User:Aldooley/Competitive Balance (sports)

Competitive Balance in American Sports

There are many different methods that professional sports in America try to employ to keep a competitive balance. The five major sports in America are as follows: Major League Baseball, The National Hockey League, The National Basketball League, The National football league and Major League Soccer. Each deploy their own techniques to try and implement a competitive balance while also using similar methods compared to other leagues. Methods for keeping a competitive balance include but are not limited to a hard salary cap, a soft salary cap, player drafts, and luxury taxes.

Major League Baseball

Major League Baseball uses many methods to try and maintain a competitive balance. They use methods such as the draft, competitive balance tax and service time to try and allow a competitive balance between the haves and the have nots.

The Draft

Baseball Image

The MLB draft is the main mechanism all teams use to sign amateur baseball players. Players eligible to be signed are players coming out of Highschool, college and from other amateur leagues. The draft is a reverse player draft meaning the team with the worst record picks first and the team with the second worst record picks second.

Competitive Balance Rounds

Competitive balance rounds were implemented to help close the gap between the top markets and the bottom markets. There are two rounds of the competitive balance rounds, competitive balance round A takes place directly after the first round and competitive balance round B takes place after the second round. To qualify the team has to be in the bottom 10 in revenue and market size.Up to 20 teams could technically qualify for the competitive balance rounds but this is never the case as teams overlap in terms of bottom 10 in revenue and market size.

Competitive Balance Tax

The competitive balance tax is also referred to as the Luxury tax. The Luxury tax is the MLB's version of a soft salary cap. Teams that decide to spend over the the soft cap for the first time will pay an extra 20% tax, if the team does this is back to back seasons they will pay a 30% tax and teams go over cap for three straight seasons will pay a 50% tax. The percent tax you recieve is only applied on overages and not taxed on on payroll.

Service Time

Service time is The MLB relates to the team's ability to control a drafted players contract. For the first three years after a player is drafted the player will make around league minimum with the team having the option to renew the players contract each year during the first three years. To complete a year of service time you must be rostered for 172 days. After six years the player is then eligible for free agency. The players that fall within three years and six years are eligible for arbitration where the player is allowed to argue they deserve more than the league minimum, the club will either agree or disagree and give a counter offer. If the two sides cannot come to an agreement on what the player is worth the case will be brought to a panel of arbitrators who will either take the side of the player or the side of the team.

NBA

The National Basketball Association uses methods such as the draft, a salary cap and rookie contracts to try and keep a competitive balance within their league.

The Draft

Basketball

To be eligible for the draft a player must be 19 years old, and must be one year removed from high school, this could mean playing amateur basketball, college, or international basketball. The NBA uses a model based on win percentage to decide who will have the higher chance to get the draft pick. Up until 2018 the percentages were fix as the team with the worst record would have the highest percent chance (25%) of claiming the number one pick. In 2019 those percentages changed to discourage teams from taking even more. Now the percentages are much smaller as listed below and does not give a team an incentive of tanking. Now there are 14 pingpong balls that are mixed in a glass jar, each pong ball has a number on it and each round four of the balls are taken out to make a combination that is given to each team. There are 1000 combinations, the worst three teams will have 140 combinations or (14%) chance of receiving the top pick. Each next best team will have a slightly decreased chance of receiving the top pick. This is done for the top three picks in the draft then the remaining teams draft is in reverse order of their record after the top three picks have been decided.

Salary Cap

The NBA uses a soft Salary cap, meaning teams are allowed to spend over the salary cap because there are multiple exceptions. The NBA salary cap is calculated by taking the basketball-Related Income and multiplying it by 44.47% and dividing that result by 30(the number of NBA teams). Basketball related income include all revenues a team makes for basketball related operations. The 2019-20 salary cap was 109.14 million meaning teams could spend this much money and could even go over but would receive penalties. The penalties are received if a team goes over this number and must pay 1.50$ for every 1.00$ they go over the tax. The NBA also has a salary floor which is 90% of the salary cap which teams must must at a minimum meet each year.

Rookie Contracts

NBA rookie contracts are signed for two years, with options for the team to pick up a 3rd and 4th year. NBA contracts are set based on a specific dollar amount assigned to which pick you were drafted. The agent and the player can manipulate this a little as they are allowed to negotiate with a team for either 80% lower than the fix cost of where they were drafted or 120% more than the fixed cost.

NHL

The National Hockey Association uses methods such as the player draft and a salary cap with a floor and ceiling to try and keep a competitive balance.

The Reverse Player Draft

The NHL as does a reverse player draft to help ensure competitive balance. The 14 teams who did not qualify for the playoffs are all eligible for the draft lottery which gives a team a chance to receive the first overall pick, and thus discourages tanking. 14 balls are numbered 1-14 and four are taken out to make a combination, the 30th ranked team has the best chance of receiving the first round pick (20%). After the first overall pick is decided by the lottery the rest of the draft is continued with the worst record remaining getting the second pick. All players who are at least 18 years old and under 20 are eligible for the draft, if a player is over 20 they are an unrestricted free agent.

Salary Cap

The NHL deploys a salary ceiling and salary floor to help maintain a competitive balance. The salary cap ceiling and floor will range from season to season based on the revenue generated the previous year. How the the ceiling and floor is determined is the ceiling is always 15% above the the midpoint of the cap and the the floor is always 15% below the midpoint. Teams are allowed to go over the salary ceiling by 7.5% as long as the only reason they go over the ceiling is for performance bonuses. The NHL deploys a hard salary cap and does not allow teams to go over that threshold like the MLB and the NBA does. To calculate a players salary cap hit you do not take the salary the player makes this given year. You take the average salary the player will earn over the duration of his contract and add this to the cap.

NFL

The National Football Association uses methods such as the reverse player draft and a salary cap to try and keep their league as competitive as possible.

The Draft

The NFL draft was established in 1936 and has evolved from having 30 different rounds to now only seven rounds. The draft is a reverse players draft with the worst team in the league having the number one overall pick and the second worst team having the number two overall pick. If teams happen to have the same record the tie breaker is based off of the teams strength of schedule. Compensatory picks are used to help teams who happened to lose a player to free agency. The NFL is allowed to distribute 32 compensatory picks. Player eligible for the draft have to be three years removed from highschool and must have two years of college experience.

Salary Cap

NFL

The NFL uses a hard salary cap and a salary floor to keep a competitive balance. The salary floor is called the 89 percent rule which means teams have to spend at least 89% of the available salary cap. This rule is often misunderstood as the 89% rule means teams must spend and average of 89% of the cap over four consecutive seasons, meaning teams are allowed to fall below that threshold for a year or two as long as they spend more for the other two. The salary cap is calculated by including all sources of revenue, such as TV contacts, ticket sales and apparel sales.

MLS

Major League Soccer uses methods such as the draft, a salary cap and other methods such as targeted allocation money and general allocation money to ensure their league stays as competitive as possible.

The Draft

MLS

The MLS draft is called the SuperDraft and is a reverse player draft. If an expansion team exists they will go first but if not the team with the worst record will receive the number one overall pick.To be eligible for the draft a player must qualify for one of three things. The first one is they are invited to the combine, which is where a batch of college players are invited to compete in front of MLS scouts and coaches. The second is they are a generation adidas player, which is a program where the top collegiate athletes and national team players are signed and made eligible for the draft. These players will receive extra money for signing this contract that will not go against the salary cap. The third way is if a player has no years left of eligibility a team can nominate the player to be eligible for the draft.

Salary Cap

The MLS has a salary cap determined by the collective bargaining agreement. Teams are required to use that salary cap for a minimum of 18 players on the roster and for a maximum of 20 players on the roster. MLS has a hard salary cap, and does not allow teams to spend over the given amount but there are many loopholes to allow teams to strategically spend over that value such as the designated players rule, Targeted allocation money, and general allocation money.

Designated Players

The Designated players rules was introduced in 2007, this rule was established so ambitious MLS teams could sign bigger name players without going over the salary cap. If a team categorizes a player as a designated player they are allowed to pay that player as much as they would like without affecting their salary cap. Once a player is a designated player that player will count 500,000 towards the salary cap but no more, and teams can spend millions on these players. Each team is allowed to have three designated players. Any player earning over 500,000 will be automatically categorized as a designated player

Targeted Allocation Money (TAM)

Targeted allocation money is a mechanism for teams to use as to not go over the three designated player rule. A player is categorized as a designated player if they receive payment of over 500,000. However teams can use TAM to buy down a contract of a player earning more that 500,000 a year and not use one of their designated player slots. TAM can be traded away or acquired to use as the team see fit.

General Allocation Money (GAM)

General allocation money is another mechanism teams can use to avoid the salary cap. Each club is awarded 150,000 dollars of GAM that can be used to by down a players contract. Teams will use GAM to buy down certain players contracts in order to stay under the salary cap. Like TAM teams can trade away and acquire additional GAM to be used during the season.