New CBA Offers Mixed Bag For Competitive Balance

For some reason, everything significant that affects the structure of major league baseball seems to require the approval of the players union. Negotiations are slow, tedious and costly to organize so new collective bargaining agreements – where the two sides must sit down and invest some time anyway – can be watershed moments for Major League Baseball.

We’re going to be seeing a number of changes (some immediate, some in a year or two) that will significantly impact the competitive playing field – some for the better and some potentially for the worse. Of course, you will never hear of a modification to the playing field that has – as a purpose – making it less equal. However, sometimes changes meant to level things don’t have that effect and sometimes changes implemented for other reasons entirely can

The first of these is the drastic reworking of draft pick compensation for free agents lost. Elias rankings are gone – what will now matter is the size of the (one-year) offer the team is willing to make to their own free agent – with a cutoff estimated at about $12 million. It also looks as though this must now occur earlier in the off-season than before. We aren’t going to be seeing teams gutted by free agent losses (like the 2011 Twins or Rays) receiving a whopping pile of extra picks. We will still see teams like Milwaukee compensated for the loss of players like Prince Fielder. We’ll also be seeing interesting cases where a player would likely get something in the neighborhood of a 4-year $34 million deal – should his team offer $13 million for a single year? Should he accept? The teams that are likely to lose most from these changes are teams that have been in the habit of losing and signing free agents to milk the system for sandwich picks. Good riddance. While there will be a sacrifice in some situations for the ‘small-market’ teams (that can’t, in theory, afford to retain their own free agents) that the system was originally intended to help, it functioned so poorly that the damage to the competitive balance of the game should be trivial.

We’re also going to be seeing an increasingly punitive ‘luxury tax’ – increasing to 42% of salary above the pseudo-cap in 2012 and then 50% in 2013. I say punitive not just because the tax rate is getting pretty high, but also because the luxury tax reliably impacts only one team: the New York Yankees. The system was implemented in 2003 and has soaked the Yankees for an average of about $25 million per year. The Red Sox have been hit as well as often as not, but they haven’t exceeded the $178 million ‘cap’ by all that much and hence haven’t had to pay all that much tax. The same goes for the Angels and Tigers, who have each had to pay once. And that’s it. The Yankees were already paying a 40% tax as repeat offenders, so given that the tax is otherwise irrelevant we’re not likely to see anything much change as far as competitive balance goes – except maybe a few more million spread around the league’s impoverished markets.

A couple of changes would seem to hurt small-market teams a great deal – given that these are teams that try to build from within and capitalize on relatively cheap players not yet eligible for free agency. One is the increase in the MLB minimum salary from $385,000 to $500,000. The next is an increase in the number of players who will be come eligible for salary arbitration (and hence become more expensive) after 2 years in the majors as opposed to three. The third is the fact that teams will no longer be able to receive compensation on rentals (acquired mid-season). You might think that this would hurt the large-market team who acquired the player – but that’s not the way these things work. A player that can – at worst – be converted into a couple of high draft picks after the season is up has a lot more value than a pure rental so teams won’t be willing to part with the same level of prospect packages to acquire a player at the deadline as they were before – all this does is devalue the assets that the small-market teams have to work with.

Next we have the creation of an explicit ‘competitive balance lottery’ for extra picks. Here the ‘idea’ is right, but from what I hear the execution sounds bad. We have the 10 teams with the smallest markets and the 10 teams with the lowest revenues (which will overlap substantially) put into a hat and pull out 6. Those 6 teams get sandwich picks in the draft that can actually be traded. Awarding sandwich picks for weakness and failure is potentially a good thing, as opposed to awarding them to teams that were able to work the free agency system to their advantage. What I don’t like is the concept of ’10 smallest markets’ and ’10 lowest revenues’ as defining a bottom, non-competitive tier. Why is this a problem? Well… I don’t have any numbers on how the MLB estimates market size (population within X-miles), but I do have Forbes revenue estimates from 2010. The bottom 10 teams are 30. Florida 29. San Diego 28. Pittsburgh 27. Kansas City 26. Oakland 25. Tampa Bay 24. Toronto 23. Cleveland 22. Baltimore 21. Cincinnati 20. Milwaukee.

Tampa Bay has been a juggernaut, and one that generates a lot of fan enthusiasm (hence TV ratings) but not a lot of attendance – the reason is that their market isn’t all that small, they’re just poorly situated within it. Baltimore, Toronto and Miami aren’t particularly tiny markets. San Diego, Cincinnati and Milwaukee undoubtedly are – but the teams there have been very successful anyway. I’m not pointing that out to show that the present system is fair, in the best interests of baseball fans in general, and needs no reform. What I’m trying to get across is that some teams can be very good without generating very much revenue. That, and the fact that ‘market size’ doesn’t change all that rapidly means that many of the teams in the lottery pool will be permanent fixtures – even if those teams have been reliably good for a decade – part of a privileged underclass. We may also see bitter arguments (even arbitration) between teams at the margin, since being in the 11th worst market or having the 11th lowest revenues gets a team nowhere.

Thanks for bearing with me so far – part 2 on signing bonuses will be up in a couple of hours.