Salary Cap? Count Me Out

With the Yankees' shopping spree stealing headlines and disappointing the fans of 29 other teams, the perennial call for a salary cap in baseball is once again gaining traction. It's an idea I wish would go away.

The main argument for the cap is that it's needed to increase competitive balance. If teams can only spend a certain amount of money on player salaries, the logic goes, then smaller market teams will have a better opportunity to sign big time free agents.

Of course, baseball already has a "soft cap"--teams that go over a certain level in total payroll (in 2008 the cap was $155 million) have to pay a "luxury tax," also known as the competitive balance tax. Teams pay a 22.5% tax rate for their first "offense," and 40% for repeat offenses. It doesn't have much of an impact though because it hardly ever comes into play for any team but the Yankees. This year the Yanks had to pay almost $27 million. The Tigers were the only other team affected, getting charged just $1.3 million.

Baseball also has a system of revenue sharing that theoretically is supposed to help small market teams compete. The "poorest" teams regularly get checks of $30-40 million that is supposed to go into their payroll but often just goes towards team profit.

The reality is that today's system provides every team with a great opportunity to compete and win. Under the collective bargaining agreement, players play for the major league minimum (or very close to it) for their first three seasons. Players have no say in where they play or how much they earn. Then in seasons 4-6 teams retain control over their players but if they can't come to agreement on a salary they can enter into binding arbitration, which generally results in a below-market salary for the player.

Some teams (well, really just the Florida Marlins) are so cheap that they eschew even arb-eligible players, but no team can honestly say they can't afford to pay these players as a matter of competitive imbalance.

So for six full seasons, every team has a more or less equal chance to get any good player they want. If you draft him, with only rare exceptions, you got him till he's at least 27 years old. Most players who enter the league never get those six years under their belt, and of those who do they usually don't make it till age 29 or older. And throughout that time teams also have exclusive negotiating rights, and with some savvy foresight can sign their best players into their 30s at a discount, at which point all but the most special players are in decline.

There are some exceptions to this, like international free agents, who are not subject to the draft and typically get signed by the highest bidders. Some would say that draft bonuses have started to price the top players out of the smaller markets, but I think that's a pretty facile claim, especially when you consider that the poorest teams are getting tens of millions of dollars in revenue sharing explicitly for the purpose of helping them pay for good players.

For the most part every team has equal chance to get any player until they are past their peak. At worst, you have a class of teams that go through boom-and-bust cycles while a few teams that can avoid those dry periods by spending on premium free agents while their young talent gets ripe. But there's no excuse for teams simply staying bad forever because of player salaries.

And even free agency is a limited advantage for the big market teams, since free agents are by definition older, declining players. Not only is it not necessary to spend to win (as the Rays, Twins, A's, and Indians have shown), spending is no guarantee of anything (as the old Chuck LaMar Devil Rays, Giants and Tigers proved).

The other argument for the cap that I hear most often is that players are "overpaid" and that something needs to be done to get salary inflation under control. While the parity argument isn't totally without merit, this one is.

Now I of course agree that if people were paid based on the value of their contribution to society, teachers and firemen would make millions and pro athletes would play for tips like subway buskers. Oil company executives would have to pay for the right to do their jobs, since their net social impact is decidedly negative. But our economy doesn't work that way. Baseball players make a lot because baseball fans are willing to spend a lot for the entertainment value of the product. If you don't like it, stop going to games and donate your disposable income to your local PTA.

In fact, I would argue (as I have before) that baseball players--especially young players in their pre-arb years--are underpaid. According to Street and Smith's Sports Business Journal, Major League Baseball players' share of their sport's revenue is just 52%, the lowest share of any of the four big American team sports and down from 63% as recently as 2003. NHL players got 56.7% last season, NBA players about 57% percent, and NFL players about 59% percent. The rest of that revenue goes into other operating costs and then whatever's left from that into the owners' pockets.

My question is this: why should any of the money go to the owners? Why are owners necessary at all? Think about it. The role of a baseball owner is roughly comparable to that of a recording company executive. They don't produce anything, but they control the means of distribution. And theoretically they provide investment dollars for new innovations and talent. If you're a hot new artist, you need the money guys to get started. If it wasn't for that, I would want all $16 that I spent on my new Bruce Springsteen CD to go straight to the Boss himself.

But Major League Baseball owners take no risk. Branch Rickey had to take risk and innovate, but these days all owners have to do is stay out of the way and cash checks. Yes, new players have to be developed, but that's not the same as bankrolling a hot new movie or start-up business. It's more like restocking the shelves of the hardware store.

The Green Bay Packers are the real-world example of why sports teams in established leagues like the NFL and MLB don't need owners. The Packers are a non-profit organization run by an appointed board of directors and team president. They hire a GM who makes football decisions. And the team goes on its way making money and winning games.

So if you really want to force more competitive balance, get rid of the owners. Since that's not really realistic (though I truly believe this would be the most common sense and effective reform), the other way to do it would be to institute a salary floor. Force teams to spend let's say at least $70-80 million in player salaries. A team like the Nationals would have to find the smartest way to get over the floor--I'd suggest re-signing Zimmerman, signing draft picks like Aaron Crow and Sean Black, and maybe going after a good free agent or two. But skinflints would no longer be able to just cash in on cheap losing teams. Poorly run teams would still be perennial losers, but not because of payroll.

Bottom line, my opinion is that there's already considerable competitive balance and upward mobility in the system, and that's good. I don't see any real reason why the rules need to be changed at all. Fans should recognize that this balance comes on the backs of their favorite young players who aren't paid anywhere near what they're worth. To institute a cap just to keep a few players away from the Yankees and Red Sox would be putting even more undeserved money in the pockets of owners at the expense of the players. Any efforts to increase balance should be done on the backs of the owners, not the players.