The Myth of the Salary Cap

I absolutely hate stories like this one, entitled: A Super Problem?: NFL without a salary Cap? In case you are interested in yet one more guy who knows little about sports once again exaggerating the financial inequalities in the sports industry, check out Barry Wilner’s garbage here:

In fairness to Wilner, most of his article discusses the impending labor fight between the players and the owners. But when you start out with nonsense like this, it’s hard to take the author seriously: “….next season will have no cap.  That means teams such as the Redskins and Patriots will be able to far outspend clubs such as Jacksonville [Jaguars] and Buffalo [Bills] for free agents, while the Jaguars and Bills might try to pinch pennies to stay in business.  And if no deal can be reached next season, that uncapped, maybe less competitive year will be followed by no NFL at all in 2011.”

First of all, the NFL is a 6.5 billion dollar annual business with by far the most lucrative broadcast and merchandise deals of any of the major sports.  And these deals, unlike the ones utilized in MLB, are split evenly amongst all the teams.  It’s the reason why, when an NFL team goes up for sale, prospective buyers come out of the woodwork tripping over themselves to submit bids that dwarf the GNP of some small countries.  As a point of reference, the Arizona Cardinals, a team that has not won a championship since the 1940s and has played in about a handful of playoff games since the NFL reorganization in 1958, was recently valued at a few ticks shy of a billion dollars.  However, this comment is the least of Wilner’s misrepresentations.

He alludes to the myth that a salary cap somehow affects competitive balance, despite the volume of evidence to the contrary.  If the goal of a professional sports team is to win a championship, it stands to reason (at least to some) that teams with more financial resources will win a disproportionate share of those championships.  Luckily, this theory is easy to test, as MLB is the only major league of the four that does not utilize a salary cap of any sort.  We would expect that there would be a high correlation between a team’s resources and the number of championships won, with championships restricted to those teams with the most financial clout.

This, however, is simply not the case.  In the last 30 years, 20 different teams have won the World Series, compared to 14 different teams winning the Superbowl, 13 teams winning the NHL Stanley Cup, and 9 winning the NBA championship.  The only league without a salary cap produced more than twice as many winners as the NBA (a league with a soft cap) and 42% more winners than the NFL (a league that uses a hard cap), the cap model that people like Wilner and his ilk drool all over.  No better example can be found than that of the “Evil Empire,” whose salary exploded from around $100 million at the turn of the century to around $200 million at the close of the first decade of the new millennium.  In that decade, these Yankees teams won two championships (2000 & 2009), one more than the Florida Marlins (2003), a team with a payroll hovering around $37 million.  Hardly the sort of dominance one might expect just looking at financial numbers alone.

Now it’s at this point that I inevitably hear “well, it may not bear out in championships, but it certainly bears out in terms of how often a team makes the playoffs.”  This is something that I have not seen another author tackle, and after assembling the data, I now know why.

First, some comments on my methodology.  I chose to compare the NFL and MLB because it represents a disparity between a league that uses no cap at all and one that utilizes a hard cap (one could argue that the NBA’s soft cap with the Larry Bird exception which allows you to sign your own players at any amount really isn’t a cap at all).  It is the stark contrast of the MLB and NFL salary models that leads many to compare the two systems to each other, leading most to conclude that the NFL’s hard salary cap model is clearly superior to the MLB model in terms of team competitiveness.  It is this assertion for which I take umbrage.

In looking at the results for Major league baseball, I charted all the playoff teams from 1995 through 2009, a total of fifteen seasons.  I started at 1995 because this was the first year baseball used the expanded playoff format to include wildcard teams, and I wanted the data to be as consistent as possible throughout.  For the NFL, I charted the playoff teams from the 1993-94 season through the 2007-2008 season, also a total of 15 seasons.  I chose to start in 1993 for the NFL data because this was the first year of the salary cap.  It also works out well that the NFL expanded the playoffs to 12 total teams in 1990, meaning that my data will be fairly consistent throughout the fifteen years.

For the NFL, 12 teams make the playoffs out of the 32 total teams each year, meaning that 37.5% of the teams in professional football make the playoffs each season.  In MLB, 8 of the 30 teams make the playoffs each year under the wildcard format, meaning that 26.7% of the teams make the playoffs each year in baseball.  Thus, from the beginning, the conclusions need to reflect that an NFL team has a greater chance of making the playoffs than does a MLB team entering the season.

As part of the methodology, I simply counted the number of times each team made the playoffs in the fifteen year interval for both sports.  A few initial observations are worth being made.  First of all, every team in the NFL made the playoffs at least one time, with Arizona, Houston, and Seattle of the AFC with the fewest at one (the last two can be easily explained as the Houston Oilers relocated to Tennessee and the Houston Texans did not start playing games until 2002 and the Seattle Seahawks moved to the NFC beginning with the 2002-03 season).  In MLB, there were a total of four teams that did not make the playoffs even one time, the Blue Jays (who won back to back world titles just a few years prior to these numbers), the Kansas City Royals, the Pittsburgh Pirates, and the Montreal Expos/Washington Nationals.  However, given that two fewer teams in each league make the playoffs in MLB, it is not that statistically significant that some teams would miss the playoffs altogether as compared to the NFL’s low counterparts that reached the playoffs just the one time.

Also of note is that both leagues clearly had teams that were successful outliers.  In the NFL, the Packers were the most successful franchise having made the playoffs a total of 11 times in that fifteen year span, with both the Steelers and Patriots accomplishing the same feat 10 times, followed closely by the Indianapolis Colts and Dallas Cowboys who reached the playoffs 9 times apiece.  In Baseball, the New York Yankees and the Atlanta Braves garnered the most appearances in baseball, reaching the playoffs a total of 14 and 11 times respectively.  The next best teams were the Boston Red Sox and the St. Louis Cardinals, who reached the playoffs 8 times each, and the Cleveland Indians, who accomplished this feat a total of 7 times.

The question then becomes, how best to use this data comprehensively to determine if there are meaningful differences in the competitive balance of the two leagues visa-via access to each sports’ postseason tournament.  In the NFL, over a fifteen year period of time, there is a total of 180 playoff spots available to the teams (not distinguishing between the conferences) and a total of 32 teams.  That means that statistically, if each team earned an equal playoff share, each team would capture 5.6 playoff spots over the fifteen year period (calculated as 180 divided by 32).  Furthermore, since no team can capture more than one playoff spot per season, this number would also by definition reflect the number of different seasons throughout the fifteen years that a team should qualify for the playoffs if they earned an equal share.  The same calculation was made for MLB, however, using their total number of playoff spots for the fifteen years (120) and dividing it by the total number of MLB teams (30) to arrive at an even 4.0.  And again, this reflects the number of years in a 15 year span that a team should make the playoffs given the number of teams competing for the number of available slots in the post season tournament (note : for reasons that have never been clear, there are 16 teams in the NL and 14 in the AL.  This means that, when taken together, the numbers are correct, though the chances of making the playoffs in the AL are statistically greater than they are in the NL).

All that is left to do is compare the number of teams that qualified for the playoffs for at least the average share number (4.0 in MLB and 5.6 in the NFL) to see how each league is doing relative to the other.  In MLB, 16 of the 30 teams qualified for the playoffs four seasons or better, for a percentage of 53.3%.  The matter becomes a bit trickier for the NFL, given that it is impossible to qualify for a playoff spot a fraction of a season.  As it turns out, there were five total teams that qualified for the playoffs exactly five total times, meaning that the numbers are going to be fairly skewed if you either completely include or exclude all five of these teams.  Thus, as a compromise, I chose to err on the side of inclusion, including three of those teams while excluding two of them (I did this even though 5.6 is slightly closer to six and thus you could argue to round up).  Including three of these teams means that a total of 18 of the 32 NFL teams made the playoffs at least 5.6 years or better, for a percentage of 56.2% of the total teams eligible to do so.  In other words, approximately 3% more of the NFL teams qualified for the playoffs the expected number of times (3% of 32 teams comes out to .96 of a team, meaning essentially one extra franchise in the NFL qualified the expected number of times over a 15 year span).

Now the author wants to make one additional point, and it’s that the numbers above were not meant to be exact, just close approximations of the playoff activity over a fifteen year span for two sports leagues.  For one, both leagues went through expansions (the Cleveland Browns were added in 1999 and the Houston Texans in 2002 in the NFL and the Arizona Diamondbacks were added in MLB in 1998) which would slightly throw off these numbers as I simply used the base of 30 and 32 teams throughout the fifteen year analysis.  The point is that it is close, that this gross disparity that many fans and the media assume exist between a league with a cap and one without in fact does not exist (imagine if I ran the NBA numbers given that the same teams seem to qualify for the playoffs and win championships each year).  And it’s also worth noting, that, missing from the analysis above is the possible effect that the luxury tax could have on further increasing competitive opportunities in MLB.  This tax, which started in 2003, taxed teams for exceeding payroll figures above a certain amount, redistributing the income to the “smaller” market teams to use for their payroll (although this last part is a foreign concept to an owner of team in South Florida who will remain nameless).  This author chose not to run these numbers because the sample size is too small, but common sense dictates that if the luxury tax has any effect at all, it will be to increase the opportunities for the smaller market teams in MLB to get into the playoffs.

In part two of this article, the author will specifically talk about why the salary cap, as used in the NFL, is unfair to those teams that consistently draft and develop well. He will also talk about some common sense approaches to improve the competitive balance in both leagues, assuming, of course that this is something that the leagues are genuinely interested in doing (as opposed to paying lip service to the concept as a means of selling the use of payroll caps to control salaries).

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19 replies

  1. Liked your sports junkie topic and thoroughly enjoyed your in-depth anylsis very much…look forward to more of the same. Your stats strongly showed the non-cap MLB didn’t produce success that was disproportional to the salary capped NFL. Any thoughts why there wasn’t any significant success vested in a few very rich MLB teams (e.g., the evil Yankees; been hating them for nearly 7 decades!) that seemingly could spend more and result in more success? Perhaps (1) injuries play a greater part in success in football (the loss of a top QB is more devistating than a top pitcher becasue a QB plays in every game whereas a pitcher obviously goes out every 4-5 games); (2) a 162 game schedule vs. one of 16 (easier to make up ground in baseball than football); (3) the luxury tax may play a greater part in leveling MLB competition than thought/known; or (4) greater turnover of players in the NFL (injuries take a larger toll in the NFL per season and career).

  2. Raider 387, thank you for your post. I think all of your factors do play a role. One I would add to list is whether or not the difference in the skill level of the players isn’t somewhat exaggerated. How much better really is one human being than another? Years ago, David Wright produced a nearly identical season as Alex Rodriguez despite earning a fraction of the salary. I also think the compensation system tends to reward players for past performance while ignoring that it’s a young man’s game and skills are declining (your injury analysis would come in here; better to have a healthy second rate player actually on the field then some minor league guy or utility player). Again, thank you for the comments. Hope you continue to follow the blog. And if you have one, let me know and I’ll be a subscriber.

  3. If you really believed half the crap that you’re peddling, I would expect you to be in Vegas when the lines broke giving playoff birth odds. You sir would clean up! You’re clearly seeing things others are not. Maybe you already have won a bundle betting on these teams, I don’t know…my guess is you’re just spewing BS and manipulating statistics to justify being a Royals fan. Please let the blog know how much money you’ve won with these pearls of wisdom Putting your actual money down will always separate the bullshit from the bullshitter.

  4. Mr. Ziemba, the conclusions in my article were based on statistics. I spent approximately 4 hours pulling information together for the analysis on a spreadsheet (a spreadsheet which I would be happy to send you). I triple checked my work to make sure that I did not botch the numbers. My conclusions were simple, over a 15 year span, about the same number of teams in MLB and the NFL qualified for the playoffs the expected number of times. I understand that my conclusions do not square with your beliefs or the results that you would have expected, but if there is something about my methodology that is off, I would be happy to discuss it with you. I do agree with you that the system hasn’t worked out too well for the Royals, Pirates, and a few others. Those, not coincidentally, are some of the poorest run franchises in all of professional sports. I do not doubt that they are at a disadvantage, but running their organizations so poorly is a large part of the reason they are never in the playoff hunt.

  5. You may want to check your numbers for a fourth time. One example…the 2003 Florida Marlin’s salary total you quoted. Understated and also overlooking the fact that the median salary was $1.4 million, suggesting superstars supplemented by scrubs. Again, just statistical manipulation to serve a cause. Go clean up in Vegas with this BS, bet on all the underdogs. Vegas doesn’t do this kind of homework.

  6. The $37 million dollar figure reflects their present payroll. Rereading the sentence, I can see where one might think I was saying that was their payroll when they won it. Could have been worded better. Not sure what point you are making with the 1.4 million dollars, care to explain? Regardless, any statistical oddities should be minimized by using a fifteen year sample. Also not sure what Vegas has to do with anything; nothing in here serves as a predictor of future results (and last time I checked, Vegas will not let me bet on games that have already occurred).

  7. It has only become the most egregious in the last 5-10 years, so stretching it out further only serves your purpose of presenting a balance.

    #1 Just because there is a “hard” salary cap in the NFL doesn’t mean every team spends the limit, they don’t, research that.
    #2 Different sports aren’t comparable due to the relative value of an individual player
    #3 Salary caps are a joke given caveats like signing bonuses and paying off previous obligations
    #4 I bring up Vegas, not because of past performance, but because people like you won’t pull a dollar out of their pocket to back up their theories. You will prattle on about how fair everything is, and inevitably, Vegas sport’s books will give odds based on salary, and your crisp dollar will remain in your pocket…because you don’t believe a word of what you’re saying. Unless, of course, you don’t like free money.

  8. You are right about the salary cap. In the last few years, 90% of the teams did not spend up to cap. My problem is with those teams that spend up to the cap, then have to decide which of the players they spent millions to draft and develop they must part with. I don’t see how that is fair.

    I think you missed the point of the article; no one is arguing that having more money to spend on salaries isn’t an advantage. Of course it is. My point is that the salary cap does not do anything to promote competitive balance. It’s absurd to suggest that one should pick just the last five years, a smaller sample size, to suggest that somehow that’s the interval that should be used. You make no points regarding what has changed in the last five years that would warrant your conclusions anyway, just that you’d like to focus on a smaller sample size because you believe it supports your point.

    As for the Vegas thing, it has no place in this analysis. I analyzed data for the last 15 years to test a theory. I made no future predictions nor suggest that my data would allow me to do this. And the article most certainly never focused on the accomplishments of individual teams other than to show how they did relative to statistical averages. But, given that you obviously don’t buy my conclusions (based on math), perhaps you could use the opposite conclusion to “win big in Vegas,” since you seem to think this article speaks to that.

  9. Just read this article. Author concludes:

    With revenues at an all-time high, the second highest attendance level on record, and as of late, the most parity, it seems a hard sell to say MLB needs a salary cap.

    Can be found at:

    http://www.bizofbaseball.com/index.php?option=com_content&view=article&id=2694:does-mlb-need-a-salary-cap-the-numbers-say-otherwise&catid=29:articles-a-opinion&Itemid=41

  10. Here is another article on the same topic (I’m not an ESPN insider, so you can only read the first few paragraphs). The point is, I’m not the only one drawing these conclusions:

    http://insider.espn.go.com/mlb/hotstove09/insider/news/story?id=4866336&action=login&appRedirect=http%3a%2f%2finsider.espn.go.com%2fmlb%2fhotstove09%2finsider%2fnews%2fstory%3fid%3d4866336

  11. The salary cap isn’t the problem and will never fix baseball. There are so many ways to go around it that it’s almost irrelevant even when in place (NFL, NBA). Professional sports have become such a business that most owners don’t even care if they win or lose, just as long as they cut a profit. There are a few owners that actually care about winning and the bandwagon stops every 5-10 feet to pick up fans. That’s why the ratings are so high for a Yankees’ world series. Who the hell would tune into a Baltimore/San Diego series? Professional sports have been compromised as the almighty dollar continues to be everyone’s focus. I’ll continue to watch and appreciate amazing athleticism, root for a hometown team, but not disillusioned enough to think it will ever be equally competitive. Fair is a bad word these days. I would be interested to know the number of teams making the playoffs in the 4 major sports over the last 10 years compared to the previous 10 years. But personally, I just don’t care enough to look into it. It is what it is, and it’s certainly not about competitive balance.

  12. I agree with just about everything that you wrote above. I don’t know why the last ten years is somehow magical (do you think that the Luxury tax actually made things worse in baseball)? Is it just a general feeling that the last few years have been worse? If interested, read the second part of the article when I get around to finishing it. I do have some ideas that could make things better, but it will never be perfect. There will always be a disparity in money, desire to win, and skill level of GM’s and scouts, so things will never be equal. I spent hours working on the spreadsheet because I was curious. I’ll send it to you so you can look things over and benefit from my work. You probably can satisfy your curiosity in a few minutes.

  13. So well thought out and convincing. Thanks for convincingly exhibiting the complexities of sports. And thanks, too, for your easy, yet analytical style. It’s refreshing and, I fear, addictive.

  14. This analysis is flawed on so many levels. Your argument is that because the distribution of teams that make the playoffs is similar to other sports, a larger payroll does not give a team an advantage. What you should do is look at the teams with the highest payroll and see if they make the playoffs more often.

    For example, of the 10 highest payroll teams in 2009, 5 made the playoffs. In other words, the clubs in the top 10 had a 50% chance of making the playoffs, while the bottom 20 had a 15% chance.

    In 2008, it was 5 of the top 10 again. 2007 was 4/10. 2006 3/10. 2005 5/10.

    So in 5 years, 22 of 50 teams with a top 10 payroll made the playoffs, or 44%. 18 of the 100 teams outside of the top 10 made it, or 18%. Thus if the team was in the top 10 in payroll, they were 2.5 times as likely to make the playoffs as not. There is simply no argument to be made that having a larger payroll isn’t a competitive advantage.

  15. M, you write:

    “This analysis is flawed on so many levels. Your argument is that because the distribution of teams that make the playoffs is similar to other sports, a larger payroll does not give a team an advantage.”

    I argue no such thing. There clearly are advantages to having a higher payroll. The point of my article is that, comparing the two leagues for a 15 year period of time, one with a cap, and one without, the number of teams that made the playoffs the expected numbers of times was roughly the same. Nothing more, nothing less.

    You write: “What you should do is look at the teams with the highest payroll and see if they make the playoffs more often.” This is precisely what I did, and I conceded that outliers existed in both sports. I noted, for example, that the Yankees made the playoffs 14 times in that span, while some teams did not make the playoffs even once. I’m not sure what your point is here.

    My main point is that a salary cap really isn’t that effective in widening the playoff field for the majority of teams. On that point, I’m not sure why comparing the number of teams that made the playoffs the expected number of times for a capped league and a non-capped league is not a good way to look at this.

    Again, I think you were focusing on the anomolies, the high market teams only, a point that I readily conceded. I do not know where you could read anything in my post that says that I think larger payroll conveys no advantages. I clearly do not believe this.

    Thanks for the comment though, I appreciated the exchange.

    • This is your original argument: it is a myth “salary cap (or unequal payrolls) somehow affects competitive balance” and that in that case “there would be a high correlation between a team’s resources” and successful outcomes. What I wrote showed a high correlation between a teams resources (payroll) and successful outcomes (playoff appearances). If that isn’t a measure of competitive imbalance due to differing payrolls, I don’t know what is. The fact that a reasonably large variety of teams have managed to purchase a playoff spot doesn’t change anything. All I need to do is look at the payroll of my team at the beginning of the season. If they aren’t in the top 10-15, there is simply no reason for me to follow the team through the season.

      • We are arguing apples and oranges. You are arguing (and quite frankly with yourself) that teams with higher payrolls are making the playoffs a higher percentage of the time (and I’ll point out that your analysis does not mention teams like the Dodgers and Mets who have high payrolls but only sporadically make the playoffs). Since I put as much in my post (or at least alluded to it by my Yankees example), this is actually a point of agreement.

        I am arguing that the salary cap has not really worked to increase the opportunity for a higher percentage of the NFL’s teams as would be expected by leveling the salary structure (56%-53%) as many wrongly argue that the lack of a salary cap is keeping a high percentage of teams from qualifying for the playoffs in MLB (and by going by percentage of expected appearances, I’m eliminating one season flukes). You continue to suggest that my thesis is somehow that money has nothing to do with playoff appearances. This is simply a misread of my article.

        Again, thanks for the feedback.

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