Rob Manfred, Put on Your Thinking Cap
Each year, baseball fans preemptively get psyched for the upcoming MLB season. From the second the World Series concludes until Opening Day, a large majority of baseball fans have hope, both for a surplus of riveting offseason acquisitions and for a successful next season. But there are also fans that are dreading their team’s future. These fans root for teams that seemingly have no shot at any sort of postseason contention, as well as teams that have no intention of spending any money or making any significant trades in the offseason. Why are some teams afraid to make moves while other organizations spend big money?
The luxury tax in Major League Baseball fails to create competitive balance because it does not set a finite limit for spending, inviting big market teams to exceed it and gain an advantage. More importantly, the luxury tax is not punishing enough which is why rich teams are so capable of flaunting the penalties and fines. Mike Axisa reviews the significant decrease in teams paying luxury tax penalties after the 2018 season in his CBS Sports article, “Only Red Sox, Nationals owe luxury tax in 2018 as MLB teams combine for smallest bill in 15 years,” but he fails to recognize that 2018 was an outlier season. One reason for the sudden decrease in teams paying luxury tax penalties is that two MLB teams had been paying the fines for many years. Big market teams reset the luxury tax threshold by going under the threshold for one year in order to avoid the repeat-offense surtaxes.
In Axisa’s article, he writes,
“The Yankees had paid luxury tax every year since the system was implemented in 2003 before getting under the threshold in 2018. They paid over $340 million in luxury tax penalties from 2003-17. The Dodgers paid luxury tax each year from 2013-17 before getting under this past season.”
By going over the luxury tax, both the Yankees and Dodgers were able to dominate their divisions. In the 10-season stretch from 2003-2012, the Yankees won their division seven times, made the playoffs nine times (only in 2007 were they not a playoff team), and won a World Series in 2009. Meanwhile, the Dodgers had paid the tax and won their division every year from 2013-2017. They also advanced to Game 7 of the 2017 World Series before losing to the Houston Astros (who have since been persecuted for cheating in that series). The luxury tax penalties clearly do not phase big market teams, but smaller market teams do not have the financial means to exceed the luxury tax for fifteen straight years!
Teams can spend less money and still be successful, but a hard salary cap provides constant stability and competitive balance for the league, regardless of how much money is spent by small market teams. The Tampa Bay Rays are a beautiful example of a team succeeding while spending very little. In fact, the 2019 Rays had the lowest payroll in baseball yet won 96 games and earned themselves the second Wild Card spot in the American League. They’ve been beating the odds for years. However, their success has been largely influenced by an elite general manager and coaches who consistently turn outcasts into some of MLB’s most productive players. Since the year 2000, there has only been one true small market team to have won a World Series: the Kansas City Royals, while the top five markets in MLB: New York City, Los Angeles, Chicago, Philadelphia, and Boston have combined for half of the World Series’ won in the past two decades. Simply put, teams that spend the most tend to win the most.
On the other hand, the NFL has achieved consistent parity by using the hard cap. The league is incredibly balanced due to the hard cap, and it encourages smaller market teams to spend money, thereby opening the door for them to compete on AND off the field with the bigger markets. In John Vrooman’s journal article, titled “A General Theory of Professional Sports Leagues,” he conducted a study regarding market size and revenue elasticity of winning within MLB, NFL, and NBA.
“The estimates of the revenue elasticity of winning are consistent with the hypotheses of the general theory of sports leagues. MLB has the highest winning elasticity (b=.6), the NBA has less (b=.5), while the NFL has the lowest revenue elasticity of winning (b=.12). These results are precisely what should be expected under the current institutional configuration of the three leagues. The large market revenue advantage is greatest in MLB, less for the NBA, and the least for the NFL.”
Only 3 teams: the Cleveland Browns, Tampa Bay Buccaneers, and the New York Jets, have not made a postseason appearance since 2014. On the other hand, a whopping 8 teams in Major League Baseball, which is more than ¼ of the league’s teams, have experienced postseason droughts since 2014! In addition, as stated earlier, half of the World Series winners over the past 20 years have come from the top five MLB markets. Why is there such a difference? In large part it is directly due to the hard salary cap. Less incentive to tank and more (but limited) spending due to the regulations of a hard cap creates parity in the NFL. As a result, they are the king of competitive balance in American professional sports while MLB continues to struggle with payroll disparities.
In addition, the use of a hard salary cap would also make attendance and TV ratings go up, which would in turn boost MLB’s economy, which would then raise the hard cap and allow general managers to hand out larger contracts to the players. For example, NFL’s attendance and TV ratings are thriving due to their consistently entertaining and drama-filled regular seasons, postseasons, and off-seasons. Meanwhile, Major League Baseball is experiencing a significant drop in their ratings. According to the article “From Terrible Teams To Rising Costs: Why MLB Attendance Is Down Over 7% Since 2015,” written by Maury Brown of Forbes,
“Since 2015, the last year that MLB saw a slight uptick, attendance has dropped 7.14%, or a loss of 5,265,268 fans purchasing tickets and attending games. For 2019, the league saw 14 clubs out of 30 with attendance declines from last season.”
Admittedly, the NFL’s success is not entirely reliant on its hard cap system. But it certainly plays a role in increasing fan engagement which is still vital for a sport’s success. Greater competition creates greater demand and intrigue from fans. The aforementioned drop in fan engagement seen in MLB is in large part due to widespread belief among general managers that their purchase(s) of players will not be enough to contend with the stacked big market teams in the playoffs. Revenues may be soaring, as his title reads, but the fans and popularity of the sport are more essential to the future of the game than revenue. And fans do not want to watch a league that lacks competitive balance, one where the current luxury tax rules benefit only a small percentage of teams while scaring the others away from improving the quality that they put on the field. The more fans that would watch and attend games, the more money Major League Baseball would make. The more money they would make, the more the salary cap would increase. A transition to using a hard cap would not only make fans happier, but it would also benefit the sport as a whole, and the average player salary would increase!
And if a hard salary cap is not endorsed by MLB? Well, once again Major League Baseball must face a harsh reality. There is an irrefutable relationship between team spending, league parity, and fan support as portrayed above. When teams spend, there is league parity, and when there is league parity, fans are pleased and attendance and TV ratings go up. Since Major League Baseball’s luxury tax system is failing to encourage all teams to spend, there is no league parity and fans are not showing support as a result. The Miami Marlins are one of several teams that have immensely struggled to get fans through their ballpark gates in recent years. It comes as no surprise that they have the combined worst overall win-percentage in baseball the last three seasons and were at the bottom of the league in payroll in 2018. In 2019, the Marlins were dead last in team attendance with a measly 10,000 fans per game. The franchise is in severe danger of being relocated or even eliminated from the league, and any team contraction would be incredibly harmful to the game. Losing an entire franchise would result in lower player salaries around the league, tens of players looking for new jobs, and an entire market removed from MLB’s economy. League parity is a necessity for the growth of baseball. Fans, players, owners, and the sport itself would be beneficiaries of the implementation of a hard salary cap.
Axisa, M. (2018, December 15). Only Red Sox, Nationals owe luxury tax in 2018 as MLB teams combine for smallest bill in 15 years.
Brown, M. (2019, October 4). From Terrible Teams To Rising Costs: Why MLB Attendance Is Down Over 7% Since 2015.
Vrooman, J. (1995). A General Theory of Professional Sports Leagues. Southern Economic Journal, 61(4), 971-990. doi:10.2307/1060735