A Salary Cap in Baseball? What About a Salary Floor?

I think most people would agree that there is something wrong in baseball when one team has a payroll of $210 million and others spend less than $30 million. It’s hard to argue that there is equity in the sport when there is a seven-fold difference in the amount that teams spend on major league talent. Ok Ok, so there is a problem. Most everyone outside of New York (and perhaps Boston) agree there is a problem but what could be done to remedy these inequities?

Well baseball tried to remedy the problem when it came up with a revenue sharing program that was intended to put some cash into the hands of the cash-challenged. Has the program sparked spending by the have-nots? I suspect in some situations it has led to some higher spending but given current payroll statistics, its pretty clear that some teams are just pocketing the revenue sharing money instead of putting it back into major league payroll. That certainly is the case in Florida where the Devil Rays had an opening day payroll of just $24 million and their brethren in Miami were spending just $30M. At those spending levels, it is unfathomable that these teams are spending their subsidies.

So what could be done to remedy this situation? Well, the knee jerk reaction is simply to limit spending by imposing a payroll cap on the top teams. But would this have the intended affect? Sure, it would reduce the ability of those in the "hundred million dollar club" to recruit, assemble and hoard expensive talent. And I guess it would increase accountability for those teams who rely on fiscal largess and expensive band-aids. But it would not address the fundamental problem in the sport. That problem is not only that the Yankees spend too much, but that the Devil Rays spend too little.

So this is my solution. The player’s union will never go for a plan where there is a spending cap. After all, why would they accept a plan that just cuts a hundred million dollars out of collective payroll spending? But what if the teams agreed to make it up on the back-end? Specifically, what if the owners proposed a cap to go along with a spending floor? In other words, what if the owners proposed to knock out a hundred million of spending at the high-end and make it up by forcing teams to boost spending on the low-end?

I was curious about the feasibility of such a proposal so I took a look at the numbers. This is basically what I found.

On opening day, MLB’s 30 clubs collectively spent roughly 2.53 billion dollars on their 25-man rosters. Seven teams spent more than $100 million (Yankees, Red Sox, Mets, Angels, Mariners, White Sox and Dodgers) while seven teams spent less than $60 million (Devil Rays, Marlins, Diamondbacks, Rockies, Padres, Nationals, Pirates).

So what if you capped spending at $140 million dollars? Well, that would cost the players roughly $71 million in lost wages. If you knocked the cap down to $120 million, the forfeiture would come to $111 and a $110 million cap would lead to a loss of $136 million. So could these losses be made up elsewhere? Absoutely! If one were to impose a spending floor of $60 million, then overall payroll spending would be increased by $125 million. Moreover, a $65 million floor would lead to $163 million in additional spending while a $70 million dollar floor would net $208 in additional spending.

So this is the Holic’s proposal. It would be pretty hard to force every team to spend $70 million. That may be a stretch without some tinkering with the revenue sharing program as there is probably no way that Tampa could afford such a commitment. But what about $60 million? That seems eminently fair to me and as a result of that floor, the union would be enriched by $125 million. Those additional revenues would enable a cut at the high-end. I am proposing that the new limit be $130 million. The union would lose $90 million at this point, but still be up $35 million because of the new spending floor. That seems like a decent trade-off to me.

Would this proposal help competitiveness? It certainly wouldn’t hurt as it obviously would allow (force) some teams to retain their talent and bid for the talent of others. No longer would teams be able to pocket their revenue sharing dollars while their home-grown talent walks out the door. Conversely, a $130 million dollar cap would reign in the free-spenders whose consistent success is due in large part to their financial prowess. I realize there are some problems with this proposal. One being that it might bankrupt, or at least strain some of the teams being asked to spend more dollars. That in turn might limit their ability to throw dollars at scouting and drafting – an area that has been a great equalizer for some. I also understand that sixty million may be a problem for the Florida teams and the revenue sharing program might need to be adjusted a bit to assist these economic laggards. But there is no reason why San Diego and Colorado and Arizona are currently spending so little.

So there it is – my proposal to save baseball and douse one of baseball’s most hotly debated issues.