Does a Soft Salary Cap Erase Fair Competition From Professional Sports?
The success of the United States economy is dependent on the entertainment sector–specifically professional sports. Amongst the four major sports in the US, football (NFL), baseball (MLB), basketball (NBA), and hockey (NHL), more than $40 billion was accumulated in revenue, without including the money TV channels generate by broadcasting the games. The popularity of professional sports can be attributed to the unique ability of sports to leave fans experiencing all kinds of emotions throughout a game and a season. The uncertainty of feeling joy, passion, love, or heartbreak is exhilarating and is felt most when the competition amongst teams is highest. Some leagues are more competitive than others, which leads to certain leagues being more exciting. Each major US professional sports league (NFL, MLB, NBA, and NHL) is its own corporation and has its own set of rules. One of the main differentiating rules is whether the league has a hard salary cap or a soft salary cap. A hard salary cap is a set amount of money, decided by the league, that each team is not permitted to spend over. Meanwhile, a soft salary cap is a set amount of money that teams should not spend over, yet a team is allowed to exceed the amount set by the league. In the case of teams spending over the limit, those teams endure penalties such as a luxury tax, which is a tax on every dollar that a team spends above the limit. While the luxury tax is a good way to prevent teams from becoming overpowered by star players, teams from big designated market areas (DMA) generate significantly more revenue and profit than small DMA teams which allows them to care less about the penalties of the luxury tax. Ultimately, the MLB should switch from a soft salary cap to a hard salary cap as a soft salary cap negatively impacts the ability for many small DMA teams to compete with big DMA teams.
Baseball and the MLB are a perfect demonstration of why a soft salary cap inhibits the competition of the league, preventing teams from smaller DMAs from competing with teams from larger DMAs. The MLB has used a soft salary cap with a luxury tax since 2002 hoping to create more competition and even the playing field for all teams. However, nothing has changed because teams from big DMAs have the financial resources to comfortably spend over the luxury tax and teams from smaller DMAs are forced to construct their rosters on a budget. The smaller DMA teams don’t generate the same amounts of revenue as bigger DMA teams which leads to the struggle of not having the money to successfully compete.
Last year’s MLB playoffs illustrated the low chances of teams from smaller DMAs competing with teams from bigger DMAs. Of the 14 teams in the playoffs, only 3, the Seattle Mariners, Cleveland Guardians, and Tampa Bay Rays, had a total payroll under the league average of $150,635,188, which shows the more a team spends, the more likely they are to be successful (Sportac). In addition, only 2 of those teams, the San Diego Padres and the Saint Louis Cardinals, were outside the top 20 of Nielsen’s 2022-2023 DMA rankings (The Nielsen Company 2022). Though surprising, it can’t be expected that a team like the Oakland Athletics, with a team payroll of $48 million, to compete with a team like the Los Angeles Dodgers, who have a team payroll of $270 million (Sportac). Ultimately, the MLB’s soft salary cap disincentivizes competition among all 30 teams and creates a league dominated by teams in big DMAs. I think the MLB could switch to a hard cap salary system, similar to the NFL, that distributes star players more evenly amongst teams ultimately leading to more competition and a better fan experience.
The Super Bowl, the NFL’s final, has had a team playing in the game that was outside the top 20 in DMA market rankings for the past 4 consecutive seasons (ESPN). At the same time, a team outside the top 20 in DMA market rankings hasn’t made the World Series, MLB’s finals, since 2015 (Baseball-Reference). Unlike the MLB, every NFL team can compete year in and year out due to the league’s rules on a salary cap. The NFL’s hard salary cap system works a limit that was set at $208.2 million during the 2022 season (Patra 2023). The reason a hard salary cap incentivizes competition is that teams are required to spend 89% of the salary cap over a 4-year period. This ultimately shrinks the expenditure and therefore the talent gap on each team between the worst and best teams in the league (Hammond 2023). The gap between the cheapest team and the most expensive team in the MLB is about $220 million, but in the NFL, it’s about $50 million, a significant contrast.
In 2022, the highest spending team was the Jacksonville Jaguars with a total cap of $231,233,180, which was the 43rd ranked DMA market. Simultaneously, the lowest spending team was the Cleveland Browns, the 19th ranked DMA market, which spent $186,513,983 (Sportac). Even though some teams in the NFL are more talented than others, the significantly smaller gap between teams’ total salaries allows teams towards the bottom to still have household names and star players. Meanwhile, the MLB’s bottom tier teams have minor league players starting for them that wouldn’t even make some other teams' bench warmer slots. In addition, since the gap is so small between teams spent on total salaries, there really is no relation between spending and market size in the NFL, which is awesome, as it creates the most amount of competition and excitement. Just in 2022 alone, 9 teams ranked in the top 20 of DMA markets were below the average salary cap, the most surprising being the Los Angeles Rams, ranked 2nd in DMA markets, spent the third least amount in 2022 amongst all teams. The NFL is a great example of how a hard salary cap would benefit competition (The Nielsen Company 2022).
As I mentioned before, professional sports exist for the entertainment of the fans. The leagues want to create as much excitement and desire to watch the games as they can. However, without competition, it’s difficult to create an environment where there is excitement and desire. The MLB’s ratings have been going down and down each year as they continuously change the rules to theoretically make the league more appealing. Commissioner Rob Manfred has enacted rules to try to speed up the game and create more home runs, but nothing is changing. I think it is because we see the same teams year in and year out competing for the title. The playoffs always consist of the big market teams winning their divisions with the unlikely addition of a small market team that sneaks into the wildcard and loses in the first round. How is that exciting? Why would I want to watch the same playoffs that I’ve seen for years and years now? If the MLB wants to truly become a league with the excitement and relevancy of the NFL, a hard salary cap is a next step to increase competition amongst teams and bring back the spark to baseball.
References
2022-2023 Nielsen DMA ranking - ustvdb.com. 2022-2023 Nielsen DMA Ranking. (2022,
October 27). Retrieved April 4, 2023, from https://ustvdb.com/seasons/2022-23/markets/
Brown, M. (2023, January 20). MLB 2022 luxury tax payrolls exceed $5 billion for first time; six clubs pay penalties. Forbes. Retrieved April 4, 2023, from https://www.forbes.com/sites/maurybrown/2023/01/19/mlb-2022-luxury-tax-payrolls-exceed-5-billion-for-first-time-six-clubs-pay-penalties/?sh=623d3b86efed
ESPN. ESPN Internet Ventures. Accessed March 18, 2023. http://www.espn.com/nfl/superbowl/history/winners.
Local, Shaw. “Bears Have Already Spent Big, but Still Have Plenty of Salary Cap Room.” Daily Herald. Daily Herald, March 14, 2023. https://www.dailyherald.com/sports/20230314/bears-have-already-spent-big-but-still-have-plenty-of-salary-cap-room#:~:text=The%20NFL%20does%20have%20a,over%20a%20four%2Dyear%20period.
“MLB 2022 Payroll Tracker.” Spotrac.com. Accessed March 18, 2023. https://www.spotrac.com/mlb/payroll/2022/.
“NFL 2022 Salary Cap Tracker.” Spotrac.com. Accessed March 18, 2023. https://www.spotrac.com/nfl/cap/2022/.
Patra, Kevin. “NFL Sets Salary Cap at $224.8 Million per Team in 2023.” NFL.com. NFL, February 28, 2023. https://www.nfl.com/news/nfl-sets-salary-cap-at-224-8-million-per-team-in-2023#:~:text=It's%20a%20%2416.6%20million%20leap,upward%20climb%20in%20future%20years.
World Series winners. Baseball-Reference. (n.d.). Retrieved April 4, 2023, from https://www.baseball-reference.com/postseason/world-series.shtml