Those that know me know I really don’t care for wealth-envy. This is where people make disparaging remarks about people for no other reason than they think the object of their scorn is committing some kind of atrocity by cashing a large paycheck. People love to vilify corporate executives and pro athletes for their ridiculously high salaries. While I have argued that corporations should give a bigger share of the profits to the regular workers and less to the top cats on the org chart, I don’t have a problem with big salaries in general. The nature of the free market dictates that the CEO of the super-big company is going to get a lot more pay than, say, an administrative assistant. After all, there are only 500 slots for “Fortune 500 company CEO” and there are tens of thousands of admins. The fewer the number of positions, the higher the pay is going to be.
The same is true of pro athletes. There are thousands, or tens of thousands, of positions in the fields you and I work in. There are only 450 roster spots for NBA players, less than 1,700 spots for NFL players, and 750 spots for Major League Baseball (MLB) players. So of course those positions are going to pay salaries in another world compared to engineers, accountants or admins.
I also dismiss the “moral” argument – the one that “no one should make that kind of money playing a game” or “playing ball is inferior to the essential jobs of teaching / first responders / law enforcement / (insert name of preferred profession here) / etc.” How many people believe that the only thing that matters in life is work? That would be none. All of us, when work is done, have things we like to do. Whether that is taking the family camping, going to a movie, reading, knitting, or going to watch a game (or watching a game on the ol’ computer or TV), we have those things completely unrelated to our profession that bring us tremendous joy and pleasure. Most of those things require labor from other people. You love to read? There has to be an author to write the book. Big camping fan? Someone has to construct your camping equipment, build and maintain the place where you camp, and build the vehicle that takes you to your spot. And if you like to watch sports, there have to be players. No one in any of these positions is going to work them for free.
The other aspect of athletes’ salaries is the revenue their activity generates. The NFL, NBA and MLB are 11-figure businesses. In other words, all of these leagues bring in more than $10 billion in revenue every year. Only a small percentage of that revenue is the costs of tickets to get into the venue. Most of it is what the broadcast networks pay to be the particular network that broadcasts the games. The old TV networks we know – ABC, CBS, ESPN, NBC – play a big role in that, but in recent years, online networks Yahoo, Facebook, Amazon and others have bought in as well.
Consider the point of view of the laborer. If you are one of 750 people (MLB players) that are largely responsible for producing $10 billion, you would think “I and the rest of the players should get the majority of that. If there are no players, there are no games, right?” While you may think it’s morally wrong for a guy playing a game to make millions of dollars, the fact is that the ballplayer’s work produces all that revenue, and it is NOT wrong for him (and the group of players as a whole) to expect to get that kind of pay for producing that much revenue.
OK, enough of arguing about the morality of the million-dollar athlete. Let’s dive into the major labor dispute that is brewing in the MLB world.
My last post discussed Manny Machado signing a 10-year, $300 million contract with the San Diego Padres. Fellow superstar Bryce Harper, who has played his first 6 seasons with the Washington Nationals, is poised to get an even bigger deal, probably with the Philadelphia Phillies. Giancarlo Stanton signed a 13-year, $325 million contract with the Miami Marlins (and has since been traded to the New York Yankees) in 2014. These are all elite players who have an excellent chance to make the Hall of Fame if they stay healthy, and most die-hard fans have little issue with the size of the contracts. The problem is in the structure of the contracts for the players at the start of their careers.
In the Machado post, I explained the way the players are paid during their first 6 seasons. The short version is that the team gets to assign their salaries the first 3 years, the players are eligible to go to arbitration for their salaries in seasons 4-6, and then they can become a free agent. At any time in that second set of 3 seasons, the player and the team can negotiate a contract for one or multiple years. A negotiated contract is preferred for both sides in most cases. The arbitration process can get ugly. The player and team each submit a proposed salary. The arbitration panel can only pick one or the other, not any number in between. The player has his agent and a lawyer, and the team usually outsources the hearing to a law firm, which then researches and argues the case, and often paints the player in the most negative light possible to make the team’s case. Sometimes it gets very personal, and leaves a damaged relationship to be repaired. The team would rather have a contract that covers the 3 arbitration-eligible years, plus 1-2 more years, so they know in advance how much the player will cost them. The player might want such a deal to avoid the ugliness of an arbitration hearing, fewer years of uncertainty around potential earnings, and – since all major-league contracts are guaranteed, unlike in the NFL – some certainty of income in case of possible injury. (Some players, such as Trevor Bauer and Francisco Lindor of my beloved Cleveland Indians, are perfectly fine going year-to-year instead of long-term deals. And we Indians fans are all developing ulcers because of it.) It’s these first 6 years of relatively repressed salaries that are driving players to seek these mega-deals, to basically make up for the lost salary they should have been getting in earlier years.
How do we know those salaries are repressed early on? It’s quite easy to see. In 2018, the average MLB salary was $4.52 million. That is the result of taking all the money teams paid in player salary divided by the number of people that played in MLB games during the year. The median salary, the point at which half the players made more and half made less, was $1.32 million. That tells a much darker story for the players. The minimum salary for those players in the first 3 years of their careers range from $400,000 to near $1 million per year. Smaller-market teams like my Indians, the Padres and a few others in cities about that size seek to stockpile their rosters with players like these, with Hall of Fame potential but no to limited service time, and then fill in the gaps with veteran players, but not the top-dollar ones. Prior to the Machado signing, the Padres had committed about $85 million to their payroll, roughly $3,54 million per player, below that MLB average. Even with Machado, that number is $115 million, slightly above the average of $113 million for a 25-man roster. So you can see how a single mega-contract can skew the allocation of dollars across a roster. It looks like the Padres are paying “the going rate” for a team, but in reality, a few players are making big money while the majority are making less – in some cases, a lot less – that the average or even median salary.
With this structure in place, and with the $206 million team salary limit before a “luxury tax” payroll penalty kicks in (a tool designed to repress the team salary of the huge, big-market teams so those 6-8 teams can’t gobble up all the good players and leave most of the teams with far less talent), there has been an amazing lack of desire for teams to sign the best free agents each of the past 2 offseasons. Spring training started last week, and Machado just signed and Harper is still unsigned, though most expect the Phillies to sign him any time now. These are 2 of the best players of their generation, and it’s taken them this long to sign. Last year, J.D. Martinez, also one of the 20 best players in the game, didn’t sign with the Boston Red Sox until after spring training started. The Chicago Cubs, estimated to be worth well over $3 billion, are telling fans they simply don’t have the money to sign a player like Machado or Harper – a claim pretty much no one is buying.
Players, as you would expect, are incensed about this rate at which good players aren’t getting signed. Teams are holding firm, using the luxury tax line as a hard salary cap. All signs point to a work stoppage either at the end of the current collective bargaining agreement after the 2021 season, or perhaps a players’ strike before that point. MLB has managed to avoid a work stoppage since the damaging players’ strike of 1994-95, which was the sixth work stoppage since the players had won collective bargaining rights in 1976. It is believed the players are going to push for higher salaries for players in their first 3 years of service, or at least some change to the arbitration process. Owners are going to dig in and cry poor, especially the small-market teams. I have a queasy feeling in my gizzard that there is not going to be a 2022 baseball season at all.
It’s going to be a fascinating battle. Many people will throw vitriol at both sides, calling their arguments immoral and the money badly misplaced. If games are lost, many will swear they will never watch the sport again. In the end, capitalism will win out. The two sides will come to some agreement about how to distribute the tremendous amount of revenue their enterprise generates, and the game will go on. There will be relationships with fans to repair. The last time we had a stoppage, the very likable Cal Ripken Jr. and his run of over 2,000 consecutive games played, eventually setting an all-time record, served as the repair. If we lose games again, some player or group of players will lead that repair again.