The small-market argument against a salary cap

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As the Yankees have gone on something of a spending spree this winter, netting the team three of the top free agents around, small-market clubs bemoan the spending. The Brewers were unamused with the Yankees. The Marlins’ David Samson voiced his concerns, and the Astros have grumbled about the spending as well.

So with all of these complaints come the inevitable discussion about a salary cap. If the luxury tax, designed to penalize the Yankees, isn’t reining in the spending, should baseball adopt a spending cap? While the Players Union would never agree to a cap, a few good baseball minds feel that the smaller market teams wouldn’t be so keen to take on a cap either. The problem arises not on the upper bounds of the cap but on the lower.

Shawn Hoffman, writing at Baseball Prospectus, elaborates on this argument:

Using 2008 as an example, the thirty teams took in about $6 billion (not including MLB Advanced Media revenue), for an average of $200 million per team. Forty-five percent of that (the players’ share) is $90 million, which we’ll use as the midpoint between our floor and cap. If we want to make the floor 75 percent of the cap (a low-end figure, relative to the other leagues), we can use $77 million and $103 million, respectively.

With a $103 million cap, nine teams would have been affected last year, and a total of about $286 million would have had to be skimmed off the top. Since total salaries have to remain at existing levels, the bottom twenty-one teams would have had to take on this burden, which had previously been placed on the Yankees, Red Sox, et al. On the other end, fourteen teams would have been under the payroll floor, by a total of $251 million. Even discounting the Marlins’ $22 million payroll, the other thirteen teams would have had to spend an average of $15 million more just to meet the minimum. Some of those teams might be able to afford it; most wouldn’t.

Imagine being Frank Coonelly in this situation. Coonelly, the Pirates’ team president, has publicly supported a cap. Had our fictional cap/floor arrangement been instituted last year, the Pirates would have needed to increase their Opening Day payroll by $28 million. Not only would the team have taken a big loss, but Neal Huntington’s long-term strategy would have been sabotaged, since the team would have had to sign a number of veterans just to meet the minimum payroll.

It’s clear to imagine a situation in which teams would not be able to support a minimum payroll. Just look at the economic turmoil that has descended upon our nation and its impact on the sport.

Hoffman notes that the best system is one that redistributes revenue and creates opportunities for more teams to make the playoffs. In fact, his proposed best system is the one baseball currently employs, and he’s right. The current playoff system works.

In any situation, some teams will always emerge at the top of the spending pile. New York City is bigger and wealthier than any other city in the country, and the Mets and Yanks will have a natural advantage that they should embrace. But baseball has developed ways to spread the money around, and smart GMs can put together very competitive teams with limited resources.

In the end, a cap discussion is mostly just sour beans. Other teams are envious, and they’re not as good at putting a roster together under the Moneyball approach. Meanwhile, a salary cap makes for some nice January discussion, but it will never happen.

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  • http://poormansanalyst.wordpress.com/ dan

    I am against a salary cap, but I’m all for more revenue sharing. There’s always the argument that small-market teams can compete if they’re run well. And that is true. But those teams can’t afford to make mistakes. One big mistake and they can be doomed for a long, long time.

    If the Twins behaved like the Yankees and sunk $40 million into Pavano, $18 million into Farnsworth, and whatever into Kevin Brown, they wouldn’t have money for anything else. In other words, they be royally fucked.

    Shawn is a smart guy and runs a very good blog. He’s written several times on the negatives of a salary cap and floor, and I think he’s right. But the current system, while it may be working, is not perfect.

    • http://poormansanalyst.wordpress.com/ dan

      For his previous posts on salary caps, see these…

      http://www.squawkingbaseball.com/?p=117

      (I’m trying to avoid the spam folder)

    • http://www.nowlive.com/comboplayer/NewComboPlayer.aspx?id=129711&override=true Joey H

      “Royally fucked” I love it lol.

    • http://poormansanalyst.wordpress.com/ dan
    • http://poormansanalyst.wordpress.com/ dan
    • http://poormansanalyst.wordpress.com/ dan
    • Artist formerly known as ‘The’ Steve

      “I’m all for more revenue sharing. ”

      Commie.

      • http://twitter.com/OldRanger Old Ranger

        Commie.

        Good description, it fits the definition.

    • 27 this year

      The only way I would support revenue sharing was if all that money had to go into payroll. The Marlins can support a larger payroll including the revenue sharing checks they get. They should put more into the team rather than pocket all the money.

  • http://www.nowlive.com/comboplayer/NewComboPlayer.aspx?id=129711&override=true Joey H

    Eh. great post as usual but I am so tired of this debate. People are just mad the Yankees invested wisely.

    • http://twitter.com/OldRanger Old Ranger

      This year, so far.

    • Tired Pirate

      I get tired of hearing about the wise investments with the Yankees. I do not blame the problems with baseball on Steinbrenner, but he certainly doesn’t help. Any person that thinks that going out and repeatedly attempting to buy championships certainly doesn’t respect the true competetive nature of untainted sport competition. Are there owners out their that run their teams into the ground? Definitely! Being a Pirates fan, I know this better than others. What bothers me though, is the notion that paying huge amounts of money every year for free agents is wise or good for baseball. Every year that we see this huge jump in salaries we also see a bigger gap between higher and lower market teams. I just believe that owners have an obligation to care about fans, not just in their city, but all baseball fans. That is who these games used to be for. It truly is a disgrace the direction in which baseball is heading. Look at football. They have it right. Over night, teams can turn things around and fix issues to be competitive. I only hope they are not dumb enough to change this through negotiations this yeaR.

  • http://poormansanalyst.wordpress.com/ dan

    AH! free me from the spam folder of death please

    • http://poormansanalyst.wordpress.com/ dan

      actually just delete it, i’ll post them separately

      • http://www.riveraveblues.com Ben K.

        You’ve been freed.

        • http://www.nowlive.com/comboplayer/NewComboPlayer.aspx?id=129711&override=true Joey H

          Hey Ben, Did you check out the show today that featured one of your own?

        • http://poormansanalyst.wordpress.com/ dan

          haha, now I have like 8 posts on this thread. my bad. Though I’ll have one more below in about a minute.

  • barry

    Maybe a cap would make every team more competitive and eventually raise revenue, and therefore, caps across the league because teams that traditionally suck would become better and they could more asses in the seats thus making more money and raising the cap. If the goddamn owner of the Pirates wants to bitch that his team is dirt poor maybe he can explain why they haven’t had a winning season since 1992, almost as pathetic as the franchises 1927-1960 playoff drought. Some teams are just so pathetic, it’s like all they want are handouts. Last time I checked the MLB didn’t have a welfare system. If some teams would follow the Yankee formula for success they wouldn’t have to hate the system.

    • BklynJT

      The problem is that these owners/gms who are proposing a salary cap, most definitely don’t want a salary minimum. So while the yankees have to stop going about their business of spending, these smaller market teams can still behave in their usual way of not reinvesting money into the team.

      Of course no way in a hell does a salary cap even get implemented in baseball without a salary minimum.

    • Myles

      I’m against a salary cap but that might be the most ignorant comment I have ever read. What, exactly, is the “Yankee formula for success” besides having a boatload of money? Please do not pretend the Yankees have a strategy beyond George’s checkbook.

  • A.D.

    The old salary cap agreement might make sense if only mega market teams were making the playoffs every year. But the problem for a team like the Pirates, Royals & co. are that they haven’t seem to be able to draft or trade that well, if the Marlins, Rays, & Twins can find ways to win and put together a team then everyone should be able to do it. It isn’t the massive draw to the Twin Cities that is giving the Twins an advantage on free agents and in the draft, its having good management.

    On top of that it would be interesting to see how much different owners are pocketing.

    • http://www.nowlive.com/comboplayer/NewComboPlayer.aspx?id=129711&override=true Joey H

      I have the Twins winning the Central next season. If you draft well, you will see the results soon which equals a good team which equals a good fanbase which equals a strong revenue which equals more money to invest externally.

    • http://myspace.com/lincolnsworld Link

      I agree also about the silliness of griping about spending when the mega teams do not win. I also find it interesting whenever the Twins are brought up because if I’m not mistaken the Twins were the first team ever to 3 mil fans during their ’87-’91 run…if you have a competitive team you will make money point blank. And if you make money then you can spend money, like the Steinbrenners say, they take the money they make and reinvest in the team, recently operating in the red in order to do so. Places like KC and Pittsburgh pocket the money and/or make poor personnel decisions.

    • http://twitter.com/OldRanger Old Ranger

      A lot of it goes back to ; finish in the league, last place gets you a #1 draft pick. If your GM/draft team are not smart enough to draft well…it’s their fault…not the big market teams. Conversely, Yanks, Rsox, LAA etc., finish in the money (most of the time) and get lower draft picks, you know the rest of the story. Anyhow, for the Yanks to field a winning team they must use FA to get a star, when trying to replace a star.
      Common sense tells one; Rsox end up getting Buckholts (Spelling) etc., because they were intelligent in their drafting, not because they drafted #1. We (Lately, thank you Cash) have been doing an intelligent draft also.
      I don’t think anything is going to help a team that will not spend the money for a good GM or the vets to mix with the kids one has.

  • http://poormansanalyst.wordpress.com/ dan

    I urge every single person reading the comments to read this article:

    http://www.baseballprospectus......cleid=1599

    If I were allowed to type it in caps, I would, but I respect the commenting guidelines. Just read the freaking article.

    • barry

      What’s retarded about this guys idea is that the Mariners get the most money and the Angels end up with 56MM. He didn’t solve anything he just rearranged the problem.

      • http://myspace.com/lincolnsworld Link

        it’s a little flawed logic in a sense, the NY area COULD support FIVE teams? thats insane…

        • inman

          leave the capital letters out of this argument please. thanks for reading the freaking article

        • Artist formerly known as ‘The’ Steve

          . . . and they have to pay for the teams that don’t exist.

          Sounds like a guy with too much time on his hands to me.

    • A.D.

      Now we know how a communist baseball league would work

    • http://poormansanalyst.wordpress.com/ dan

      His system doesn’t reward the teams that don’t take in any money. It rewards teams that get the most out of their fanbase. That’s not communism.

      • Artist formerly known as ‘The’ Steve

        No its Socialism, since it heavily punishes the successful teams and picks winners and losers. THere are also unintended consequences to such plans, the large market teams stop pursuing revenues at some point, since they get taxed at such a high rate and are deemed to not be worth it when you factor in the investment and risk involved. Socialism is a great way to choke off progress.

        All of this is pointless anyway, the MLBPA will NEVER, EVER accept a salary cap of any kind. Ever. Because they see it for what it is, a transfer of wealth from the players to the owners.

      • A.D.

        Yes thats not how communism is suppose to work, however in practice it has some parallels:

        Try’s to balance out payroll but doesn’t quite work right
        The team closest to the head (Selig) end up in the best situation
        Centrally planned & inefficient

    • Matt M

      that author knocks the phillies worse than gammons does the yankees.
      they’re not that aimless as an organization…i mean, they just won the WS

    • rafael

      This might be total BS, but is there the possibility of a “culture” factor in terms of what people do (i.e. attend baseball games versus other stuff)? That is, is it possible that it’s simply more popular to attend baseball, “per capita” (assuredly, measuring popularity on a per-capita basis is impossible), in certain places over others?
      The article’s system heavily penalizes Anaheim (can we please stop calling it LAA? Thanks. Orange County has nothing to do with Los Angeles; for many, they’re worlds apart. People rarely even go to the other county, there’s no need to.) on a per-capita basis, but the truth is that not only has baseball only been popular since 2002 here. The fanbase just isn’t that extensive.

      There’s no way to accurately determine how much you’re getting from you actual fanbase on a per-capita basis, as opposed to the article’s system of maximum possible fanbase size, which is where the weakness of this system really lies.

  • http://none Toilet

    Remake the draft compensation system.

    A system that would allow teams like the Yankees to splurge on free agents, but pay a hefty price in the draft if they are signing many more premier free agents than they are losing.

    Would you guys have been willing to give up the first 10 rounds of 2009 draft picks, including the Cole and Bittle picks, in order to sign CC, Tex and AJ?

    If the compensation system were that harsh, it would have some effect.

    • Matt M

      that would never work either because all of the players in the union would be out of a job by the time they were 32 just like the NFL.

      and again, putting that much stock into the draft leads to huge inequalities on the other end of the spectrum.

      in the NFL rookies make ransom. as teams have to sink tons of money into draftpick questionmarks. and the league is extremely cutthroat to veteran talent.

      in football its hard enough to make the right pick….the baseball draft is even harder because ur projecting 18 year old hs kids

  • Chris

    If there is a salary cap, then the big market teams would just find new ways to spend their money. Most likely, that money would be spent in the international FA market and the draft.

  • Artist formerly known as ‘The’ Steve

    “If the luxury tax, designed to penalize the Yankees, isn’t reining in the spending, should baseball adopt a spending cap? ”

    But the Yanks HAVE reigned in spending.

    2008 opening day payroll-209 mil
    2009 opening day payroll-185 (est)

    http://mlbcontracts.blogspot.c.....60040.html

    Only the Yanks don’t get credit for having 88.5 mil coming off the books. The Yanks are reducing their annual spending, and I’m sure the 40% Yanke . . I mean luxury tax is the main reason why.

  • DanElmaleh

    Would a salary cap be unfair to large market teams? It costs more to live in NY or LA or Chicago so 10MM in NY is 6MM in Cincy.

  • j-man

    What should happen is that teams such as the Marlins should be force to spend every penny of the revenue sharing they get from the MLB, particularly from teams like the Yankees. The new stadium is just another ploy for Jeffrey Loria not to spend money on the team. Loria has become rich, but every player of value has been traded when his contract becamee “too expensive”. Teams like the Rays, Twins, Nats, and Marlins would then have a chance to complete with the Yanks, Sox, and Mets, at least in the free agent market. But these owners are to afraid to put even the revenue sharing money into players, many of them also just pocketing the money.

  • LiveFromNewYork

    A caps discussion IS sour grapes and whining.

    Subject your small market team to the big market pressures and we’ll talk.

    Pay the luxury taxes willingly and share your revenue and we’ll talk.

    Bring IN the type of money we take in and we’ll talk.

    Sell out your stadium consistently AND have the highest attendance on the road and we’ll talk.

    Have the same rabid fanbase, critical press and compete with 8 other sports teams and we’ll talk.

    Have your city behave like New York in every way, including the percentage of contribution to the national economy as a whole and we’ll talk.

    Until then stop whining and know we’re New York and you’re not.

    When you are, we’ll talk.

  • LiveFromNewYork

    And if we don’t spend our money, what do we do with it? The Yankees are always going to be at the top of the revenue chain. So our team should rake in bundles of cash and not reinvest it in the team? What should we do with it?

    • burl

      Maybe repay the money you ripped off from big city of new York, err I mean the moeny they gave you

  • ceciguante

    nice post, ben. i pretty much agree…MLB salary cap talk is mostly sour grapes.

  • gregori

    if there was a salary cap would there still be revenue sharing and luxury tax.
    imagine the example team, the pirates, not having any of those yankee millions of above as well as being foced to spend up to the minimum level. these teams should be careful what they wish for.

  • http://www.banbaseball.com Jesse

    Fans in small markets increasingly don’t care, and that’s a serious problem. Baseball does not revolve around NY. The Yankees certainly need the rest of the league more than the league needs the Yankees.

    There’s no question that big market teams do better because of their payroll. No one denies that there is an advantage, and that’s not fair. This isn’t war we’re talking about, its a sport where all teams should in theory have an equal chance to win. Such a theory does not apply in baseball currently.

    The solution is not as simple as saying there is now a cap and without other changes. The playing field needs to be leveled or baseball will suffer badly.

    Go to http://WWW.BANBASEBALL.COM for salary cap news and commentary.

    • http://www.riveraveblues.com Ben K.

      Just curious, Jesse, and I mean no disrespect: Did you read Shawn’s argument? He makes a very compelling case for no salary cap, and I’d say that fans in small markets do care. Attendance, outside of a few select cities, have been very strong.

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  • Joey

    I think there are some obvious flaws in your (and Baseball Prospectus) argument against a salary cap. First is that you are apply the current salary environment to a totally different situation. For example under a salary cap system, teams would adapt a totally different method for determining a players yearly pay. To use your example of the Pirates: Let’s say for arguments sake that they kept Jason Bay and decided to sign him to a 5 year $70 million contract. They look at their overall numbers (they have the next 10 years on a big spreadsheet somewhere) and realize for 2009 they are $30 million under the cap and need to spend. They simply frontload Bay’s contract so they are paying $30 million the first year (meeting their cap requirement) and $10 million the following four years. This gives them lots of flexibility in later years, something that will definitely give them a competitive advantage in years to come. As far as not meeting payroll, I would expand revenue sharing slightly – teams like the Yankees or Red Sox will be able to pay more “into the system” and still increase their yearly profits because the cap ceiling will be much lower than what they are spending now. And some (lower revenue) teams will just need to be better managed/run or sold to someone with deep pockets.

    I can’t imagine why anyone would argue against a cap. The advantage of seeing it applied first in other sports is that we can see what works and what doesn’t and create a much more competative and fair situation for baseball.

  • http://re dirtbag

    You can’t possibly be convinced that a system that would force the Pirates to pick up a type A and a couple Type B’s is WORSE that a system that has ONE team spending 100 % more than the rest average? Your salary is something kids do to cheat on their video games. It’s cartoonish. It’s vulgar. And this blog is just another peek at the astounding amount of arrogance Yankees fans have.

  • Wiggidy

    I think small market teams should just boycott baseball. Lets see how the Yankees do when all they can do is play the Dodgers, Mets,Red Sox, White Sox and Cubs. How would Yankee fans feel if they had to trade away their young superstars every time the kid just made a name for himself.

  • andrew

    very constructive.