Back in February, Rob Manfred, the commissioner of Major League Baseball (MLB), sang a tune that is truly a classic in the history of labor relations in baseball. According to ESPN, Manfred noted that fans are sending emails expressing concern over the sport’s lack of a salary cap, purportedly spurred by an offseason spending spree by the Los Angeles Dodgers, a team that has won its division eleven times in twelve years. Manfred insisted that:
This is an issue that we need to be vigilant on. We need to pay attention to it and need to determine whether there are things that can be done to allay those kinds of concerns and make sure we have a competitive and healthy game going forward.
The NBA adopted a cap on payrolls (i.e., a salary cap) in 1983. Soon after, caps were instituted in the NFL, NHL, and WNBA. Despite the consistent efforts of baseball owners in the last years of the 20th century, MLB players have consistently resisted the establishment of any cap on payroll.
Back in the 20th century, this conflict over salary controls led to a number of player strikes and owner lockouts. The last of these labor disputes began during the 1994 season. This strike led to the cancellation of the 1994 World Series and the postponement of the start of the 1995 season. Despite inflicting these losses, the strike didn’t lead to any cap on team payrolls.
For the most part, calls for a cap seem to have subsided in the 21st century. But in 2024, the Los Angeles Dodgers, with a payroll of $265.9 million, won the World Series. In the offseason, the Dodgers added about $65 million more to their payroll, and now lead all of baseball in spending on players (in 2024, they ranked third). Because some seem to think that spending and wins are highly correlated in baseball, it might have appeared to some that the Dodgers were trying to buy another title. And apparently this led some fans to email Rob Manfred.
We don’t know how many e-mails Manfred actually got calling for a salary cap. We do know that it is a myth that baseball teams can buy championships in baseball. Back in 2006, we devoted an entire chapter in The Wages of Wins to the question “Can You Buy the Fan’s Love?” The chapter details all the reasons we thought baseball teams can’t simply buy wins and championships. For now, I’ll simply repeat the observation that from 1988 to 2006, only 18.1% of the variation in a team’s winning percentage could be explained by that team’s relative payroll (i.e. team payroll divided by average payroll that season). That leaves roughly 82% of the variation in winning percentage to be explained by factors other than what teams spent on players. In simple words, teams cannot simply buy wins!
This analysis was repeated from 2011 to 2024. Across these 14 seasons, only 13% of the variation of winning percentage could be explained by relative payroll.
So if spending can’t fully explain wins, can it explain championships? Turns out buying a title is even harder. From 2011 to 2024, none of the ten teams with the highest relative payroll even made it to the World Series. Yes, the highest spending teams in baseball didn’t even get a chance to lose in the World Series!
At the All-Star break in 2025, we seem to be seeing the same story. The top team in baseball in terms of winning percentage is the Detroit Tigers. The Dodgers rank second, but essentially are not much better than five or six other teams. Some of those teams, like the New York Mets, also have a very high payroll. The Milwaukee Brewers, with an impressive record of 16 games over .500, pay their players less than the Tigers.
How can the Tigers and Brewers compete with the Dodgers and Mets? It turns out that baseball effectively has two different labor markets. The Dodgers and Mets generally find their best players in the free agent market. To be in free agency, a player must complete six years of MLB service. Once a player’s career reaches that point and they are without a contract, they can sell their services to the highest bidder.
Back in 2016, the Detroit Tigers played in that market. But when the Tiger’s owner Mike Ilitch passed away in 2017, his son (Christopher) decided the Tigers would get out of the free agent market and try and find their best players in the draft. Hence, most of the Tigers today have less than six years of service. As the Tigers have shown this year, such players can be quite good. And relative to the players on the Dodgers, they are also quite cheap.
Of course, the Dodgers have also built a competitive team. And maybe the Dodgers do win the title in 2025. But at the All-Star break it seems clear that title is not guaranteed. So, why won’t all that spending ensure a Dodger repeat?
Let’s start with the obvious reason. Baseball is a game where you hit a round ball with a round stick. There is no hitter in baseball that a pitcher can’t get out. And there is no pitcher in baseball that a hitter can’t hit. The game simply has a large random element. In addition to random variation in performance, there is also no way to predict injuries. The injury issue is especially relevant in the free agent market, as many players are on the downside of their career after six years of playing.
Beyond the randomness of performance is the simple fact that the difference in playing talent has shrunk considerably across time. We can see this if we look at the level of competitive balance in baseball. As noted in The Wages of Wins, competitive balance improved dramatically in the second half of the 20th century as the talent pool got much bigger. Specifically, as teams started employing African Americans and then players from all over the world, the supply of very talented players increased. Consequently, more teams had access to very good players.
One can see this simply by looking at how often teams win more than two-thirds of their games. Since 1901 this has happened just 30 times. Of these, only three instances happened in the 21st century. It also happened six times in the second half of the 20th century. That means that prior to 1950, this happened 21 times (equal to 30 less three less six). Once upon a time, it was truly possible to build a baseball team that dominated the game. This happens when your team has lots of great players and other teams… well, they don’t!
Of course, that is just dominance in the regular season. As the Seattle Mariners learned in 2001, dominating the regular season doesn’t guarantee post-season happiness. After winning 116 games in 2001—tied for the most wins in baseball history—the Mariners were eliminated in the American League championship series.
At that time, eight teams participated in the playoffs. Today that number has grown to twelve. Because playoff teams are often not much different, the odds of any playoff team winning the World Series is probably less than 10%. And that is true regardless of how much money you spend. Player performance from week-to-week is simply not that predictable. If your star hitters or pitchers (or both) have a bad week in October, your fans will end the season sad.
All of this means the Dodgers simply can’t buy a title. So, why do owners want a salary cap? The spending by teams like the Dodgers does bid up the cost of free agents. If the league could cap spending, players would generally be cheaper. And that would transfer millions of dollars back to the owners.
Yes, none of this is about improving competitive balance and making the game better. In fact, as we noted in The Wages of Wins, there isn’t even much evidence fans truly want competitive balance. Extensive studies of consumer demand and competitive balance tell that story. And every baseball fan learned that lesson when the Texas Rangers played the Arizona Diamondbacks in the 2023 World Series. Fans of small market teams (i.e. not on the coasts) being competitive got what they wanted that year. But it turns out, few other people cared to watch.
In the end, the call for a salary cap has nothing to do with making the game more popular. Owners have consistently called for a cap on pay for the obvious reason they want to pay their workers less. And gullible fans (and members of the media) are often quite happy to help them achieve their dream.
But if baseball does achieve a cap on pay after 2026, you are not going to see balance in baseball improve dramatically. And you won’t see more fans in the stands or watching on television. What you will see is more owners counting more dollars.
Once again, we said all this twenty years ago in The Wages of Wins. Yes, sometimes it is fun to hear the classics!