Salary Cap

[youkwalks]

John Henry (owner of the Red Sox) renewed his call for a salary cap in MLB today and has called for said salary cap more than once. The NHL, NFL, and NBA all have salary caps. I tried to study the effectiveness of salary caps using regression models but in my research found it to be too time consuming for what I wanted.

I know we have had this discussion several times in the MLB thread, but I was wondering what everyone thought?

Does a salary cap promote fair competition or does it punish the teams who have the ability to make money through a large fan base or marketing schemes? What is fair?

Do salary caps actually increase competition? (I tried to answer this but did not find the time)

Does a salary cap hurt or reward innovative ways of evaluating talent?

Do salary caps increase the profits for owners while suppressing labor wages?

and for the baseball people (I guess others could join in):
Is revenue sharing as good as a salary cap because it transfers wealth to lower market teams? Does this work? Could this form of wealth transfer (or others forms throughout MLB) be used in other sporting leagues?

I want this to be more of a discussion about the business/economic side of things, but really anything discussing the topic is fine by me.

What does everyone think?


Here is JWH link: http://sports.espn.go.com/mlb/spring2009/news/story?id=3916048&campaign=rss&source=ESPNHeadlines

[bigmike]

I used to be all for this, but I'm against it, now. I also don't like the idea of the salary floor, either.

Basically, I'm taking this in Henry wanting it to be a cap that is around the luxury tax level, which would effectively hamper just the Yankees.

If there's a salary floor, guys like Henry would probably want it to be high enough to force teams to spend their luxury tax money. This means that teams like Kansas City, Florida, Pittsburgh, and other small market teams would be killed, sold, and moved.

The cap in the NHL moves up and down based on revenue (I believe, someone confirm/correct me, please), and a cap/floor moving up and down would not help the small market teams. Forcing them to spend, say, $50 million on their payroll when they're LOSING money throughout the year is not going to increase competitive balance.

Add in that the one advantage that small market teams have had in the past is being aggressive in their development of players through the draft and whatnot, would be tapped into by big spending teams like the Yankees. New York would have their MLB costs set at a fixed price (it'd take them a couple of seasons to get their roster rounded out to a very competitive level, but I trust that they'd be able to do so), which would allow them dump even more revenue and money into the draft.

Basically, the cap/floor does this, in my eyes:

-Allows teams like the Red Sox, Yankees, Mets, etc dump their remaining expendable cash into Latin America, Asia, and the amateur draft.

-Severely hurts middle-market clubs like Arizona, while killing small market teams who aren't cash cows relative to the league revenue.

I think it's a bad thing all around.

[FondestMemory]

1. Does a salary cap promote fair competition or does it punish the teams who have the ability to make money through a large fan base or marketing schemes? What is fair?

2. Do salary caps actually increase competition? (I tried to answer this but did not find the time)

3. Does a salary cap hurt or reward innovative ways of evaluating talent?

4. Do salary caps increase the profits for owners while suppressing labor wages?

5. Is revenue sharing as good as a salary cap because it transfers wealth to lower market teams? Does this work? Could this form of wealth transfer (or others forms throughout MLB) be used in other sporting leagues?

1. both, but moreso promotes fair competition. it gives the small market teams a chance to play on a level playing field and the opportunity to field a competitive team from year to year. it prevents the big money teams from throwing an unlimited amount of money at their roster, but they still hold advantages when it comes to being a more desirable location for free agents to go.

2. absolutely. look at the parity in the nfl. since 1995, only three nfc teams haven't played in the conference championship game. year after year there is a team that goes from a top 5 draft pick to making the playoffs. every offseason in the nfl is crucial for every team. without a cap, the offseason for teams like the royals and pirates almost seem pointless, because you know going in that these teams won't be able to compete. they're not one player away. there's an occasional fluke team that pulls it off, but every year in the nfl there's a fluke team that succeeds. without the salary cap in the nfl, there is no parity.

3. reward, without a doubt. it promotes working through your minor league system and building from within. it will only hurt when you develop the talent from within to a point where you can't afford to keep them, but that happens without a cap as well. that will always be a part of the game. teams like minnesota and oakland who have been able to field competitive teams without the major market support just through innovative talent evaluation would thrive in a system that puts them even kiel with other teams. this would force more of this type of out of the box thinking, leading to more talent being discovered that possibly wouldn't normally be, in my opinion.

4. possibly. it's a different case for each team. it would save a team like the yankees money on payroll. they will always have their fans and have money pour in that way. but for some of the smaller market teams, it would actually cause them to spend more on payroll, but on the flip side of that would enable them to field a more competitive team, leading to more attendance and merchandise sales. this one could easily be argued both ways and won on either side. i really think this can only be answered on a team by team basis.

5. no. it helps the smaller market teams make money that they're not earning, but how much of that money is going to go back into the team roster wise? this does more to harm the bigger market teams than it does to help the small market teams, in my opinion.

[J.C.]

I don't think you could get it implemented at this point, even if you cleared most obstacles(while ignoring the fact that the union wouldn't go for it).

[Scott Weber]

I think the cap idea is good but still flawed, it would take a complete overhaul of revenue sharing and luxury tax in order for it to work. But the current system isn't working.

[deadstar]

I like the idea of the cap, but as Scott said there needs to be some tweaks. More specifically, I'd want signing bonuses and so forth for the amateur draft to be capped (would never happen because there goes the incentive to pick baseball over football or any other sport the athlete can play) as well as an overhaul in the way Latin American players are signed as well as Japanese.

[youkwalks]

Basically, I'm taking this in Henry wanting it to be a cap that is around the luxury tax level, which would effectively hamper just the Yankees.
I agree with everything you said, but for the sake argument...The luxury tax threshold will be 162 million this year all the way to 178 in 2011. Any cap put in place would give teams a few years to achieve its level. At a 178+ MM would such a cap really be hurting NY?

The Yankees would have to do some shifting given their 200+ MM payroll and MLB would have to give them leeway in the short run, but in the long NY could operate with a 178+ MM payroll while continuing to outbid other teams for high price free agents. It would not be the gaudy amounts like 32 million or field an all-star infield, but NY could certainly outbid most teams at 16-20 million (and more years) and you yourself said they would dump the extra money into the draft and foreign markets giving them (theoretically) less need for FA at every position.

[bigmike]

I agree with everything you said, but for the sake argument...The luxury tax threshold will be 162 million this year all the way to 178 in 2011. Any cap put in place would give teams a few years to achieve its level. At a 178+ MM would such a cap really be hurting NY?

The Yankees would have to do some shifting given their 200+ MM payroll and MLB would have to give them leeway in the short run, but in the long NY could operate with a 178+ MM payroll while continuing to outbid other teams for high price free agents. It would not be the gaudy amounts like 32 million or field an all-star infield, but NY could certainly outbid most teams at 16-20 million (and more years) and you yourself said they would dump the extra money into the draft and foreign markets giving them (theoretically) less need for FA at every position.
In the long run it wouldn't hurt them that much, no. Short term, they'd have to shed some contracts and fill in with a lot of pre-arb eligible guys. Short term, that really makes Cashman's job very difficult. Say a cap were to come in in 2010 and they had to shed the $31 mil from their payroll by then; who do you move? who do you give jobs to? Who do you cut?

I should've clarified, we're pretty much on the same page that short term it hurts them more than long term.

[youkwalks]

1. both, but moreso promotes fair competition. it gives the small market teams a chance to play on a level playing field and the opportunity to field a competitive team from year to year. it prevents the big money teams from throwing an unlimited amount of money at their roster, but they still hold advantages when it comes to being a more desirable location for free agents to go.
But is this fair to teams with more money? They were able to make it one way or another, whose right is to tell them what to do with their money? Small market teams have found others ways to compete recently and many are jumping on new evaluation techniques. Best case right now, Tampa Bay.

2. absolutely. look at the parity in the nfl. since 1995, only three nfc teams haven't played in the conference championship game. year after year there is a team that goes from a top 5 draft pick to making the playoffs. every offseason in the nfl is crucial for every team. without a cap, the offseason for teams like the royals and pirates almost seem pointless, because you know going in that these teams won't be able to compete. they're not one player away. there's an occasional fluke team that pulls it off, but every year in the nfl there's a fluke team that succeeds. without the salary cap in the nfl, there is no parity.
I really need to find time to study this. I want to give baseball more time to adapt to new evaluation tools, but I have a feeling money wont be able to buy wins like it used to which goes into your next point...

3. reward, without a doubt. it promotes working through your minor league system and building from within. it will only hurt when you develop the talent from within to a point where you can't afford to keep them, but that happens without a cap as well. that will always be a part of the game. teams like minnesota and oakland who have been able to field competitive teams without the major market support just through innovative talent evaluation would thrive in a system that puts them even kiel with other teams. this would force more of this type of out of the box thinking, leading to more talent being discovered that possibly wouldn't normally be, in my opinion.
No salary cap required teams like Oakland and Minnesota to build those strong farm systems. I think without a salary cap it will require teams to stay on the cutting edge, continually improving the sport where a maximum competitive level does not necessarily require you to be on the frontier all the time.


5. no. it helps the smaller market teams make money that they're not earning, but how much of that money is going to go back into the team roster wise? this does more to harm the bigger market teams than it does to help the small market teams, in my opinion. Let me ask another question....should MLB set a minimum amount teams must spend on their payroll?

[Zeran]

i don't think there should be any kind of restraint or cap or ceiling or floor or whatever in mlb.

[nothingclever]

I am of the opinion that a salary cap is a bad idea. If people have the extra money to spend...Spend Away I say. However, if they do implement a cap, I don't think it will change all that much other than salaries. Look at my beloved Red Wings. We won a bunch before the cap and then won with the cap. We also signed Zetterberg for next to nothing. People who want to win will still go to winners.

[deadstar]

I am of the opinion that a salary cap is a bad idea. If people have the extra money to spend...Spend Away I say. However, if they do implement a cap, I don't think it will change all that much other than salaries. Look at my beloved Red Wings. We won a bunch before the cap and then won with the cap. We also signed Zetterberg for next to nothing. People who want to win will still go to winners.
Good management is just magnified with a cap.

Plus I'd rather not compare hockey and baseball in terms of economics. Its a whole different ballgame (no pun intended).

[youkwalks]

Good management is just magnified with a cap.
I think the same could be said with no cap. Teams other than the Yankees and to an extent the Red Sox (because MLB is the only league without a cap) have to find clever ways to put a winner on the field and have to stay ahead of the pack.