Baseball Economics: Current Research

By John Fizel; Elizabeth Gustafson et al. | Go to book overview
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tax proposals of the owners and of the players. The owners' suggestion to tax the portion of a team's payroll greater than 115% of the average MLB team payroll at a 40% rate is expected to decrease the average star's salary by $412,500. The players' proposal to tax the portion of a team's payroll greater than 133% of the average MLB team payroll at a 25% rate causes the average star's salary to fall by only $57,895. These are rough estimates, but they suggest that the positions of the owners and players are rather far apart. Also, star players may have a lot to lose if the owners impose their version of the luxury tax.


NOTES
1.
For bargaining purposes, the owners and players define compensation broadly to include all player-personnel costs--not just players' salaries. The estimated 1994 figures commonly cited by the media are total MLB revenue of almost $2 billion and average team payroll of almost $40.7 million. This implies an aggregate payroll for MLB of $1.14 billion. See "Hard-line Owners Primed for Their Turn at the Plate," by Hal Bodley , USA Today, March 6, 1995, p. 8C.
2.
In recent years, the San Diego Padres have traded away most of their star players to keep their payroll low. Despite this tactic (or because of it), they were rated the most profitable franchise in MLB by Financial World in 1994. See Ozanian 1994, pp. 52 and 59.
3.
The two teams that would be affected by the owners' proposed threshold are the Detroit Tigers and New York Yankees. The additional eight teams that would be affected by the owners' proposed threshold are the Baltimore Orioles, Chicago White Sox, Kansas City Royals, Toronto Blue Jays, Atlanta Braves, Cincinnati Reds, Los Angeles Dodgers, and San Francisco Giants. These estimates are based on player's salaries and team payrolls published in USA Today, April 5, 1994, p. 5C.

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