MLB’s ‘Salary Floor’ Proposal is a Scam
by Jon Rimmer
With the collective bargaining agreement between MLB and the MLBPA set to expire in December, MLB started off/ kind of continued negotiations for a new agreement on Wednesday with an initial proposal, first reported by Evan Drellich and Ken Rosenthal of The Athletic. For the purposes of brevity and boredom avoidance, let’s stick with the short version: MLB has proposed a minimum salary floor of $100 million for each team, while setting the first tier of the luxury tax threshold at $180 million (down from its current $210 million). The penalties for exceeding each threshold will increase as well.
Before we can discuss the salary floor proposal, we should take a step back to be clear about exactly what problem MLB is trying to solve. According to many MLB owners, particularly owners of teams in smaller markets, it’s too difficult for small market teams to compete on the field with teams that have a higher degree of financial resources due to their market size.
Pirates’ owner Bob Nutting has said there needs to be a “fundamental redesign of the economics of baseball” in order for the Pirates to compete, and Bob is far from the only team owner or executive to voice this concern publicly. The theory is that only the small handful of teams with deep pockets can realistically compete from year to year which disrupts league wide competitive balance and isn’t good for fans, particularly those in smaller markets.
The problem is that there is very little evidence to support such a theory.
Since the league has expanded to 30 teams in 1998, there has been almost no correlation between teams’ payroll and teams’ wins. Rob Mains of Baseball Prospectus isn’t the only person to point this out, but he did do a great job of doing the math for all of us here.
Furthermore, the approximate decade and a half after the advent of free agency was one of the most – if not the most – competitively balanced eras in the game’s history. Even when teams could and would spend freely on players without the burden of a luxury tax penalty, Pittsburgh, Baltimore, Kansas City, Oakland, Cincinnati and Minnesota all won World Series. In fact, between 1976 and 1991 those six teams combined for eight championships – the six teams from New York, Los Angeles and Chicago combined for five.
We also know that since the inception of the luxury tax system over two decades ago, the gap between teams’ revenues and teams’ payrolls has been widening consistently. Teams have been generating more income, but spending a smaller percentage of it on players for quite some time. Even the Evil Empire New York Yankees 2021 payroll is almost exactly what it was in 2005 despite having approximately two and a half times the revenue.
This is to say the luxury tax system has achieved its intent and provided a drag on salaries, but has yet to improve league wide competitive balance or parity, according to the owners. Which begs the question, “If two decades of restrictions and penalties on spending haven’t achieved the desired outcome, why do we need further restrictions and penalties on spending?” Let’s put a pin in that one, we’ll come back to it in a minute.
Fan Interest
Given consistent increases in league wide revenue over the past two decades, including significant increases among self-proclaimed small market teams, the concept that fan interest may decline in smaller markets due to a lack of competitive balance is also a flawed one.
The Kansas City Royals franchise value has more than tripled since 2011. So has the Arizona Diamondbacks’ and Milwaukee Brewers’. The Pittsburgh Pirates’ value has quadrupled in that same time frame.
Yet those teams continue to draw fans, and, much more importantly, continue to sign lucrative broadcast rights deals. Clearly customer loyalty isn’t an issue that further restrictions on team spending needs to address. If one would like to argue that reaching new fans is a problem for MLB, that’s a fair discussion to have another day – but I think we can agree that teams spending less money on players isn’t a good way to reach new fans.
Payroll = Wins?
You might ask if a small market team had to spend a minimum on player payroll with a salary floor, wouldn’t that help them both in the standings and in the eyes of their fans?
Unlikely. Most bad teams in MLB aren’t bad due to a lack of money, they’re bad due an inability to manage their teams well – more money isn’t going to help that. (The Rockies currently have a $91 million dollar payroll – is giving them $9 million to spend on players going to make them good?) The reverse is also true: Forcing high spending teams like the Angels and Mets to spend less on players certainly isn’t going to help them either. As noted above, there’s simply not much correlation between payroll and winning games.
Revenue Sharing =Wins?
Similar to salary thresholds and luxury taxes, revenue sharing has decreased parity, not aided it. The idea that more revenue sharing (which is a big part of MLB’s new salary floor proposal) is going to help the on field product is a somewhat misguided notion, and that’s the polite way of wording it. The issue with many teams not mentioned in the examples above is that they have money, but just don’t want to spend money because they are not incentivized to do so. All MLB teams are going to turn a profit regardless of their won/loss record, in large part due to revenue sharing. Teams who play in large markets that can easily and heartily spend on good players to improve the team (Texas is one example of several) simply choose not to spend – giving them more of someone else’s money isn’t going to incentivize them to win, it’s only raises the bar of “bare minimum effort”, which will remain low under the new proposed salary floor plan.
Which brings me to the point that I’ve come to in my usual circuitous manner: to paraphrase Yankees’ announcer David Cone, the owners’ salary floor proposal is simply eyewash. It has nothing to do with competitive balance and it has nothing to do with the fans. It has everything to do with maintaining, or perhaps even improving upon, a system developed by Bud Selig decades ago that ensures team owners will turn a profit regardless of wins and losses.
MLB owners, executives and spokespeople – many of whom are disguised as baseball journalists – are going to spend a lot of time and resources telling us it’s more complicated than that but it isn’t.
Baseball Teams Make Money
When the conversation turns to teams’ balance sheets and how they’re losing money (and it surely will) don’t fall for it. A business that increases in value annually like clockwork like baseball teams do, don’t need to turn an annual profit on their balance sheet to make money for their owner. To use the Pirates and Bob Nutting as an example, he’s sitting on an approximate $1 billion dollar check that he can cash any time he wants if he doesn’t like the competition aspect of baseball. This assumes owners’ claims of losing money due to the pandemic, players’ salaries, or whatever their boogeyman of the week is are true – it’s extremely unlikely they are, for far too many reasons to delineate here.
When the straw man arguments begin as they also invariably will, don’t listen. The “Well they own a business, and they entitled to turn a profit and run it how they see fit,” talking points are nonsense and should be treated as such. MLB “businesses” are not the local hardware store on the corner. They are investments that are allowed to be run with anti-trust exemptions, salary loopholes for non-major league player personnel, and tax payer funded infrastructure without the hassle of having to disclose audited financial statements.
Surely as we get closer to spring we’re also going to hear the “millionaires vs. billionaires” tropes. When you hear that one, I want you to remember this: The net worth of the average American is statistically closer to that of an average MLB player than the player’s net worth is to his team owner’s net worth. Any and all statements that have “millionaire” and “billionaire” in them for comparative purposes should be laughed at and disregarded, in whichever order suits you.
So when your local oligarch, whose (not primary) business appreciates at double digit rates annually for decades, doesn’t want to invest in your favorite player who will very likely provide a return on the investment, it’s not due to a lack of fairness or balance – it’s due to greed. I’m not a moralist or a philosopher so I won’t delve into the righteousness of such behavior, but we can all agree that greed is a bad look. As a result, if we’re asking why MLB owners would make a proposal that doesn’t address the supposed problem, the answer is purely to deflect from the poor optics.
