In the two-plus seasons since the cancellation of the '04-05 NHL season, the 30 league franchises have increased in value an average of 23%, while the league has gone from an operating loss of $96M to a profit of $96M, according to Ozanian & Badenhausen of FORBES. The average team is now worth $200M. The "surge in team values and profits is due to the salary cap" included in the new CBA, which lowered player costs from 66% of revenue to 54% since the '03-04 season. The "stronger Canadian dollar" is another reason. However, the CBA "has hurt the bottom line of some small-market franchises by establishing a minimum team payroll in addition to a salary cap." The Wild and Predators had payrolls of $24M during the '03-04 season and turned a profit, but both teams finished '06-07 "in the red because of their increased payrolls." The following presents Forbes NHL franchise valuations for '07 (FORBES, 11/26 issue).
This is probably the number one reason owners love salary caps. The ‘not overspending on players’ is the public reason, but in all three leagues clubs look for ways around the cap to upgrade their rosters. While certain teams are little more than welfare queens (and aren’t clubs that worry about going over a set limit) others are already rich, but they haven’t had their faces splashed across every paper in the western world with the World Series/Lombardi/Stanley Cup/Larry O Brien trophy in their clutches.
Everybody loves free money and salary caps are great for that. As we see above, once a league has full cost-control the value of almost each and every franchise increases. Soon the New York Yankees will be moving into a new stadium. While they are putting a lot of their own money into it, they can deduct those costs from their revenue sharing obligations. In short, they will get a huge revenue spike, a equally large increase in equity and other teams will see less Yankee revenue in their own coffers.
What will that mean for the Yankees’ payroll? It’s a thought that sends shivers down every team in MLB and take every wrinkle out of Scott Boras’s Dockers. As you know, player markets are set by the highest bid so if a player lands a landmark deal that becomes ‘the market.’ The Yankees will be paying about $27.5 million per year for Alex Rodriguez. They have the revenues to support such a deal. It also makes $27.5 million the approximate market for players of that ilk for teams that don’t enjoy the Yankees revenues.
Again, we see the potential for the Yankees to increase the costs of doing business for other clubs while distributing less revenue to them.
This is why MLB will be pressing for a hard cap before much longer. One, it increases equity, but it also improves cash flow since the Yankees can only drive up the market for players so far. What folks forget when looking back on the Collusion-era of the 1980’s is that it was directed as much at George Steinbrenner as it was the MLBPA. Unless Steinbrenner was on board it never would have worked since he was constantly setting new market levels for talent. With ‘The Boss’ under control, so was the salary structure.
In the same vein, a salary cap is also targeted as much at the Yankees as it is the players union. If the Bronx Bombers aren’t spending $200 million on players then there’s less reason for the Red Sox to spend $150 million or the Blue Jays to spend $90 million. Bud Selig knows the MLBPA has lost its center of consensus. He repeatedly tries to keep the union reeling whether it is through the steroid issue or something else. He knows that his best opportunity for a hard cap is coming soon. He twice has gotten a luxury tax that gets progressively more onerous. Most teams treat is as a cap--the Yankees don’t. They will pay an additional 40% for A-Rod’s next deal. They can afford it. Selig knows that the Yankees have the revenues to absorb such hits and realizes there is only one way to slow their spending--a hard cap.
In this year’s Hardball Times Annual be sure to check out “The Decline and Fall of the MLBPA”--it appears that Don Fehr and Gene Orza may have to capitulate on a cap since they lack the muscle to prevent it. They were pragmatic regarding the steroid issue realizing that re-opening a collective bargaining agreement twice would net them a better deal than having Congress do it for them. Expect a similar approach to a cap; a collectively bargained cap will have a higher ceiling than one imposed upon a broken union. They can look to the NHL and NBA to see what happens if they fight rather than negotiate.
For those of you following the whole Crashburn Alley vs. Bill Conlin episode, Philadelphia’s Daily Examiner interviewed Crashburn Alley's Bill Baer. There the blogger explains his busy week. Speaking of which, I expanded on why Jimmy Rollins wasn’t a terrible MVP pick on MSN Canada and my finally being able to give Alex Rodriguez some off the field props.
I was also privileged to offer up my thoughts on Barry Bonds for Maury Brown’s ‘Voices of the Game’ along with Brown, Fred Claire (Former VP and GM of the Dodgers), Ken Davidoff - (National baseball writer, Newsday), Jordan Korbritz (Staff member, Business of Sports Network. Former owner of the Daytona Cubs Baseball Club, and the Maine Guides Baseball Club), Tim Lemke (Sports business reporter for the Washington Times), Rob Neyer (Author and Senior baseball writer for ESPN), Roger Noll (Author and Sports Economist, Stanford University), Jayson Stark (Author and Senior baseball writer for ESPN), Paul Swangard (Director of the Warsaw Sports Marketing Center) and Andrew Zimbalist (Author, consultant, and Sports Economist, Smith College). I feel like one of those Sesame Street’s “one of these things is not like the other.”