Moneyball, Part 2

(Note: This article was published by the author on another Red Sox web site prior to the establishment of this site.)

Utter the word “salary cap” to your baseball buddies and suddenly the room divides into two camps: those who feel strongly that this is THE solution to the problems with Major League Baseball and those who believe that it punishes the teams and the players who are simply taking advantage of the free-market system. It may not be on the same level as hot-button topics like abortion and the death penalty, but it certainly whips up a conversation so heated that we have to check for the location of fire extinguishers in the room.

Regardless of your feelings on this issue, one fact is clear: the current MLB economic situation is in dire straits and requires compromise between owners and players to bridge the gap. When ninety percent of the wealth is owned by ten percent of the teams, that creates an obvious imbalance that hinders competition but also shows signs of taking the league into financial ruin.

Having had a few extra days to absorb the recent A-Rod deal and look at all sides of this issue, I believe that I have found a solution that appears to be the best approach to rectifying the current situation. It may not be THE solution, but… well, here are my thoughts.

1. Create a hard salary cap

Okay, this is not an original thought, but the harsh reality is that some owners (I’m not going to name names) control their spending like Paris Hilton does in Beverly Hills boutiques. The luxury tax penalty is about as effective as applying a Band-Aid to a blood-gushing wound. A hard cap sets a spending limit that minimizes the chances of an owner from creating a lineup filled with proven All-Stars and also helps control the salary levels of players.

2. Create a minimum payroll limit

Most critics of baseball target the big-spenders, but blame should also be given to the tightwads. It’s just as unfair that some owners will have team payrolls that are equal in value to the salary of one or two players on another team, even with revenue sharing utilized to help offset costs. By setting a minimum that is near equal to the cap, it forces these “small-market” owners, many who are sitting in brand-new stadiums built with public money, to compete. An underlying incentive, one that I like, is that it gets tight-fisted owners to either sell to an owner willing to bring the team back to par or fold the team, thus flushing the league of players better suited for the minors or the independent leagues.

With no background in economics, save for balancing my checkbook every month, can this succeed? Let’s set a hard cap at $100 million and a minimum of $70 million. Based on attendance figures from the 2003 season, the average attendance was around 28,000, or about 61% capacity. If we then set an average ticket price of $30, this raises about $68 million per season per team; that puts us just under my suggested league minimum. Consequentially, if this idea works to level the competition and create parity in the league, then we would assume that attendance would rise. If the average capacity were then raised to 70%, ticket revenues would increase to $79 million; at 80%, this would increase to $90 million.

Remember that this estimate does not include revenue from concessions, merchandise sales, television deals, the playoffs, and other sources. Some of this revenue, such as the concession sales and television contracts, are dependent on the team but should be easy enough to generate and bring teams above the minimum. Toss in the revenue generated by the league on sales of merchandise, playoff tickets, and other sources, and teams are still able to easy generate a profit. True, there are operating costs not considered, but most teams have deals with local governments and utilities to help offset this.

As a further example, let’s use the Boston Red Sox, the team with the smallest ballpark in the league. Last season, capacity was at 100%, with nearly every games sold out and standing-room-only sales included. An average ticket price of $30 would generate $82 million in revenue. If that attendance figure dropped to 80%, the team would still generate $65 million in revenue and, as explained above, there would be enough additional revenue generate by the team and the league to still generate a profit.

While these changes may seem like a bitter pill for the owners and players to swallow, the league cannot continue to operate without checks and balances. With no weight being applied by the commissioner’s office to corral the league, the owners and players will continue to place blame on each other and nothing will be done to rectify the situation. Yes, the reality is that baseball is a business, but if fans continue to lose interest in this league and take their money elsewhere, how will the business of Major League Baseball survive?

Author: fenfan

Red Sox fan, weekend web developer, needs sleep badly