MLB’s Competitive Balance Tax Is Anything But
One of my favorites paintings is René Magritte’s The Treachery of Images. Basically, it’s a painting of the pipe with “this is not a pipe” written on it in French. While interpretation is in the eye of the beholder, one can argue that it makes two points. First, there’s the wordplay; a painting is not a pipe. But there’s a double-meaning you can take, too: the frequent incongruity between what a word says and what a word actually is. (If you’d like to read a lot more about this painting, Michel Foucault has just what you need!)
MLB’s competitive balance tax has a lot in common with Magritte’s pipe. It says it’s about competition, but without any mechanism to ensure that the proceeds improve competition. It says it’s about balance, but it has no way to ensure that balance. It’s described widely as a luxury tax, but it’s not that either. Luxury taxes, historically, have been directed at what economist Fred Hirsch termed “positional goods,” or goods that are highly prized based on their scarcity and prestige value. Labor costs in a labor-intensive field, though, aren’t really a luxury good, and MLB’s business is mainly putting teams of baseball players on the field. Everything MLB does stems from those games; if the teams didn’t exist, there wouldn’t be as much clamor for t-shirts with cardinals sitting on a wooden stick or ice cream served in a small plastic helmet with a creatively spelled abbreviation of “stockings” on it. Players are no more luxuries for a baseball team than leather is for a shoe company.
But let’s get to the competitive balance side of things. MLB’s argument is that the CBT is needed to increase competitive balance. Yet there’s very little evidence that it actually has increased competitive balance, and if anything, teams are farther apart since the CBT was implemented, not closer together. From 1984 to 2001, leaving out shortened seasons, the standard deviation of winning percentage was about 67 points. From 2002, the first year of MLB’s modern CBT, to ’21 (excluding the shortened 2020 season), that increases to 74 points; since the start of 2016, when salaries have been static, it’s 80 points.
Having more money, naturally, is better than having less money, but there’s a limited relationship between winning and total salary. Again, going back to 1984:
Only about 14% of the variance of team winning percentage has been explained by the variance in team payroll. Now, 14% isn’t zero, but you want there to be some relationship; it would be odd if there were absolutely no relation.
How big is this effect? The model is only robust enough to say that a standard deviation above or below league mean is worth about 26 points in win percentage. To put that in layman’s terms, the standard deviation for team winning percentage in 2021 was $51.5 million, with a mean of $119.7 million. If a team’s payroll were all you knew going into the season, you’d expect one with a $171 million payroll to win 85 games instead of 81. How a team is run is still a much better gauge of success than how much money it spends.
If the fundamental design of a payment scheme doesn’t have a mechanism for competitive balance and it actually hasn’t increased competitive balance, it’s hard to say it has much to do with competitive balance. To put it bluntly, the CBT is more designed to function as a soft salary cap — one with no floor and that’s tied not to any league revenue but simply what players are able to negotiate out of owners at the bargaining table. With MLB’s proposals generally increasing the soft cap by 0.9% a year and initially proposing far harsher penalties, you can see why players are mad; by having most of the elements of a salary cap with none of the downside, the owners get to eat their cake and have it, too.
Another clue to competitive balance being a pretext is the design of baseball’s revenue-sharing system. As with the competitive balance tax, there are no teeth in the mechanism to ensure that revenue-sharing dollars are being invested in teams. The CBA says that “each Club shall use its revenue-sharing receipts (including any distributions from the Commissioner’s Discretionary Fund) in an effort to improve its performance on the field.” The commissioner is given authority on teams that fail to do this, and the burden in a grievance is on players to demonstrate that the team did not. As with cases of service time manipulation (e.g. Kris Bryant), that’s a very high bar to pass, and it’s not as if Rob Manfred has shown any willingness to enforce this mechanism aggressively.
Over at The Athletic, Ken Rosenthal discussed baseball’s luxury tax with Manfred and former MLBPA COO Gene Orza. Orza made it clear that there was no intent to design a system that serves as a faux-salary cap:
“It was always intended to have three or four teams go over the level. That would be a bootstrap on salaries, notwithstanding the fact they were paying the penalty. They couldn’t go over as much as they otherwise would. But they could go over. And they would go over. And if they’re not going over, it’s a salary cap. And they know they’re not entitled to a salary cap.”
Manfred, meanwhile, does not feel the CBT acts as one either:
“Gene is certainly correct that the competitive-balance tax thresholds were not intended to operate as a cap. And I do not believe that they have,” Manfred said.
Each team pools 48% of its local revenue. For teams on the receiving end of the scale like the Marlins and Rays, there’s no real incentive to plow revenue-sharing dollars back into their team; why turn a $20 million subsidy into $30 million if you’re going to have to pool half of it anyway? It works out better for large market teams, too; if the Yankees have to throw $100 million into the pool, they’d rather it go into the pockets of Stuart Sternberg or Bruce Sherman than be paying the same amount to bid against themselves.
The increased decoupling of wins and revenue further disincentives investing in wins. Winning doesn’t get the Rays more in shared revenue. National TV contracts, international revenue, MLB merchandising revenue, and internet revenue are also shared with no connection to wins. The Rays haven’t even been successful at bringing in more fans when they’re winning than when they’re losing, one of the few things that’s still directly connected to wins around baseball these days.
Yes, the Rays can afford to invest more in player salaries. It would be nice if they would, but teams make investments because they’re incentivized to. The Rays would rather win 95 games than 65 games, but they’re not going to use money aggressively to make that happen. From the point of view of their ownership, investing, say, $150 million a year on team payroll is objectively a poor idea, because the whole system is designed to make it a poor idea for the Rays to do so.
MLB said the quiet part loudly during the negotiations by refusing to entertain any changes in revenue sharing. But we’re not bound to that here, as we have the power of imagination. What would a system that financially incentivizes smaller market teams to win actually look like?
Here’s a quick one that I put together. Instead of paying teams based on market characteristics, I imagined a $400 million pool that’s given out on the basis of wins over 60, with smaller markets, as defined in the expired CBA, receiving larger bonuses for those wins. The exact formula and results don’t matter; the idea is to demonstrate a framework of what a system actually designed to increase competitive balance could look like. In any real-world scenario in which this happens — fat chance — you’d also adjust for things like strength of schedule.
In any case, I defined the win bonus as market rank to the 1.5th power times $9,300, with everything re-scaled at the end to match the $400 million. So while the Yankees and Mets get $9,300 from the pool for every win over 60, the Reds get $1.53 million and the Brewers $1.45 million for their additional wins.
| Team | Win Bonus | 81 Wins | 95 Wins | 2021 Wins | Adjusted Bonus Pool |
|---|---|---|---|---|---|
| Milwaukee Brewers | $1,452,379 | $30,499,958 | $50,833,263 | 95 | $56,168,807 |
| St. Louis Cardinals | $1,232,943 | $25,891,801 | $43,153,002 | 90 | $40,870,639 |
| Cincinnati Reds | $1,528,146 | $32,091,065 | $53,485,108 | 83 | $38,836,481 |
| Tampa Bay Rays | $770,217 | $16,174,566 | $26,957,611 | 100 | $34,042,430 |
| San Diego Padres | $1,162,500 | $24,412,500 | $40,687,500 | 79 | $24,405,841 |
| Cleveland Guardians | $1,093,452 | $22,962,497 | $38,270,828 | 80 | $24,164,455 |
| Kansas City Royals | $1,377,907 | $28,936,053 | $48,226,755 | 74 | $21,315,486 |
| Houston Astros | $540,281 | $11,345,905 | $18,909,841 | 95 | $20,894,649 |
| Seattle Mariners | $595,200 | $12,499,200 | $20,832,000 | 90 | $19,730,195 |
| San Francisco Giants | $294,092 | $6,175,928 | $10,293,214 | 107 | $15,273,129 |
| Atlanta Braves | $487,164 | $10,230,440 | $17,050,733 | 88 | $15,072,325 |
| Colorado Rockies | $894,977 | $18,794,518 | $31,324,196 | 74 | $13,844,814 |
| Boston Red Sox | $386,594 | $8,118,469 | $13,530,781 | 92 | $13,669,480 |
| Detroit Tigers | $710,218 | $14,914,579 | $24,857,632 | 77 | $13,340,983 |
| Minnesota Twins | $651,863 | $13,689,123 | $22,815,205 | 73 | $9,363,687 |
| Oakland Athletics | $294,092 | $6,175,928 | $10,293,214 | 86 | $8,448,965 |
| Miami Marlins | $1,025,828 | $21,542,396 | $35,903,993 | 67 | $7,934,507 |
| Philadelphia Phillies | $251,100 | $5,273,100 | $8,788,500 | 82 | $6,104,029 |
| Toronto Blue Jays | $172,238 | $3,617,007 | $6,028,344 | 91 | $5,899,822 |
| Chicago White Sox | $103,977 | $2,183,520 | $3,639,201 | 93 | $3,791,396 |
| Los Angeles Dodgers | $48,324 | $1,014,809 | $1,691,348 | 106 | $2,456,235 |
| Pittsburgh Pirates | $1,304,754 | $27,399,831 | $45,666,386 | 61 | $1,441,703 |
| Chicago Cubs | $103,977 | $2,183,520 | $3,639,201 | 71 | $1,263,799 |
| Washington Nationals | $210,435 | $4,419,135 | $7,365,224 | 65 | $1,162,613 |
| New York Yankees | $9,300 | $195,300 | $325,500 | 92 | $328,837 |
| New York Mets | $9,300 | $195,300 | $325,500 | 77 | $174,694 |
| Los Angeles Angels | $48,324 | $1,014,809 | $1,691,348 | 60 | $0 |
| Texas Rangers | $386,594 | $8,118,469 | $13,530,781 | 60 | $0 |
| Baltimore Orioles | $894,977 | $18,794,518 | $31,324,196 | 52 | $0 |
| Arizona Diamondbacks | $770,217 | $16,174,566 | $26,957,611 | 52 | $0 |
The smaller-market teams that win get a sizable subsidy; teams like the Orioles and Pirates do not. And while a system like this does not force the Rays to win, it increases the value of a marginal win to their bottom line, providing an incentive to do so that doesn’t currently exist in a meaningful sense.
Any plan to incentivize small-market teams to put financial value in winning has to reward winning and punish losing. Subsidize investment, tax tanking. That’s not the system MLB actually has, and it’s not a system that MLB actually wants.
Dan Szymborski is a senior writer for FanGraphs and the developer of the ZiPS projection system. He was a writer for ESPN.com from 2010-2018, a regular guest on a number of radio shows and podcasts, and a voting BBWAA member. He also maintains a terrible Twitter account at @DSzymborski.
the weird “both sides” guys complaining about fair coverage yesterday are not going to be happy with this one. But great explainer, thanks.
I expect this comments section to be a hot mess. Really, really hot. Like Death Valley-level hot.
I had the same worry – but, as it turns out…
Phew!
Sorry… what’s weird about wanting complete facts rather than selective facts or facts with a spin tossed on them?
Because thats not what you want? You want facts that support your case and will reject any that do not.
Then you must not be reading my comments. Which is fine. But that is indeed what I want. Maybe the question mark in your comment was intentional, which would be appropriate.
Love your posts.
Factual reporting of a conflict does not automatically mean that the truth is “somewhere in the middle”. Sometimes the complete facts show that one side is clearly in the wrong
I like this proposal. It incentivizes winning, especially for small market teams, without putting an undue burden on small market teams that are bad.
The complaining about the MLBPA is because they say they want more competitive balance but everything they have offered would institute less competitive balance. Taking away revenue sharing money without any incentives involved (as they proposed but then took off table) wouldn’t create competitive balance, it would take it away.
We can all agree that the CBT is largely about depressing salaries, but to say it only depresses salaries and doesn’t do anything about competitive balance, that’s just a disingenuous argument. Go ahead and say it’s 80% about depressing salaries and 20% about competitive balance, because it clearly has some effect. Raising the CBT is a good thing, it gets players rightfully paid more, but to not offer anything in return that would help with competitive balance is just not a productive solution.
The draft lottery is also clearly working in favor of less competitive balance. It rightfully helps address the tanking problem, but again, there’s no counter-balancing proposal or solution that would add competitive balance. E.g., You could also add an extra Competitive Balance draft round, or maybe a multiplier for bonus pools, where all small market teams would get an extra pick or extra pool money, but the better-performing small market teams would get higher picks in that new round. Boom, there you’ve helped all small market teams, but especially helped the ones that invest in winning or have figured out a way to put a good product on the field.
I’m largely on the players side, but their whole strategy has basically been to cripple small market teams, not offer anything that would help them compete, and just trying to shame them into spending more instead of coming up with any other motivator or incentive that would accomplish those goals.
Exactly my thought. I agree that the owners have a set up a system that doesn’t encourage winning enough. I do not agree that the players are proposing anything to change that. In fact, a lot of the player proposals appear to hurt small market teams to the point where they will probably just stop spending altogether unless they luck into an elite farm system like Tampa or Baltimore.
“I agree that the owners have a set up a system that doesn’t encourage winning enough.” Seems to me that the MLB, as a league, always winds up with as many wins as loses. And the that’s happened every year of its existence. The can and are criticized liberally, the fact is the owners fall along a spectrum of haves, have less, and have a lot less.
The MLBPA arguments usually come down to money and trying to fight efficiency and value. Father Time is undefeated and the players should negotiate a revenue split between them and the owners. Every other league does- Scott Boras be damned.
It isn’t clear that the the CBT has had any effect on increasing competitive balance. In fact, the evidence is that it has had the opposite effect.
As Dan points out in the article, the standard deviation of winning percentage has increased considerably since the adoption of the CBT. That means that MLB has become less competitive since the CBT has been adopted.
It’s hard not to see why. From 2003-2019, teams paid an aggregate of $582 million in CBT, or an average of about $34 million per year. Of that, about $17 million per year was split between the teams that didn’t pay CBT, for an average of around $600k per year in CBT transfers to receiving teams. The main effect of the CBT was to depress spending on player salaries among the highest revenue teams.
Revenue sharing in MLB has been more helpful in aiding competitiveness than the CBT, since teams with limited financial resources can invest that in payroll and better team performance. If the smallest-market teams like the Brewers, Reds, and Royals, can maintain middle of the pack payrolls and be competitive, there’s no reason why other teams cannot do the same.
The problem, from the player perspective, is that there is no requirement to use that shared revenue for investing in competitiveness rather than team profits. That’s why players wanted changes to revenue sharing.
The anticompetitive effects of revenue sharing discourage teams from competing, they don’t stop them from doing so. That’s why players were willing to drop requests to change revenue sharing but have been so adamant about increasing CBT thresholds. All the CBT does is depress player salaries. It should go.
“All the CBT does is depress player salaries”. Clown. This is what I was just addressing.
The concern with every proposal along this lines is “is this just going to make it so that smaller teams all turn into the Rays and trade everyone the moment they hit arbitration?” It’s an issue because if a team is unexpectedly bad, like the Orioles were a few years ago when they were still trying to be decent, it blows up their budget for signing free agents in the future. This one seems a little better on that point but it’s still very dependent on an owner feeling embarrassed their team is so bad and throwing a bunch of money at it.
The other issue is that because revenue sharing will be a little unpredictable, this would distort the market pretty heavily in favor of one year contracts. Perhaps the Rays will take the $30M and sign a guy to a $30M contract, but it seems more likely they sign $30M players to one year deals.
These two things suggest to me that the better play is not to have it year to year but do a moving average, perhaps with more recent years weighted more heavily, but so that one unexpected bad year doesn’t blow up an owner’s willingness to spend at all.
Remember, in this concept, it’s not the *only* source of shared revenues. Still have all that national, internet, international, merchandising, etc. This is specifically intended to be win-connected and it *ought* to be as volatile as wins.
There are a lot assumptions baked into that. One assumption is that all teams have enough without revenue sharing to spend in free agency. For 20 teams that’s probably true, but we’re talking about the teams at the bottom here anyway so a full sample here doesn’t tell us as much.
Another is the instability will incentivize paying more immediately instead of conservativism due its inherent instability. More generally, it’s based on a model of the world where spending money promotes winning (true) but earning money doesn’t have the same sort of effect on spending (probably not true). The whole concept of paying for wins is based on the causal arrow only running in one direction, or at least more so.
I like the idea in concept, but there also has to be some mechanism to allow teams to rebuild and I think this disincentivizes it at least a little. Bad teams have been trading veterans for good teams prospects since well before the reserve clause. The incentive was to try to win in the future since the present was viewed as a lost cause. Only in the last few decades has a real financial incentive been added to that and rebuilding has been rebranded as tanking. Certainly some teams have no interest in spending and are willing to lose 90 games a year and pocket the checks if that’s what happens. They are fine with winning, but only on their budgets. Never a dollar more. The Pirates, Gardians, and Rays all fall into that category I think. But a lot of the bad teams are actively trying to get better over the last 10 or 20 years and it has worked for a lot of them to some degree like the Cubs, White Sox, and Astros.
My concern is that under this plan, a team finds themselves hovering around 70 wins. They have a veteran approaching free agency who will walk, or have gotten a good bounce-back year out of a reliever or reclamation project, or they are just a team of a few stars with not enough around them and will never get to 85 or 90 wins. They might choose not to move those guys because now they make more money for 73 wins than for 68 and they get caught in a kind of “poverty trap for losing” where it costs them too much in the short term to risk trying to improve in the longer term. Maybe they decide it is better to be “mired in mediocrity” than to fall under 60 wins and lose out on revenue sharing.
In Pittsburgh, some call the intent to compete and save money the ‘Drive for 75’ wins. The McClatchy/Littlefield regime perfected that strategy. Those teams never came close to surpassing the McLatchy Line (81 wins). This is not what organizations seeking WS championships would do. Building a contender for a low-revenue team means having a rolling fire sale until the organization’s rebuilding efforts bear fruit. Teams that are rebuilding and who relate to a low revenue market would never make it to the WS under the rules proposed by the MLBPA and MLB.
Of course, if the players and owners want to design a fair system, they would need to agree to a CBA that includes hard salary caps and floors with player salary budgets indexed to the amount of revenue MLB generates. They would permit the trade (but not sale) of draft picks and IFA money.
So we need to see a salary cap linked to a salary floor that includes major and minor league player salaries and a few more related items.
I never expected to see Foucault and Hirsch references in a baseball article, but there we are. I’ve only read the first few p a ragraphs!
Thank you Dan, very cool!
Preach.
The problem with this article is that no matter what resolution occurs in real life, it will be a disappointment relative to Dan’s plan.
https://www.youtube.com/watch?v=UcRfHemuPic
Dan – would love your response to my question in yesterdays comments.
Was there a skipped pension payment to the players before the Aug 1 failure, two days after the MLBPA players rep committee voted unanimously to strike? If not, do you agree it’s misleading to say that the ill-conceived pension funding freeze was precipitous to the strike since the players’ leadership had already published plans to strike two days earlier?
Thanks
They authorized a strike before that, but that was the last straw that made them follow through with the decision. It was basically withholding *back* pay.
Sure, it was a heel move and horribly I’ll conceived. But it didn’t lead to the strike. The players had already made up their minds. The owners were in the wrong but the decision to strike had already occurred. To say that it led to the strike quite literally reinvents the chronology.
From The NY Major league baseball players, resisting the owners’ effort to change the game’s economic system, are poised to strike two weeks from today if they and the 28 club owners cannot reach a new collective bargaining agreement by then.
Voting unanimously by telephone conference call yesterday, the 31 players who make up the Players Association executive board agreed that the players would strike games beginning with the Aug. 12 schedule. It would be baseball’s fifth strike and eighth work stoppage in the past 23 seasons.
Sorry should say
From The NY Times
The owners quietly begun withholding rolling payments into the players’ pension and benefits plan starting in June 1994. The union began its team-by-team strike authorization vote in early July 1994. The union membership had voted to authorize the board to set a date for a strike long before the board did so on July 28.
Because the All-Star game was played that year, the due date for the payments owed to the plan for the All-Star Game itself was August 1. The owners sent a letter on July 29, 1994 that they would not be making that required $7.8 million payment. That was the day immediately after the executive board members voted to authorize a strike.
So yes, it lead to the strike. The owners told the players that they would not pay a legally required amount into the pension fund the day after they voted to authorize a strike. If the response to a strike authorization vote isn’t, “Ok, how can we avoid this happening” but is instead, “This is the way we’ll financially punish you for authorizing a strike,” a strike is going to happen.
“The owners sent a letter on July 29, 1994 that they would not be making that required $7.8 million payment. That was the day immediately after the executive board members voted to authorize a strike.”
Right. The players voted to strike. Donald Fehr have quotes to the press. A strike date was decided and set.
The next day, the owners sent a letter that, in retaliation for that decision, they would not make the pension plan contribution. But the decision to strike had already occurred.
The owners action was an ugly and grotesque REACTION to the decision to strike. But it was not a cause. The strike would have happened two weeks later even if the pension plan payment had been made.
I am not justifying or supporting the owners decision. But facts matter and saying that this action led to a strike that had already been unanimously voted on with a strike date set etc. is revisionist history. It’s false.
Read my first sentence: “The owners quietly begun withholding rolling payments into the players’ pension and benefits plan starting in June 1994.” This was a precipitating action for the strike. Since the players were playing under the previous CBA, this was of dubious legality, but the owners could make an argument that those payments were not yet due under the previous CBA.
The $7.8 million All-Star Game payment was a required payment with a specific due date. Failing to make it let the MLBPA know that MLB was not interested in any kind of deal.
You’re hung up on the idea that if a strike is authorized, it has to occur. Just because a decision to strike has been made does not require its occurence. Sometimes unions authorize strikes to give their negotiators leverage or set artificial deadlines to try to get deals done. And sometimes that gets the parties back to the negotiating table to get a deal done to avert the strike. For example, IATSE authorized a strike in October 2021 that was averted at the last moment.
Facts matter. Failure to make pension payments lead to the strike, just as a similar failure to reinvest interest back into the pension lead to the first strike in 1972. The owners deliberately defaulted on a required pension payment, a breach of the CBA. MLB’s non-payment put a stake through the idea that the players could get the owners to negotiate in good faith and showed the players that there was no alternative to the strike that was authorized.
There’s a reason why this failure to pay into the pension is discussed in virtually every history of the 1994-1995 baseball strike and in the articles at the time – it really was that important. It’s revisionist history to continue to insist otherwise.
Great concept, Dan. Sadly, MLB will never agree to something like this because as you have already said, owners have their cake and are eating it too. They are already operating under what is essentially a salary cap. Teams are bringing in over 100M a year in revenue without selling a single ticket. Owners love that revenue isn’t tied to winning so they can field a 30M payroll and pocket 100M+ with no expectation of winning (coughPiratescough). And a team like the Yankees and Red Sox can use the CBT as an excuse to not fund their opponents when in reality even a 50M overage on the CBT split between several teams isn’t enough for them to really do anything substantial with. Also, it’s extremely dumb that player benefits are tied into the CBT. It’s like 15M, too. I don’t know why they’d ever agree to that. Player benefits should be totally separate from the CBT. Just goes to show you that players get screwed in every which way.
The players have done this to themselves by not making sure they were covered revenue-wise. Marvin Miller is spinning like a top in his grave.
The players should give their best proposal and tell the owners this is the best they can do. If they don’t get it there won’t be any games.
Without games the network money and internet ad money and merch sales all go down the tubes.
Yes the owners could go and get replacement players. However this is not 1995. The ticket prices and network contracts are set at premium entertainment cost levels. Is a big company going to shell out tens of thousands of dollars for a sky box to watch never-beens and never-weres to play? Is an average fan going to pay $25-35 dollars a ticket to watch players of that caliber?
The answer is either, no, or not for very long. The players have the power but seem to be too scared to use it. They need leader like Marvin Miller to make them see it.
I would agree with you, but what they players are asking for isn’t worth them missing a substantial part of the season for. They aren’t even asking for much. Now if they were asking for more players qualifying for arbitration (they dropped this already) or earlier free agency, or getting rid of the CBT (really not as important as the previous two), then yeah, I’d say they should hold out. But to hold out over a 10M difference in CBT threshold? … idk seems like a waste of a holdout
Excellent! Earlier this year, I thought of sending Meg an article outlining a scheme almost exactly like this, but I didn’t know if I’d have the focus and information needed to make a convincing chart. Delighted you thought of this on your own, so I don’t have to… An extra step might be worth taking, though. My proposal *also* would tether the amount of revenue shared to losses: lose more games, share a higher percentage of your revenue into the pool.
I like it. Tie it with this idea: a salary floor that goes up for each consecutive losing season. It starts at $70 million, but goes up by $10 million for each losing season. The Angels, with 6 losing seasons (the longest current streak), would be required to spend $130 mil – they’re well above that already, so no impact. At 5 years – BAL, DET, KC, and TX – and a $120 mil minimum, BAL would have to add $77+ mil in salary, DET and KC $33+ mil, TEX $24+ mil but blew by that this offseason. PIT at 3 losing seasons would have to add $45+ mil. At one losing season, CLE needs to add $29+ mil, MIA $21+ mil. That’s well over $200 million in added salary. Some ideas to make this work: allow the trading of draft picks, which can be packaged to move bad deals and increase a team’s salary; or teams can give one year bonuses to their roster which aren’t used for arb cases.
And how do you propose to get the owners to agree to that?
Seems too forced – incentives or disincentives are more easy to gain acceptance for. A floor is a popular topic since MLB proposed it earlier in the discussions, but that was in conjunction with a far lower high end threshold. And may have simply been a PR move.
I would really love to see the scatterplot and r^2 for:
(Team Payroll/Total MLB Payroll) vs. Team Winning Percentage.
Great article!
Yup, there’s the catch. This is essentially a plot of “payrolls have generally gone up over time”. If you plot them relative to the league payroll, it’s much, much different.
Statistics can be very misleading, it’s always good to look deeper.
Come for the baseball, stay for the Foucault.
I followed the link from the article, which goes to a 100+ page book by Foucault (as translated) about Magritte’s pipe painting…I’m thinking, “man, 100 pages on a painting of a pipe…these guys needed cable TV in the worst way.”
I really feel that, at this point, the best option the players have is to dissolve their union and re-organize under a leadership umbrella comprised of the prominent agents or people poached out of their orgs. Get Boras, Tellem, etc – get people who have actually trained in collective bargaining for 30+ years, as opposed to, say, a former player who may or may not have a law degree.
Interesting idea for winning incentives, just find it hard to see the leverage within the ownership group that could make it happen.
I’ve always felt an inverse tax on revenue sharing receipts for teams below target payroll thresholds might be achievable. Could be patterned on the Luxury tax approach, with a % portion of RS receipts being withheld from teams with payrolls below a threshold number, repeater increases in penalties, higher penalties for greater disparities, etc. Teams could still tank – or rebuild if you prefer – but wouldn’t be financed quite as well while they were spending less. There are times when some teams will need to adjust their competitive approach. This would just put a bit more of the financial burden directly on them while they do so.
I have to believe some significant number of owners are frustrated by continuing to fully support teams while their payrolls are tumbling. The withheld RS funds could be funneled to clubs not penalized but ideally including market size or revenue in a formula based on a range of variables to favor those most needing it as opposed to just giving it back proportionately to all clubs – could bring on the small and mid market teams that are spending to compete in favor of it A mechanism for increased RS contribution by non RS recipients under the set payroll threshold (bigger market clubs “rebuild” too) would be needed as well with those $ added to the redistributed pool. .
The format is already established at the top, just use at the bottom as well.
Hey Dan, can you maybe help us understand this paragraph from page 117 of the recently-expired CBA regarding the distribution of CBT funds? It says:
Starting with the 2017 Contract Year and for purposes of sub-
paragraph (a) above, the first $13 million of CBT proceeds in the
prior Contract Year (or whatever portion thereof if less than $13
million in CBT proceeds is collected) that are used to defray Club
funding obligations arising from the Players Benefit Plan shall be
deducted from Players Benefit Plan Costs. In no event shall this
deduction exceed $13 million in aggregate for the 30 Clubs in
any Contract Year.
For the 2017 Contract Year, the Clubs’ costs under paragraphs
(b) through (g) above shall be $219,300,000 ($7,310,000 per
Club
Does this mean that the first $13MM of CBT collected in aggregate are applied to the Players Benefit Plan in similar payment from the clubs themselves? Meaning that obligation for each club would be reduced by (13MM ÷ 30 teams =) ~$433,333, including the offending clubs paying the CBT penalty?
It would require some level of transparency, but a profits tax that is pooled amongst clubs would be efficient. Want to reduce your profits, spend more money.
The players have to strike in August or September 5 years from now. The owners don’t care about losing regular season games, especially early. The only leverage players can get is threatening playoffs.
That’s certainly one way to blow up any goodwill you’ve accumulated over the years. (I get that it’s a means to an end, but a particularly nasty one that will make fans quickly side with ownership, perhaps rightly so)
Interesting article. I think even those commenters who are strongly pro-owner would agree that the CBT doesn’t really enhance competitiveness. What owners intuitively understand (and, that’s buttressed by smart analytical people) is that players are a little bit like the latest Apple rollout. Match performance needs to what’s available at what price. If you don’t care about money, indulge yourself, but if you do (and owners didn’t get to be billionaires by not factoring in costs) then take into account $ per feature, or, in baseball terms, $ per WAR. The problem comes into play when some owners insist that a flip-phone is good enough for them, so they don’t want to spend anything. They look at $ per WAR, see the $ as mostly constant, and ask “Why take this nice $20M Revenue Sharing check out of my pocket and give it to a player so we can go from 63 to 68 wins?” A bonus system for wins would alter those disincentives.
The only way that the CBT enhances competitiveness is that it keeps smaller market teams around. An unconstrained spending system would disproportionately benefit large market teams, especially in an era of RSN’s and population-sized broadcast revenues. I believe that eliminating the CBT entirely would lead to either contraction or to a handful of central-division teams ultimately moving to larger markets. But otherwise, the CBT does nothing to enhance competition.
At the risk of nitpicking… I also don’t think the flipphone analogy is a good one, or a complete one. I don’t think owners are saying “we don’t want to spend anything.” I do think owners are saying “we now have data tools at our disposal to spend dollars more efficiently.” I think they’re saying they will only spend those kinds of dollars on superstars. Otherwise, the talent supply and market is too favorable towards ownership in the development and promotion of young talent. $/WAR is a red herring when teams have realized that 0-to-2-WAR-players are rarely worth a premium over replacement level talent that could grow into something more valuable.
And this is the part of the incentive system that needs to be smashed. Pre-arb years result in salaries that are too depressed and then cliff-vest at arbitration. I’d love to see the MLBPA concede ground on the CBT itself in exchange for even higher minimum salaries and a larger pre-arb bonus pool. I think this is the compromise the owners want to ultimately see… leave the CBT relatively unchanged in exchange for allocating more dollars to players before free agency. That’s not to say that I *want* a salary cap. I just think that’s the path to a compromise at this point..
(I’m not pro-owner, but this is my take.)
Good comment. Just a couple of things–I’m not saying get rid of the CBT, I get that there is some benefits to lower revenue teams in squeezing some salaries, but I also think the biggest market teams don’t necessarily slurp up every one of the top 20 FA. I’m not sure getting rid of it would necessarily lead to contraction as long as you kept revenue sharing (which is what the small market teams rely on) but it could have some negative impact on purchasing the B+ free agents.
I also agree on more teams using analytical approaches to economically value players, and that spending less on a younger talent who might grow into something better than a 2WAR player makes sense, although it can be situational–if I’m a contending team with, say, a black hole at 2nd, I might think the value of the “proven” 2WAR player is worth the price.
There are some teams that simply don’t want to spend…not many, but they are there. It’s not just that they won’t spend on good free agents, they won’t spend on competence…the only older competent players they are willing to take a chance on are the reclamation projects that come cheap and they hope to flip at the trade deadline. This really can have an adverse impact beyond the cities these teams play in, especially for those teams that have the benefit of in-division games against tanking teams–the NL Central had the Cubs and Pirates.
But I don’t think the effort is there on the competitiveness front because neither MLB or the MLBPA really view it as anything more than an economic issue–meaning, how it moves salaries/dollars.
This is a really good piece. Thanks.
This is genius. Even if it was working from a smaller pool of loot – just the money from the CBT itself, it would still incentivize teams to maximize wins.
Also, screw the Angels.