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The New York Yankees have long been the financial bullies of baseball, but the team’s offseason acquisition of CC Sabathia (7 years, $161 million), A.J. Burnett (5 years, $82.5 million), and Mark Teixeira (8 years, $180 million) to the tune of more than $420 million in combined future investment has many baseball enthusiasts crying foul. Countless articles have addressed whether those moves were good for the franchise, with the consensus being that the Yankees are now the once-again favorites to win the World Series after missing the playoffs for the first time since 1993.
A more complex question, however, is whether or not the team’s economic dominance is good for the sport itself. Despite those December signings, the Yankees are actually on pace for a lower payroll than last season, but that personal accomplishment has not stopped many team owners from arguing that the Yankees are ruining the fun for everyone. The owner of the Milwaukee Brewers, Mark Attanasio, is on record stating that “[a]t the rate the Yankees are going, I’m not sure anyone can compete with them. Frankly, the sport might need a salary cap.” With the Yankees now being the proud renter of the four most expensive players in baseball history (add to the mix Alex Rodriguez’s salary of $275 million over ten years and Derek Jeter at $189 million over ten years), the team’s actions could have repercussions when the current collective bargaining agreement between players and management expires in 2011.
Finding ways to maintain a competitive balance while ensuring players’ freedom of contract has been a constant struggle in Major League Baseball. In 2002, the parties signed a four-year labor agreement just hours before the players’ deadline to strike–the first contract reached without a work stoppage since 1970. That feat was surpassed in 2006 when the sides made history by signing a new labor agreement before the operating one had expired. Previously, baseball fans had not been so lucky, most notably in 1994 when the game was out on strike for 7 1/2 months, leading to the first World Series cancellation since 1904.
The main source of contention in 1994 was a cry by management for a cap on rising player salaries, as well as a plan that would protect the small-market clubs in the league who lacked the capability to furnish those salaries. Major League Baseball is the only U.S. professional sport that does not enforce a salary cap, but the league has created other measures that attempt to dispel some of those concerns. Variations of the league’s revenue-sharing system and “luxury tax” have been in effect since 1997 and the reviews are mixed at best.
While both measures are designed to “Robin Hood” money from large-market to small-market teams, revenue-sharing is more of a direct transaction from one to the other (just think about the money the Yankees generate from televised games alone, as compared to, say, the Kansas City Royals or Florida Marlins), whereas the luxury tax, or competitive balance tax as some call it, has more of a retributivist undertone. Teams that have a payroll exceeding the league-established threshold (set at $155 million for the 2008 season) must write out a check to the league at the end of the season for a percentage of the amount the team spent in excess of that threshold. Continuing violators are taxed at an increasing percentage until the value maxes out at 40% during the fifth year of over-spending. The Yankees are the only team to have reached that ceiling, forfeiting $26.9 million for the 2008 season (roughly $5 million more than the Marlins’ payroll). The only other team to pay a luxury tax for this past season’s payroll was the Detroit Tigers who owed $1.3 million.
There are many complaints about whether the revenue-sharing system and luxury tax actually work to create a competitive balance. While small-market teams receive checks from the league with the generic stipulation that they be used to “improve the product on the field,” there is no specific requirement as to how that money shall be spent. Many ineffectual teams receiving checks maintain low payrolls, leading to the conclusion that the money is going to places more like the owners’ pockets and less like the recruitment of free agents. That problem will be just one topic on the 2011 agenda, along with revisions to the league’s drug testing policy, how bats should be made, weather-impacted World Series games and other hot button issues.
The real concern, however, is that all of this rejuvenated discussion of a salary cap will continue into the next labor agreement period and fans might find themselves in a virtual time machine headed back to 1994. A strike would not only disappoint millions of fans looking to distract themselves from their own economic woes, but would ultimately serve as one giant glove to the face during this troubling time for America. As Buster Olney writes for ESPN.com:
With the global economic crisis impacting millions in this country, the political climate already is forming for the owners to engage the players in a major challenge of baseball’s financial system. If the recession deepens, the players will be under enormous public pressure to make a labor deal when the current agreement expires in 2011. Think about how it will look if a union, with its members averaging $3 million in salary, were to go on strike.
If the structure that Major League Baseball has in place for enhancing competition cannot keep up with a team’s financial domination over small-market teams, and even other large-market teams that still lag behind, calls for a salary cap will not be unjustified. Hopefully, the parties will agree to revise the competitive balance system to ensure that owners actually improve their franchises. That should dispel concern with the size of the Yankees’ wallet–annual 8-digit deposits to the league ought to be looked upon favorably as long as the money is used to enhance the quality of the game. Since that is no guarantee under the current scheme, perhaps the best we can hope for is that despite the Yankees’ recent signings, they will continue to miss the playoffs while teams like the Tampa Bay Rays continue to rise in power and popularity. Not only would that be good for baseball in the short run, but it would also be a heck of a lot of fun to watch.
– Andrew Cunningham