On the heels of a brand new 12-year, $380 million deal for Mookie Betts, many are asking how the Dodgers could make such an expensive long-term commitment in the midst of such an economically unpredictable pandemic.
My answer? They're cash-rich, baby.
Recessions are yard-sales for the rich, which is why America's growing wealth gap coincides with our increasingly boom-or-bust economy. Every time the economy busts, the working and middle-class - in an attempt to stay above water - sell off assets to the rich on a discount, because the rich have the leverage. Then, when the economy bounces back, the rich lend or rent those assets back to the middle and working-class, until the next bust, when they buy up more. This cycle led to America's first plunge into quasi-socialism, when FDR laid out The New Deal after The Great Depression.
Baseball is the major American sport that most represents a libertarian's ideal free market economy. Revenue sharing is in place (as it is in all of the four major American sports) but after national television revenue, only 48% of each team's local revenue goes into the pool. Whatever local revenue a team has left after revenue sharing can be spent at each team's discretion, and there is no salary cap to prevent talent inequities. That is why in the last 20 MLB seasons, only 7 World Series matchups have not included the Yankees, Red Sox, Dodgers or Giants - 4 of the league's 5 top revenue-producing teams.
The NBA subscribes to a system closer to the Nordic model, where the rich are taxed, but still have large advantages over the middle and working-class. During the 2016-17 season, 17 NBA teams lost money, but were subsidized by a complex revenue sharing system meant to help small markets pay balooning player salaries. Still, large-market teams fared much better. According to Brian Windhorst, during the 2016-17 season the Lakers made $115.4 million in profit, even after losing $49 million to the league's revenue sharing pool. By contrast, the Detroit Pistons lost $45 million in 2016-17, even after collecting $17 million from revenue sharing. Furthermore, the NBA's "soft" salary cap allows teams to exceed the maximum spending limit, as long as they pay a fee in return. Naturally, teams that are cash-rich tend to be more willing to be charged a luxury tax. The NBA has not seen a Finals matchup that did not include the Lakers, Warriors, Spurs or LeBron James since 1998.
The NFL and NHL are the leagues that most closely align with pure socialism in major American sports. They practice revenue sharing and enforce a "hard" cap on team spending that cannot be bypassed.
The NFL and NHL haven't worried about wealth inequality for most of their recent existence, and they shouldn't worry now. They've protected themselves from boom-or-bust economics.
The same cannot be said for the MLB or NBA. In those leagues, teams that have savings, or a wide profit margin (soon to shrink to a smaller but still profitable margin) will continue to operate aggressively, without fear of breaking the bank. The Dodgers' recent signing of Betts is the first domino to fall in that respect. Teams that normally operate on a tight budget - more than half of the NBA and MLB - will either sell (like the Minnesota Timberwolves just announced) or operate conservatively until things return to financial normalcy after the pandemic. MLB owners claim that they could lose up to $640K per game without fans in attendance, and the NBA stands to lose around $500 million in would-be ticket revenue to finish this season alone.
For the rich, middle and working-class teams pinching pennies presents a world of opportunity to collect rings. The middle and working-class may even sell off valuable assets at a discount. Take the Milwakee Bucks, and their superstar Giannis Antetokounmpo for example. Perhaps the Bucks will be able to afford to pay Giannis a max deal after the 2021 season, but perhaps the Lakers or Clippers will be able to afford to pay him and two other superstars, while paying a luxury tax on top of everything. That could incentivize the Bucks to deal Giannis a year early, knowing he'd leave for greener pastures anyway.
In the MLB, perhaps the Cleveland Indians will be able to afford Cesar Hernandez when his contract ends after this season, but perhaps they decide not to re-sign him, because they probably can't afford to field a contending team around him until their finances are back to normal. In that case, maybe the Dodgers, Yankees or Cubs decide to splurge on Hernandez, knowing that the MLB's small pool of contenders gives them a better chance at winning the World Series.
In any case, what foresight by Mike Hazen getting Ketel Marte's extension done in 2018, huh?!