Salary Caps Are A Bad Idea

[HoustonGM]

http://umpbump.com/press/2008/12/26/...re-a-bad-idea/

This, I think, demonstrates perfectly why anybody who is expecting a salary cap will be greatly disappointed:

It’s unrealistic, and quite frankly, anti-capitalistic to expect anything else. Plus, if there’s even a whiff of a pending cap, the MLBPA will shut down baseball for god knows how long. And who does that benefit?It doesn’t help the owners, the players, and certainly doesn’t help the fans.

The following two quotes illustrate how the problem is not teams spending a lot, but rather, teams NOT spending the money that they clearly have:

And in 2007, the Yankees spent roughly $190MM on payroll - and reported an operating deficit of $47.3MM, by far the worst return in all of baseball. So what did they do in response? RAISED their payroll to $210MM in 2008. Of course, the Yankees do not want harsher luxury taxes. But their past behavior indicates that they will not compromise their on-field talent as a result of it. On the flipside, 27 of the 30 teams profited in 2007. The Nationals, Marlins, Mets, and the White Sox all made over $30MM a piece. So all that will end up happening in a luxury tax scenario is a redistribution of wealth among the owners - from ones willing to spend to the ones that don’t. This doesn’t sound like it’s in the best interests of baseball.

Why shouldn’t the most popular teams be able to reward their fans’ loyalties with a winning product? Why do we attack the Steinbrenners for spending their income to do so? Shouldn’t the Nationals fans (all four of you) be angry that their team had a 2007 payroll of $37MM when the organization made $43.7MM? To me, that’s far more offensive than what the Steinbrenners are doing.

And, of course, this is what I've been saying all along:

Parity - the idea here being that if payrolls were more evenly spread, teams such as the Pirates, Royals, Nationals and Orioles will be competitive. This is wrong. All of these teams have internal personnel issues that prevent it from succeeding. They’ve made bad decisions, plain and simple. The Orioles have gotten better and restocked their minor league system that should bear fruit over the next few years. But the others are still hopeless and have no one to blame but themselves. The A’s, Rays, Twins, Indians, Marlins, Rockies, and Brewers are just some of the small market teams that have competed over the last couple of years primarily through their farm systems.

[Alloutwar]

Signing bonuses for draftees, and the posting process for Japanese players are still inherently unfair to the small market teams though. Top talent that gets drafted can refuse to sign, and small-market teams know it, passing them over until the Sox or Yanks get a pick.

I'm pretty much convinced that salaray cap is a bad idea (despite my disdain for the Yankees), and I like how much parity there is - but there are still some minor holes in the system.

[filihok]

First, I don't think a salary cap or (MUCH WORSE) a salary floor is the right idea.

I just question this

And in 2007, the Yankees spent roughly $190MM on payroll - and reported an operating deficit of $47.3MM, by far the worst return in all of baseball. So what did they do in response? RAISED their payroll to $210MM in 2008

because it implies that the Yankees lost $47 million last year, which I doubt is true. I believe that operating revenue only factors in ... umm...Mogul type revenues and expenses. The Yankees made more money in other ways.

Until we can see a balance sheet for MLB teams I really don't think we can say much about the way they spend money

[HoustonGM]

The Yankees make money from things like YES, which I don't believe are included in the team's revenue/expense calculations, so you're right on that. But, the point is more that the teams that whine about how they have no money and it isn't fair are making a profit AND have owners that are richer than Steinbrenner, so they clearly have the money...they just want to pocket it, and then get free money from the league, and pocket that too. They care about nothing except making money for themselves. Jeffrey Loria of the Marlins illustrates this more than any other owner. His pocket-pinching ways lead to them non-tendering their best reliever last year (Joe Nelson), who would've costed roughly $1 million, and signing Scott Proctor, an injury-prone blah middle reliever, for $750K.

[filihok]

Do teams whine? (this is an actual question)

I only really hear fans whine and an occasional GM say something like 'I wish we could afford $180 mil on one player". Steinbrenner will whine every now and then about 'these other teams taking the Yankees money'

Fans, of course, want their team to be competitive. Owners, of course, want to make more money.

There has to be revenue sharing otherwise there would be too much complaining and baseball would lose its legal monopoly.

[HoustonGM]

Do teams whine? (this is an actual question)

The Brewers and Astros owners have both publically called for a salary cap, claiming, essentially, that they "can't compete with the Yankees" (nevermind the fact that they don't compete with the Yankees).

I would also classify things like Jeffrey Loria complaining about needing a new stadium and demanding taxpayer money to do so as "whining."

There has to be revenue sharing otherwise there would be too much complaining and baseball would lose its legal monopoly.

Agreed without a doubt. I'd be in favor of more and/or better revenue sharing.

[dickay]

I don't have time to read all this, but the more I think of it MLB and sports in general should find a way to make the game more cost effective for families to attend. It may be many years away, but the direction they are heading will be detrimental long run. A salary cap may not be the answer to that, in fact I don't see much benefit to a cap....but alienating your customer base due to exhorbinate pricing, not only of tickets but of refreshments, and the like just doesn't seem like a good businiess model to me. I think 15-20 years from now baseball may look back upon this period with regrets.

[HoustonGM]

I don't have time to read all this, but the more I think of it MLB and sports in general should find a way to make the game more cost effective for families to attend. It may be many years away, but the direction they are heading will be detrimental long run. A salary cap may not be the answer to that, in fact I don't see much benefit to a cap....but alienating your customer base due to exhorbinate pricing, not only of tickets but of refreshments, and the like just doesn't seem like a good businiess model to me.

The cost is so high because of the laws of supply and demand. It's incredibly simple. And, more to the point, the fans, as a whole, obviously don't care - baseball is continually breaking attendance and revenue records. They're obviously not alienating their customer base.

I think 15-20 years from now baseball may look back upon this period with regrets.

I don't see how or why that would happen. Why would they regret the game being extremely popular and extremely profitable?

[JayC]

Signing bonuses for draftees, and the posting process for Japanese players are still inherently unfair to the small market teams though. Top talent that gets drafted can refuse to sign, and small-market teams know it, passing them over until the Sox or Yanks get a pick.

Signing bonuses aren't so high that any team can't compete on that field.

In 2008, the four largest signing bonuses were over $6 million. Any team can do that. After the top four, only two were over $3 million (and the player picked 4th overall signed at that level); everyone else was given less than $3 million. Again, any team can do that.

Interestingly the Yankees were one of only two teams that <i>didn't</i> sign their number one pick (Washington being the other).

But the point is that if it's true that teams that pass over players they want because they don't want to pay the highest level of signing bonus money, they're only saving about $3 million by doing so. There's not a team in baseball that couldn't spend that.

Bonus data for the 2008 draft can be found here:
http://www.sportsbusinessdaily.com/article/123377

[dickay]

The cost is so high because of the laws of supply and demand. It's incredibly simple. And, more to the point, the fans, as a whole, obviously don't care - baseball is continually breaking attendance and revenue records. They're obviously not alienating their customer base.

Oh, I fully understand this is the most popular period in baseball in terms of attendance (in most places). Its also a time period where much of America is paying with plastic and overextending themselves. Most fiscally responsible middle class Americans with families that I know really can't afford to go to these games any longer. What they are getting is the wealthy, those who live beyond their means, the one or two game a year families, or those without families who can afford to go to a game like this.

I don't see how or why that would happen. Why would they regret the game being extremely popular and extremely profitable?

Because they are alienating future fans. Young America by studies I've seen within the last year (USA Today had one about 6 months ago) showed kids flocking to football, soccer, and basketball at a much higher rate than baseball. I believe it was kids 16 and under game attendance in all the major sports has been dropping as well, despite overall attendance rising. Baseball should be ahead of the curve trying to get kids into the game. While the minor leagues are nice, they do not provide the known star talent. With a long recession looming, and baseball contracts continuing to be long term and high value...I fear the game may be bleeding the well dry.

Its just a theory, but I just don't think its a good business model to make games unaffordable for families to attend, long term that is. Sure short term, maximizing profits is great. Things run in cycles however.

[dps]

Young America by studies I've seen within the last year (USA Today had one about 6 months ago) showed kids flocking to football, soccer, and basketball at a much higher rate than baseball.

That's nothing new--it's a long-term trend that has been in motion since the mid-1950s at least (for football and basketball, anyway; soccor's popularity is more recent).

[dickay]

That's nothing new--it's a long-term trend that has been in motion since the mid-1950s at least (for football and basketball, anyway; soccor's popularity is more recent).

True, somewhat...i'd argue the 50's, but the bigger issue is the decline of youth at major league stadiums. Also, there are many parks who have had attendance declines during this era of 'overall attendance growth'.

While people chime with how good the sport is doing attendance wise, it is a recent phenomenon. The average attendance per game record was on the books for 13 years, from 1993 before finally being broken in 2006. Of course, the strike of 94 hit baseball hard. And although since 2006 attendance continues to climb at record levels, its still a short run and primarily lead by major metropolitan urban area teams. The escalating costs and weakening economy are going to hurt, and as I've stated...it is my opinion that their long term business model is flawed because it alienates families. Baby boomers, and middle aged men, are primarily what you see at these games...they are losing another generation.

[HoustonGM]

Another salary cap article posted today.

[filihok]

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.

This is the worst part of the whole thing, in my eyes

[dickay]

This is the worst part of the whole thing, in my eyes

Agreed...the whole concept of a salary floor ABOVE current minimum payrolls is rediculous considering teams aren't turning profits even with their payrolls under this floor. The idea loses all credibility.

I understand the arguement that teams get rev. sharing and don't put it into their team, but the argument can easily be made that long term its better to bank that money or put it into your farm system. When the kids develop and hit the field, the money can be then used to sign high dollar FA's (kind of like Tampa has done). Making a team spend money when they are operating at a loss and have no chance of competing is counterproductive.

Some owners refuse to operate at a loss even though it 'may' build the fan base long term. This is really off the wall, but why not have MLB make a clause that teams MUST win X amount of games over a 5 or 10 year cycle? If they don't win X amount of games in 5 years, they lose a percentage of revenue sharing, and if they don't win X amount of games during the 10 year period, MLB takes possession of the team and sells it to the best qualified suiter. Of course all the money earned in the sale goes to the previous owner, but he's out of the game at that point? The embarrassment alone would make owners put at least a half-way respectable product on the field.

Thats kind of 'bbmo-ish'....but hey, it could work