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Against a Salary Cap

Small market baseball teams are already finding ways to make the Yankees pay through the nose for new talent.

By 4.21.08

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Since baseball's first World Series in 1903, the Yankees have won 26 championships -- almost one out of four. No other team, in any sport, has had that kind of long-run success.

Cynics say they bought those championships. By playing in the country's largest market, the Yankees benefit from the league's highest revenues. This year's 25-man roster will be paid a record $209 million. That's hard to compete against. No other team comes within $70 million of that.

Sounds like a good argument for a salary cap. Other sports have caps, and they work pretty well. Baseball does have some revenue-sharing and a "luxury tax" on big-spending clubs. Not enough, some say.

I'm not convinced. Baseball's Davids are finding creative ways to out-compete the Goliaths. A salary cap would take away the incentives for this creativity. A cap is unnecessary.

TRUE, SOME TEAMS have won championships by copying the Yankee Way. In 1997, the Florida Marlins spent lavishly on star players, and won a championship. They did it again in 2003.

But without those New York revenues, they couldn't sustain it. Fire sales were held after both championships. The Marlins went right back to the bottom of the standings, their glory forgotten.

So much for that strategy.

Oakland A's GM Billy Beane was one of the first to really try something new and creative. He realized that two stats nobody else cared about -- on-base percentage and slugging percentage -- had more to do with winning games than more traditional stats like RBIs or batting average.

He exploited this hole in the market. Other teams didn't want his kind of players, so he was able to get them on the cheap. Oakland has consistently outperformed its tiny payroll -- currently third lowest in baseball -- for a decade now.

This kind of strategy only has temporary success; holes in the market get filled. Other teams noticed Beane's success, and copied him. The big-spending Red Sox have even hired legendary statistical guru Bill James to assist in their player evaluation. Beane's "Moneyball" approach has lost its competitive advantage. Everyone's doing it now.

BUT BEANE ISN'T the only creative small market executive. Teams like the Minnesota Twins, Milwaukee Brewers, and Cleveland Indians look at it this way: the big teams get most of their advantage by signing smaller teams' stars away in free agency. The solution, then, is to dry up the free agent market.

How to do this? One, lock up players while they're young and cheap. Buy out a year or two of free agency. Players have to be in the league for six years before they can become free agents. Buying years of that out in advance means a player will be a seven or eight year veteran before he starts checking New York real estate prices. Most players are past their prime by then.

If the Yankees want to poach a player before then, make them pay a steep price to get him in a trade. Make them mortgage their farm system, or lose a solid veteran in return.

Two, invest heavily in scouting. Keep a constant inflow of young talent to replace departing stars. The Brewers have done this to the letter. Their top scout, Jack Zduriencik, is the only non-GM to ever win the Major League Executive of the Year award.

Unlike the Moneyball strategy, sabotaging the free agent market is sustainable in the long run. This year's free agent market was dry as a bone, almost devoid of big names.

This year's biggest deal still involved a big name; the Minnesota Twins lost pitcher Johan Santana to the New York Mets. But it wasn't a free agent signing. It was a trade. The Twins got four of the Mets' best prospects in return. If Santana had left as a free agent, they would have received nothing.

MEANWHILE, THE INDIANS just locked up 24-year old pitcher Fausto Carmona through 2014, buying out two years of free agency. Colorado Rockies shortstop Troy Tulowitzki, 23, is also staying put.

Small-market Milwaukee 's young talent is the envy of the league. Prince Fielder is the youngest player to ever hit 50 homers in a season. Ryan Braun is the reigning NL Rookie of the Year. Both are still young and affordable. Both are in talks to stay in Milwaukee, and off the free agent market.

These teams are proving that you don't need a salary cap to bring parity to baseball. You just need a little creative investment in the future.

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About the Author

Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute.