The world of professional sports is no exception to having various rules and regulations of its own. Certain rules and regulations fall far short of achieving their intended purposes. The luxury tax imposed in professional sports certainly belongs in this category.
In the context of professional sports, a luxury tax is the amount of money a team is required to pay when it exceeds the payroll limit. The primary purpose behind the tax is to level the playing field. It takes money from teams that have higher overall revenue and gives that money to teams with lower revenue, which in turn gives those teams in smaller markets and lower revenues a chance to compete.
All professional team-oriented sports have luxury taxes. The magnitude of the effects from these taxes varies from sport to sport. Regardless of the sport, the luxury tax does not truly level the playing field like it is intended to.
Take Major League Baseball, for example. There are teams from big markets such as New York and smaller markets such as Pittsburgh. It is no secret that the Yankees and the Pirates are at opposite ends of the spectrum in terms of success.
One contributing factor to the Yankees’ continued success — 20 consecutive winning seasons —and the Pirates’ continued failure — 20 consecutive losing seasons — is their revenues. In terms of revenue, the Yankees’ more than double the Pirates’.
The more money a team makes, the more money it can spend on salaries. If a team’s combined salaries are more than $178 million, it has to pay a luxury tax. In 2012, the Pirates’ team salary was not quite $63 million. The Yankees were just shy of $196 million.
Smaller-market teams such as the Pirates, Padres, Astros and Athletics cannot afford to pay contracts that are more than $100 million dollars, even with the additional money they receive from teams like the Yankees and the Red Sox, who routinely spend more than the $178 million dollar limit and pay luxury taxes.
It is as simple as this: The luxury tax does help smaller-market teams, but not enough for them to make a difference and level the playing field.
A solution to the problem would be increasing the luxury tax. If the tax is high enough, the large-market teams would lose more of the money that is currently allowing them to be so dominant and the small-market teams could potentially get enough money to sign some of those $100 million contracts that they have no chance at currently. Another solution would be to create a payroll cap that teams are not allowed to exceed.
Until either change is made, things will remain as they are today, and the large-market teams will continue to have greater success then small-market teams.
Christopher Miller is a freshman studying broadcast journalism and sport management at Ohio University and a columnist for The Post. Tell him what you think about sports at cm001111@ohiou.edu.
