The MLB CBA Outlook

Last week, MLB and the MLBPA resolved their dispute and finalized a new CBA. A lot of analysis has already been done on its overall effects, so I will not rehash that here. Instead, I recommend you go read Craig Goldstein’s piece at BP’s home site. The main takeaway, at least from my perspective, is that big market teams will find it harder to spend money with the introduction of stricter luxury tax standards.

On its face, this should benefit the Brewers. As big spenders have fewer and fewer places to spend their money, they are increasingly less able to simply outspend smaller market teams on good players. Of course, more resources are always a plus, so there will always be places for teams like the Dodgers and Yankees to get a competitive advantage simply by pouring money at a problem. Those areas are just getting further from the actual field.

The NFL is known for its parity, and its proponents argue that the hard cap makes it difficult for the best teams to keep the best players together. Again, there is a level of logic to that. The best players make the most money, and when those players want to make a lot of money, they need to go to a team that can afford them. Teams like the New England Patriots and Green Bay Packers, who draft and develop well, cannot afford to keep all of the great players they draft. Those players then go elsewhere and other teams also become good.

Except that is not what has happened. Of the four major sports, the NFL has had the fewest amount of playoff turnover in recent years. As the graphic below demonstrates, in the last five years, 23 of MLB’s 30 teams have made the wild card round of the playoffs. In the NFL, that number is just over half of their teams.

Playoff Teams
League Last 5 Years Last 10 Years Last 15 Years
NFL 17 23 27
MLB 23 28 30
NBA 19 25 30
NHL 22 27 28

Graphic courtesy of The Big Lead

This is not a truly scientific study, obviously, as the different playoff structures make this a somewhat unfair comparison. However, in broad strokes, this gets the point across. And if we go back fifteen years, every team in baseball has made the playoffs. That is not the case in the NFL.

This is a long-winded way of saying that a hard cap is not guaranteed to do what logic dictates it would do, and that means that the consequences for the Brewers are not necessarily what it seems they should be either.

Additionally, MLB’s introduction of a harder salary cap is not in a vacuum; it is also linked with the hard cap on international spending and the change in the qualifying offer system. Not only are teams prevented from spending money on big league players, but they are also prevented from spending it on amateurs. And the qualifying offer system—which does not cost teams a draft pick if they sign a player who has rejected the qualifying offer to a contract worth less than $50 million—means that more teams have incentives to offer lower contracts.

My guess is that this will not do as much to change the balance of power as small market teams would like. First, it eliminates bargain-hunting as a way for teams to improve. When there was no cap on international free agent spending, small market teams could spend a few million dollars on high-upside 16-year-olds. When the previous system instituted penalties for a team exceeding its bonus allotment, having more money became a benefit. While the change to a hard cap removes the benefit for being willing to pay penalties, it does not allow a small market team to spend five million extra dollars in Latin America and substantially improve their outlook. Five million dollars buys a lot more in prospects than it does in big league talent.

In addition to curbing international free agent spending, the CBA also incentivizes big market teams to seek bargains through the new qualifying offer system. By penalizing teams that sign players to contracts for more than $50 million, this system will probably encourage big market teams to do more shopping at the bottom of the free agent market, which is where potential bargains could be had. It’s hard to tell exactly how much of an impact this will have in general, as the number of players who turn down qualifying offers each year is small. But to the extent it will have an impact, the Dodgers and Brewers are each going to be looking to keep contracts under $50 million. Having teams with bigger resources shopping in the same store is unlikely to be good for small market teams.

Finally, curbing personnel spending is not going to curb spending overall. Just because the Dodgers and Yankees aren’t spending money on players doesn’t mean they aren’t spending it at all; where big spenders previously were buying players, they will now be throwing resources at amateur scouting, player development, and other areas yet unknown. And while spending more on players was not necessarily a guarantee of success—see what happened to the Yankees with their high-priced free agents got old—it’s hard to think of a downside to pouring more resources into player development or front office management. Systemic improvements permeate an organization, and they are more likely to have a lasting impact than just signing free agents would. And the big markets have now been forced to spend their resources there instead of in the free agent market.

This is not by any means a prediction based on academic studies. But it is based on my observations of other sports and the effects of salary caps on the NFL and NBA. As has been observed elsewhere, this CBA appears to have been small market owners winning in their battle to keep costs down. However, I believe that is likely to benefit their pocketbooks rather than their teams.

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