(Rob Carr/Getty Images)
$500,000,000. That’s enough money to buy 19 NHL franchises, 100 Lamborghinis, 25 12-passenger jets, four 38-acre islands in the Bahamas, or 10-15 years of Bryce Harper. During the winter of 2018, when former MVP Bryce Harper becomes a free agent, he will be rewarded with a contract in the $400-500 million range, making him the highest paid player in MLB history.
However, only a select number of teams will be in the running for the 24-year-old superstar when he hits the open market due to the monstrous contract he is destined to receive. Only the Cubs, Yankees, Red Sox, Dodgers, and a few other teams will have the money to make an offer to Harper that will meet his standards (not that all of those teams will be in the running for his services). Has the fact that only a handful of teams are in contention for first-class free agents led to significant disparity in Major League Baseball?
To figure out an answer to this question, we have to cover the salary cap situation in the MLB. Well, the MLB is the only league without a salary cap. The NBA has a soft cap, which means that teams are allowed to operate over the cap, and the NFL and NHL have a hard cap, which means that no team is allowed to operate over the salary cap.
If the MLB were to establish a salary cap— let’s say a hard cap at $170 million— no MLB team would be allowed to have a payroll of more than $170 million. This would prohibit teams like the Yankees, Red Sox, and Dodgers from outbidding every other team for every big-name free agent and having payrolls north of $215 million.
Setting a salary cap also sets a salary minimum— let’s say at $130 million. This means that no team can have a payroll below $130 million. This forces teams to spend money, prohibiting teams like the Rays, Athletics, and Brewers from having payrolls of $80-90 million, reducing the gap between teams like these and teams in large markets who consistently have payrolls above $200 million.
Although a salary cap may even the playing field, there are still drawbacks to incorporating one. If there is a salary cap, teams may be pressed to fit salaries in and stay under the cap. Incorporating a salary cap in a league that was without one before would pose a huge challenge to front offices that are operating well above what the salary cap would be set at. For example, the Dodgers have a payroll of around $251 million. If a salary cap was to be set at $170 million— or really any number in that vicinity— the Dodgers would have to find a way to shed $81 million in salary, which is a larger amount than the whole Brewers payroll.
Adding a salary cap would also pose a challenge to a team like the Brewers who are operating well below the salary minimum line. At around $79 million, the Brewers would have to add at least $40 million to meet the minimum, which could mean overpaying for free agents or diverting from a team’s plan for the future. Also, teams often have low payrolls because they generate a low amount of revenue. So if a salary minimum was added and they were required to increase their payroll significantly, without a successful revenue sharing system, teams’ profits would decrease significantly.
(Jamie Sabau/Getty Images)
Adding a salary cap will definitely hurt the players the most. As the name implies, a salary cap caps the salaries that players can earn. Bryce Harper is rumored to be in line for a $400-500 million payday when he hits free agency, but if a salary cap were in place, there is no way that Harper would receive that massive of a contract. This is why the MLBPA (Major League Baseball Players Association) has been fighting against incorporating a salary cap so fiercely.
A salary cap also transfers a lot of money from the players to the owners. Since players’ contracts would be capped, owners would just keep the money that would have gone to the players if there was no salary cap.
So now the question is whether or not the MLB needs to incorporate a salary cap? I did some research to determine how significant of an impact payroll has on the success of MLB teams by looking at every World Series winner since 1990 and where they ranked in payroll. Since 1990, only three World Series winners were outside the top-15 in terms of payroll: the 1990 Reds (16th), the 2003 Marlins (25th), and the 2015 Royals (16th). Two of those teams were 16th so they were barely outside the top-15. Six out of the 26 (23.1%) had the highest payroll, 12/26 (46.2%) finished inside the top-5, and 16/26 (61.5%) finished inside the top-10.
It is extremely hard to be in the bottom half of the league in payroll and win a World Series, as only three teams did— two of which were 16th. Almost half of the winners were in the top-5, which shows that a high payroll does in fact improve a team’s chance at a World Series.
However, compared to other leagues, Major League Baseball actually has the most parity. In the last 30 years, 19 different teams have won the World Series. In comparison, 14 teams have won a Super Bowl, 13 have won a Stanley Cup, and 8 have won an NBA Championship. So the only league without a salary cap has actually had the most teams win a championship.
Without a salary cap, there has to be some methods that the MLB uses to keep the parity high. One of these methods is a luxury tax. This taxes teams a certain rate for every dollar they are over the cap, incentivizing them to stay below the salary cap line.
The luxury tax threshold for this season is $195 million, the threshold for next season is $197 million, and the threshold for the 2019 season is $206 million. Since the tax threshold is so high, only five teams will be paying luxury tax this year: the Dodgers, Yankees, Red Sox, Tigers, and Blue Jays.
The luxury tax may scare some teams away from spending too much money, but there is also a handful of teams that are willing and able to pay the tax. These teams, such as the Yankees, Dodgers, and Red Sox, will continue to spend at an enormous rate regardless of the luxury tax. Those three teams are also a continuous force in the playoffs, so the luxury tax has had little effect on their success, even though they are the intended audience of the tax.
I briefly mentioned revenue sharing earlier, so what exactly was I talking about? In 1996, the MLB created a revenue sharing system as another tactic to decrease the imbalance in the MLB. According to fangraphs.com, here is how revenue sharing worked in the last CBA:
Every team in the majors pays in 31% of their net local revenue, and then that money is divided up and equally distributed to every team. Since large-market teams will have much greater local revenues than small market teams, this already puts small market teams in the black.
On top of this, a large chunk of MLB’s central fund (which are acquired through things like national broadcasts) is set aside to be allocated to teams based on their revenues.
By 2016, the fifteen teams in the largest markets in baseball will be disqualified from receiving revenue sharing. This feature is being phased in over the coming years. The disqualified clubs will receive a refund for the amount that they would have received in revenue sharing, although teams that have exceeded the Luxury Tax threshold in recent years will not receive a full refund.
Since a lot of the revenue sharing is based on a percentage of revenue, the teams that generate the most revenue pay the most in revenue sharing. Here are the top five payors and payees from 2012-2015:
(Forbes.com)
Although revenue sharing seems like a smart idea, the MLB is a long way from a successful revenue sharing system. Although this has become less of an issue in recent years, teams such as the Pirates and Marlins were pocketing large amounts of money they received from revenue sharing, profiting from a losing ball club, even though the money is supposed to be used solely for on-field improvements. Because teams in small markets that make less revenue receive the most from revenue sharing, this system incentivizes losing.
Since revenue sharing is based on actual revenue and not potential revenue, teams in large markets that are generating low revenue because of poor management are still being compensated well, even if they are in a large market. The best example of this is the 2005 Philadelphia Phillies who were paid $5.8 million even though they were in the fourth largest media market in the league and the largest market without a second team.
The MLB has been incredibly successful both monetarily and competitively without a salary cap, and if they improve their revenue sharing system, they may never need a salary cap. However, it is hard to predict what the competitive balance will be like when the next CBA negotiations arrive with the increasing player salaries, so a salary cap may become necessary in the near future.