Cold Stove, Player Salaries, Owner Profits and Free Markets

But I digress: Let’s get back to the title of this article. What do the Cubs, Athletics and Yankees have in common? They are clustered at the top of the lowest third of team payments as a percentage of revenue, paying out approximately 36-39 percent of their revenue in payroll. I find that particularly interesting, because if you asked me which two teams I thought most resembled the Cubs in terms of payroll strategy, well, let’s just say that the Yankees and the Athletics would not be the first two teams that come to my mind.

Source: What do the Cubs, Athletics and Yankees have in common? – Bleed Cubbie Blue

My response:

Long post ahead. TL:DR version at bottom.

First: look at the teams on the top of the list. They were upside down in contracts and are in many cases paying players that don’t play there anymore.

Second: Why does it work differently for the owners than the players? The owners, especially in cases like the Cubs where they own the stadium privately, own all the risk. If the Cubs tank this year because of injuries or just Cards and Brewers play unheard of ball, Rickets loses the revenue. Heyward and Lester still make the same amount. The income goes to where the risk is. The revenue numbers posted above are revenue, not profit. Many (most?) of the teams are making a good profit (total $1B in 2016) but not all teams are. Some of that is payroll driven and much of it isn’t.

Third: we’re looking at MLB players salaries here. I’ve got a blog post in the works making a proposal for investing some of the EBITDA from MLB teams into MiLB salaries. The gold plated version of that runs about $400M, or $17-18M per team. It would take some of the risk away from MiLB players and all of them would make enough to get by, even at the short season level. I’ll post a link on twitter and elsewhere when it’s done.

Fourth: This is the result of the CBA agreed to by MLBPA. Which includes the new luxury tax restrictions. Baseball has an extended amount of control for teams on drafted players, which is what leads to this “pay after performance” model where the big contract hits post-prime unless you dominate early like a Bryce Harper type fresh out of HS/prep. The arbitration process helps quite a bit (Bryant is making almost 20x league minimum in his 4th year) but it doesn’t change the fact that most college grads will be 28-29 (especially pitchers) by the time they get the payday contract.

A final thought: It seems likely to me that the cold “hot” stove this year will produce players and agents selling out the arb years for extensions in order to get the longer contract while they’re still approaching the prime (see Altuve, Trout…). Personally I think that will be better for baseball overall and thus better for players in the long run. It makes me sad that if the Cubs were to shell out for Harper next year that it means someone among Baez, Russell, Bryant, Happ, Schwarber either has to leave to get paid when they hit free agency or they’ll get a lot less. Teams like Golden State and San Antonio in the NBA have started to see players taking team friendly deals (not maxing out personal income) to keep better teams together. Would Curry and Durant make more money on separate teams? Absolutely. Would they be playing for THE dominant NBA team then? No. And other teams (watch for the Celtics and Lakers to follow) will adopt similar strategies by finding players that play well together and want to continue to do so. And winning produces income opportunities for players that don’t exist elsewhere. Cubs can stay under the luxury tax and Bryant et al can still make millions on endorsements (which don’t appear in your calculations above).

I think you’ll see Hendricks, Contreras and a few others signing extensions this year. No one with Boras, I’d bet, but he’ll have to adjust to the changing market like everyone else eventually. And the next CBA will see the MLBPA pushing for earlier free agency or higher league minimums in order to counteract some of where things have gone with the “cap”/luxury tax.

I love baseball and I want to see stars get paid their value. I also want to see the emerging stars taken better care of by the teams in the minors somehow. I’m big on loyalty (not that taking best deal is anything ethically wrong) and if I were a player I’d be looking for locking up a long term contract to stay in one place early in the arb years and would trade maximizing earnings for a no-trade clause. If you’re only adding $12M AAV no GM is in a rush to trade you in the lean years if you’re performing and you can build something with the local fans. I’d like to see MLB find ways to incentivize loyalty without the players taking it on the chin as they did before free agency was allowed.

TL;DR version:
Top team on the list (Tigers) would much rather not be there and they made bad contracts one the way down in revenue. Owners take 100% of the risk of losing money (not all teams turned a profit on those revenue numbers: note those are revenue (top line) not profit (bottom line). This is a market response to the disruption of the most recent CBA and the market will adjust over the next year or so and players can adjust their strategy to meet the new circumstances by things like extensions during arb years.

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