Normally, I’m a believer in the concept of the salary cap. But I’m now noticing things that are kind of unexpected. Basketball has a salary cap, but teams are thinking more and more in terms of building through big fee agent signings. The most extreme example being when the Knicks traded young superstar Kristaps Porziņģis so they’d have more money to go free agent shopping this summer. In contrast, Baseball has no salary cap, yet dozens of free agents remain unsigned at the start of spring training because there’s little interest from teams.
How did we get here? Mainly it is a result of the NBA’s relatively low maximum on individual salaries. That is, it’s low compared to the total salary cap, and the small number of players on a basketball team, and the very small number of players who make a difference in a superstar-focused sport. It’s a real distortion of the market: if salaries were free (other than the limit of the salary cap) star players would be paid much more than they are now: In the NBA, a superstar is a huge advantage, so teams would be paying large percentages of their cap for one player to build around. That would drive the salaries of star players through the roof, with the result that no team would be able to fit more than one or maybe two under their cap. Super teams with many superstars wouldn’t exist.
The irony is that now things are looking bad for small teams. As others have pointed out, if a player can only make so much money from salary, then that means there’s a big financial advantage to play on a team that’s either in a big city or is already successful, so they’ll have more chances to do endorsements and supplement the salary. So strangely, while the salary cap may help smaller-market-teams compete, artificially keeping the maximum salary low is hurting them.
It’s a very different dynamic than other sports: in baseball and hockey, there’s a huge emphasis on youth. In baseball, young players are a way for small-market teams to compete without breaking the bank, and in hockey, it’s a way to get value out of the cap. You wouldn’t see anything like the Knicks trading a young star to get cap space so they can sign veterans. On the other end of that trade, people were complimenting the Mavericks on getting two great young players to build around. But I’m wondering what good that is. They may end up getting crushed by a hastily-assembled team of veterans.
Meanwhile, baseball had its own strangeness: no one wants to sign free agents. That’s strange in a sport that used to be dominated by rich teams with expensive players. Many people are blaming this on collusion, a conspiracy of the owners agreeing not to sign anyone. That's happened before, so it's hardly tinfoil hat territory.
But I have to disagree. I don't gave much faith in the morality of team owners either, I just think there's a simpler explanation. The fact is that with modern statistics, we know that a good-but-not-great player will only add two or three wins for a team. And while it’s true that more wins generally means more fans (and thus more money) a small improvement like that won’t make a big enough difference to be financially worth it. Say you’re a .500 team: signing one of these “good” free agents would mean spending $10 a year to go from 81-81 to 83-79. There’s no way that makes financial sense. Sure, you could pay for several of these players to improve the team enough to get into the playoffs, but then you’re talking about spending about $50 million a year just to get into the wild card game.
Baseball’s high costs and hard-to-make playoffs have lead to an all-or-nothing approach by the teams, in which they either spend big to make a great team, or emphasize the farm system to slowly groom a winner. That means the market for mid-range free agents is very small. Teams waiting for the youngsters to develop don’t want free agents because they aren’t trying to win at the moment, and once those youngsters are ready, they don’t want many free agents, because they have a team full of young, talented, and inexpensive players. And the few rich teams have spent most of their money on superstars, and have little need for good players. So if you’re a good player at age 30, there simply aren’t many people looking for your services.
So now the business of sports is even stranger than it normally is. Basketball has a salary cap but may be about to grind into a no-parity rut, while Baseball has no salary cap, but is very frugal, but still has no parity. And I continue to think that the NHL may actually have the best system.
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