since 1985.  Meanwhile baseball has dropped six points from 23 percent to 15 percent since 1985 (The Harris Poll No. 13, February 5, 2008)

·    All-Star Game Ratings Decline:  The TV ratings for the MLB All-Star game have steadily declined since 1967.  From 1967 (25.6 rating) to 1980 (26.8), the ratings remained similar.   The trend shifted however.  In 1990 the rating was 16.2.  It fell to 10.1 in 2000, and was a mere 9.3 in 2008, down nearly 18 full points (a point per year) since 1990. (Baseball Almanac)         

·    World Series Ratings Decline:  More importantly, World Series ratings have also been waning for baseball.  40 years ago, the World Series had a 22.8 rating.  In 1973, the rating was 30.7 and peaked in 1980 at 32.8.  The decline began soon after.  1990 saw a 20.8 rating, followed by a 12.4 rating in 2000, and down to an 8.4 rating in 2008, the lowest by far. (Baseball Almanac

 

Evidence – The Wide Divide between the Haves and the Have-Nots

Let’s focus on the maldistribution of power (in this case interpreted to mean money) in MLB as a result of a lack of a salary cap.  Team Payrolls haven’t always been exorbitant and the differences between the top-and-bottom spenders have not always been overly disparate.  There has always been a delta between the Haves and the Have Nots.  The delta increased steadily, but not overwhelmingly, from 1988 to 1996.  In 1997, the Big Bang in spending deltas took occurred.  Consider the payroll spending differences from 1988 to 2008:

·    1988:  The New York Yankees topped the league with an $18.9 million annual payroll, while the lowest payroll team was the Chicago White Sox at $5.9Million - a $13 million difference (320 percent ) top to bottom

·    1998:  Baltimore led the league with a $70.4 million payroll while Montreal was last in spending at only $9.2 Million - a $61.2 million (765 percent ) difference top to bottom.

·    2008:  The Yankees had a payroll of $209 million (more than double their spending 8 years prior) as compared to the Marlins at $21.8 million—an enormous $187 million difference (959 percent).

By looking only at those three, 10-year points in time, one can see that the delta between the top and bottom payroll teams grew from 320 percent to 959 percent in 30 years.  From 1988 to 1996, the difference between the top spending and the bottom spending payroll teams averaged 365 percent.  The Big Bang occurred in 1997 when the delta nearly doubled in one spending season.  In 1996, the delta between first and last in spending was 339 percent .  One year later that delta was 652 percent .  Nine years after that, in 2006, the delta had grown to an astounding 1,299 percent difference between the top and the bottom spenders when the Yankees shelled out $195 million on player salaries as compared to Florida’s $15 million.    

One last way to consider these spending figures is to look at the growth in spending by percentage at the top of the payroll stack as compared to the bottom in total over the past 30 years.  The annual spend of the league’s top payroll team has grown by 1,106 percent in 30 years as compared to a 369 percent increase in spending by the league’s bottom spending team annually.  This 3x delta-increase factor is speeding up, not slowing down.   If the current 30-year trend continues, in 2018 the league’s top payroll team will have a payroll somewhere around $2.311 Billion while the league’s bottom spender will be in the neighborhood of $80.4 Million.

The effect of these deltas in revenue and payroll spending was brought to light this past offseason when Brewers owner Mark Attansio stated to Bloomberg News, "They (Yankees) are on a completely different economic playing field. I paid $220 million for my team; now they get three players for $420 million."

 

Evidence – Payrolls Affect Playoff Appearances

The history of the playoffs offers almost an unarguable view of the impact of spending on the game.  Each year teams compete for the right to enter the post-season and get a shot to play for the title.  Since 1997, there have been 96 playoff spots awarded – 3 AL Division Winners + 1 Wildcard and 3 NL Division Winners + 1 Wildcard per season (8 spots per year x 12 seasons = 96).

During this time span, a whopping 57 of the 96 spots in the playoffs were filled by teams ranked in the Top 10 in Payroll for that respective year.  The numbers, predictably and in pattern, drop off from there.  As teams’ payroll spending drops, so do playoff appearances:

·    Teams ranked top 10 in Payroll (payroll rank 1-10) – 57 playoff appearances – 59 percent

·    Teams in the Middle 10 in Payroll (payroll rank 11-20) – 27 playoff appearances – 28 percent

·    Teams in the Bottom 10 in Payroll (payroll rank 21 and lower) – 12 playoff appearances – 13 percent

The pattern is even more readily witnessed when the league’s 30 teams are broken into six groups as follows:

·         Top 5 in Payroll (payroll rank 1-5) – 34 appearances – 35 percent

·         Rank 6-10 in Payroll – 23 appearances – 24 percent

·         Rank 11-15 in Payroll – 18 appearances – 19 percent

·         Rank 16-20 in Payroll – 9 appearances – 9 percent

·         Rank 21-25 in Payroll – 6 appearances, 6 percent

·         Rank 26-30 in Payroll – 6 appearances, 6 percent

Considering the span of 12 years, this is beyond coincidence—it is a pattern.

There are certain divisions in baseball where the impact is much more notable than others because of the predominance of large, revenue market teams dominating certain divisions.  Consider the AL East, with New York and Boston, historically among baseball’s top spenders.  Since 1997, the AL East Division crown was won 11 straight years by MLB’s  No. 1 or No. 2 ranked payroll team overall.  The Yankees won the division nine times as the no. 1 or no. 2 ranked payroll team.  Boston and Baltimore each won the division once as the no. 2 ranked payroll team in all of MLB. 

Atlanta’s dominance in the NL East is also widely known.  From 1997 to 2008 they won the NL East Division crown nine times.  During this nine-year period, Atlanta ranked between third and 10th in MLB payroll, never dropping out of the top 10. 

The Los Angeles Angels of Anaheim spending and winning history offers further evidence of the impact of payroll on trips to the playoffs.  From 1997 to 2003, Anaheim never broke into the top 10 in payroll spending (ranging from 12th in payroll rank to the 20s).  In 2002, the team ranked 15th in spending overall, and won the World Series as a Wild Card.  Unlike many small market teams that could not maintain player talent by extending larger contracts, the team from Los Angeles could.  In 2003, the team moved up to 12th in payroll.  In 2004, they vaulted to third overall in payroll and haven’t left the top 10 since.  They have won four of five AL West Division crowns since being in the top 10 in payroll.  Prior to this, they had one Wildcard berth and no Division titles.

 

Opinion – A Large Payroll is Essential to Consistency

If a large payroll is so essential to getting to the playoffs and having a chance to win it all, what about teams like Tampa Bay or Florida, who’ve had small payrolls and had years of brilliance? 

Tampa Bay of 2008 is a great case that at any point in time a team can find it all comes together and field a competitive team of young talent for a year.  The minor leagues and scouting are working, players are young and hungry, some players are working towards landing that next big contract, etc.  For whatever reason, every few years we see that team come along that has that one brilliant year with one of the league’s worst payrolls.  The Arizona Diamondbacks of 2001 do not fall into this cateogry, however, as widely thought.  In 2001, Arizona ranked eighth in overall payroll in MLB.  

These underdog anomalies are bound to happen.  As we’ve seen, 13 percent of the time teams make the playoffs with minimal payroll.  While finding success occasionally, these teams do not remain competitive year after year unless they choose to enter the world of big payrolls (as LA of Anaheim elected to do).  Without the large payroll, consistency disappears.  Florida is a great example of a team that puts it all together every handful of years with minimal payroll, only to disappear after because they cannot maintain nor add to their talent at their spending level.

Having a big payroll does several things for teams that remain competitive year after year.  It doesn’t just allow a team to sign big-name, free agent talent.  It also allows the team to offer contracts to retain existing talent.  This is why you see teams like the Yankees, the Red Sox, the Braves, the Angels, and the Mets, for instance, remain repetitively competitive.

 

Opinion - MLB’s Recipe for Success

It’s more than obvious with the data and the patterns that teams that spend more and maintain that heavy spending visit the playoffs more often and more consistently.  There is a simple recipe for success in MLB today if you can afford to play:

Step 1 – Generate more revenue than your competitors

Step 2 – Spend more money on player talent

Step 3 – Find yourself in the playoffs more consistently

While not a guarantee, if a team follows this formula, the team has a demonstrated 59 percent chance of getting to the playoffs. Conversely, spend the least and the chances drop to 13 percent.

Summary

The past decade has exacerbated the need for a Salary Cap in baseball.  The spending deltas are disparate and growing (doubling every nine to 10 years).  The evidence is there that spending affects who goes to the playoffs.  A disproportionate number of the Haves go to the playoffs vs. the Have Nots. 

One of the notable issues discussed throughout the media and the public is the effect that the maldistribution of power has on the fan’s sense of the fairness of the game.  The debate about having a salary cap in baseball isn’t new.  But evidence continues to pile up pointing to the obvious—Baseball is broken. 

Baseball doesn’t offer a fair playing field between large and small markets.  The notion of parity in Baseball isn’t a reality as much as it is in the NFL or the NHL.  Baseball is suffering.  And Baseball is in denial.  At a minimum, fixing the parity issue in baseball is possible and there is asolution out there called the salary cap.  It works in other leagues.

If the problems (even beyond the maldistribution of power) in the game aren’t addressed, will we see a Five-TV Rating for the World Series this year?  How long will it be before the NHL overtakes MLB in popularity?  How long will it be before foreign-born talent represents the majority of players in the game as more and more American kids stop playing it? 

For MLB’s sake, I hope they wake up and realize these aren’t benign issues, they are malignant and spreading.  One thing we know for sure, most of the problems, while having been diagnosed, aren’t being treated.  Shame on MLB.

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