Today, I want to continue yesterday's discussion of the luxury tax agreed upon in the new CBA. Several weeks ago, I adopted management's preferred title for the tax, which is Competitive Balance Tax, primarily because the semantic change eliminated the objections associated with players being called luxuries. Now before I look at whether this tax will bring about greater competitive balance, I want to point out that the game of baseball does not need such a measure at this time.

With 30 teams in the league, ideal competitive balance would have each team in the World Series only once every 15 years and winning the World Series once every 30 years. I believe fans would much prefer to have their teams retain their homegrown players, leading to 3 or 4-year stretches of dominance, than to have new players all the time and only single seasons of success. Such stretches are going to increase the length of time between World Series for many teams, but there are sufficient playoff spots to provide postseason excitement for those clubs not quite hitting their stride.

As we saw when discussing contraction this off-season, no one wants their team taken away and many areas would like a franchise nearer their region. Consequently, fans should realize that everyone cannot win all the time. One team must lose every game, 22 teams will miss the playoffs, four teams will be eliminated in the first round, and only two teams will advance to the final where it's four losses and you're out.

These concepts seem simple when presented in this fashion, but they're easy to forget when counting the years between pennants for your favorite organization. Unfortunately the over-hyped media darling Yankees have been the team on top for the last few years while owning a correspondingly high payroll, but other teams remain highly competitive due to intelligent front office leadership without payrolls anywhere near the Yankees. This tactic may become more difficult as years go by and the practices of the successful low-budget franchise spread throughout the league, but the industry hasn't really shown itself to be full of fast learners and a lot can happen in that time span.

A Competitive Balance Player Draft was not included in the new CBA, and I propose that MLB would more effectively promote equality throughout the league by applying such a draft to teams' front offices rather than to their 40-man rosters. However, for the moment money doesn't equal success, so any attempt to regulate competitive balance through payrolls is based on faulty logic.

What the Competitive Balance Tax will likely do is provide some payroll balance within the league. Most of the teams that would pare payrolls specifically to remain below the tax don't have payrolls anywhere near the threshold. However, the tax will elevate player costs for teams paying it, essentially creating a situation in which they have to overpay for every player they sign, though with the a portion of the money going towards the tax rather than the player as in a typical bad contract. Consequently, teams at the payroll base will reach a point where the increase the value of their on-field team doesn't satisfactorily correspond with the profits they lose by paying the extra money.

Every team has their own line on how much capital they're willing to invest in their products. Those lines are grayer with some franchises than on others. Some owners are willing to go into the red in order to grow the organization, while others desire to remain in the black, leading them to hand down a hard line to their front offices. This tax strongly suggests where teams ought to place their lines by financially punishing those who spend more than the untaxed base payroll.

Cubs' President Andy MacPhail was part of the owners' negotiating committee and has also announced that Chicago will not balk at acquiring players even if it causes them to pay tax. However, the Cubs are already frequently criticized for not expending full effort to win since they'll fill Wrigley Field regardless of the talent on the field. Why would the Tribune Company authorize the Cubs to spend above the threshold when that money cuts into the profits while providing a lesser benefit to the on-field team? They're interested in investing some capital into the organization as success can still increase their revenue, but the tax will shrink the return on money invested.

The ratio between capital invested and return will vary from market to market and some teams will be more concerned about it than others. Some teams may even fail to recognize the precise downside of paying the tax, and the result can't be measured to a certainty since teams don't always act logically. However, it does decrease the incentive for teams to grow their payrolls beyond the base and will have the effect of adding bad contracts to teams who ignore the base.

I will return to this issue in the future to examine how closely teams' actions have followed this theory. The one variable for which I've been unable to account is on where the money for the luxury tax will be spent. Yahoo! reported that the money from the tax will be used for "player benefits, including player benefit plan, or the industry growth fund, or developing baseball players in countries lacking organized high school baseball." The first two are costs the owners are already using other funds to pay and the third looks like a potential tax write-off. Therefore, the financial incentive may be less than it would appear from the surface, meaning the only purpose the tax will serve is in reducing the money some of the premium free agents are receiving, as per yesterday's article.