In this post, we’ll look at the competitive balance issue in baseball and explore an idea for how to improve it.
If you prefer video breakdowns, check out the video below. Note that the video only covers the idea to improve competitive balance, and not the full background of the competitive balance issue.
Background on Competitive Balance Issues in Baseball
Baseball has had a tanking problem and it has progressively worsened over the past few years.
The tanking problem is evidenced in part by the number of teams with 100-loss seasons increasing dramatically since 2018. In three recent full seasons (2018, 2019, and 2021), there have been as many 100-loss teams as there were from 2007-2017 combined (Cooper). Additionally, the spending gap in MLB continues to grow. In 2017 the gap was roughly $113.3 million between the median payroll of the eight teams with the highest and lowest payrolls (Greenberg). In 2022, this gap has increased to $154.9 million. As evidenced by Neil Greenberg’s analysis, teams with larger payrolls tend to have more projected runs per game.
There are several reasons why teams are opting to “tank”. The first incentive is to improve the team’s position in the Rule 4 Draft. In the previous Collective Bargaining Agreement (CBA), picks were assigned based on the previous season’s team records, with the worst team receiving the first overall pick. As shown in Table 1 below, the top pick of the MLB draft in 2022 was worth $8.8 million.
Rebuilding teams may have been incentivized to tank to secure one of the top picks of the draft. The Houston Astros, for example, had three consecutive 100-loss seasons and received the top draft pick from 2012-2014 (Cooper). They went on to win the 2017 World Series and have earned a playoff run each year since.
The second incentive to tank is the higher likelihood of winning over a ten-year period compared to a team that remains mediocre (Clemens). There is also an economic incentive using this boom or bust model. Not only do the teams have a higher likelihood of winning the championship, but they also save payroll during the tanking years.
Changes from the Competitive Balance Agreement
The 2022 season was delayed due to the renegotiation of the Collective Bargaining Agreement (CBA). There were several changes made in the agreement that attempted to combat the tanking program and help create competitive balance.
While it is too early to definitively state whether the changes made during the collective bargaining negotiations effectively addressed the perceived issues with competitive balance, there were two major changes implemented that will help to address these issues.
The first change affected the Rule 4 Draft order. The new CBA creates a draft lottery for the first six picks of the draft. The value gap in bonus pool between the first and sixth picks is roughly $2.8 million (Callis). However, the actual value of each pick to their team is much greater. As demonstrated in the graph below, research by Craig Edwards estimates that the value of each pick drops off exponentially and the value difference between the first and sixth picks in 2019 was closer to $16.2 million (Edwards).
Given the value gap, teams, in theory, should be disincentivized to have the worst record in baseball, since there is no guarantee they are rewarded with the highest value slot draft pick.
The second change in the CBA affected the Postseason format, adding two teams and a Wild Card Series. This provides a major financial incentive to compete, as it gives two additional teams an opportunity to have a share of postseason revenue, as well as guaranteeing more revenue from a three game Wild Card series compared to revenue from only one game under the previous format. This new format has already influenced teams, such as the Red Sox, who were on the fence about competing at the trade deadline to go for it.
On the other hand, right after the new Postseason format was announced last season, the Athletics and Reds traded away some of their top talent (Rogers). As a result, MLB writer Bradford Doolittle’s win projections for both the Athletics and the Reds decreased by 10 and 5 wins, respectively, effectively eliminating both teams from playoff contention.
My Idea to Improve Competitive Balance
Note: The idea below is just a brainstorm, as it would take a lot of research to determine whether it would achieve desired results.
If my goal was to increase competitive balance in baseball, I would implement a structure that rewards teams with a certain number of wins in two consecutive seasons, and penalizes teams with a certain number of losses in two consecutive seasons. I tentatively chose two consecutive seasons instead of one season due to the cyclical nature of teams having good seasons and bad seasons.
The reward for teams who place over the win threshold is focused on improving organizational talent, and could come in the form of draft picks, slot money for the Rule 4 Draft, or international money. The reward would vary based on market size, with smaller market teams who achieve the win threshold earning more reward than larger market teams.
The penalty can look similar in structure to the Competitive Balance Tax. If a team exceeds the loss threshold, they get taxed a certain amount based on how many losses they accumulated over the threshold and based on market size, with smaller market teams facing lesser penalties than larger market teams. The tax money would then be put toward rewarding teams who exceed the win threshold.
This change would impact the level of competitive balance because the goal with this reward system is to ensure that as many teams as possible have sustainable models for winning. In recent years, we’ve seen sustainable winning strategies used by teams of vastly different markets, such as the Dodgers, Yankees, and Rays. Despite their limited payroll, the Tampa Bay Rays have a winning record in their last five consecutive seasons. But all three of these teams are using a similar strategy for sustainable success. They all have strong farm systems, processes for amateur scouting, and player development staffs. They develop players in their own system that are to be utilized for their Major League team, or as trade pieces to fill a gap on their roster.
In terms of the penalty for losing a certain number of games over a two-year period, this may incentivize teams who are struggling to think differently about player development and their baseball operations processes. It hopefully would cause a shift towards the sustainable model instead of the boom-and-bust model. While the sustainable model is hard to attain, the penalty would encourage teams on the brink of the loss threshold to improve rather than potentially get worse and chase toward the bottom.
How do you think the league can improve competitive balance?
Sources for the Background Section:
Callis, Jim. “Each club’s 2022 MLB Draft bonus pools and pick values”. MLB.com. July 20, 2022. https://www.mlb.com/news/mlb-draft-2022-bonus-pools-pick-values
Cooper, J.J.. “Why Are MLB’s Worst Teams Getting Worse?”. October 1, 2021.
Clemens, Ben. “The Diminishing (but Positive) Return of Tanking”. December 17, 2020.
Edwards, Craig. “An Update on How to Value Draft Picks”. Fangraphs.com. April 5, 2019. https://blogs.fangraphs.com/an-update-on-how-to-value-draft-picks/
Greenberg, Neil. “Baseball’s competitive balance problem is getting worse”. April 1, 2022.
Rogers, Jesse. “The new CBA was supposed to help fix tanking in MLB – here’s why it hasn’t”. April 12, 2022.
“Rule 4 Draft”. MLB.com. https://www.mlb.com/glossary/transactions/rule-4-draft