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No, baseball’s economy is not broken

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Changing? Sure.

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“Every team can afford [a] $300m contract”
Braves reliever, Peter Moylan

For the second consecutive season, there has been much weeping, wailing and gnashing of teeth over the free-agent market in baseball. With both Bryce Harper and Manny Machado remain unemployed, both men no doubt living out of their vans, down by the river. Not so long ago, some executives were predicting Harper would command “$35 million a year, maybe closer to the high 30s.” Yet there are less than four weeks until pitchers and catchers report and no word of anything for Harper matching the $300 million, 10 year offer he rejected from the Nats. And the only apparent offer for Machado is a paltry $175 million from the White Sox for seven years. The horror. The horror.

Meanwhile, Yasmani Grandal signed a $18.25 million contract, which is apparently, “a bad deal for baseball,” even though reports say the catcher declined a four-year $60 million offer from the Mets. His reasoning? Apparently this was for the kids. “I wanted to keep the line moving especially for some of the younger guys that are coming up... to let them know, if you’re worthy, then you should get paid what you’re worth. That’s where I was coming from.” Verily, when the sagas of the Great Baseball Labor Wars of 2017-19 are sung, surely the name of Yasmani the Mighty Altruist will be writ large, to honor this remarkable bit of heroic self-sacrifice.

I’m sorry - is my cynicism showing? But I’m growing increasingly weary of the notion that teams being unwilling to pay above the expected value of their production for players is an issue. Yes, Peter: every team could afford a $300 million contract. In the same way, I could afford a Maserati. That does not mean buying one would be anything but a terrible idea. Because there are very few teams for whom signing Machado or Harper would make any difference. Know how many major-league teams on the outside would have made the playoffs last year with five extra wins, a reasonable estimate of the value either man would bring? One: the Cardinals. And they got their five wins elsewhere this winter. #Sob

For everyone else, that $30-40 million would have meant the difference between, say, 75 wins and 80. Adding a superstar would be like putting racing tires on a Lada. It doesn’t make sense. I suspect we may be heading towards a flattening of the salary pyramid, because teams realize that spending $30 million a year on one player is generally less cost-effective - and certainly, a great deal more risky - than spending $10 million each on three. There were still be exceptions, but the fact that most mega-contracts have ended up going badly for the team, is extremely hard to ignore. Just because they proved very profitable for the players concerned, is no reason for them to continue being offered.

“If the players all retired tomorrow, we would replace them, the game would go on; in three years it would make no difference whatsoever. The players are NOT the game, any more than the beer vendors are.”
— Bill James

The father of sabermetrics caused no small controversy with the above comments in a now-deleted Tweet, with responses such as, “You truly can’t get a more anti-labor comment than that,” or union head Tony Clark calling the Tweet, “reckless and insulting.” James later clarified that he meant the game endures and we’re all just passing through it. But, you know what? He has a point. Teams are bigger than players. MLB is bigger than teams. And baseball is bigger than MLB. MLB does not need $300 million contracts. It existed without them perfectly well, and let’s be honest, what the hell else is Bryce Harper going to do? Sell hair-care products?

Sure, the standard of play would suffer greatly in James’s scenario. But if that was all that “mattered”, then no-one would watch anything except major-league games. In reality, minor-league attendance was over 58% of major-league attendance last year. Add the people who go to college, high-school, little league and all the other games and it’s clear that quality of play is far from the only thing that matters. If it were, no-one would attend Padres games, hohoho. Less sarcastically, it probably matters less for baseball than any other sport. To me, attendance is more about hanging out with friends, complaining about the wave and 7th-inning Cold Stone. A win? If you insist. But almost irrelevant.

An oft-heard argument is that, because MLB is taking in more money, more money should be paid to the players. There are a couple of problems with that. Firstly, the share of revenue spent on salaries has remained startlingly consistent of late. The Ringer looked at this early in 2018, and found that the percentage spent on player benefits across the major and minor leagues. had dropped from 56.4% in 2010 all the way to... 56.3% in 2017. Now, the figure did drop further in 2018, to 54.2%. But that was within the bounds of previous fluctuations, being above the 53.7% figure in 2012. It’s also perfectly in line with other sports, which also spend close to half their revenues in this area.

We don’t seem to have numbers for the past season yet. But I should warn that the figure will drop in 2018, because team revenue will get a one-time boost from the part-sale of MLB Advanced Media to Disney. The payout from that deal will be included in last year’s figure, adding a total of $1.5 billion to MLB’s income. Expect the resulting drop in payroll percentage to be touted as evidence that Something Needs To Be Done, even if it is not an indication of a trend, in any way.

Over the considerably longer term, it is true that the players’ share of revenue is now lower than it used to be. Per The Ringer, “2001 MLB financial data disclosed in a congressional hearing, suggests that the share that year (including benefits) was 60.4 percent. And a 2008 SportsBusiness Journal article reported that the players’ share peaked in 2003 at 63 percent.” However, in that context I note then Commissioner Bud Selig told Congress that “baseball’s 30 teams suffered cumulative operating losses of more than $1.4 billion from 1995 to 2001, with only the Yankees and the Cleveland Indians making money over that period.” These things are likely connected, and I didn’t notice any meaningful complaints in the 2000’s, when an actual decline in a percentage of player revenue took place.

“The networks wanted the steady, prestigious, DVR-proof product that is live sports programming... Among the current deals are ones that end as late as 2038 and 2040. The starting shortstop for the 2039 World Series winner might not have learned to walk yet.”
Craig Calcaterra

No-one has yet been able to tell me why owners are obligated to pay more to players, simply because revenue has increased. MLB is no anarcho-syndicalist commune where players and owners take it in turns to act as sort of executive officer for the week. It is a business, with players among the most well-remunerated employees of any company in the world - contracts guaranteed regardless of performance, health or federal investigation (remember the union fighting for Jason Grimsley to keep his deal?). That their average salary this year went up by “only” 1% - or put another way, an increase of about the median total household income in the United States - will not generate much sympathy from me.

This is particularly the case when the revenue increase comes from what are called “non-player revenue sources.” Professor J.C. Bradbury of Kennesaw State University wrote a paper on the topic [warning: contains math] earlier this year, which concluded “Player wages are not growing as fast has league revenue because player marginal revenue products have been increasing at lower rate than revenue. Observations of the returns to success over time indicate that player performance became less valuable during this time-period, which should lower the returns flowing to players.” In other words, players don’t deserve more money, economically speaking.

For example, it’s hard to see how the $300+ million a year deal the Dodgers signed with SportsNet LA in January 2013 should impact the money paid out to members of the 2019 team. Don’t forget, when the contract was signed, Los Angeles were far from the divisional juggernaut they have become. They had missed the post-season for three consecutive seasons, finishing no closer than eight games back in the West. Meanwhile, attendance at MLB games - the element of revenue most directly attributable to players - dropped by three million last year, finishing at the lowest total in 15 years. What kind of performance review would that merit in your profession?

There are both benefits to and problems with a diversification in revenue sources for the game. It makes sense for any business to have a variety of revenue streams. If you are reliant on one, then any problems with it, and you’re hosed. It’s not dissimilar to the logic against committing a huge sum to one superstar player: if they break or stop performing, you’re in deep trouble. However, as Calcaterra points out, “If actually drawing fans to the ballpark is less important than ever — why put any money into your team? Why pay ballplayers? Why try to even compete? To do so is to take money out of your own pocket for very little financial reward.”

The problem is, under the current system, there’s little or no incentive for teams between 70 and 90 wins. Above that range, and you’re probably in the post-season; below it, you’re looking at good draft position and, probably, a cheap team. But mediocrity is punished. There’s also scope for adjusting the current path through arbitration, to compensate players better in their younger years, rather than having to wait for free-agency. Perhaps make arbitration kick in after two seasons, rather than three? I don’t want to reduce service time before free-agency, as that would disadvantage lower-budget teams. We may also see more players signing out of high-school, so they can become free-agents while in their twenties.

But there is a real possibility that the gravy train of blockbuster contracts like Giancarlo Stanton’s $325 million deal, could be reaching its final destination. If this results in higher salaries lower down the pyramid - or perhaps even for the amazingly underpaid prospects in the minor leagues - I’m not sure this should be regarded as a bad thing.