Category: The Business Of Baseball

Does Baseball Need a Salary Cap?

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Major League Baseball stand alone in the fact that the league does not institute a salary cap. A salary cap is a monetary limit that teams cannot exceed that is agreed upon by the league. The NHL, NBA, and NFL all have salary caps. So why doesn’t the MLB? Well they kind of do. Instead of a salary cap the MLB has what is called a luxury tax, which is a tax imposed on teams who exceed a certain limit set by the league. So it’s not really a salary cap, but it does, or at least, is supposed to discourage large market teams from having a payroll that makes the payroll of a small market team look like pocket change. But does the luxury tax actually work? Let’s take a look at all 30 teams’ 2012 payroll and see what we can see.

2012 Team Payrolls
NO. TEAM PAYROLL AVERAGE
1. New York Yankees $197,962,289 $ 6,186,321
2. Philadelphia Phillies $174,538,938 $5,817,964
3. Boston Red Sox $173,186,617 $5,093,724
4. Los Angeles Angels $154,485,166 $5,327,074
5. Detroit Tigers $132,300,000 $4,562,068
6. Texas Rangers $120,510,974 $4,635,037
7. Miami Marlins $118,078,000 $4,373,259
8. San Francisco Giants $117,620,683 $3,920,689
9. St. Louis Cardinals $110,300,862 $3,939,316
10. Milwaukee Brewers $97,653,944 $3,755,920
11. Chicago White Sox $96,919,500 $3,876,780
12. Los Angeles Dodgers $95,143,575 $3,171,452
13. Minnesota Twins $94,085,000 $3,484,629
14. New York Mets $93,353,983 $3,457,554
15. Chicago Cubs $88,197,033 $3,392,193
16. Atlanta Braves $83,309,942 $2,776,998
17. Cincinnati Reds $83,309,942 $2,776,998
18. Seattle Mariners $81,978,100 $2,927,789
19. Baltimore Orioles $81,428,999 $2,807,896
20. Washington Nationals $81,336,143 $2,623,746
21. Cleveland Indians $78,430,300 $2,704,493
22. Colorado Rockies $78,069,571 $2,692,054
23. Toronto Blue Jays $75,489,200 $2,696,042
24. Arizona Diamondbacks $74,284,833 $2,653,029
25. Tampa Bay Rays $64,173,500 $2,291,910
26. Pittsburgh Pirates $63,431,999 $2,187,310
27. Kansas City Royals $60,916,225 $2,030,540
28. Houston Astros $60,651,000 $2,332,730
29. Oakland Athletics $55,372,500 $1,845,750
30. San Diego Padres $55,244,700 $1,973,025

Now I didn’t go to math school, but it’s pretty evident that the top payrolls are eons above the bottom payrolls. The New York Yankees’ payroll is 3 1/2 times larger than the San Diego Padres’. Well now, let’s look at another table. How about one showing market size and average revenue for all 30 teams from 1995-2005. Now being the baseball genius that I’m sure you are, you will realize that this table incorporates the Montreal Expos because with this data, the Washington Nationals do not exist.

Team

Market Size (100 represents league average)

Average Revenue in millions from 1995-2005

Yankees

262

$187.54

Braves

102

$134.38

Red Sox

155

$131.83

Indians

84

$129.09

Mets

244

$127.96

Orioles

124

$125.72

Dodgers

175

$122.63

Diamondbacks

64

$121.13

Mariners

112

$119.03

Rockies

59

$115.44

Rangers

103

$113.33

Cubs

105

$113.19

Giants

84

$106.50

Cardinals

56

$104.73

Astros

86

$100.18

Rays

87

$92.36

Angels

147

$91.27

White Sox

90

$91.08

Tigers

95

$84.56

Phillies

130

$83.87

Padres

45

$82.64

Blue Jays

96

$81.42

Athletics

61

$75.13

Marlins

95

$74.89

Reds

69

$74.55

Brewers

39

$72.39

Pirates

54

$72.08

Royals

38

$69.07

Twins

69

$63.36

Expos

78

$55.13

So what does all this mean? And quite honestly who cares? Well here’s what you should take away from this table. For the most part, the teams with the higher revenues are teams in higher markets. Makes sense. Now, you have some teams, in relatively small markets with pretty high revenues, that’s what MLB wants, or at least what they say they want. When small market teams make the playoffs and play a large market team. Baseball’s ratings are through the roof. When you have two teams, like the 2001 world series, the Yankees vs the Diamondbacks, one, the Yankees, being a large market team, the other, the Diamondbacks, being a middle market team, you have great ratings. Only the 2004 World Series has beaten the 2001 World Series since and that has to be accredited to Red Sox breaking their curse. So baseball wants a few, small market teams to mix it up with large market teams. because that what fans want.

So should MLB impose a salary cap? No, absolutely not. The saying “the rich get richer and the poor get poorer” doesn’t really work when the poor are multimillionaires. A high payroll and large market doesn’t necessarily equal success. Look at the recent success small market, small payroll teams like the Oakland Athletics, Tampa Bay Rays, Cincinnati Reds, and Washington Nationals. Then look at the recent struggles of the LA Angels, Seattle Mariners, New York Mets, and Chicago Cubs. Money is not the only factor controlling the success of a baseball team. Small market teams are figuring out ways to win and beat these large market teams. Small market success is almost becoming a new fad for the MLB. Fans love to see players they’ve never heard of take on the likes of Derek Jeter and the Yankees. It’s what makes baseball great. The Yankees may have 27 rings and that’s all well and good, but the times are changing. The Yankees, and other large market teams for that matter, go through years of failure just like every other team. Paying millions upon millions of dollars for a lineup isn’t going to win championships. Of the ten playoff teams in 2012, 5 were in the top 15 of payroll, 5 were in the bottom 15.

Salary cap, is, and will probably always be the most controversial issue in baseball, well maybe second behind the DH. But when it comes down to making a decision on whether or not the league wants to impose a cap they look at success of small market teams. If these small market teams keep finding ways to win, the league is not going to impose a salary cap.

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Player Salaries and their Relationship With Ticket Price

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In 2005 the Associated Press conducted a study to figure out what Americans thought the biggest flaw was in baseball. Is it the length of the season? The relatively slow pace of the game? Nope. The number one answer, garnering 33% of the vote was player salaries. In 2012 the average salary for a player on the Opening Day roster was $3,440,000. In 1990 the average salary was $578,930. Let’s go back a little further just because we can. In 1976, the first year of free agency, the average MLB player salary skyrocketed to $51,501. I say skyrocketed because prior to the implementation of free agency the average player salary was less than $30,000 a year mainly due to baseball’s reserve clause which forced players to sign for whatever the team would offer.

Player salaries aren’t alone in their quantum leap in price. Ticket salaries, as most fans are acutely aware, have soared since 1976. For the 1976 season the average baseball ticket would run $3.45. In 2012 the average ticket would set you back $26.96. Any armchair economist can tell you the price increase has to do with inflation. Ok well, calculate inflation, $3.45 in 1976 has the purchasing power of $13.73. That leaves 50.92% of the ticket price left unexplained.

Well economists have the answer for that. MLB owners, like any other business owners, set their prices based on what will make them the most money. As player costs go up, the owners costs go up. Owners aren’t likely to eat that salary and have it taken out of their own pocket so it would make sense that they pass the price onto the public through ticket prices. However, until about 1990, ticket prices and salary price showed almost no correlation. Since 1990, ticket prices and player salary show a direct connection. So what happened? June 5th, 1989, the Toronto Blue Jays open the SkyDome, baseball’s first “mallpark”. The begining of the $7 hot dog and luxury suites. The SkyDome was built for one reason: to make money, and boy did it. The Blue Jays needed just two years to crack baseball’s 4-million mark in single season attendance, the first team to do so. Seeing the success of the Blue Jays, every team wanted to jump on the mallpark train. Mariners owner Jeff Smulyan marveled at the SkyDome saying “you take the suites, the signage, throw the media on top, and you have an economic juggernaut. As bigger and better ballparks began popping up all across the country owners quickly realized that fans would pay unprecedented prices for a fancy stadium and over priced concessions.

So new ballparks and fancier stadium amenities contribute to a huge increase in ticket price because fans thought they were getting more out of their ticket. Well not every team moved to a new ballpark or renovated their current ballpark, but their ticket prices still went up. Why? It’s a fairly simple answer really, baseball’s popularity has risen. The popularity of sports in general has risen. With fantasy sports, sports channels on TV, and huge, attractive stadiums, the popularity of sports has never been higher. A simple supply and demand case here, more people want to go to sporting events, which allows owners to raise the price of tickets because people are willing to pay for it.

So next time you find yourself complaining at the bar because you can’t afford to get to the ballpark, don’t blame player salaries. There is way more to ticket price than player salaries. Remember, when it boils down to it, baseball is a business. Owners, like any other good business owner, are just trying to maximize profits, and that is exactly was has happened. Major League Baseball revenue has gone from $1.35 billion in 1990 (the SkyDome’s first full season) to a whopping $7.5 billion in 2012. So if you want to pin the blame on rising tickets prices, it’s better to blame baseball fans’ love affair with eating hot dogs in luxury suites at lavish ballparks than it is to blame the player’s salaries.