Either 120% or 125% is fine. Yes, if we look at baseball, some teams are at 200%. But if we look at basketball or Football, teams are much closer, or pay through the nose in coming years.

The cap will usually only affect 2-3 teams. If 120% is too strong, we could switch it the following year to 125%.

The range of PB in a 20 team league will be from
50 up to 85, even with a cap.

A good owner will trade a Damon for a #1 FA pick to get under the cap. While not a fair trade, the owner gets under the cap and gets something, while the other owner gets Damon and talent is redistributed.