Ted Fuhr
Mr. Reuter
Economics B4
October 15, 2017
Should the MLB have Salary Caps?
As a young boy I would always dream of being a professional baseball player, and many of my friends shared this same dream. To be playing a sport we love and making unimaginable amounts of money doing it - it didn’t seem possible. However, for only few, this unimaginable pay became very much a reality. But these salaries came at a cost; a cost payed for by American citizens and any other that visit one of these baseball stadiums. Ticket prices, concessions, taxes, and parking are all increased to support the unbounded increasing salaries of players in the MLB. Without salary caps, there is no telling the extent to which these salaries will reach bringing other costs in baseball up with it, and allowing some teams to get ahead with far greater payroll. Imposing strict salary caps would allow America’s favorite pastime to be maintained as an affordable source of entertainment with far more amusing matchups.
Of the 4 major sports, Major League Baseball is the only one with no salary caps. Salary caps prevent teams from spending too much money on the salaries of players. The MLB technically does have salary caps but they are so high and forgiving, that they are rendered useless. Without these salary caps in the MLB, players have reached salaries as high as 34 million dollars per year (“Here Are the 25 Highest Paid MLB Players of 2016.”), which is about ⅔ of the payroll of my home team, the Brewers, who have the lowest payroll in the MLB of 51.2 million dollars (“2016 MLB Team Payrolls.”). The salary caps of MLB range from the lowest, held by the Milwaukee Brewers of 51.2 million dollars, to the LA Dodgers with the highest of over 248 million dollars (“2016 MLB Team Payrolls.”). 
This grandiose payroll is about $50,000 above the salary cap of the MLB showing its leniency and insignificance. These big-market teams have greatly increased ticket prices to support their enlarged payrolls. For instance, the average ticket price to a game of the Boston Red Sox, who have the 3rd highest payroll in the MLB, is $53.98, while the 22nd ranked payroll in the MLB, the Arizona Diamondbacks, sell tickets at an average of $15.67 (“Why The Prices Of Sports Tickets Vary So Much.”). There is a direct correlation between the payroll of teams and the price of their tickets because the revenue earned in selling tickets is a major source of funding for the team and the salaries they pay (“Major League Baseball's Business Model & Strategy (NKE, ERA).”). As the pay to these players increases, the price to attend baseball games will increase and the according to the law of demand, the demand will decrease due to the raised price. Baseball games will likely prove to be fairly elastic as they are not a necessity but within marginal costs, they are desirable. The elasticity comes with opportunity costs that may outweigh the cost of going to these expensive, unnecessary games, such as a tank of gas or a nice meal. With salary caps, and thus lowered payroll, the price of tickets would be decreased and baseball games would become more affordable causing the demand to increase and the ticket prices to become consistent throughout the league. However, ticket price is not the only inconsistency caused by these big-market teams. They cause uneven skill as with more money, better players may be acquired. For example, the Dodgers, with the highest payroll, had a regular season record of 104-58, while the Brewers, with the lowest payroll, ended the 2017 regular season 86-76 falling just short of the playoffs. With strict, salary caps, teams would have to strategically budget their money to present the best offer to players so they may be acquired. This would allow for more even distribution of elite players throughout the league. The only possible negative externality would be increased traffic due to increased attendance from the high demand caused by the low prices.
This grandiose payroll is about $50,000 above the salary cap of the MLB showing its leniency and insignificance. These big-market teams have greatly increased ticket prices to support their enlarged payrolls. For instance, the average ticket price to a game of the Boston Red Sox, who have the 3rd highest payroll in the MLB, is $53.98, while the 22nd ranked payroll in the MLB, the Arizona Diamondbacks, sell tickets at an average of $15.67 (“Why The Prices Of Sports Tickets Vary So Much.”). There is a direct correlation between the payroll of teams and the price of their tickets because the revenue earned in selling tickets is a major source of funding for the team and the salaries they pay (“Major League Baseball's Business Model & Strategy (NKE, ERA).”). As the pay to these players increases, the price to attend baseball games will increase and the according to the law of demand, the demand will decrease due to the raised price. Baseball games will likely prove to be fairly elastic as they are not a necessity but within marginal costs, they are desirable. The elasticity comes with opportunity costs that may outweigh the cost of going to these expensive, unnecessary games, such as a tank of gas or a nice meal. With salary caps, and thus lowered payroll, the price of tickets would be decreased and baseball games would become more affordable causing the demand to increase and the ticket prices to become consistent throughout the league. However, ticket price is not the only inconsistency caused by these big-market teams. They cause uneven skill as with more money, better players may be acquired. For example, the Dodgers, with the highest payroll, had a regular season record of 104-58, while the Brewers, with the lowest payroll, ended the 2017 regular season 86-76 falling just short of the playoffs. With strict, salary caps, teams would have to strategically budget their money to present the best offer to players so they may be acquired. This would allow for more even distribution of elite players throughout the league. The only possible negative externality would be increased traffic due to increased attendance from the high demand caused by the low prices.
The bottom-line is that more strict salary caps would improve the affordability and fairness throughout the league. Ticket prices would be lowered, increasing the demand to attend these games. In addition to the affordability, the teams would be more evenly matched and the players more evenly spread. The MLB would be made into a more affordable and entertaining sport with the implementation of strict salary caps. With this change, America’s favorite pastime would be maintained and more available than ever.
Works Cited
“2016 MLB Team Payrolls.” Online Payroll Service for Small Business - SurePayroll, www.surepayroll.com/resources/blog/mlb-team-payrolls.
“Are Salary Caps for Professional Athletes Fair?” Priceonomics, priceonomics.com/are-salary-caps-for-professional-athletes-fair/.
“Brewers Year-By-Year Results.” Milwaukee Brewers, milwaukee.brewers.mlb.com/mil/history/year_by_year_results.jsp.
Dorn, John. “Here Are the 25 Highest Paid MLB Players of 2016.” AOL.com, AOL, 2016, www.aol.com/article/2016/04/19/here-are-the-25-highest-paid-mlb-players-of-2016/21346726/.
Fontinelle, Amy. “Major League Baseball's Business Model & Strategy (NKE, ERA).” Investopedia, 2015, www.investopedia.com/articles/personal-finance/062415/major-league-baseballs-business-model-strategy.asp.
Parker, Tim. “Why The Prices Of Sports Tickets Vary So Much.” Investopedia, Apr. 2012, www.investopedia.com/financial-edge/1012/why-the-prices-of-sports-tickets-vary-so-much-.aspx.
Review, NU Business. “Why Certain MLB Teams Can Afford Star Players and Others Cannot.” The Northwestern Business Review, The Northwestern Business Review, Mar. 2012, northwesternbusinessreview.org/why-certain-mlb-teams-can-afford-star-players-and-others-cannot-bb5d9fca0524.
“Year-By-Year Results.” Los Angeles Dodgers, losangeles.dodgers.mlb.com/la/history/year_by_year_results.jsp.
Teddy I really liked your topic that you wrote about and I personally thought that it was very interesting. I never knew that the salaries of the teams could impact the league in those ways. It makes sense though that there would be unfair advantages with a team with a bigger salary, because they would be able to sign better players or have more star players on their team. Although you mentioned the raising of prices for the baseball tickets and other things to compensate for the players and their salaries. I was wondering that if they raised the prices on those things that they would lose people that normally go to baseball games and then eventually end up losing money in the long run. This would then have the player's salaries go down on their own, but what confuses me is that people still are willing to pay for the increased ticket prices which then allows for the teams to keep paying their baseball players more and more. Also I was wondering if there was a salary cap would that make really good baseball players to not perform to their maximum potential? Many times I feel as if the money that a professional is making is related to their performance while playing. So knowing that they can only make so much might not be as motivating as it is for them right now. That being said the other professional sports do not have any issues with that right now so I am not too sure that that would be an issue. Besides those two things I think that your topic was very interesting and I thought that you did a very good job on it.
ReplyDeleteGreat analysis! I'm a big sports fan myself but never really got into why/how the money works in baseball. This sheds a lot of light on how the league works and how a salary cap would make many things cheaper. However, I don't think this idea would pass by in the near future, as stars like Bryce Harper and others are set to hit the market asking for a deal with totals over 400 million dollars. I doubt the players union would approve of anything like this.
ReplyDeleteI agree that it is really unfair that the salary caps are "rendered useless" in the MLB. This is a topic I guess that not many people know about and it's interesting to read about the point of view of someone sitting in the seats. I didn't know that the salaries of the players could branch out to affecting baseball fans and the price of tickets. I definitely agree that the salary caps should be enforced so that more people will be able to experience such an exciting sport at a lower price.
ReplyDeleteI thought this was an interesting topic for economics. The current salary cap should way lower than it is right now. MLB players are already payed way more than enough, and not including a sponsorship they're a part of as well. If the salaries are lowered, then there will be way more fans at the games since prices for things will be cheaper. I just thought it was very interesting that players are payed 2/3 annually as much as an MLB team's payroll. (Vinny)
ReplyDeleteMy family are huge baseball fans and to be informed about the money involved in the players salary allows us to understand the game not only by the actual game itself but the aspects that come along with it. With that being said, I believe that there should be a more attainable price cap so that fans will be able to experience their love of the sport at a more feasible price.
ReplyDeleteYou make a great point on lowering the salary cap of the MLB because it's unfair to the lower market teams. However, this is how baseball is! Baseball has always been a sport that pays more to worthy or standout players. As it's unfair for the lower market teams it encourages them to find a way to make up for the money they don't have. In the movie "Moneyball" they created a playoff team through talent with little money. I think that the MLB shouldn't lower the salary caps because the lower market teams need to find a way to bring in their revenue and at the same time keep their fan(customers) happy with the prices of their products. You can't punish the higher market teams like the Yankees just because they make more revenue and have a successful business.
ReplyDeleteI think that it is stupid that MLB doesn't have a salary cap. It is one of the main reasons I often find professional baseball unwatchable and boring. Every year, you see the Yankees, Red Sox, Rangers, Cubs, and Giants paying their players 5-10x what the Brewers, Athletics, Marlins, or Pirates are paying their players. This creates an unfair advantage for the big markets and makes the league unfair. This also happens in European soccer, and is why Real Madrid, Barcelona, Juventus, Manchester United, Bayern Munich, etc, have dominated their leagues for the last 50 years. I think it takes a lot of the fun out of the sport because it allows some teams to constantly remain at the top.
ReplyDeleteI think that lowering the salary cap is a great idea, especially due to the lower markets not getting a chance to get great players. However, it is purposely set up like this. The New York Yankees, a powerhouse of the MLB gets all these great players because of the target market of baseball. New York is one of the most populated places in all of America. The Yankees are so easily advertised because everyone sees all the ads and knows exactly when the games are. Whereas the D-Backs from Arizona aren't as well known because Arizona is not as populated. Therefore, the MLB is set up this way for a reason, for revenue purposes.
ReplyDeleteConsidering the large inconsistencies between teams and their player salaries, it is odd that most teams are still relatively doing well financially. However, the fact that teams are still generating enough revenue to provide players with these salaries suggest that tickets are actually inelastic, as the price effect states that when demand is inelastic, an increased price will actually increase revenue. The elasticity of tickets that you mentioned of demand could be because of time. As prices gradually increased, ticket-buyers had some amount of time to adjust their behavior to accommodate their ability to buy tickets. This means that if there were to be a salary cap implemented and ticket prices went down, there would be an excess demand for those tickets at a lower price, which baseball teams would have to recognize and adjust to.
ReplyDeleteI do believe that teams in a big market, that are willing to spend more money have an unfair advantage over these low market teams. But it is an interesting debate to talk about because baseball has been like this all along and it is tradition would it make sense to change the whole money landscape of the game or keep it the same. Personally I love tradition and I would keep it the same.
ReplyDeleteWell written essay. While the MLB is due for a salary cap over the current luxury tax, baseball is a bit of a different animal over the other sports. Baseball is very inconsistent compared to other sports, and many players that get paid large salaries don't always perform as expected. Additionally, baseball is more of a team sport than any other game. In baseball, one superstar with a big contract will not make a large enough difference, and some of the best players in the game are young and making significantly less than their older counterparts.
ReplyDeleteI think this a well written post with a great topic. With some baseball players getting paid very high but ot always meeting expectations it may be profitable or better for the MLB teams to not pay as much or go for price wage caps. This leaves sort of a back up plan or the MLB teams and it helps them because they could always just change them and give a higher cap.
ReplyDelete