Login
Password

Forgot your password?

Major League Baseball Payroll: Small Market Vs Large Market Argument Exposed

By Edited Sep 22, 2015 0 2
Major League Baseball Salaries

One of the most controversial, thought provoking, and never-ending debates going on in the sports world today is whether Major League Baseball needs to implement a salary cap. The argument that most people present is that large market teams have an advantage of over small market teams. These people will contend that large market teams can spend more on payroll which will allow them to get the best players and field the best teams.

Obviously, it has been proven time and time again that a higher payroll does not necessarily translate into a World Series Championship. Nevertheless, two things that seem to get overlooked when talking about MLB payroll and salaries is actual spending power and actual profits that each team brings in. If people were to take a good look at these two factors, then maybe they would change their position on the salary cap issue in baseball.

The Spending Power (Cost Of Living) Effect On Payroll

Spending power and cost of living is surprisingly overlooked when it comes to how much professional athletes make in all sports. It does not take a rocket scientist to recognize that a million dollar salary will go a lot further in Houston than in New York. Additionally, we all can agree that the cost of living is significantly higher in New York or Los Angeles, who are both notorious for high payrolls, than it is in Houston or Atlanta.

With that said, one can argue that a player in New York or Los Angeles should make more money than a player in Houston or Atlanta. This is exactly what happens in every other profession. In almost every instance, with the exception of fast food workers, you will find that the average salary in any profession in New York is higher than the same profession in Houston. 

So why aren't accountants in Houston complaining over how much accountants in New York are making? After all they are providing the same services. It is simply because their salaries are in line with the cost of living in the city, nothing more nothing less.

Furthermore, if you were to look deeper into the payrolls of MLB teams you will find that the salaries of regular staff members, outside of the player and coaches, on so-called large market teams are higher than the salaries of small market teams. This disparity is mostly associated with cost of living.  

The fact of the matter is if you have a business in New York, then, chances are, you will have a higher payroll than the same type of business in Houston. Using this logic it would make perfect sense for a baseball team like the Los Angeles Dodgers to have a higher payroll than a team like the Houston Astros.

What MLB Teams Make A Profit? (You Will Be Shocked!)

There are so many people who constantly whine about the payroll of the New York Yankees, yet the Yankees are among the 10 least profitable teams in the league. According to Forbes the Yankees only netted $1.4 million from revenues of $471 million dollars.

Here are some facts to think about when it comes to payroll and profits in Major League Baseball for 2012 -13.

  • 5 of the 10 most profitable teams (San Diego Padres, Oakland A's, Pittsburgh Pirates, Houston Astros, Cleveland Indians) were among the 10 lowest payrolls in MLB.

  • 6 of the 10 least profitable teams (Los Angeles Angels, Toronto Blue Jays, Detroit Tigers, Philadelphia Phillies, New York Yankees, Los Angles Dodgers) were among the 10 highest payrolls in MLB.

  • Only two teams (Boston Red Sox and Chicago Whitesox) among the 10 highest payrolls were among the 10 most profitable.

  • The Houston Astros had the lowest payroll in the league ($22 million) yet generated almost $25 million in profit.

  • The New York Yankees had the highest payroll in the league ($228 million) yet generated only $1.4 million in profit.

  • The Chicago Cubs, who had the 14th highest payroll ($104 million), were the most profitable team with $32 million in profit.

  • The Los Angeles Angels, who had the 7th highest payroll ($128 millon), were the least profitable team with a $13 millon loss.

Now Houston, who had the lowest payroll, only had $196 million in revenue compared to revenues of $471 million for New York, who had the highest payroll. However, you have to consider that the Yankee ownership could have reduced their payroll drastically and kept more profit for themselves. On the contrary, the Yankees aggressively spent to get the best players in an attempt to field the best team. As a matter of fact, the Yankees spend in spite of a league imposed luxury tax.

Some people may view this as a high revenue team pushing their weight around, but I look at it as a team trying to do whatever they can to win. You have a team owner that is committed to putting a winner on the field over simply making a profit. If you ask the fans in Houston about the team ownership, they would probably tell you that the owners don't give a rat's ass about putting a great team on the field. It's all about profit for the owners in Houston. 

If you ask me I have a huge problem with owners who are not willing to increase their payrolls in order to make their team more competitive but they continue to be profitable. I think that some of these team owners are short sighted. Owners that are willing to spend to get the best players and assemble the best teams recognize that winning will bring in more profit over the long haul. Fans are more willing to buy tickets and merchandise when their team is winning versus losing.

Solutions To The Salary Issue In Major League Baseball

Right now the only salary controls in place in Major League Baseball is a luxury tax. The luxury tax, also known as the competitive balance tax, is enforced any time a team goes over the luxury tax cap. The tax is applied to the amount that the team exceeds the luxury cap. The tax penalty can go as high as 50%.

In addition to a luxury tax cap, the league should consider implementing a minimum payroll tax. In this case a minimum payroll cap would be established. The teams and league officials would determine what the exact minimum payroll cap amount. Whatever team goes under the minimum payroll cap would be charged with a minimum payroll tax. This would encourage owners to increase their payroll to make their teams more competitive.

Furthermore, cost of living needs to be part of the equation when determining salary amounts for players. The fact of the matter is that $20 million in Los Angeles is not the same as $20 million in Houston. Essentially, a player making $20 million in Houston is far better off than a player making the same amount in Los Angeles. Therefore a player's salaries should be adjusted for cost of living.

While the cost of living aspect may be hard to implement I think that it will shoot down this belief that players making $25 million in New York are better off than a player making $20 million in Texas. It would also justify why markets like Los Angeles and New York have higher payrolls.

What type of solutions do you think should be implemented? What do you think about the salary cap issue in Major League Baseball?

Leave your thoughts in the comments section below.

Advertisement

Comments

Jun 5, 2013 9:43am
NU_Law_Student
The luxury tax is an absolute joke. With that being said, make no mistake about it, the Yankees are turning a profit every year. Omar, you should know that YES (the Yankee organization owned cable network) turns an enormous profit each year putting them in the green.
Jun 5, 2013 11:55am
utgllc
According to Forbes they are only bringing in $1.4 million in profit. My argument is not that they make a profit. The argument is the Yankees could do like most corporations in the world and not spend money to put a great product on the field for their fans in favor of huge profits, but instead they choose to put an enormous amount of their revenue back into the team. On the contrary, you have teams who do not care about the product, like the Houston Astros, in favor of more profits. I would agree that the Yankees bring in a huge amount of revenue but they have a huge amount of expenses as well.

Thanks for commenting and appreciate you sharing your thoughts.
Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Bibliography

  1. "2012 Baseball Team Payrolls." About.com. 27/05/2013 <Web >
  2. "Salary Cap." Wikipedia. 27/05/2013 <Web >
  3. "MLB Team Values: The Business of Baseball." Forbes. 27/05/2013 <Web >
  4. "Team Payrolls 2013." AZ Central. 27/05/2013 <Web >

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Sports