Baseball Caps: Should A New Salary Cap System Come To The MLB In 2026?

I. Introduction

When billionaire hedge fund owner Steve Cohen purchased the New York Mets on November 8, 2020, Major League Baseball (“MLB”) owners were concerned that he would use his personal wealth to outspend other clubs on free agents and inflate the price of baseball talent.¹ Those predictions came to fruition in the 2024 offseason, when the Mets signed free agent Juan Soto to a 15-year, $765 million deal, making him the highest paid player in MLB history.² This came just one year after Shohei Ohtani’s record-setting 10-year, $700 million deal with the Los Angeles Dodgers.³ For big market clubs like the Mets and the Dodgers, record-setting payrolls are the new normal. The Mets set new single-season MLB payroll records in both the 2023 and 2024 seasons.⁴ In 2025, the reigning World Series champion Dodgers owned a payroll, including luxury tax penalties, that reached $515 million, which totaled more than the six lowest spending clubs’ combined payroll in that same season.⁵

With the price of talent seemingly rising every offseason, it may be time for MLB to consider implementing a salary cap for the purposes of maintaining competitive balance. This article will explore how MLB financially operates, what structures other similar professional sports leagues use for salary caps, and the possibility of MLB potentially implementing a salary cap.

II. The Economy of the MLB

Of the four major professional sports leagues in the United States, MLB is the only league without a salary cap.⁶ Understanding how MLB teams generate revenue is crucial to understanding MLB’s payment systems and any potential salary cap. According to Sportico Research, as of February 2024, MLB earned 31% of its total league revenuesfrom ticket sales, 26% from national TV licensing deals, 23% from local media revenue, 11% from independent club sponsorships, and 10% from concession sales.⁷ MLB’s total revenues have a unique reliance on local markets, compared to the other major sports leagues. For instance, the percentage of revenue attributable to tickets sales is second only to the NBA, and the percentage attributable to local media deals is 10% higher than any other league.⁸ This model, as opposed to one that more prominently relies on national group licensing deals, creates a massive wealth disparity among clubs.⁹ Clubs with larger local markets have natural advantages, including opportunities for better metropolitan infrastructure, more sponsorship opportunities, and larger fanbases and TV audiences.¹⁰ Additionally, all MLB franchises share equally in the annual revenue from national TV and streaming deals.¹¹

In November 2025, MLB agreed to license the rights to nationally televised games to NBC, ESPN, and Netflix.¹² The total value of the three deals is set to earn MLB approximately $800 million annually.¹³ Despite MLB’s new national TV and streaming deals, each club’s local revenue sources remain important. MLB’s national broadcast revenues lag siginificantly behind other professional sports leagues such as the NFL and NBA.¹⁴ This reliance on local revenue streams only deepens the wealth disparities already present throughout MLB.

To combat the wealth disparity problem, MLB employs a revenue-share system which mandates every club place 31% of their local revenue into a collective pool every season.¹⁵ The revenue-share funds are then proportionally distributed to clubs based on their revenue, with the lowest earning clubs earning the largest portion of the funds.¹⁶ These lower revenue clubs may also receive additional funds via MLB’s competitive balance tax.¹⁷

MLB does not have a formal salary cap, and alternatively uses a competitive balance tax, also known as the “luxury tax.”¹⁸ The luxury tax functions as a “soft-cap,” intending to disincentivize clubs with more assets from outspending financially inferior clubs, with pre-set monetary thresholds implemented prior to each season through 2026.¹⁹ Additionally, every consecutive year a team is over the threshold, their rate increases.²⁰ For instance, the first season a team exceeds the tax threshold they are taxed 20% on all overages, and if the team exceeds the threshold for a second consecutive season that rate increases to 30%.²¹ If a team’s payroll surpasses the threshold they are subject to penalties and restrictions.²² This includes being taxed at the overage rate described above, for every dollar spent above the tax threshold.²³ The funds collected from the luxury tax then go to player benefits/retirement funds and any residual money left after that gets split among lower revenue clubs.²⁴

III. System Flaws

Currently, MLB’s revenue-share and luxury tax system have problems that exacerbate the issues they are meant to correct. First, the tax does not effectively deter teams that have assets from spending substantially more than cash-strapped clubs.²⁵ A record nine teams exceeded the tax threshold in 2024, with the top three spenders all located in the MLB’s largest markets, New York and Los Angeles.²⁶ Second, less affluent clubs in smaller markets cut costs, including payroll, and then collect extra revenue from the revenue-share funds.²⁷ These issues have led to competitive imbalance. Since 1995, twenty-one of the last thirty World Series champions began the season ranked in the top ten for league payroll.²⁸ Conversely, only three champions during that time have been ranked in the bottom half of league payroll.²⁹ These numbers show a concerning trend that suggests that championships are only accessible for the few teams that can afford to spend in the top half of league payroll.

IV. Different League Salary Cap Structure Overviews

When considering what an MLB salary cap could look like, it is helpful to look at the cap structures of other American professional sports leagues. The National Football League (“NFL”) employs a “hard cap,” which means the set cap number cannot be exceeded.³⁰ The NFL structures its cap as a form of revenue-share with the players, which is negotiated in the NFL’s Collective Bargaining Agreement (“CBA”).³¹ Another key part of the NFL cap system is the salary floor, which requires teams to spend at least 89% of the salary cap.³²

The National Basketball Association (“NBA”), on the other hand, has a two-tiered salary cap structure with a luxury tax in the middle.³³ The “soft” cap is the amount teams may spend on payroll any given season, based on basketball-related revenue generated by the NBA.³⁴ Teams can exceed the “soft” cap up to the “hard” cap using different CBA tools such as the “mid-level exception” (allows team to spend an additional $5.2 million over the “soft” cap), acquiring salary via trades, or re-signing a player using their “Bird” rights (special contractual rights which allow the incumbent team to spend over the “soft” cap to re-sign the player).³⁵ Additionally, the NBA taxes teams over the “soft” cap, with a rate of $1.50 for every dollar spent over the tax and if a team goes more than $17 million dollars over the tax they hit the “second apron,” which triggers a variety of roster building restrictions.³⁶ These restrictions include, but are not limited to, no access to the mid-level exception (clubs over the cap can only sign players for the league minimum), no access to signing buy-out players, and no aggregating salaries in trades.³⁷ Thus, because teams become so restricted in their ability to build their roster, they are incentivized to spend below the second apron, keeping all clubs within a closer salary range and theoretically leading to more equal spending across the league.

V. How Do Salary Cap Structures Develop?

The NBA and NFL salary cap systems developed very differently. The NBA has had some form of cap-like system since the 1940s.³⁸ Major cap innovation occurred during NBA CBA negotiations in the 1960s after owners threatened to cancel the playoffs and players threatened to certify their union with the National Labor Relations Board and initiate a labor strike.³⁹ The threat resulted in an agreement prior to the 1968-69 NBA season that raised pensions and contract minimums.⁴⁰ In the 1980’s, multiple franchises faced significant financial difficulties, and the National Basketball Players Association (“NBPA”) threatened to strike.⁴¹ The NBA feared that a labor dispute would further deteriorate the league’s financial situation, and agreed to a new CBA that altered the cap and guaranteed the players between 53% and 57% of the league’s gross revenue.⁴² Finally in 1996, after the NBPA was nearly decertified, a new CBA guaranteed players 48% of Basketball Related Income, cap exemptions, a rookie cap, and unrestricted free agency.⁴³

In contrast, the NFL initially utilized the “Rozelle Rule,” which limited player salaries and movement by granting the team that drafts a player that player’s exclusive contract negotiating rights.⁴⁴ If the drafted player wanted to sign elsewhere the new team would have to offer the incumbent team compensation.⁴⁵ If the teams could not agree on compensation, and the signing went through, the Commissioner could force the player’s new team to provide draft pick or player compensation, in an amount decided by the Commissioner himself, to the player’s original team.⁴⁶ The NFL refused to negotiate free agency with the players during CBA negotiations, which led players to file a series of class action lawsuits starting with Mackey v. National Football League.⁴⁷ In 1993, a settlement agreement in Reggie White vs. National Football League led to a new CBA which established a system of unrestricted free agency and the parameters of a salary cap based around league revenues.⁴⁸ The system created by the White settlement is the foundation of the salary cap and free agency system still used in the NFL today.⁴⁹

VI. Future CBA Negotiations

Following a 99-day lockout, the current MLB CBA was finalized in 2023 and is set to expire in 2026.⁵⁰ For a cap system to be established in MLB, it would need to be negotiated as part of the new CBA. To do so, all the member club owners need to agree on a negotiating position, which will be a difficult task considering that the incumbent system has unique benefits for both the biggest and smallest league markets.⁵¹

However, the biggest challenge to implementing an MLB salary cap is getting the players on board. These negotiations will likely be difficult as the MLB Players Association (“MLBPA”) has previously expressed that they do not support a salary cap.⁵² The MLBPA believes that a cap would depress player salaries, and that the absence of a cap allows players to be paid their true market value.⁵³ A cap incentivizes clubs to be financially flexible to field a full, well-rounded roster, and threatens to eliminate record deals like Soto’s.

Given the MLBPA’s strong stance, owners would need to concede something of similar significance for an agreement to be feasible. Otherwise, the owners’ only other option may be to lock out the players, which many consider a likely outcome of the 2026 CBA negotiations.⁵⁴ The owners would need to be more firm than they were during the 2023 lockout, which ended at 99-days because of negative media attention and the threat of losing regular season games.⁵⁵ Owners must be willing to suffer short term losses in public perception if they believe that a cap benefits the game long term.

Determining what the salary cap would look like requires a more creative solution, as MLB would need to re-work their current revenue-share system. Both the NBA and NFL utilize cap structures based on the overall revenue generated by the league.⁵⁶ Owners would need to devise a better system of accouting for the revenue of all member clubs, to best calculate the resources available to all teams. The MLB will also need to calculate a salary floor, to combat the issue of depressed payrolls. In terms of structure, MLB could be a fit for a two-tiered soft-and-hard cap system, like the NBA, as it will encourage teams to develop talent through the minor leagues and allow teams a greater opportunity to re-sign homegrown talent.

A cap system could be beneficial for MLB and could foster parity throughout the league in all markets, ultimately helping grow more fan interest in the game.

Written by: Joe Quirk
Joe is a 2026 J.D. Candidate at Brooklyn Law School.

Article Sources

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³² Id.
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³⁵ Id.
³⁶ Id.
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³⁹ Id.
⁴⁰ Id.
⁴¹ Id.
⁴² Id.
⁴³ Id.
⁴⁴ Mackey v. National Football League, 543 F.2d 609, 610-11 (8th Cir. 1976).
⁴⁵ Id.
⁴⁶ Id.
⁴⁷ Id. at 609.
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⁴⁹ Id. Kennedy, supra note 31.
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⁵⁶ Kennedy, supra note 31; Akabas, supra note 34.

Baseball Caps: Should A New Salary Cap System Come To The MLB In 2026?

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