Shohei Ohtani and Yoshinobu Yamamoto each signed contracts with the Los Angeles Dodgers this offseason combining for over $1 billion, making $700 million and $325 million respectively, which is greater than the entire valuation of the Miami Marlins’ franchise.
Clearly, Major League Baseball (MLB) has a huge disparity in the revenue, payroll and resources between the wealthiest and least-wealthy teams, causing a significant competitive imbalance within the league.
Since the 2007 season, the top-five teams in valuation according to Statista – the Yankees, Dodgers, Red Sox, Cubs and Giants – have won nine of the 17 World Series titles, whereas in that same timeframe, only one of the bottom-five teams – the Kansas City Royals – have been champions.
This proves that the Goliaths of baseball, given they seemingly have unlimited money to spend on talent, can buy their way to the top while MLB and their stingy owners and executives have yet to rectify this ongoing problem.
But why is it an issue if the “richest” teams continue to be successful?
The problem arises when the successes of the wealthy teams are at the disposal of smaller market teams due to the lack of an equal playing field. The Goliaths poach talented players from the smaller market teams for their gain, which decreases the revenue generation of those exploited teams, affecting the operating budget to spend on players, creating a vicious, everlasting cycle.
And the league has done nothing about it because that’s the way MLB operates.
The MLB is an anomaly compared to the other big North American sports leagues like the NHL, NFL and NBA, being the only league that does not have a salary cap or floor – a restriction on the maximum or minimum a team can spend on payroll each season – which is the basis of the competitive imbalance issue.
Instead, they have a Competitive Balance Tax – commonly referred to as the luxury tax – which forces teams who spend above a certain threshold, which was $233 million in the 2023 season, to pay a taxed percentage to the league as a “penalty” for going above the limit.
As agreed upon in the 2022-26 collective bargaining agreement (CBA), teams are taxed 20 per cent on the amount they’re over the threshold in the first season, 30 per cent if they’re over the limit again the following season and 50 per cent for the third consecutive season and any seasons beyond.
In the 2023 season, according to Spotrac, eight teams faced the luxury tax – the Mets, Yankees, Padres, Dodgers, Blue Jays, Phillies, Braves and Rangers – as five of those teams made the playoffs, including the Texas Rangers who went on to win the 2023 World Series title.
But one of the issues with the luxury tax is that it is not harsh enough to penalize teams for spending large on their players.
For example, the Rangers were forced to pay nearly $2 million in 2023 for exceeding the threshold, but they easily generated that money back through World Series ticket sales. The cheapest ticket price for game one was $451, multiplied by 40,300 – the number of seats in Globe Life Field – equates to over $18 million in ticket revenue from a singular game.
As such, MLB’s current structure practically incentivizes teams to spend large as the benefits, the potential to host World Series games and reap the financial benefits from it, outweigh the negative of paying a petty fee: something that billion-dollar owners can do mindlessly.
Steve Cohen, the $19.8 billion owner of the New York Mets, didn’t bat an eye when his team was forced to pay nearly $103 million last season in luxury tax fees, which is more money than three teams – the Athletics, Pirates and Orioles – spent on payroll last season.
Evidently, the financial disparity is real and poses a significant threat to the smaller market teams.
Smaller market teams, at the mercy of the wealthier teams, are at risk of losing homegrown players whom they drafted and developed because larger teams flex their financial muscles and toss a boatload of money at star players in free agency.
The Dodgers, for example, are notorious for poaching talent from smaller teams regardless of the price tag. The most high-profile case occurred this offseason when the Dodgers signed Ohtani for $700 million, beating out offers from other teams, including the Los Angeles Angels, Ohtani’s former team.
Obviously, the Dodgers are within their right to make this large expenditure, but rules – like a stiffer luxury tax penalty – need to be in place to protect the vulnerability of financially inferior teams from losing their biggest asset: star players.
Now, the Angles biggest asset – Ohtani – is gone, leading to the third element of this vicious cycle contributing to competitive imbalance: revenue generation.
Last season, the Angels had five major Ohtani-related promotions – three bobbleheads, a cap and a snow globe – averaging more than 41,000 fans, while the other 76 home games averaged less than 30,000.
Furthermore, Ohtani’s reach extended beyond just the Angels fanbase located in Anaheim, reaching all quadrants of the world including his native Japan. Over 50 fully-credentialled Japanese media members followed the team around last season, promoting the Angels’ brand and image to the baseball-enthralled country.
Now, all that is gone. For nothing.
According to ESPN’s Alden Gonzalez, Ohtani generated “somewhere in the low tens of millions of dollars in additional revenue for the [Angels],” leaving them in a precarious situation as they enter the post-Ohtani era.
But why should MLB care if the “poorer” teams suffer in exchange for the “richer” teams prospering?
Although many baseball fans are saturated in large, successful markets like New York, Boston and Los Angeles, many baseball fans reside in smaller markets like Kansas City, Miami and Oakland, making up a respectable portion of the population.
Yet, fans in those municipalities haven’t seen their team win a playoff game since 2020, with Royals fans waiting even longer as their last playoff win came in 2015.
And it hasn’t been pretty since.
All three of those teams ranked at the bottom of attendance in 2023, as the only teams to average less than 17,000 fans a game, while the Athletics were the only team with less than 1 million total attendees among all 81 home games.
Those statistics should be worrisome to MLB commissioner Rob Manfred as MLB viewership has been on the decline for over a decade. Nine of the last 12 World Series have been amongst the bottom 10 least-watched World Series since 1968, with the 2020 and 2023 editions being the only ones below 10 million viewers and a rating below six per cent.
Part of the issue, among other variables, is the predictability of baseball, sucking the joy and passion from fans who know their team is destined for failure given the financial inferiority they are in.
However, it would be an injustice to highlight MLB’s competitive imbalance without discussing the role some small market owners play in accelerating the issue.
The Athletics, for example – who are relocating to Las Vegas in 2028 – are run by a penny-pinching owner who is reluctant to spend any money on the team.
The A’s opening day payroll in 2023 was $56.9 million, which was just above $13.5 million more than the highest-paid players in the league last season, Justin Verlander and Max Scherzer, who each made $43.3 million.
From an MLB perspective, it’s a terrible look having an owner unwilling to compete, tarnishing the Athletics and the MLB brand while unequivocally losing fans in the process.
As such, there is an ever-growing need for a salary floor or a penalty for spending below a certain threshold, to encourage owners to field the best team possible.
Clearly, the competitive imbalance in MLB is a serious and complex issue with many layers and moving parts. With Opening Day of the 2024 season less than two months away, it will be interesting to see how competitive the league is, especially as the rich continue to hoard talent this offseason.
For more information on Major League Baseball, head to mlb.com.
