The MLB regular season is starting to wind down and a new ticking clock is beginning to creep more into focus for the sport. Labor talks between the owners and player's union haven't made a ton of progress to this point due in large part to vast disagreements about the economic structure of the sport.
The league's standing proposal introduces a salary cap to baseball for the first time, which the players have been vehemently against. MLB.com's Mark Feinsand broke down the proposal in detail in June, which contains a $245.3 million hard cap at the top end with a $171.2 million floor at the bottom.
The idea behind baseball's proposal is that they want to cut down on the payroll disparity between the top teams, who can spend nearly $400 million on payroll, and the smaller market teams, some of whom spend less than $100 million on player salary. The Athletic's Jim Bowden also discussed how the current deal is slated to give players 50 percent of all baseball related revenues, which the league insists will add more cash flow to the players in aggregate in combination with the cap.
The player's union has disputed those claims, noting that salary caps only serve to drive up franchise values for the owners since they can have fixed income costs. Another argument they have made is that a cap is bad for free agency since the cap system essentially encourages teams to take money out of one player's pocket to pay another, which is antithetical to the current free market system.
While the league's proposal sounds good on paper, it does leave a number of questions unanswered. Without those answers, it is no slam dunk to assume that a salary cap is the magic bullet that will save baseball like the owners claim.
What counts as baseball revenue?
Splitting 50 percent of baseball revenue sounds like a great idea on paper, but the crux of this argument is what the league defines as baseball revenue in the negotiations. While most would assume baseball revenue includes things like money from TV contracts, ticket sales, official merchandise and sponsor deals, what actually gets included is a form of accounting games.
A close look at the NFL's CBA shows how games can be played with what counts as revenue, where in the category of ticket sales clubs have to contribute the full face value of a ticket sold to the revenue pie but not any service fees the club charges for the purchase of the ticket. Baseball owners will also likely look for similar carveouts for things like construction of new ballparks, stadium upgrades and non-baseball events held at said venues.
While 50 percent of the pie sounds great, players are skeptical the owners will truly put all of the revenues on the table to be split evenly. There is a strong likelihood the owners will try and take some categories off the table, shrinking the pie that is being split in half.
What are teams above and below the cap thresholds going to do?
Based on accounting from Spotrac, six teams would be above the $245.3 million hard cap while two more are within spitting distance of the number. On the flip side, a whopping 14 teams are below the projected floor, with the Cleveland Guardians and Miami Marlins needing to add nearly $100 million in payroll to reach the $171.2 million threshold.
The teams above the cap have an immediate issue since all baseball contracts are fully guaranteed, meaning that even if they were to cut players they would still count against their cap figures. There are also questions about how teams on the lower end of the scale are going to magically find all of this money to run payrolls of at least $171.2 million since many of those owners cry poor every chance they get.
The league has hinted at a new pooled TV rights set up to help generate more revenue, as well as changes to the revenue sharing structure, but it is hard to see how that can finance significant payroll leaps for teams that have trouble drawing fans by itself. Based on how vaguely the league is discussing a cap and its ramifications, there could be scenarios where high payroll teams need to dump salaries to a smaller market club to become cap compliant.
Would there be a grace period for a potential cap?
The league has not answered this question either but logic would dictate the answer would have to be yes. The Los Angeles Dodgers, for instance, already have almost $400 million allocated to their 2027 payroll before signing any free agents or retaining any of their own players, which would make it nearly impossible to cut their payroll in half in one winter.
If a cap were to come into effect, which is no guarantee given the way negotations tend to work, there would likely need to be some kind of three-year grace period to help teams over the top threshold become cap compliant and for teams on the lower end to add more to their payrolls. Such a scenario could also see teams given a one-time buyout on a contract, which the NHL employed to allow teams to remove players from their cap without being penalized the full value on their ledgers.
By 2029, for instance, the Dodgers are the only team over the projected cap threshold and would need to clear just $35 million to make it happen. If a cap were to come into existence it makes sense for a three-year transition period to allow teams to get their finances fully in order.
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