Point: Salary Caps Provide Parity in Professional Sports. By: Walter, Andrew, Points of View: Salary Cap, 2015

Salary Caps Create Parity

Each year, the New York Yankees outspend all other baseball teams in terms of payroll. For example, Alex Rodriguez, the Yankees’ third baseman, is the highest paid player in the history of baseball, earning $33 million for the 2009 season. Notably, the $33 million is only a base salary, and does not take into account any performance-based bonuses Rodriguez may receive for achieving certain offensive statistics or milestones during the season, or rewarding him for making the All-Star team. In contrast, the payroll for the entire Florida Marlins team for 2009 is about $37 million—only $4 million higher than Rodriguez’ salary alone. In the 2009 offseason, the Yankees signed Mark Teixeira to a multi-year deal, making him the highest paid first baseman in baseball, with a salary of $20.6 million for 2009. In terms of spending, the Yankees are not alone. Their interdivisional rival, the Boston Red Sox, also spend inflated or absurd sums in signing their star players, primarily to compete with the Yankees.

The practical effect of such spending is that teams like the Yankees and Red Sox outspend teams from smaller markets by more than five times. With virtually unlimited resources to spend on talent, it is difficult for teams from smaller cities, such as the Minnesota Twins or the Tampa Bay Devil Rays, to compete in the long run against teams with unlimited payroll resources. Until the Devil Rays won the American League East division, and later advanced to the World Series, in 2008, it was essentially a foregone conclusion that either the Yankees or the Red Sox would win the American League East division and get into the playoffs each year. This is not surprising as, over a 162-game season, the team with the highest paid, and—if money accurately represents talent—the best players, should win the most games. While there are teams with small payrolls that consistently overachieve, the simple fact is that teams in larger cities sell more tickets and earn more revenue from concessions and advertising and, correspondingly, can afford to pay higher salaries to star players; thus, in the long run, these teams statistically improve their chances at winning more games. Sports fans deserve parity—equality between teams—and salary caps are the most effective method at providing parity in professional team sports.

Salary Caps Foster Competition

When a salary cap is enacted in a professional sport, team owners and managers must, like most individuals and business owners in society, budget their resources. While star players will still deservedly command the highest salaries, often including performance-based bonuses, front office executives are not able to propose absurdly high figures when courting stars. Instead, owners must consider the portion of the team’s budget that this individual player’s salary will utilize. Accordingly, under a salary cap model, owners across the board are less likely to overpay talented athletes. More importantly, star athletes are less likely to "forum shop," which is the name given to the process by which free agent star athletes visit other teams, formally or informally, to see what kind of figures they could earn in that city. Since each team, regardless of the size of the city or the revenue earned, is held to the same salary cap, the star player is less likely to get an absurdly high offer from teams simply on the basis that the team is located in a larger market. While some offers will be better than others, the odds are that all of the offers will be in the same general range.

In the example with the New York Yankees and the Minnesota Twins baseball teams, under a salary cap model, the Twins would have a fair chance at courting Alex Rodriguez, despite the fact that the city, team advertising, and revenue are considerably smaller in Minnesota than in New York. As it stands now, unless a baseball team either devotes massive resources to one player, meaning that there is less left to pay others, or drafts and develops an untested or amateur player who later becomes a star, it is very difficult for smaller teams in sports without salary caps to get—and keep—star talent. The practical impact is that teams from the largest cities continually dominate the league. Because these teams generally win more games and are more successful, they earn more revenue and, thus, are able to devote even more financial resources to payroll and star players. It is a system of inequity that feeds on itself, which is why, until salary caps are universally instituted by all professional sports, most notably baseball, there will be no parity.

Even a brief examination of sports championship participants and winners underscores this point. For instance, in Major League Baseball (MLB) between the years 1998 and 2008, the New York Yankees participated in five World Series; the Boston Red Sox in two; and the Chicago White Sox, New York Mets, Philadelphia Phillies, and Atlanta Braves—all teams with high payrolls—were all on the list. Teams from American cities with "Top 10" populations (or from states in which a "Top 10" city exists) have won the World Series in seven of the past eleven years.

By contrast, in the National Football League (NFL), where there is a salary cap, teams from smaller markets have been much more successful in advancing to the Super Bowl. From 1999-2009, teams from Denver, St. Louis, Baltimore, Tampa Bay, Pittsburgh, and Indianapolis all have Super Bowl victories. Teams from cities with the nation’s highest populations (or from states in which one of those cities exists) won the Super Bowl three times during this eleven-year period.

While this sample is only representative of two sports in a relatively short time period, the numbers are sufficiently divergent to warrant notice. Population is clearly linked with success in baseball, where there is no salary cap. It follows, then, that population correlates with revenue, as the teams in cities with higher populations often have higher payrolls. It is clear that, while teams may still continue to dominate their sport even when salary caps are in place, teams from smaller cities and less populated states have a greater opportunity to compete fairly with teams from larger markets when salary caps are enacted.

In 2003, MLB instituted a "luxury tax," under which teams whose payroll exceeded a designated amount were required to forfeit a portion of their overage in the form of a tax. For example, in the 2005 baseball season, a team whose payroll exceeded $128 million was required to pay the league 22.5 percent of the amount of the payroll that was above $128 million. If the team violated the set limit the next year, the tax percentage increased to 30 percent, then 40 percent for third and fourth violations. Despite the fact that these numbers are large, the penalty for first-time overages is minor. In 2005, if a team had a payroll of $138 million—$10 million over the threshold—their penalty would only be $2.25 million. Even a team that exceeded the threshold by $50 million would only pay $11.25 million in luxury tax.

The luxury tax may be the first step towards a salary cap in baseball, but it is an entirely insufficient means of providing parity. The luxury tax does not punish or prohibit unrealistic spending; rather, it simply forces the teams with the highest payrolls to give back a small portion of their already high revenue in the form of a tax. Just like luxury taxes imposed on goods such as luxury automobiles do little to prevent the wealthy from purchasing fancy cars, the luxury tax in baseball does not act as a disincentive to baseball franchises. To be sure, the New York Yankees’ spending has not been discouraged—in fact, their payroll consistently increases every year. The luxury tax has been imposed eleven times in baseball, six of those times against the Yankees. If the team was truly concerned with having to pay major league baseball a tax, it surely would not have spent beyond the maximum six times.

Salary Caps Create a Better Experience for Fans of the Sport

Fans pay to watch athletes compete at the highest level. To be sure, it is the fans that primarily pay the athletes’ salaries. While it is true that fans of a particular team attend games with the hope that their team will win, fans of the sport go with the expectation of seeing an evenly matched, competitive game featuring the best players in the world. Salary caps help ensure that the playing field is level for all teams, and that a team from a larger market is not more likely to win simply because that team happens to draw fans from a densely populated area in which ticket sales bring in more revenue, and the team is able to charge more for advertising. At the beginning of a season under a salary cap structure, anything is possible. It is often difficult to predict which teams will be successful and which will fold under pressure. In sports without such checks and balances, pre-season predictions are more likely to be accurate, and the spirit of competition is decreased. Sports are intended to be a competition between players, not a competition between front offices as to which organization can out-spend all others to court the biggest stars. Fans of the game appreciate, and deserve, competition.

Salary Caps are Fundamental to the True Spirit of Competition

Winning a championship in professional sports should represent the competitive spirit of the players, coaches, and their fans. It should not represent the population of a large city, advertising revenue, and overspending on star players. To provide parity, to increase competition, and to promote the integrity of professional sports, salary caps must be enacted and enforced.

Ponder This

1. How well did the author support their view on salary caps? What additional information could they have included?

2. The author uses the example of the New York Yankees’ large payroll as an argument in favor of salary caps. Do you agree that teams such as the Yankees should be forced to limit their spending because teams from smaller cities cannot financially compete?

3. Do you agree or disagree that the luxury tax (or revenue sharing in other sports) is an insufficient method of providing a degree of parity between teams? Do you believe that financial penalties of millions of dollars discourage teams from spending over the applicable limit? If not, why?