« More articles in Uncategorized | Go Home

Salary Floors Are Worse Than Salary Caps

posted by Shawn Hoffman, on May 29th, 2008 at 08:12 am, in category Uncategorized

I missed one major point on Tuesday: the dynamic that Mark Cuban wrote about not only raises a league’s salary cap, but also raises a hypothetical salary floor.

The NHL added a salary floor along with its cap following the 04-05 lockout. So if the New York Rangers and the Detroit Red Wings both increase their revenues by twenty percent, and the Nashville Predators’ revenue decreases five percent (with all other teams staying equal), both the cap and floor would be raised the following season. Despite having a decrease in incoming cash flow, the Predators could be forced to raise their player payroll.

What happens when teams are forced (or force themselves) to spend money on payroll, regardless of their position? You get the 2001 Pirates. In an attempt to prove that a new stadium really does help a team spend (and therefore win, because that’s how these things are supposed to work), the Pirates raised their payroll from $26.6 million to $57.8 million. That latter figure ranked 18th in the Major Leagues, which is by far the franchise’s highest spot in recent memory.

You see where I’m going. The Pirates were set on dishing out big contracts, almost regardless of who the actual players were. Jason Kendall, Kevin Young, Pat Meares, Derek Bell all became very rich thanks to the Kevin McClatchy/Cam Bonifay throw-money-at-a-problem-and-hope-it-gets-better grand plan. The team lost 100 games.

I’m not sure if there has been a case where an NHL team has had to spend recklessly to get above their minimum threshold. But if a payroll floor was instituted in Major League Baseball (not that this will happen any time soon), the Marlins would certainly be affected, and teams like the A’s, Pirates, and Devil Rays would be very close.

Now look at that list. In the short history of this blog, I have complimented each of those teams’ strategies (even the Pirates, under their new management). All four are in the midst of large scale rebuilds, albeit at different stages. Only the Rays are at a point where spending a little extra could have made some sense this past offseason.

The point is essentially the same as Tuesday: the more mandates and restrictions you impose on these individual businesses, the more inefficiencies will arise. Some collectivist practices can be helpful, since these leagues are cartels, after all. But forcing teams to spend (or not spend, for that matter) regardless of their top lines can create very dangerous situations for certain clubs.

Feedback? Write a comment, or e-mail the author at shawn(AT)squawkingbaseball.com

4 Existing Comments

Add New Comment

on May 29th at 11:41 am
Ben said:

I’m not sure if I agree with you on the salary floor issue. The example of the 2001 Pirates does not really indict a salary floor or even spending more money on players, but simply on bad management.

In theory a team with more money to spend it cannot be any worse off. The Pirates front office is the only one to blame for their awful 2001 season (and actually every season since Barry Bonds left).

A team in the ÒrebuildingÓ process still can function under a salary floor, but most likely they will spend their required money in a different way. Good small market teams might do this with a combination of paying rookies and young players more than the league minimums and continually signing free agents to short term contracts. Yes Eric GagneÕs $10 million 1-year contract was probably not worth it, but the short duration takes out much of the sting for Brewers fans.

Small market teams may maximize individual profits by having tiny payrolls, but I donÕt think its best for the sport as a whole. The Yankees have demonstrated that you cannot just buy championships anymore, but on the whole teams that spend more are more successful. On the other hand teams with low payrolls arenÕt often competitive. A salary floor would likely increase competition, make pennant races more exciting, and raise interest in the game.

For baseball as a sport the only argument against a salary floor would be if the teams were not making enough money to cover the floor. In the unlikely case that it was an issue they could just increase revenue sharing to make the floor feasible for all teams. Giving a team money and forcing them to spend it all may lead to situations like the 2001 Pirates, but since the owners arenÕt allowed to pocket the change they would have incentive to actually try to use their payrolls wisely.

In lieu of a hard floor, a poor tax would probably work well and be less distortive to the small market teams. Like the luxury tax, just set a base payroll and tax teams at 50% of what they spend below that. When possible IÕm always in favor of an open market approach.
on May 30th at 09:50 am
J said:

what’s wrong with making teams spend their subsidy money?
on May 30th at 01:08 pm
squawkingbaseball said:

J - This year’s Pirates are a good example of a team that would have found it counterproductive to raise the player payroll during the offseason. What is the monetary value of winning 72 games instead of 68? Not much. And yet a five win player would cost somewhere around $10 million (or more, depending on the player) in free agency.

And yes, while it’s essentially “free money,” it’s still better for these teams to pocket it, build a warchest, and use it more efficiently when the time is right. I.e. the June draft, the Caribbean, or player payroll when the team is closer to contention.
on June 17th at 09:55 am
Kevin R said:

I’m all over a salary floor if there’s some practical way to account for player development. If a team such as KC or Oakland is in a rebuilding stage and is forced to spend $40 mill on a bunch of Barry Zitos, that’s a waste of everyone’s time and money. But if they say “ok, we’re putting $20 million more into the minors this year” or something, and there were a reasonable way to account for that, great.

Just sayin’.

online sports betting

Pittsburgh Florist