Sports Business

On this page we will discuss issues relating to the business side of sports. Currently, I am working on obtaining a business degree in Sports, Sponsorships, and Sales at Baylor University. Each week I will try to highlight a different story in the news about how business is influencing sports. The first is about the issue of a salary cap in Major League Baseball. I wrote this essay in college and believe there is definitely a valid argument on both sides of the issue.

Major League Baseball Salary Cap

The front office of Major League Baseball and the fans are discussing whether or not, due to the lack of a salary cap, the competitive balance could be skewed toward the teams with a larger sum of money to spend on players. The lack of salary cap allows for the New York Yankees to spend 208 million dollars on players, while the Tampa Bay Rays only have the means to spend 29 million dollars. It is true that in the year 2005, teams with a payroll under 50 million dollars won 10% fewer games than teams with a payroll over 90 million dollars. However, studies have shown incredible instability with this theory that the high market team has a better opportunity to win (Abramowitz 1-2). In fact, I would suggest that a salary cap in Major League Baseball is unnecessary for maintaining competitive balance, and would also be detrimental to the goal of sustaining fan interest, which the league has enjoyed for so many years.

Major League Baseball Compared to Other Professional Sports

Currently, Major League Baseball is the only one of the four major American sports leagues with no salary cap. The National Basketball Association (NBA), National Hockey League (NHL), and National Football League (NFL) all have a salary cap, which sets an exact number on the amount of money a team is allowed to invest in their players each year. If implementing a salary cap were vital to creating competitive balance, then it would make sense for the other three leagues to have a wider variety of champions. Since 1999, though, the numbers have not agreed with that statement. There have been 16 different finalists in the Major Leagues since 1999, compared to 16 in the NFL, 15 in the NHL, and only 11 in the NBA. These numbers suggest that the MLB is equally, if not more so, balanced than the sports leagues containing a salary cap (A Salary Cap in Baseball? 1-2).

Homegrown Talent Wins Over High Priced Free Agents

The advantage of having more money as a professional team is that you have the ability to pay for already established players in the free agent market. The alternative for teams that cannot afford the higher priced players is to draft great young talent, and then develop them through the minor leagues. Still on their rookie contracts, these players are much cheaper, and actually tend to stay with the team that drafted them for a discount price later on. It is very interesting to look at the amount of impact that “homegrown” players have had on the recent championship teams in Major League Baseball. The rosters of the St. Louis Cardinals and San Francisco Giants, having combined to win the last three World Series’, are filled with players that were drafted by these ball clubs so that they would not have to compete for expensive free agents. Pablo Sandoval of the Giants and David Freese of the Cardinals were each named MVP of their respective World Series teams, each still being paid the same amount of money as they were in the Minor Leagues. It is clear that winning does not depend solely on the ability to spend an astronomical amount of money for the well-known players. 

Other Sources of Revenue

It is important to note that revenue comes from many places other than the players on the field. Surely fans attend games for the players themselves, but there are also many that come for the ballpark attractions and game day promotions. Furthermore, each team has the ability, often based on the success of the team, to sign television and radio deals. By not having a salary cap, major league baseball is allowing the teams to reinvest as much money as they can in the product on the field. The success on the field then creates revenue in the other areas. This competitive market, created by the freedom to spend money on players, gives the teams an incentive to supply an exciting and diverse atmosphere for all fans to enjoy (Haupert 1-2). The image below, taken at AT&T Park in San Francisco, demonstrates the ability of a ballpark attraction to be another way to gain revenue. The slide inside of a giant Coke bottle attracts young children to the ballpark even if they are not interested in baseball. Additionally, the Giants gain revenue off of the Coca-Cola sponsorship. If a salary cap were implemented, the Giants would not be able to use that earned to better their team. This would lower the incentive of creating such a wonderful spectacle.

An Alternative to a Salary Cap

Competitive balance can be ensured in ways other than a salary cap. Daniel R. Marburger, in his article “Gate Revenue Sharing and Luxury Taxes in Professional Sports,” describes a well thought out plan, which would bring high-market team salaries down without taking all the freedom out of the hands of the owners. Statistics show that the talent of the home team is not the only factor in determining the amount of tickets sold for a game. The visiting team has a large impact on the game day attendance. The NBA found this out quickly when Michael Jordan entered the league. Wherever Michael Jordan and the Chicago Bulls played, the arena was completely sold out. The Bulls, therefore, decided that they deserved some of the revenue from the opposing stadiums’ ticket sales. By allowing the visiting team to share in the revenue of the ticket sales, Major League Baseball would be lowering the value of a free agent. Teams would no longer see an advantage to having the big star players, as they would have to share the revenue they gain from him with other teams. This process would result in high-salary teams lowering their payroll, bringing them closer to the rest of the pack (Marburger 3-5).

     Oakland A’s Vs. Kansas City Royals                         Oakland A’s Vs. New York Yankees

      

The images above represent the difference in fan attendance depending on the opponent. The Oakland A’s do not draw many fans against a normal team, but when the New York Yankees come to town it is a completely different story.