Why a Salary Cap Can’t and Won’t Fix Major League Baseball

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Every time the Los Angeles Dodgers or the New York Yankees or any other big market Major League Baseball team hands out another mega-dollar contract to an available free agent, the cries for a salary cap in MLB erupt once again. As if everything that’s wrong with the economics of the National Pastime can be solved by putting a cap on what wealthy franchises can pay their top flight players.

The thing is…even MLB Commissioner Rob Manfred knows that a salary cap isn’t the answer for MLB. Significantly better revenue sharing is. And he has a way.

Currently, there’s an economic Grand Canyon between the biggest MLB market teams – like the Dodgers – and the smaller market clubs. Los Angeles is the top media market in the country, while New York is a predictable second. They can demand massive amounts of money in exchange for their local media rights because they reach a vastly greater number of eyeballs every night. At the other end, the smaller market clubs – which includes Milwaukee (38^th) Cincinnati (37) and Kansas City (33) can’t charge their advertisers and sponsor partners anywhere close the same kind of rights fees.

This is where the giant income gap comes from.

Currently, LA is receiving roughly $334 million annually from local outlets for the rights to broadcast their games.

At the same time, they’re also receiving their 1/30^th share of the almost $3 billion that MLB is bringing in annually for national broadcasts. That’s another $10 mil or so every year.

And this income doesn’t include ticket, concessions, parking or merchandise sales.

While every team, including the Colorado Rockies (17^th largest market) also share in the national broadcast revenue, the Rockies local TV rights, which are currently held by MLB (along with six other teams) revenue is closer to $45 mil yearly. While the new deal with ESPN could alter that somewhat, Colorado’s income won’t be in the same stratosphere as what their division rival receives annually for playing the same game in the same league.

This is where the competitive balance gap resides. And this is something Manfred wants to fix.

The Commish is on record as saying he wants to bring all local broadcasts “in-house.” Doing something like this would level the economic playing field significantly and make calls for a salary cap meaningless.

Big market teams like the Dodgers, Yankees and Cubs don’t want a salary cap any more than the players do. And even an idea like sharing local media rights revenue would be a tough sell to them. The Dodgers super-lucrative local broadcast contracts don’t expire until 2039. Why would LA want to share more of their income with their rivals?

With the next round of collective bargaining talks on the horizon, it’s safe to say that the issue of enhanced revenue sharing will be brought up. Ironically, the Player’s Union would likely be fine with the kind of deal, because the Union’s goal is to create a system where all teams can and will bid for free agents, and where winning is paramount in revenue generation. If all the teams are bringing in comparable revenues, they will all be able to bid on free agents, etc.

At that point, it won’t be about how much money a team spends, it will be how they choose to spend it that matters the most.

And no one will have to worry about a salary cap.