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Should major league players push for a salary cap?

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

 

 

Comments

  1. likeabugonarug says:

    What it sounds like the Atlantic chooses to ignore, however(and no, I didn’t read the article, just going by the quote), is that many of the non-Yankees/Red Sox, etc… can’t afford to pay those 10 year/$200 million+ contracts, so of course their spending will be less. And is it ignoring that the other teams as a percentage may be paying that exact same “huge chunk” of revenues as the behemoths?

    Kevin

  2. Andrew says:

    Let us not confuse two issues here that are not related, percentage of revenue paid to players and competitive balance/parody. Salary caps, revenue sharing, luxury taxes, NFL’s and NBA’s rookie salary by draft slot, MLB free agent compensation in form of qualifying offer are nothing more than a way to keep salaries in check. MLB players’ share of revenue peaked just prior to luxury tax and revenue sharing. Look at revenue growth and salary growth in the other North American sports, the salary growth has not kept up with revenue, the MLB owners have recently just become better than their peers in restricting this growth. A salary cap is still a restriction on player compensation, maybe less onerous than current MLB structure but a restriction still.

    The MLB players union also clearly failed to understand the impact of qualifying offer, which is nothing more than a tax on a free agent driving down the salaries. The limits on draft spending and spending international signing, were not an attempt to level the playing field, but an attempt to limit money going to new players, it seems like a concession to the player’s union. It is classic union bargaining.

    Competitive balance is largely a product of the talent pool, owners crying poor is a crutch for incompetent ownership/management. The only structural change that could affect parody would be a salary floor, if the Astros were forced to spend more on players they would have been more competitive in 2013, still not anywhere near good. However Travis I think you are correct in pointing out that if major league salary comes at the expense of player development a salary floor would be counter-productive. The MLB does not utilize the free player development of college sports (and CHL for the NHL), to the same degree as the other major sports leagues.

  3. NMR says:

    Yeah, I deeply respect the Atlantic, but I’m pretty sure this part is just plain wrong.
    .
    Payroll as a percentage of revenue is an awful way to judge whether or not an organization is equitably funding their big league club since it completely ignores the deducted cost of, you know, RUNNING A BASEBALL ORGANIZATION. Whether you’re the Yankees or Marlins, funding a Major League Baseball organization is still ridiculously expensive. The amount of money teams have available AFTER expenses vs how much they spend on Major League payroll is really the only comparison that makes the slightest bit of sense. Anything else is just building a narrative.

  4. NMR says:

    I don’t know where you find this stuff, but you do an incredible job of serving up fresh material, Travis. Awesome.
    .
    I can’t imagine any major change to revenue structure without an overhaul of the arbitration system. Bye bye six years of player control.

  5. Nate83 says:

    I was just about to say the same exact thing. Travis’s point of shorter careers makes me fear that the thing players will push for the next chance they get will be earlier free agency. Small market teams would be hurt by this more then anything else that could possible happen. I can’t imagine a competitive landscape where the Pirates only have 5 or maybe even 4 years of player control over players like Cole, Marte, Taillon, etc……
    .
    It also will make it harder to trade younger players as it ussually takes 2 or 3 years for them to establish themselves. Big market teams will be less likely to trade for a player only 1 year away from free agency and even if they did the return would be much smaller.
    .
    The percent of revenue spent on payroll is very deceiving. The Dodgers could probably spend upwards of 300 million and they still wouldn’t reach 50 percent of their revenue because of their local TV deal. The Pirates are probably already spending over 50 percent of their revenue with a payroll around 70 million. Sadly the 15 teams with the lowest payroll are probably spending a larger portion of their revenue then the 15 teams with the higher payrolls.

  6. Travis Sawchik says:

    Yes, shortening club control over players is the sum of all fears for small-market clubs. However, I think it would take a multi-year strike for the owners to consider altering the current arbitration and free agency thresholds

  7. NMR says:

    Man, I couldn’t possibly imagine how the league could survive if years of control were cut WITHOUT a cap/floor and equalized revenues instated. The reason big markets don’t demand revenue sharing end is that they know it supports the small markets juuuust enough to keep them around. Baseball would be unwatchable if the lower 1/3 of teams didn’t have revenue sharing and only brought in enough to survive.
    .
    Think about the lesson that Boston infamously throwing a fit over the Josh Bell draft taught us. Big markets got scared when small markets started beating them to talent. You never heard a peep from Boston about the amount of revenue sharing they sent to the Pirates.

  8. Bizrow says:

    The Players Association will never agree to a salary cap

  9. Arriba Wilver says:

    Biz—did retiring push you into the future? 11:44 p.m.? My watch says 7:38 p.m.

    Fascinating topic, Travis.

  10. Vic says:

    Nobody comes up with more bizarre theories than you. Nobody.

  11. Travis Sawchik says:

    Vic, I’ll take that as a compliment, though, I don’t see how suggesting players should look toward a mechanism to level the revenue shares is really bizarre

  12. leefoo says:

    I’ll believe when I see it. But, I hope it happens.

  13. leefoo says:

    AW….I have the same issue…I am typing this at 8:07 AM. Check the time stamp.

    Btw, this is like old times on the Plus. I hope we can get back to those sterling debates?

  14. Marina Lake says:

    The NFL salary cap hasn’t helped the financial disparity in football much. The teams in the major markets still make the most money — regardless of W/L record. And the cap causes teams to let long-tenured star players go, eroding fan loyalty. Baseball teams need to retain the stars the fans come to see; it would be better to fiddle with the (tv) revenue sharing arrangement than impose a salary cap.

  15. Ghost says:

    No, it was not bizarre at all. It’s very good food for thought and would be great if the idea catches on.

  16. Kevin says:

    So the owners have figured out some very lucrative new revenue streams; and the players no longer can play as long (due in part to better PED testing), owners aren’t lining up to give out 10 year $200 million contracts to players in their 30′s whose best years are behind them; so the “solution” is guaranteed revenue sharing? Give me a break; if the players were smart enough to have negotiated for that PRIOR to these juicy new revenue streams developing; then more power to them. They didn’t, so tough luck.

  17. RobertoForever says:

    There is that much financial disparity in football? Did I miss a big story somewhere?

    I thought all teams shared equally in what must be eighty percent of the NFL’s revenue – television and internet rights. I know Jacksonville is able to afford one hundred ten Million payroll thru ticket and concession sales.

  18. gmuny2002 says:

    I never believed that there would be a salary cap in MLB which I’ve been for (especially during the Pirates 20 years of darkness). Now it seems to be a necessity! Boy, has the worm turned or what?!

  19. Marina Lake says:

    Roberto: Last year the Cowboys made $539 million; the Raiders only $229 million. Apparently you did miss a story somewhere :)

  20. RobertoForever says:

    source?
    .
    .
    If its Forbes, I read that the Raiders owner released low ball numbers because he is trying to get a news stadium with luxury boxes and suites, which are not shared revenue. Also TV revenues go up explosively in 2014, which means that gap narrows again significantly.

  21. […] The players union released its annual report on player salaries on Wednesday and it was interesting enough to share some relevant details. In 2013, the average major league salary was a record $3.39 million. That’s a 5.4 percent jump from 2012′s average salary of $3.2 million, and the largest jump since 2006. This comes of the heels of a Forbes report that Major League Baseball’s 2013 gross revenues will exceed $8 billion for the first time thanks to growing television contracts. Baseball is doing well, but the players’ share of the revenue has declined. […]

  22. […] of thumb in pro sports these days is that players should be getting about 50% of the revenue, and that’s just about how it is in the NBA, NFL, and NHL. To achieve that kind of balance, payrolls would have to come up by $200 to $300 million across […]

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