Tuesday, February 3, 2009

Capitalism, Yes; Salary Cap, No!

The old adage, “Be careful what you wish for,” should be a siren call to Major League Baseball owners and executives calling for a salary cap in the wake of the Yankees’ off-season spending spree. 

Oakland A’s owner Lew Wolff, Milwaukee Brewers owner Mark Attanasio, Houston Astros owner Drayton McLane, and Pittsburgh Pirates President Frank Coonelly took turns lamenting baseball’s status as the only Major League team sport without a salary cap. All four suggested that a salary cap would be a panacea for both parity in MLB and preventing the Yankees from acquiring the best – and most expensive - free agent talent.  As my father used to say every time I made a suggestion he was loath to embrace, “It sounds good.”  

Indeed it does.  After all, in leagues with a salary cap, there is no equivalent of the Yankees, a team that can purchase any free agent it chooses regardless of the price.  And, so the theory goes, there is more parity in leagues with a salary cap, particularly the NFL which is the poster child for sharing revenues equitably.  Except it’s just not true.   

The NFL shares a higher percentage of revenue (approximately 70%) than the NBA, NHL and MLB.  But the revenue discrepancy between the richest and poorest teams in the NFL exceeds $100 million.  Because a salary cap in sports also includes a floor - a minimum amount each club must spend on payroll – the lower revenue clubs make significantly less money (they spend a higher percentage of their revenue on payroll) than the higher revenue clubs.  

The NFL does have parity - how else to explain the Arizona Cardinals in the Super Bowl?  Most teams, with the exception of Detroit and Cincinnati, begin each season with a reasonable chance of making the playoffs.  But that’s as much a function of the nature of the sport and the limited number of games in a season as it is a salary cap. 

The NBA’s salary cap would be laughable, except it’s no joke.  The intricacies of the salary cap are known to only a handful of humans, living or dead.  And the bottom line in constructing a team has nothing to do with talent and everything to do with the bottom line:  Making sure each team stays within the parameters of the salary cap/floor.   

As for parity, unless the Celtics decide to guard anyone other than LeBron James in their expected playoff matchup with the Cleveland Cavaliers, does anyone believe the two teams in the NBA finals will not be named the Lakers and the Celtics – again?   

In the NHL, clubs such as Nashville and Columbus are hemorrhaging millions thanks to the minimum salary requirements, while Phoenix will reportedly lose $30 million this year and teeters on the brink of bankruptcy.  The strongest teams in the salary cap era – Detroit, San Jose, New Jersey – were also dominant prior to the advent of a salary cap.  Can you say good management? 

A salary floor in MLB would require teams such as the Florida Marlins to increase payroll by as much as $50 million over last year’s figure. 

The only realistic source for that money would be increased revenue sharing -  taking more money from the Yankees to distribute to other clubs.  Which is what all the crying and grandstanding is about.  Clubs want to reduce the Yankees’ spending power; but owners can’t increase revenue sharing or implement a salary cap without the consent of the union.  Peace will come to the Middle East before MLB negotiators convince the union to agree to a salary cap.    

What the whiners fail to acknowledge is that parity in MLB doesn’t take a backseat to any league, including the NFL.  In the last eight years, 13 different MLB teams have played in the World Series – the Yankees only twice and they lost both times - compared to 12 different NFL teams that played in the Super Bowl.       

A salary cap in MLB is merely a pipe dream.  It’s also a convenient crutch for incompetence on the part of team management.  If the Pirates had drafted as well as Tampa Bay over the past 12 years, they - not the Phillies - would have played the Rays in last year’s World Series.  Now that’s something for Coonelly to focus on.

Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner. He is an Assistant Professor of Sport Management at Eastern New Mexico University, teaches the Business of Sports at the University of Wyoming, and is a contributing author to the Business of Sports Network. Jordan can be reached at jkobritz@mindspring.com.

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