Is Curbing Spending Enough for MLB?

It’s been pretty well known for some time now that Commissioner Selig (and most of the MLB owners) aren’t particularly thrilled with the Yankees large payroll. For the sake of accuracy, it should be noted that the Yankees are not the only team with a large payroll (*cough* Red Sox, Phillies *cough*), but I digress. Now, following the new CBA that will increase the luxury tax threshold to $189 million in 2014, everyone might finally get their wish and see a thriftier (albeit slightly) Yankees team.

River Avenue Blues today noted a Joel Sherman report that the Yankees are looking to drop their payroll (which in 2011 came in just above $202M) down somewhere below the $189M mark over the next two years. And from a financial aspect, it makes a ton of sense. Should the Yankees continue to exceed the payroll threshold, their luxury tax rate as a “repeat offender” will jump from 40% to 50% on the excess they spend above the threshold. By lowering payroll below $189M the Yankees would not only avoid the luxury tax altogether, but would ensure that the next time they exceed the threshold they only pay the “first-time offense rate” of 17.5%. Not too shabby when you’re dealing with a sum of $12-15M.

So has MLB succeeded in effectively constructing a salary cap without explicitly doing so? Only time will tell, but the punitive financial measures certainly provide an incentive for teams who are repeat offenders to curb their spending. And the $189M threshold isn’t exactly chump change. By setting the threshold so high MLB has given teams plenty of freedom to continue to hand out lucrative contracts when the need arises.

As a Yankees fan I’m all for fiscal responsibility. After all, knowing that the Yankees have immense financial resources doesn’t make horrible contracts (like Kei Igawa‘s and Carl Pavano‘s) any easier to stomach. And given the Yankees relative inaction last winter and Brian Cashman’s comments so far this winter, it looks as if the Yankees will be thinking twice before handing any more $20+M/year long-term contracts a la Mark Teixeira, CC Sabathia, Alex Rodriguez, etc., etc. While such a policy might mean missing out on the premier free-agent in any given year, it also means that the team is less likely to be hamstrung by financial commitments 5-7 years down the road. Don’ believe me? Well, as RAB noted in their analysis, the Yankees contracts with Teix, A-Rod, and CC alone will come to $72M in 2014. That’s more than 12 of the 30 MLB teams spent on their entire payroll in 2011.

Which leads me to my next point: is a constructive salary cap enough without creating some sort of salary floor to go with it? The tagline of Bud Selig’s time as Commissioner is nothing if not “everything in the name of competitive balance.” And in light of this, any type of cap (even an artificial one) will be insufficient to promote balance in the absence of a salary floor. A Yankees payroll that is lowered to $189M will still be laughably far above the $36M the Royals invested in their team last season. Hell, even if the Yankees cut their payroll in half a $100M roster would still be horribly far from “balanced” when compared to a $35-$50M payroll.

But convincing teams to spend is much more difficult than convincing them not to spend. Setting a salary floor anywhere near the luxury tax threshold would force teams to spend for the sake of spending, and do far more harm than good. Such a system would artificially inflate player contracts and result in average and below-average players being paid like superstars. Curbing spending is a laudable goal, but so is providing incentives for teams to reinvest the money that fans have contributed to merchandise and ticket sales back into the on-field product. So how do you create a legitimate salary floor given the current reality of MLB? I certainly don’t have an iron-clad answer, and if this was an easy problem to solve those with the power to enact such changes would have done so already. But if Commissioner Selig is serious about achieving competitive balance (and not just by adding arbitrary playoff spots in the form of a second Wild Card), a salary floor of some sort will inevitably have to be instituted. The good news is that MLB has five years to figure something out before the next CBA rolls around.