Hard Cap for Equality Movement

Major League Baseball has struggled to achieve parity ever since the implementation of the luxury tax in 2002. The hard cap for equality movement would effectively create competitive balance in the league, increase fan attendance and tv ratings, and expand the league’s economy. However, and understandably so, there are many sports fans who believe that the hard salary cap is negatively affecting leagues that use it, and they would likely be opposed to introducing the hard cap to America’s favorite pastime. For example, the New England Patriot’s dominance over the past decade is a reasonable reason for “Luxury Tax Fans” to assume that the hard cap fails to effectively create competitive balance. The Patriots have made the playoffs in eleven consecutive seasons (dating back to the 2009-2010 season), earned a ticket to the Super Bowl in five of those seasons, and won it all three times. With that situation in mind, Luxury Tax Fans are probably thankful that they do not have to watch similar dominance in baseball. But the hard cap is not meant to prevent elite organizations, ones that make intelligent trades and signings, draft players efficiently, and make coaching staff adjustments, from competing year after year. Teams should not be penalized for being run exceptionally well, but they should be penalized for breaching a spending limit! However, a competitively balanced league should severely limit the number of dynasties, and it should also involve teams of all markets making the postseason as often as possible.

In the NFL the hard salary cap does just that, for only 3 teams: the Cleveland Browns, Tampa Bay Buccaneers, and the New York Jets, have not made a postseason appearance since 2014. Meanwhile, 8 teams in Major League Baseball, which is more than ¼ of the league’s teams, have experienced postseason droughts since 2014. Not only has the NFL achieved parity regarding postseason appearances via the hard salary cap, but there have also been a healthy amount of small market teams winning the entire postseason (the Super Bowl). The only small market team to win the World Series in TWO DECADES under MLB’s luxury tax is the Kansas City Royals, whereas NFL teams from small markets such as Kansas City, New Orleans, Denver, Seattle, Baltimore, Green Bay, and Pittsburgh have all brought home a championship in the past decade alone. Although the Patriots were dominant for many years, their success was not largely dependent on tanking teams, for the league still saw a plethora of teams make, and win, in the postseason while enforcing a salary cap.

Many people are led to believe that an altered agreement of revenue sharing in Major League Baseball would have a greater impact on competitive balance than the addition of a salary cap. The concept behind revenue sharing is sensible because one would expect that an even distribution of revenue would create a competitive balance/equality regardless of where teams are located. However, MLB has already altered their revenue sharing agreement in the collective bargaining agreement (CBA) in 1996, 2002, and 2006, and 2017 to no avail. In author William Ryan Colby’s essay, “Revenue Sharing, Competitive Balance, and Incentives in Major League Baseball”, he analyzed the different approaches that Major League Baseball has used in order to achieve parity through revenue sharing. Colby concluded,

“The analysis also indicates that the effects of these systems are sticky; although MLB has begun to fix the problems, it will likely take more time for the improvements to take hold. Regardless, however, this research shows that MLB has tried and ultimately appears to have failed in their attempts to promote competitive balance through increased payroll balance.  They have failed because they have constructed institutions that create backwards incentives and because they have failed to draw a distinction between “good” and “bad” imbalance.”

Colby predicted, in 2011, that conditions would improve; but the latest CBA rules for revenue sharing from 2017 indicate no progress in competitive balance. The teams that make the most money get less back in return, while the lower spending teams get more in return than what they paid. In the 2020 article “Looking Under the Hood of MLB’s Revenue Sharing Plan”, William Juliano of The Captain’s Blog says,

…teams can pretty much guarantee a hefty profit by maintaining a low payroll. However, according to the collective bargaining agreement (CBA), clubs are supposed to use revenue sharing to enhance their winning percentage, not their bottom line. The MLBPA isn’t convinced that every team is operating in accordance with that stipulation, and the recent trend toward tanking seems to back up their claim.

Essentially, MLB has no beneficial way to alter the revenue sharing agreement in order to improve competitive balance within the league.

Major League Baseball has played with increasing percentage of shares below 50% over the years. In the 1996 agreement, 20% of local revenue shares were subject to equal distribution among the 30 MLB teams. Since then, the CBA has continued to increase revenue sharing, and in 2020 Baseball Reference lists that the local revenue sharing has progressed to 48% distributed equally between teams. It appears there is no perfect percentage to avoid tanking teams because the larger the percentage, the more money tanking teams make (which inclines them to tank even more). The lower the percentage, the more money higher-profit teams get to keep, only encouraging them to overspend and go over the luxury tax. With a hard salary cap, those teams would not be permitted to over-spend or they would risk forfeiting games, losing draft picks, and even suspension or dismissal. Plus, the hard salary cap encourages small markets to spend and compete with the bigger markets, rather than changing the revenue sharing agreement which would make the tanking issue even worse (regardless of whether the league boosted or lowered the percentage).

In conclusion, although the notion that the hard salary cap movement could benefit Major League Baseball conflicts with common opinion, it is the most efficient recourse by far. Baseball desperately needs to change its tax system, and despite looking like one of the least successful methods for achieving parity, upon dissection, NFL’s hard salary cap has actually revealed itself to be an incredibly effective taxing method to achieve competitive balance in sports. Many people believe that an alteration in Major League Baseball’s revenue sharing agreement under the CBA would be a more impactful way to create league parity. But history has shown that revenue sharing agreements tend to be counterproductive because they unintentionally promote the concept of tanking. Overall, MLB’s best opportunity to make their game better would be to employ a hard salary cap.

References

B-R Bullpen. (Baseball Reference, 2016). Retrieved April 14, 2020.

Colby, W. R. (2011). Revenue Sharing, Competitive Balance, and Incentives in Major League Baseball. How MLB Revenue Sharing Made the Yankees Better.

Looking Under the Hood of MLB’s Revenue Sharing Plan. (2020, March 7).