Major League Baseball’s Biggest Failure – The Competitive Balance Tax

This paper seeks to discover if there exists a relationship between spending and a team making the playoffs in Major League Baseball in order to determine the strength of the Competitive Balance Tax as a deterrent. This research was done using historical data about opening day payrolls, win percentages, and playoff results from the years 2018-1988. For a better comparison, each year’s spending was adjusted to 2018 dollars using the years consumer price index. By using these time periods, time periods including a competitive balance tax and not including a competitive balance tax are included. The results indicate that there is a relationship between spending and making the playoffs. Due to the strength of the relationship, the results suggest that the competitive balance tax is not effective in its intended purpose. Based on these findings, I have concluded that Major League Baseball needs to re-examine the competitive balance tax that is effectively being used as a salary cap but is highly ineffective as a competitive balance tool.