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Should major league players push for a salary cap?

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MT. LEBO – Maybe you’ve erased it from your memory, but try remembering back to the 1994 strike that wiped out the first World Series since 1904 and perhaps an Expos’ world championship run. It was perhaps the most damaging work stoppage in the sport’s history, and one of the primary points of contention was the owners’ demand for a salary cap, a position they did not move from until early in 1995.

 

The owners claimed to save small-market clubs it needed revenue sharing – which it received in limited form – and a salary cap, which it did not.

 

Many fans wanted a salary cap for the sake of competitive balance, though small-market clubs have become more competitive over the last decade due to a variety of factors.

strike

In a few years might we see a sort of bizarro work stoppage because of players, not owners, desire a salary cap? 

 

Of course it turns out baseball owners didn’t need a salary cap to prosper from east to west, north to south, from large-market to small.

 

In 1994 baseball had revenues of $1.2 billion.

 

In 2013 baseball enjoyed revenues of $8 billion.

 

In 20 years since the strike, baseball has seen its revenues increase by 567 percent. Values of franchises have skyrocketed. Owners crying poor 20 years ago are now richer than ever before.

 

The revenue explosion is the confluence of trends that began around the time of the 1994-95 strike:

 

*The opening of Baltimore’s Camden Yards in 1992, baseball’s first “retro” park, revolutionized  the fan experience and increased owners ability to generate revenue through added premium seats and better ballpark experiences which drew more customers to games. Twenty-three clubs have opened new stadiums since 1994.

 

*The Web was in its infancy in 1994 but in 2000 Major League Baseball launched MLB Advanced Media, which all 30 clubs have an equal stake in. MLB Advanced Media controls the game’s online and mobile enterprises. It generated $600 million in revenue in 2012 – split equally – and each team’s stake in the business is worth $110 million, according to Forbes.

 

*Like in all sports, television rights fees have exploded. As DVR devices came into existence, as cable added hundreds of new channels, it became more difficult for advertisers to find large, live audiences. Sports is still largely DVR-proof, still drives audiences, driving up demand for advertising. Also, over the last decade regional sports networks have also proliferated and 13 major league teams have ownership or stakes in such networks.

 

In short, there’s never been more revenue in the game. And while revenues have exploded over the last 20 years, players’ share of revenues have declined by 20 percent.

 

Players received 63 percent of revenues in 2003, a high in recent history according to the Sports Business Journal (and players received 60 percent of revenue in 1994).  But players’ percentage share has decreased by 20 percent in a decade. Players’ share of revenues dipped below 50 percent in 2010, and according to Tribune-Review calculations, it reached 42 percent in 2013.

 

That’s a remarkable drop that’s not received much media attention.

 

In speaking with superagent Scott Boras for Sunday’s story on the changing landscape of free agency Boras sounded dangerously close to being in favor of something that was an anathema to him just a decade ago: a salary cap.

 

“You have owners’ revenues that are skyrocketing. It’s not 50-50 anymore. It’s well below that,” Boras said. “I think the union has to take great notice of that. That’s something we got away from in the last agreement. I think in the upcoming collective bargaining process that really has to be paid attention to.”

 

The decline is in part tied to teams signing young stars to cost-controlled deals that buy out arbitration and some free agency years. As we noted in the story, 108 players on 2013 rosters have never tested free agency because clubs of multi-year extensions.

 

Also, in a post-PEDs era, production of players 30 and older has drastically declined removing hundreds of expensive free agency seasons.

 

Teams might have also become more cautious in how they approach the free labor market and they have become more concerned with developing their own talent, which is cheaper and more productive.

 

Raymond Sauer, a writer for The Sports Economist and an economics professor at Clemson, notes that a productivity shift from older to younger players means there are fewer “market wage” contracts and more “restricted, less-than-market-wage” deals.

 

Said Sauer: “(It’s) a recipe for owner profits.”

 

The bottom line is this: the three other major sports in North America – NFL, NBA and NHL – have salary caps that guarantee players a certain percentage of revenues, roughly around 50 percent. Baseball does guarantee players a percentage of revenue.

 

Moreover, baseball has further limited spending by creating caps in both the amateur draft and international free agent market. While these might be well-intentioned vehicles to level the playing field, they also further limit spending on players.

 

Because baseball does not have a salary cap their are no ceilings on salaries, but there is also no floor. There is no requirement for an owner to spend X dollars. The Houston Astros spent  $26 million on their entire team this season.

 

While the 1 percenters have become incredibly rich in the game, the vast majority of players might be better off with a system that guaranteed the players something close to a 50-50 split of revenues.

 

Also, it’s fair to question how much revenue sharing has helped the game the Atlantic has:

 

Oddly enough, a salary cap might help push up baseball salaries. More specifically, it would push up the salaries for players on the Padres, Pirates and other small-market teams. While behemoths like the Yankees and Red Sox spend huge chunks of their revenue, small-market teams spend far less as a percentage. They leach off by the big clubs by spending next to nothing on players and relying on revenue-sharing to make money. This is sports’ version of an income-redistribution scheme gone wrong.

 

So if Boras is thinking about ways to level revenue shares in the game you can be certain players and the MLBPA is, too.

 

And while the game has entered an era of parity, a salary cap – and salary floor – is still the best long-term vehicle to promote parity. Although, if small-market owners are forced to pay more on major league payroll they may pull back on spending on amateur talent acquisition.

 

Baseball’s revenue pie has grown at an incredible rate. But the players’ slice has been reduced and I doubt they will be quiet about it during the next round of collective bargaining.

 

– TS

 

 

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