George Southrey writes:

As for MLB and competitive balance, I believe the draft pick compensation idea is way overrated. Most small-market teams can hardly even sign top draft picks these days, with agents like Scott Boras dictating terms that almost always lead his clients to big-market teams. In the long run it doesn’t help much, and a cinderella season every 10-15 years hardly qualifies as competitive if you’re a Brewers, Royals, Devil Rays, or Pirates fan. When you look at the FA listings on the various baseball websites every offseason, you always see the same 4-5 teams listed as the probable destination of every top FA: NY, NY, Boston, LA, Chicago, maybe Atlanta or Baltimore.

One radical thought is something that is used by multinational corporations to balance out overseas assignments. It’s basically a hardship allowance (HA), an “Equalizer”, and it is usually calculated by an independent firm. They establish the HA for every location around the world, and employee compensation is adjusted accordingly.

Suppose MLB did something similar? After all, few Latin players want to live and play in a city like Milwaukee, or Denver. Those cities are not attractive from a weather standpoint, from a cultural diversity standpoint or from an endorsement $$ standpoint. Most Free Agents won’t go there unless they are fringe players or the money is irresistable. This puts the Brewers at a competitive disadvantage, having to overpay for FA, which can lead to a vicious cycle of being a losing team that no one wants to play for, and having to overpay more, and so on.

An independent firm assigned by MLB and the MLBPA would evaluate each franchise based on stadium, cultural diversity, weather, market size, endorsement opportunity, state income tax, and so on. Each team would then receive a HA, either positive or negative, the net total being 0. So, for example, New York might be rated as having a HA of (-)12, Boston (-)7, while Kansas City is (+)8, Milwaukee (+)9. The HA would be updated every 2 or 3 years, or even annually, or whenever a franchise moved or built a new stadium, etc.. Any future franchises would be evaluated in a similar fashion as a condition of acceptance.

In the above example, when a player plays for the Royals, he receives an additional 8% over his salary as an adjustment. This money is paid by a MLBPA Hardship Fund. When a player plays for the Yankees, his salary is ‘taxed’ at 12%, the money going to that same MLBPA fund. Now, in fact, players would not be paying this tax, the team would because a FA would negotiate a net salary rather than a gross salary if the team had a negative HA. If most of the higher-paid stars went to negative HA cities like NY, which is likely, the fund would have a surplus.

What impact would this have? Using the Royals and Yankees, let’s say they are both looking at signing the same FA, whose asking price is $20 mil over 4 years, or $5 mil/yr. For the Royals, the cost would be about $4.6 mil, with the other $400k coming from the HA Fund. Or, they could in fact pay $5 mil, with the player receiving an additional $400k over that, taking home $5.4 mil/yr.

The Yankees, on the other hand, would have to pay $5.7 mil/yr to land that same FA, $700k of which would go to the HA Fund, the player getting $5 mil.

So the difference between NY and KC signing the same player for the same salary is actually $1.1 mil more for the Yankees than the Royals. Over time and over many signings, this provides a sizeable balancing effect on the teams’ costs. If Billy Wagner wants $10 mil/yr, it costs the Mets $11.4 mil, while it would cost the Brewers $9.2 mil. That’s significant, because Milwaukee could offer Wagner $11 mil/yr and still spend less than the Mets, and for the Mets to match that $11 mil would cost them $12.5 mil, and so on.

Trades would not effect a player’s salary, only the Fund. A player making $4 mil in NY that is traded to KC would still receive $4 mil. The Royals would receive a $300k subsidy from the Fund. The Yankees would save the $545k HA that they would have paid. This makes it easier for small-market teams to acquire higher-salaried players in trade.

Why would the Yankees or Dodgers accept such a scheme? Because it would replace the current payroll tax and revenue-sharing schemes, which do nothing to help competitive balance and just provide cheap franchises with more money to keep without investing. A small-market team under the HA program would get no money. They only benefit by paying less than big-market teams for the same players.

The fact is that all franchises and teams are not created equal in terms of the ability to attract players. Most players come from warm climates, from Japan, California, Latin America, etc.. They don’t want to live and play in Milwaukee. Most stars want to be in NY and LA, Boston or Chicago, not Cincinnati. There’s nothing you can do about that: some locations are sexier than others, some cities bigger, some have more off-the-field opportunity.

Multinational companies recognize this, and know that employees would rather live and work in London or Paris rather than Lagos or Mumbai. To get talented employees and managers to go to those places they have to make it worth their while. Otherwise, only marginal or entry-level staff will go. And so many companies ‘equalize’ by taking from the people in the choice locations and giving to those in the hardship locations. MLB might do well to look at their various teams a similar way.

I send this to you via email rather than posting on your blog because it’s a bit long-winded, and it’s also a bit off-the-wall, perhaps too outside-the-box. But I haven’t seen any suggestions that really address the inherent differences in the current lineup of teams, cities and ownership groups in MLB (other than the verboten salary cap) that would improve competition without killing the game itself (lower entry requirements for the playoffs!).

It's an interesting idea. I could be wrong, but I thought compensation for taking a job in an undesirable location came from the company, not a tax on other employees (but it probably amounts to the same thing). My guess is the union would not go for it, because it's in the union's best interest to have the high spending clubs drive up prices.

Trent McBride looks at a complicated playoff structure at Catallarchy.