What My Revamped MLB Hard Salary Cap Would Look Like

I would just like to state for the record that the payroll of the New York Yankees last season totaled $201,449,289 while the Marlins spent only $36,814,000. Each time I look at these statistics they baffle me. A $165 million difference between these two teams astounds me.

The average team salary last year was roughly $86 million. The median salary was at roughly $81 million. I believe the best maximum salary ceiling would be at $110 million. This would mean that 23 of the 30 current MLB teams would be under the cap. Only the Yankees, Mets, Cubs, Red Sox, Tigers, Angels, and the Phillies would have to trim their budget. Outside of the Yankees, the rest of these six teams would only need to clear $25 million off their payroll which would be very easily. The NBA calculates its cap as 51% of Basketball Related Income. In the NFL, the cap is calculated by using a complex formula that is basically 58% of the revenue. The MLB should determine a similar formula to these leagues involving revenue. They should use a percentage that would put the cap at around $100 to $110 million.

In addition to the salary ceiling, a salary floor would be just as necessary. In the NFL last season, the league used a 75% floor of a $109 million cap. This year, the NFL plans to require 86.4% of the max. The salary floor for MLB should be at around 70% or $77 million of the $110 million salary ceiling.

I would like to see each contract guaranteed as it already is now as opposed to the NFL, whose contracts are not guaranteed. Also, as currently used in the NBA, there should be both a maximum and minimum player salary. However, different to the NBA’s maximum salary rules, all contracts must stay at or below the individual maximum salary for the entire duration of the contract. The NBA’s maximum salary is at somewhere between $13 and $18 million depending on how many years the player has been in the NBA. It is calculated as 48.04% of Basketball Related Income. Baseball should follow this model and have a max player salary at around $18 to $20 million. I would like to see incentive based bonuses added to baseball contracts. Certain milestones and participation bonuses would encourage a player to improve and play hard. Unlike the NFL, these bonuses need to be capped. This is one glaring problem I have with the NFL’s Salary Cap system. Bonuses should not be able to exceed $2 to $3 million per player. The bonuses would count toward the cap the same as the NFL toward the cap with them categorized as Likely To Be Earned and Unlikely To Be Earned. These are some of the changes I would include in a revamped salary cap for the MLB.

2010 NBA DRAFT

Oh my gosh!

I was just generating the NBA DRAFT Lottery on ESPN.com and John Wall went first overall to the LOS ANGELES CLIPPERS. Yes you heard me right.

It’s true. John Wall will be playing for the Clippers next season in the Staples’ Center. Can’t wait for next season. See you all there in your John Wall jerseys!

How the MLB Salary Cap Will Correct Revenue Sharing

The current state of revenue sharing in Major League Baseball is hotly debated as to whether certain teams are taking advantage of the money they are receiving and not investing it the way it was intended to be. The main idea of revenue sharing is that all of the MLB teams put roughly 40-50% of their total revenue into a pot that is then distributed based on how needy a team is. The teams that receive the most money are then expected to invest this money into player development and player salaries. The idea is that with this extra money, these teams can improve their rosters, field a more competitive team, and therefore raise attendance. This is what teams are expected to do. But this is where the debate begins. Some teams are abusing this money by deliberately keeping a low payroll and accepting a giant revenue sharing check each season to supplement their low profits. In essence, many of these teams are pocketing the money they are collecting from high revenue teams (Yankees, Red Sox, etc.) and not using these funds to fix their teams.

Teams classified as high revenue clubs enter 31% of their total revenue, and teams classified as low revenue teams put in 48% of their total revenue. According to the Wall Street Journal, the Yankees paid out $76 million in 2005 and the Red Sox paid out $52 million in this same year. The Tampa Bay Rays, Florida Marlins, and Kansas City Royals all received upwards of $30 million each through revenue sharing. This $30 million plus check is used by many of the teams as extra cash for the teams to keep. In 2009, the Florida Marlins’ team payroll was $36,814,000. The revenue sharing money they received nearly covers their entire payroll before any games are even played. Major League Baseball has taken notice of the Florida Marlins abusing this privilege and are monitoring them closely. Over the next few seasons, the Marlins must use the money to steadily increase their payroll and hopefully will have a more competitive team once their new ballpark opens.

In the New York Times, Michael Lewis believes “to create a more balanced playing field, revenue-sharing payments should be increased for teams that attract more fans. I have devised an approach for doing this based on a statistical analyses of teams’ payrolls, winning percentages and attendance. It takes into account the size of the team’s local population, to acknowledge that teams in places like New York and Chicago have greater financial incentives to invest in players than teams in places like Milwaukee and Kansas City do.

Here’s how my formula would have affected the revenue-sharing payments to the Pittsburgh Pirates, which last year filled only 60 percent of its seats but received $25 million in revenue sharing. If the team could have increased its attendance rate to 70 percent, its payments would have grown to $29 million, and if attendance had gone up to 80 percent, the payments would have reached $33 million. My formula would have had even more significant consequences for the Devil Rays. Based on the team’s 38-percent attendance rate, its revenue-sharing payments would have been reduced from $33 million to $13.5 million.”

Lewis’ formula, in theory, would motivate these teams to directly invest the money into improving their team by spending more money on players. With the better product on the field, attendance should rise each year, and teams can collect their large revenue check if they are properly using the funds they are given.

If the MLB instituted a salary cap of my choosing, a salary floor would no doubt be included in the cap. Teams would be required to spend say at least $65 million on their team payroll. If the San Diego Padres only chose to spend $41 million on their payroll, they would be forced to pay a $24 million penalty. Teams would not throw this money away and would spend the salary floor. Revenue sharing would still be an integral part in the salary cap. Teams would still be evaluated as to how needy they were and possibly use Lewis’ formula, and then these needy teams could invest their revenue sharing check into upgrading their roster because they would be required to spend at least $65 million on players.

The salary floor would prevent teams like the Florida Marlins from maintaining an extremely low payroll and relying on the revenue sharing check as their dominant income.

Problems with Uncapped Leagues: European Football (Soccer)

I do like how European soccer has never been capped, and I respect the rich history of soccer overseas. However, I would like to explore the problems that an uncapped league faces. I will be focusing in on the English Premier League (EPL) in depth as a representation of all the European leagues.

I would first like to state that the EPL’s champion is the team that finishes the regular season with the best record. The top four finishers qualify for the prestigious UEFA Champions League. Professional sports leagues in the U.S. have playoffs. Therefore, many teams can make the playoffs and have a chance to win the championship despite not finishing with the best overall record. So, the regular season in the EPL is that much more important because the top team automatically becomes the champion.

According to bleacherreport.com since 1994, “the NFL has had over 84% of its teams finish at least one season with one of the top six records in the league. Since the English Premier League’s inception two years earlier, under 30% of the total clubs that have competed in the EPL have finished a season ranked in the top four.” (Top four of 20 EPL teams is similar to top 6 of 32 NFL teams.) In this same period, the NFL has had 12 different champions while the EPL has had four different champions. The NFL has thrived with their competitive balance.

These days, there are four teams with a realistic chance at winning the EPL each season. Chelsea, Arsenal, Liverpool, and Manchester United (called the “Big Four”) had the four highest team payrolls in 2006-07 (the most recent team payrolls I could find) and should still have the highest today. Their ability to pay players higher wages than smaller clubs allow them to attract world class players and dominate the EPL year in and year out. These two teams boast some of the world’s best including Chelsea’s Didier Drogba (Ivory Coast), Arsenal’s Cesc Fabregas (Spain), Liverpool’s Fernando Torres (Spain), and Manchester United’s Wayne Rooney (England). With no cap, individual salaries can skyrocket. They increased “23% to a total $2.12 billion for the 2007-08 season” in the EPL. Increasing salaries have been a problem for the MLB as well. Teams like West Ham United or Birmingham City would never be able to afford these exorbitant wages for these high-caliber players. Similar to the MLB, soccer players grow up playing for small town teams. They improve steadily and become stars. They then defect to one of the top teams. Wayne Rooney is a great example of this. He grew up playing for Everton starting at a young age. Rooney became a great footballer, and Everton could not match the wages that Manchester United was willing to pay for Rooney. He left Everton, and now is one of the top footballers in the world. Still, these small clubs' fans support their local team despite their frustrations of having an infinitesimal chance of winning the EPL or even finishing in the top four. Relegation keeps these fans interested. Each season, there are 20 teams that compete in the EPL. The teams that finish with the worst three records are relegated to the English League Championship. This means that the worst three teams are demoted to a secondary league. Instead of competing for the championship, they are competing to stay a member of the EPL. These matches can have similar interest and emotion as the teams at the top competing for the best record. This is a great idea for the bottom teams in the league to have something to play for. I love this idea and would love to see it implemented in the MLB, but it would be very difficult for the MLB to have a relegation system as much as I like the idea of it.

Anyways, my point is that the teams with the four highest budgets are generally the only ones with a realistic shot at winning the EPL. The economic state of a team determines where it will finish in the EPL and its spot in the caste system. In its current state, the top tier teams (the Big Four) will always be competing for the best record. The middle tier (Aston Villa, Tottenham, and others) will be stuck in the middle and will sometimes push for a top four finish, and the bottom tier will be fighting relegation.

I do love how the EPL operates with its current system, and European soccer's uniqueness compared to capped American sports. Manchester United vs. Liverpool should always be a game of great importance and worth watching. However, baseball is different. It needs competitive balance. Soccer is the main sport in Europe and has little to compete with. The MLB must compete with the NBA, NFL, NHL, MLS, and other professional and collegiate leagues. It needs all the fans to stay interested. If every team is on an equal playing field, the competitive balance will be restored. The bottom line is that the champion of the MLB should be the team that best manages its budget, evaluates talent, and coaches the players, not the team with the most money.

Checking Out Other Salary Caps: NFL

Each cap has its own particular share of interesting rules and exceptions to boggle the average fan’s mind. I try to research as much as possible into each league’s cap in order to understand it and then put it into common words so my reader can begin to grasp the basic idea of each. This week I looked at the NFL’s Salary Cap. Out of the three I have researched so far (NBA, MLB, and NFL), I believe the NFL has the most right system for its league.

First of all, the NFL has a hard cap. This means that a team cannot exceed the maximum cap in any season. The maximum cap is computed by taking 62.24% of all total football league revenue and dividing it by the 32 NFL teams. In the 2009 season, this number was $128 million. Also important to know, the salary floor (minimum required to spend) is 75% of the max which means each team was required to spend at least $96 million on players in the 2009 season. I believe that both a minimum and maximum cap for baseball would be important to have. When a team signs a player, the entire contract is not guaranteed. Only part of it is. The signing bonus is always guaranteed and paid fully to the player upon signing a deal. However, the basic salary each year for the player is not always paid out. If a player is cut by his team, he loses the remaining money on his contract. Signing bonuses are paid up front to the player but are counted in the salary cap each year as the total amount divided by the length of the contract. For example, a player signs a 5 year contract worth $60 million and receives a $10 million signing bonus. The $10 million is paid immediately to the player but counts against the cap only $2 million over the next 5 seasons. However, if this player is cut, say after his third season, the remaining bonus counts completely against the next season’s cap. So, the $4 million would be counted against the cap the next season. If the player is cut and his bonus counts against the cap, this is referred to as “dead cap space.” The richest teams tend to give high bonuses and lower base salaries to players as more of a win now-pay later strategy while teams that are not as well off tend to offer higher base salaries to their players and are forced to let some of their higher paid players defect to other teams.

If a player’s contract is up, teams are given a short list of options. They can place the franchise exclusive tag on a player. This means for one season, he is paid the higher of the following: either the average of the five highest salaries at his respective position or 120% of his salary the previous season. Another option is the franchise non-exclusive tag. This means the player can talk with any NFL team, but his current team can match the offer of the other team. If the current team chooses not to sign him, the team receives two first round picks as compensation. The franchise tag and transition tag can only be used once each per season. The transition tag allows a team to match an offer for a current team’s unrestricted free agent. If the current team does match the offer, the player is forced to sign with this team. If the current team does not match the offer, it receives nothing. A team’s last option is to just release the player.

I will not discuss roster bonuses, workout bonuses, or incentive bonuses in detail. These all count against the cap. Basically, roster bonuses are for staying on the team. Workout bonuses are for showing up to practices and workouts. Incentive bonuses are for reaching milestones.

Overall, I believe the NFL has a pretty solid cap with guidelines set in stone. The unbreakable hard cap is, in my opinion, the best system and most right for the MLB. I am not a fan of the heavy use of bonuses on players, apart from the incentive bonuses. Small bonuses are important to have in contracts, but should not be the main payment. Some teams definitely misuse bonuses to bend the rules. As I research more and more, I feel like I will be able to take some rules from each of the salary caps in major professional sports and make what I believe to be the best salary cap for Major League Baseball.

Why Care About The Salary Cap?

This is a question that many people are wondering. Why should they care? What kind of an impact does this have?

Money and winning draws players to certain teams. Especially gobs and gobs of money. This repeating phenomenon has been haunting baseball for some time. A young player at a small-market team develops into a star and becomes the face of a city’s franchise. However, without the multi-million dollars available, the star defects to a team like the New York Yankees or Boston Red Sox. Just last weekend I was watching a story about Tampa Bay Ray star Carl Crawford. Crawford, who has been steadily improving and has now reached the plateau of perennial All-Star and the face of the Tampa Bay Ray franchise. At the conclusion of the 2010 season, Crawford is an unrestricted free agent and allowed to sign with any team. Being the caliber player he is, a giant payday is heading his way. A long term, $15-20 million per year deal is expected. Few teams, if any besides the Red Sox or Yankees, have the funds to offer this contract to Crawford, especially not the Rays. He is expected to sign with one of these baseball powers, and the Tampa Bay area will be crushed if he does in fact leave. I hear about these kinds of stories all too often. In some of instances, players leave and the team spins into a downward spiral of never-ending losing seasons. Fans become frustrated with hopeless losing teams and eventually give up realizing they will never be able to compete with the top-echelon teams. At this point, small-market teams are at a severe disadvantage. Even Red Sox owner John Henry believes change is needed. “I think we all agree that competitive balance is an issue. If there was a way to put together an enlightened form of a salary cap, I think everybody among the owners would probably support that.”

The implementation of salary cap will, in theory, do exactly what the NFL is experiencing right now, which is the idea that every team has an equal chance every year to make the playoffs and win the Super Bowl. The MLB can learn a thing or two from the NFL, the most popular sports league in the U.S. currently. If the competitive balance is readjusted, the MLB could see its popularity soar. While this will not turn a terrible team (both players and organization can be at fault) into a championship team, it will make the transition must easier. No more will the Yankees be able to invest over $420 million in their team in one off-season. As more teams have chances to compete, fans in smaller cities should become reacquainted with their hometown team and players as well as the sport of baseball itself. The MLB could once again become the most popular professional sports league in the U.S. as it should be.

Checking Out Other Salary Caps: NBA

As I try to decide in my Senior Exit project what the ideal salary cap for the MLB is, I must research other professional sports who have a functioning and successful cap. The first league I have decided to research is the National Basketball Association. The NBA uses a soft cap that can be broken under only certain circumstances. Both the teams and the players are capped. The teams are allowed to spend up to $57.7 million while players are required to be at least $490,000 and up to $18,928,700. There are also ways in which the max salary is allowed to be broken. In a multi year contract, a player’s salary must only be under the max salary the first year. In subsequent years, there are limits on how large the raises can be from year to year. While I wholeheartedly agree with the idea of a max player salary, I completely disagree with the fact that it is in fact broken by 8 players. The minimum player salary is an important rule to have, and the minimum is based on the years played in the league. Certain circumstances that are confusing but that allow a team to go over the salary cap are the Larry Bird Exception rule, the Early Bird Exception rule, the Mid-Level Salary Exception rule, or a few others that are not as commonly used. The Larry Bird Exception rule applies to teams that re-sign their own players who have played for a team for at least 3 years. The Early Bird Exception rule allows a team to re-sign a player who has played for the team for two years. The Mid-Level Salary Exception rule allows teams to sign a player whose contract is at the average salary. Therefore, only a few times has a team actually been under the salary cap. In the 2009-10 season, the cap is $57.7 million but the tax level is $71.150 million. Any team the exceeds the tax level must pay a “luxury tax” that is dollar for dollar the amount over the tax level. This is a heavy penalty that discourages teams from being over the tax level.

There are some interesting rules and restrictions that the NBA Salary Cap uses, and overall, it does give each team a fair shot at putting together a championship roster. I’ll leave you with the stat that the “correlation between team payroll and regular season wins was about 0.13. In other words, there is nearly no correlation between salary and wins. By comparison, MLB (with no salary cap) had a much stronger correlation of 0.43 for its 2002 season.” For more detailed information regarding the NBA Salary Cap, visit this website.