Solving Major League Baseball's Payroll Inequity with a New Kind Of Salary Cap

Lewie PollisSenior Analyst IIIMarch 16, 2010

NEW YORK - APRIL 16:  Owner George Steinbrenner (R) is seen on the jumbotron during an opening day ceremony at the new Yankee Stadium on April 16, 2009 in the Bronx borough of New York City. This is the first regular season MLB game being played at the new venue which replaced the old Yankee Stadium as the Yankees home field.  (Photo by Chris McGrath/Getty Images)
Chris McGrath/Getty Images

The stratification of wealth between Major League Baseball teams is reaching endemic proportions. For the amount he spent on the Yankees two years ago, George Steinbrenner could have paid the Florida Marlins’ players nine times over and still had enough left to buy himself a nice yacht.

The obvious solution is the implementation of a payroll cap like those used by the NBA and NFL. But fans who bemoan the monetization of the game are still happy to give spendthrift teams healthy returns on their investments, and the slow reflexes of the MLBPA and the Commissioner’s Office make it unlikely that such a plan will be implemented anytime soon.

I singled out Florida because they are an interesting team to look at from a financial standpoint. In addition to coming in dead last in payroll, the Marlins are looking up at the other 29 clubs in attendance, pre-cost revenues, and total value.

But there is one place where owner Jeffrey Loria comes out on top: annual profits. In 2008, the Marlins took in $139 million, of which $43.7 million went straight into Loria’s pocket.

By comparison, the Marlins’ payroll two years ago was $21.8 million. In other words, Loria gave himself twice as much money as he paid all his players combined.

It’s no secret that baseball teams’ owners enjoy enormous returns on their investments. Loria is not the only executive who is gouging his team’s fans; according to Forbes, 28 MLB teams took in $3 million or more in 2008, 22 earned over $10 million, and 12 reaped profits in excess of $20 million.

Owners would call it capitalism. Scott Boras would call it collusion. And we fans would call it “so, why are you charging $20 for bleacher tickets?”

I for one see these vast profits as an opportunity to take a step towards solving the problem of baseball teams’ financial inequality.

A salary cap is the right idea. But instead of imposing a ceiling on player contracts, cap the profits of teams’ owners.

The average team earns $16.7 million a year in profits. That number climbs to $18.2 million if you discount the Detroit Tigers, whose $26.3 million deficit suggests that owner Michael Illitch either really loves baseball or is really bad at math. So a cap of, say, $5 million in pre-tax earnings would add eight digits to most teams’ payrolls. In essence, the owners would have to plan to break even; the maximum profit represents a margin of error for their revenue estimates.

Is that enough to turn the Rays into the Red Sox? Of course not. But it would mean the Athletics’ Billy Beane could be less frugal as he plays Moneyball, and the Twins would have no excuse to not lock up Joe Mauer.

How could such a measure be enforced? If insolent owners take in more than the acceptable profit, they would be forced to fork over their excess funds, plus an equal amount as a penalty. For example, if Cleveland’s Larry Dolan spends $400 million on the Indians’ season operations and the team takes in $407 million, he would earn a profit of only $3 million after the adjustments.

If teams have to choose between potentially overspending on talent that could help them win or risking losing double the cash with no tangible results, small-market teams will begin to open their wallets.

Now, the owners will whine and bellyache and say that that’s not enough to make their investments worthwhile. My response to any uncooperative executives would be simple: you don’t get any sympathy because you own a freakin’ baseball team.

In addition the fact that your season tickets for your luxury box in the stadium that bears your name are worth more than some third-world countries’ GDPs, you’re living every boy’s dream. If that’s not enough to make it worth your time, your fans deserve a better owner.

Will it ever happen? No, probably not. If many people still don’t respect the Federal Government’s right to collect taxes, how would owners react to Major League Baseball taking it upon itself to redistribute their wealth?

But it’s worth a shot.