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Cap Thoughts

Mike SteffanosThursday, January 22, 2009
By Mike Steffanos

I'm exhausted tonight after a punishing day of work, so I'm not going to try to be too profound here.

With all of the talk lately about a salary cap in baseball, I thought this article on SI.com Unconventional Wisdom: Busting the myth of the salary cap was right on the money.

I've always felt that artificial salary caps are the last refuge of the unimaginative. Salary caps don't seem to hold down the salaries of star players, but rather seems to force teams to "cheap out" on their reserves and role players. There don't seem to be any real deep teams in the NFL anymore, and a couple of injuries are often the difference between a playoff team and mediocrity.

Author Shawn Hoffman does a good job in laying out the down side of caps for the smaller market teams that are supposed to prosper under them:

Let's say, in some far-off universe, MLB owners and players actually did agree on a salary cap. With it would come the normal provisions: a salary floor at around 75-85 percent of the cap, and a guaranteed percentage of total industry revenues for the players. Since the players have been taking in about 45 percent of revenues the past few years, we'll keep it at that figure (the other three major sports leagues, which are all capped, each pay out over 50 percent).

Using 2008 as an example, the 30 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 21 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, 14 teams would have been under the payroll floor, by a total of $251 million. Even discounting the Marlins' $22 million payroll, the other 13 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 G.M. 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.

Now fast forward to 2009. Let's say the Pirates' sales staff runs into major headwinds, with the team struggling and the economy sinking. The team's top line takes a hit, falling $10 million from 2008. The Mets and Yankees, meanwhile, open their new ballparks, and each team increases its local revenue by $50 million. If the 27 other teams are flat, total industry revenues rise by $90 million (not including any appreciation in national media revenue). Forty-five percent of that, of course, goes to the players. So even as the Pirates' purchasing power decreases, the payroll floor actually rises.

In other words, without a more egalitarian distribution of income, the system crumbles.

MLB seems to be doing a pretty good job with revenue sharing without killing the incentive for teams to strive to increase their revenues. While there are some folks who won't be satisfied until some utopian system exists where everything is shared equally, if that ever were to happen there would be zero incentive to put any effort into running these franchises efficiently at the local level. Isn't that why Communism fell?

I hate salary caps. They lead to all sorts of weird deals simply for room to maneuver. I understand the appeal to those who root for small market teams, but the reality seldom lives up to the dream.

Good night, folks.

About Mike: I was the original writer on this web site, actually its only writer for the first 15 months of existence. Although I am grateful for the excellent contributions of my fellow writers here, I have no plans of stepping back into strictly an editorial role. I started this thing in the first place because I love to write and I love the Mets, and blogging here keeps me somewhat sane. If you haven't had enough already, more bio info can be found here.

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Comments (2)

I don't care for the salary cap. I particularly dislike the idea of a salary floor; what would they have done last year, order the American League champs to go out and spend another $30 million?

Very well said. Salary caps violate common sense. They remove the incentive to have a quality farm system since a team dominated by young, quality players would be forced to sign higher cost veterans. Unless the entire player control model is changed a salary cap would punish teams that develop their own talent.

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