The Illusion That A Salary Cap In Major League Baseball Will Create Parity

Talk of bringing a salary cap into Major League Baseball has increased as teams like the Los Angeles Dodgers, New York Mets, and others see Luxury Tax payrolls exceeding $300 million. While fans of teams with low payrolls and historically poor showings in the standings see a cap as an answer to possibly making not just the playoffs, but the World Series, the reality is that a cap will not remedy the problem.

The current labor deal between the owners and players in Major League Baseball doesn’t expire until December of 2026, but already the battle over economic parity has heated up in the media. In February, after the owners’ quarterly meetings, Commissioner Rob Manfred said he was receiving emails from fans as the Dodgers continued to land top free agents.

“This is an issue that we need to be vigilant on,” Manfred said at the time. “We need to pay attention to it and need to determine whether there are things that can be done to allay those kinds of concerns and make sure we have a competitive and healthy game going forward.”

While he said that the Dodgers were a well-run organization and had been consistent within the rules, fans in other markets are concerned about their team’s ability to compete.

“We always have to be concerned when our fans are concerned about something, “Manfred added. “But pinning it on the Dodgers, I’m not in that camp.”

While Manfred is assuredly getting emails from fans over the issue (one assumes he gets a broad range of fan feedback on everything from jersey patches and the ghost runner as well that has been implemented), it’s the owners chiming in that has adding additional fodder to the concept that a lockout may be used to try and get a cap in place.

“I wish it would be the case that we would have a salary cap in baseball the way other sports do, and maybe eventually we will, but we don’t have that now,” Baltimore Orioles owner David Rubenstein told Yahoo Finance at the World Economic Forum. “I suspect we’ll probably have something closer to what the NFL and the NBA have, but there’s no guarantee of that.”

Fan Expectations And Reality Would Be Far Different

To set the table, let’s look at how MLB fares against the other leagues in terms of the number of different teams in their respective championships.

As shown over the past 10 years, without a cap, MLB has seen the largest number of different teams.

For fans of teams like the Pirates, A’s, or Rays, the idea of a cap may seem like a way to become competitive, not only in free agency, but in the standings. Seeing the likes of the Dodgers and Mets gobbling up prized free agents each offseason may make it seem like there’s no point in rooting if the cards are stacked against them.

First off, any cap is going to come with a floor, which fans would see as a positive. Doing the most rudimentary exercise in a cap system would show that overall economic parity would change little.

For 2024, these are the top and bottom five clubs by Luxury Tax payrolls:

TOP 5

1. Dodgers -$353,015,360
2. Mets – $347,650,554
3. Yankees – $316,192,828
4. Braves – $276,144,038
5. Rangers – $268,445,491

BOTTOM 5

1. A’s – $83,912,541
2. Rays – $106,590,023
3. Tigers – $109,511,305
4. Marlins – $121,657,705
5. Pirates – $122,942,572

Again, using the most rudimentary model, let’s say that the cap is set at $275 million and the floor is $120 million. That would force the top four clubs to go under the cap, and the bottom four to raise salaries to the floor threshold. The Rangers would be under the cap while the Pirates would be over the floor.

So, for the middle, it’s largely the status quo. The idea that the Pirates or A’s somehow become major players in the free agency market removes the fact that they would never get near the payrolls needed to compete, even with a cap in place. This might help clubs just under this hypothetical cap, but then those clubs are in large revenue markets to begin with. Just under the Rangers were the Astros, Phillies, Giants, and Cubs in terms of Luxury Tax payrolls.

To add to this, there would be holes brought to bear with the current Luxury Tax penalty system that saw hundreds of millions dispersed to low-revenue clubs that were not market disqualified. Under the straight cap and floor system, that form of revenue sharing is removed.

Why A Truly Socialist System Still Doesn’t Create Perfect Economic Parity

What many a fan craves is a system that, removing any political overtones, is perfectly socialist. That in this far-flung reality, all 30 clubs have identical payrolls, which would allow everyone to be equally competitive.

But, even if that were the case, the likes of the Dodgers, Mets, and Yankees would still have an advantage. The high-revenue clubs would then have the advantage in areas outside of the system. They would be able to offer more to the front office staff. They could invest more in academies in the Dominican Republic and elsewhere around the globe. They could hire the best scouts and have large analytics departments. On top of that, players would still seek markets where they could see higher visibility for marketing deals or look to clubs in states that have sees less taxation, or other quality of life issues appealing to them.

How A Cap Helps Owners Increase Profits

While there’s little doubt that Manfred has heard from fans about a cap, the biggest beneficiaries would be the owners. Lowering player salaries would increase profits. Tying a system that would see the cap tied to league revenues would alter the current “free market” system. But most importantly, it would increase franchise values. As Steve Greenberg of Allen and Company, who often represents MLB teams in their sale processes, told The Athletic, MLB’s economic system would benefit from a cap.

“The perception around baseball is that without a salary cap, its values will lag behind, at least behind the NFL and the NBA, and that’s been the case,” said Greenberg. “We’ll see what happens in Rob’s final negotiation.”