After we began learning in class about the business and antitrust aspects of baseball, I began to wonder about how the economics of the sport work as I know very little about professional sports. One interesting thing I found out is that baseball does not have a salary cap. In professional sports, a salary cap is a rule that limits the amount of money a team can spend on players' salaries. Salary caps can cause tension between players and league management because they limit the ability to negotiate higher salaries. In other sports in the past, this has caused strikes by players and lockouts (denial of employment) by managers. Instead of a salary cap, Major League Baseball has a special luxury tax, which in professional sports is an amount paid by a team when their payroll surpasses a certain limit. The purpose of this is to level the playing field. If a high-revenue team earns more than their limit, they will pay the luxury tax, part of which can be spread to lower-revenue teams. It also serves to prevent teams from signing all the talented players. Essentially, it is intended to maintain competitive balance in order to keep fans interested. Consumers are, of course, essential to the generation of revenue in this market. Fans must be interested in the competition between teams, so precautions like the luxury tax have been put into place to keep things fair.
As we learned in class, a baseball team will have control of a player for six years. For the first three years, the player is usually paid the Major League minimum, around $545,000. For the next three years, a player goes into the "arbitration system," where the player and team try to negotiate a salary and a panel of arbitrators helps make the decision. After the six years, a player is a free agent. As teams bid for free agents, the prices rise, and some players find extreme success, like Mike Trout, the highest paid baseball player of 2019 who is worth over $400 million. Others, however, are not so successful. Less popular or non-"superstar" players will be paid much less and are not as highly sought after by teams. Still, talented players like Trout bring in millions in wins for a team per year, so an investment of hundreds of millions of dollars is actually a bargain for the team.
Without a salary cap in Major League Baseball, it seems like salaries should be rising. In some cases there is a great disparity between players' wages, especially with the drastic comparison of the Major League minimum wage and Mike Trout's salary. Currently, salaries are not rising, and many players feel that they are not being paid enough.
Sources:
https://www.pbs.org/newshour/show/the-staggering-economics-of-major-league-baseball
https://www.davemanuel.com/investor-dictionary/luxury-tax-sports/
https://en.wikipedia.org/wiki/Major_League_Baseball_luxury_tax
It is very interesting to look at the economics of baseball and I think it is a very important topic. Baseball as a professional sport is often overlooked as a career in which individuals earn revenue, as we saw in the documentary in class. However, because it is a profession, salaries and revenue are important to be looked at. Evidently, there is both a political side to the economics of baseball, because it relates more to the rights of how much professional baseball players should get paid.
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