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“Of course, the Yankees signed another superstar for an absurd amount of money,” says the average baseball fan just about every year. How is this even possible? It comes down to the fact that the MLB does not have a salary cap that limits teams on how much they are able to spend on their players.
The MLB has no salary cap because the MLB Players Association will not agree to it in fear that it would give more money to owners and less to players. The owners have attempted to implement a salary cap several times over the past several decades with no success.
The salary cap debate in baseball is actually a very complex issue.
- 1 What is a Salary Cap?
- 2 Luxury Tax
- 3 Owners vs. Players
- 4 Is Competitive Balance really achievable?
- 5 Frequently Asked Questions
What is a Salary Cap?
A salary cap is just what it sounds like. It is a cap to the amount of money a team is allowed to spend on its players’ salaries. In a league with a salary cap, every team in the league has a maximum dollar amount with which to compensate players.
Three of the four major sports leagues (NFL, NBA, and NHL) have a salary cap. The MLB is the outlier.
The goal of the salary cap is to even the playing field for the large and small market teams. For example, the Los Angeles Rams, although in a much bigger market, are held to the same salary cap as the Green Bay Packers. Whether or not this system actually does create competitive balance throughout the league is up for debate.
Teams that break the league’s salary cap face major consequences that include fines, loss of draft picks, loss of contracts, and sometimes more.
Major League Baseball does have a luxury tax that serves as somewhat of a soft salary cap. At the beginning of each season, the league sets what they call a “Competitive Balance Tax”.
Teams that exceed the amount set by the league for the first time are taxed at 20% on the money spent above the cap. If the team exceeds the amount for a second year in a row, they are taxed at 30% on their extra expenses. If this happens for three or more straight years, they face a 50% tax.
Here are the Competitive Balance Tax thresholds from 2017-2021 according to mlb.com:
- 2017: $195 million
- 2018: $197 million
- 2019: $206 million
- 2020: $208 million
- 2021: $210 million
Only eight teams have ever surpassed the mark set by the league. The New York Yankees (2003-2017, 2019), Los Angeles Dodgers (2013-2017), Boston Red Sox (2004-2007, 2010-2011, 2015-2016, 2018-2019), Chicago Cubs (2016, 2019), Detroit Tigers (2008, 2016-2017), San Francisco Giants (2015-2017), Washington Nationals (2017-2018), and the Los Angeles Angels of Anaheim (2004) are the only teams to ever outspend the threshold.
A team has won the World Series while exceeding the Competitive Balance cap five times since 2004. Boston (2004, 2007, 2018), Chicago (2016), and New York (2009) are the only teams to do so, which brings up the question: Does surpassing the competitive balance threshold really give the team a competitive advantage? These numbers suggest that may not necessarily be the case.
These luxury tax thresholds aren’t really that far off from the NFL’s salary caps. In 2020, the league’s salary cap was $198 million. The other two major leagues were much lower with $109 million in the NBA and $81.5 in the NHL.
It is interesting to think about what the MLB’s number would be if it were to consider a hard salary cap. It is safe to assume that it would likely be less than the NFL’s cap but more than the NBA and NHL considering that baseball typically ranks second among professional sports leagues in revenue.
Owners vs. Players
Don’t be fooled. Even the owners of the larger market teams have pushed for a salary cap in years past only to be denied by the MLB Players Association. The MLBPA is a labor union with a very strong presence in representing the game’s players.
The big push started in the 80’s and continued into the 90’s when the season was postponed due to the fact that the Players Association would not agree to revenue sharing with the game’s owners. After being unable to agree to terms in the new Collective Bargaining Agreement (CBA) with the owners, the players went on strike for the remainder of the 1994 season. There was no World Series played that year.
The talk of adding a salary cap has come and gone over the past several decades, but the players always win out. This offseason, however, the owners and players struggled to come to terms with a new CBA, and the league faced another possible player strike until the two sides came to an agreement.
Is Competitive Balance really achievable?
Many would argue that a league can only do so much to ensure competitive balance. This answer, presented by Bob Warja in an article on Bleacher Report, from a Q&A session with ESPN’s Keith Law brings about an interesting point:
Q: Keith, do you think that the MLB will ever implement a salary cap, like the rest of the major sports or will it take someone like Bill Gates or Donald Trump to purchase a franchise and build their own all-star team before this flawed system is exposed?
A: The only flaw is in the minds of people who think baseball needs a salary cap or that a salary cap is going to do anything for baseball but line owners’ pockets.
What Law essentially argues here is that a hard salary cap like the NBA, NFL, and NHL have isn’t as effective at accomplishing its purpose of making things fair. He argues that the only people who really benefit in this scenario are the owners. The players would suffer as their salaries would likely decrease, and the fans would indirectly suffer as unhappy players would make for a bad product.
Think back to earlier when we discussed the teams in the history of the league who have exceeded the competitive balance cap. Only five times has a team won a World Series during a year in which they incurred the league’s luxury tax.
Teams have exceeded the amount a total of 39 times. This means that when a team spends this much on their players, it only gives them a 12% chance of winning the big series. This suggests that baseball doesn’t necessarily need a spending cap in order to prevent the big guns from winning the World Series year in and year out.
Law brings up a good point here in that baseball fans have a little bit of a distorted view on what adding a salary cap will actually do for the sport. He argues that adding a salary cap will only hurt the players who invest their blood, sweat, and tears into the game that the fans enjoy so much. As a fan, it is hard not enjoy seeing your favorite players receive financial compensation for jobs well done.
Frequently Asked Questions
Why do the other leagues have a salary cap?
The nature of the sports are the reason they have a salary cap. Football, basketball, and hockey are sports where the more talented team usually wins. Talent certainly helps in baseball, but the more talented team isn’t at as big of an advantage in America’s pastime as they are in other sports. The salary cap is intended to keep teams from loading up on the best players at each position to create a dynasty capable of winning year in and year out.
Does the salary cap create a competitive balance in the other leagues?
This is the million dollar question. Fans who argue that the salary cap doesn’t actually work typically point to Superteams in the NBA and the New England Patriots in the NFL. What all of these teams typically have in common though is a superstar who is willing to take far less pay than what they are actually worth (Lebron James, Tom Brady, Steph Curry). What makes people think this won’t happen in baseball as well?
Will the other leagues ever lift the salary cap?
That is unclear. In 2010, due to the owners opting out of the CBA, the NFL actually had a season with no salary cap, and several teams took advantage of this. However, in the spirit of competitive balance, the league docked the top spenders two years later and spread that money over the rest of the league.
How would a salary cap decrease player compensation?
The salary cap is not per player, it is per team per year. Any given player can still make as much as the team is willing to pay him, but his salary is added to the team’s total for that year. Every dollar that is spent on one player is a dollar that can’t be spent on another. Because of this, teams are limited to how much they are willing to pay one player in fear that they may not be able to afford to put quality players around them. With a salary cap, the best players are still paid like the best, but the role players are often required to take less money.