Forget Salary Cap, Baseball Needs a Profit Cap

Scott Boras set off a firestorm – like only Scott Boras – when he issued a doctrine about team spending and use of revenue sharing funding. It’s not a new debate, but more pertinent given the timing, at the start of a free agent period when teams may start to reign in payroll, thus cutting into Mr. Boras’ commission checks.

That aside, Jayson Stark wrote an interesting editorial outlining the facts and calling for a salary basement as a resolution, pointing the problem at the lower spending teams, similar to Boras. They both are right, but understanding the problem is one thing, solving it a completely separate story.

The Yankees, Red Sox, Mets, and Cubs are not the problem here. They play in big markets, maximize revenue to the best of their ability, then reinvest in the product on the field. They also play by the rules, paying a substantial tax on their earnings, similar to the US government taxing the rich more than they tax the poor (or at least that is how its supposed to work). Most people agree it’s the Pirates, Royals, Marlins, et al, who cash the “stimulus” checks, but stash the money in savings that hurt the baseball economy.

Ending revenue sharing is not the answer. Smaller market teams need some of the big market revenue to stay in the game. Its not feasible to think a team in Pittsburgh will earn the same local media revenue, sell as much merchandise, or get the same level of sponsorship as any team in a market with a substantially larger population and healthier economy. It’s just not possible. So some sharing is necessary.

As an aside, the fact the Florida is considered small market is a joke. Look at Miami-Dade County in terms of size, spending power, per capita income, television market, and almost any other statistic relative to Milwaukee, Pittsburgh, Cleveland, and others, and explain how Miami is small market. The Marlins problem is management, and the fact that the city will not support a baseball team, and that responsibility falls to MLB to fix or change.

Back on topic. The deeper problem is not that team salaries are low relative to the amount collected from revenue sharing, its that these teams are among the most profitable in baseball. MLB VP of Labor Relations Rob Manfred is correct that player development and team operations is a major expense that the public does not consider when looking at the face value numbers, but those expenses should still go into the P&L, so how do these teams end with a profit?

Salary minimum’s are tough since teams do not to rebuild, may flush money into player development (i.e. future investments), or it could force teams to make poor spending decisions because they are forced to spend. An alternative method is a profit minimum. First, teams need to submit to more transparency with the league office (not necessarily the public). Use projected revenue numbers for the season, including MLB central fund contributions, and do not allocate any revenue sharing money until a small market team exceeds that forecasted number – whether its on player development, team payroll, or organization spending. At that time, teams eligible for revenue sharing can only collect when they have incur an expense. For example, Pittsburgh needs to sign a free agent, then it will receive the revenue sharing money to cover that players salary. Each team can continue to draw from this revolving credit line up to the amount they would receive under the current system.

Anything above that amount, the owners need to fund, similar to today. If they don’t exhaust the funds, then the money goes back into the central fund for redistribution to all teams – NOT into the owners pocket. Sports ownership is not a profitable business annually, owners know that coming in, the big profit comes when you sell a team whose value appreciates.

It’s not perfect, but another idea to put on the table. In the end, the only way to truly satisfy the public and the ancillary stakeholders is with full transparency, which I would not hold my breath waiting for. In this scenario, at least it takes the profit out of the hands of the owners and forces some transparency.


Baseball’s Attention Turns to Strasburg, Potential Landmark Stand-off

Now that the Pirates, Nationals, and Padres have finished feeding the rest of baseball with its best players, the debate surrounding competitive balance returns to the contract negotiations between Washington and top draft pick Stephen Strasburg. The possibilities and consequences are well documented, yet surprisingly we’ve heard little or nothing about the negotiation process since shortly after the draft. No news is bad news for everyone.

Let’s take a macro perspective of a Washington National fan for a second. Your team stinks, have ever since moving to the area. Your highest paid player is – ready for this – Christian Guzman, a glorified singles hitter. The Nats failed to sign last year’s first round draft pick. What amounts to a money laundering scandal ravaged the front office forcing changes at GM and in the scouting department. No top talent to even trade at the deadline, leave the draft and free agency as its only saviors. Throw in an average ticket price in the Top 10. No wonder they are in the bottom 5 in attendance, despite a two-year old ballpark.

Piling on and joking aside, the team has been a public disaster. They have no marketing hook to draw fans, and the base on which the front office is building the on-field product is still unproven, and risky. The consequences, both short and long term, for not signing Strasburg are disastrous. Washington needs him to give fans hope, they need him in the majors almost immediately to draw fans, and to inject an otherwise morbid team with life. Unlike superstar hitters, who teams can ultimately pitch around if no other talent is present, pitchers can star on the worst of teams and help turn things around. Big picture, if they don’t sign Strasburg, it would leave player development with a gaping hole from missing on top draft picks for two consecutive years. I don’t think its out of the realm to say that could jeopardize the franchise’s sustainability, and indirectly lead to more payroll cuts.

If Strasburg does not sign, it moves baseball one step further from the essence of a true reverse-order draft. They have almost lost what each draft pick means. Its no longer a guarantee that the second pick is better than the 15th pick, signability and player demands have crept into the equation. Does anyone think Blake Griffin really wanted to play for the Clippers or Matthew Stafford for the Lions? Of course not, but if the NFL and NBA allowed those college athletes to strong arm the teams, the Clips and Lions would never improve. In baseball’s case, it would then incentivize bottom teams to slash any payroll and simply collect competitive balance tax, take profits, and be content in last place arguing how baseball never gives them a chance. NFL pundits scream for a cap on draft contracts, in a league where most top picks are ready to play almost immediately, thus lowering the risk variance of each player relative to baseball draftees who face a road through the minors, numerous other obstacles before making an impact – if they ever make it. If teams placed a volatility index of drafted players, baseball draftees would by far be the riskiest, yet it’s the least regulated draft.

While Boras’ demands are outrageous, though he’ll never admit that, one perspective he takes to the table is if Strasburg performs at a peak level, he’s stuck in arbitration for up to six years, so this is his visit to the bank. Perhaps that’s part of the give and take in the next CBA, allowing top draft picks to take less up front bonus money in exchange for a shorter arbitration period. We can discuss many permutations of how such a system would work so teams could still benefit from players for a period of time before free agency, but players could also garner market value earlier in their career.

All in all, something has to change. For Washington’s sake, let’s hope that whatever change happens in the next CBA negotiations is not too late for them.

Boras Deserves Punishment for Latest Stunt

It’s more obvious now than ever that it’s more about Scott Boras than the players he represents. By challenging that Pedro Alvarez, the number two overall pick in June’s draft, agreed to a contract after the midnight deadline, Boras is preventing a college kid from starting his career and collecting $6M. In the process, he’s also jeopardized Eric Hosmer’s agreement with Kansas City, forcing the Royals to hold him out of games.

Funny how none of this surfaced immediately after the August 15th midnight deadline. Not until a few days later, when it was publicized that two lower draft picks received higher bonuses and major league deals than Boras’ client, did the deadline become an issue. The Pirates appeare to win the negotiation, and Boras can’t accept that, ever. He accused MLB of allowing the deal to go past the deadline, trying to salvage his reputation of getting the best deals for his clients and apparently settle a personal vendeta with Pirates President Frank Cooneley.

If his client was not happy with the deal, why did he agree to it at the time? And why did Boras not have any problems until information about other deals became public? Those two questions point to the issue being more about Boras than Alvarez. He pulled it with A-Rod last year,  except the star had enough power to leave Boras behind and stand up for himself. Alvarez is not in position to do that.

While fighting his own battle, Alvarez has to sit and wait, not allowed to play for the Pirates, delaying the start of his journey to the majors, his dream. He’ll undoubtedly get the money, but he doesn’t have it now. Hosmer has been dragged in along with Alvarez for no reason except his deal went to the deadline and MLB needs to prove it didn’t give the Pirates preferential treatment. The Royals did the right thing not risking punishment by holding Hosmer back.

MLB and more importantly, MLBPA, needs to step in and sanction Boras. There are not many reasons I can identify on how this reflects acting in the best interest of his client. Eventually players start to go elsewhere as problems continue, but Boras deserves punishment. Set the example now so future draft picks and all players become more aware, taking more control, when working with Boras. Maybe a slap on the wrist will actually put him in line. Boras can still be cutthroat and get his clients the best deals without stepping over the line.