Does Baseball Need a Minimum Payroll?

While I need constant reminding of birthdays and anniversaries, for some reason I can recite Carl Yastrzemski career statistics at the drop of a hat. I can also remember, like it was yesterday, the great teams from mychildhood.  I certainly remember the great New York Yankees teams of the mid to late 1970s – %$*@ Bucky Dent!

After the Red Sox, my second favorite team growing up was the Kansas City Royals. With a core nucleus of Willie Wilson, George Brett, Frank White and John Mayberry, the Royals were a perennial contender during much of my formative years.  Over a ten-year period, 1976-1985, the Royals won 7 division titles, 2 pennants and the World Championship in 1985.

This is certainly not the case today.  I don't think too many people are putting a 'dime' on them to win anything except maybe the first pick in the amateur draft.  I think this is why a lot of people believe that competitivebalance is so poor.  We remember a team like the Royals and see how little chance they have of winning and get a bit nostalgic.

According to the Royals, and others, the main reason that they cannot compete is that they just can't afford to spend much on players.  I'm not sure this makes sense.  Consider that in 1991 the Royals' payroll was just a hair over $31 million.  Last year it was close to $36 million.  This year their payroll is $47 million.  So over the past 15 years the Royals payroll has grown by an average 2.8% a year.  The inflation rate over the last 15 years has averaged just over 2.7%.  So player costs have risen at roughly the rate of inflation.

Although their player costs have risen, their revenues have risen faster. According to the fan cost index from the late Doug Pappas SABR website, the cost of going to a Royals game has risen at close to 6% since 1991.  So the Royals are more than keeping up on this end.  Also, using the revenue data from Rodney Fort's website, over the period 1991-2004, the Royals revenues (Gate, Stadium, and Media) rose by an average of 5.3%. What about revenue sharing? The Kansas City Star states that:

"(A)ccording to two sources with knowledge of the numbers, the Royals received about $55 million last year (following the 2005 season)- more than $30 million coming from a central fund that distributes money to all 30teams, and another $20 million-plus in revenue-sharing dollars given to teams with local revenues below the game's average."

Now more spending does not guarantee that a team will have a winner. So it is not the necessarily the case that if the Royals spent more the team would definitely win more games.  Still, for the Royals to claim that they cannot afford to spend more seems inconsistent with what we see in their revenues. 

In essence, the Royals do not appear to be maximizing wins given their constraints, but rather, maximizing profits. Fans of the Royals, though, might not appreciate this objective.  And if it is the fans Major League Baseball cares about, shouldn't a minimum payroll be created and enforced?

– MBS

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