Friday Financials

With Major League Baseball opening this week, the business of baseball offered another indicator of the sign of the times. With $47M cut from overall payroll compared to last season, almost half of MLB teams (14 out of 30) opened the 2009 campaign with lower player payrolls than 2008.

Although we’ve seen ancillary evidence of the downturn in the economy affecting sports – minor leagues struggling to stay afloat, sponsorship revenue projections down, layoffs and furloughs for team and league office employees, advertising revenue down – we have not truly seen an impact on the most integral and basic product in all of sports:  the players.

Professional sports are about the players. They move the meter. Although team payroll is down with these 14 MLB clubs compared to last year, the average player salary is up four percent to an average of $3.26M. While not a steep increase and skewed by some mega-deals – CC Sabathia, Mark Teixera – the fact that there’s any increase in this economy underscores the power of the player product.

And what about the NFL? As teams shed employees and tighten their belts on operational costs, many have wondered whether the belt-tightening would trickle down to the players. We’ll have to wait a while for the answer, but the annual Free Agency spending spree at the end of February and the beginning of March occurred with the same fervor as previous years, even in the midst of a faltering economy. Every year, new thresholds for contract levels are set, and this year was no different, with only the names changing – this year’s list includes Nnamdi Asomugha, Jordan Gross, Albert Haynesworth, Bart Scott, Jason Brown, etc. It will take the season to see if, on a more macro level, player costs are down from a year ago as they are in baseball. …

The other telling chart from baseball is the annual look at team payrolls.  To no one’s surprise, the Yankees assume their perennial spot at the top, paying more than $200M for their roster of 25 players (their payroll is actually down $8M from 2008). At the other end of the spectrum is the Florida Marlins at $36M, just $3M more than the salary of Alex Rodriguez, with a couple of other teams – the Pirates and Padres – in the mid-$40M range. Thus, the gap between payrolls of teams competing in the same league is around $160M!  As we know, money doesn’t buy championships, but it’s a stretch for the Pirates, Padres and Marlins to look up at the Yankees payroll, five times that of theirs, and feel they can compete.

Due to the self-regulatory nature of the Salary Cap, NFL team payrolls have been resistant to this type of disparity. Certainly, teams have spent liberally and – due to proration and other credit-card Cap maneuvers -- can spend above the Cap on a cash basis for a limited period of time, but the Cap and its constraints work to bring teams back to the pack over the long run.

Compared to baseball’s $160M difference between the high and low in team payrolls, the highest-spending teams in the NFL last season spent around $150M in cash payroll.  At the low end, teams spent in the $105M range, a gap of around $45M, almost four times less than the high-low disparity in Major League Baseball.

When I used to give my Salary Cap and contract presentations to the Green Bay Packers’ board of directors, there was always one board member who would shake his head when I spoke about the Cap and the leveling effect it has. His name was Bud Selig, and he listened intently to presentations about a system different than the one he was presiding over as baseball commissioner. The team payroll disparity is a shining example of what can happen without a Cap.

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