The players that make up MLB teams are the heart and soul of the sport. They are the reason millions of people attend and tune into games regularly. Players worked hard their entire lives to become the elite athletes we see on television every night, and yet, more often than not, their hard work sees little reward. Player compensation continues to be a problem in Major League Baseball. Pay is based on past performance, and not all players are lucky enough to reach the point when they can finally receive the compensation they earned in the beginning of their careers.
“The minor league grind is very tough”
Blake McFarland, former pitcher for the Toronto Blue Jays, reported by SB Nation MLB Daily Dish
Players begin their careers in the Minor Leagues, which can only be described as a “grind” by former Blue Jay, Blake McFarland. “The minor league grind is very tough,” explained McFarland. “It is a long season with only one off-day an entire month. I don’t think there are any other jobs in the entire world with only one off day per month. Add that with long, overnight bus rides every week, nagging injuries and little sleep, and that is going to be one long season and grind. It will also leave you with stories to tell, new friends and a ride of a lifetime.” Even though McFarland mentions the positive side of the “grind”, this should not make up for the difficult conditions these players have to endure.
Only 10% of minor league players reach the majors. The average minor league salary is as low as $1,300 per month for Single A and $10,000 per month for Triple A.
If a player is one of the few to make it to the Majors, he will receive the league minimum salary of $563,000 (as of 2020) until he is eligible for arbitration. Arbitration occurs if a player has played in the Majors for three seasons and does not have a contract for the following season. The player and team both submit ideal salaries, and negotiate until a salary is determined. If a decision is not made by February, a separate panel of arbitrators will decide on the player’s salary. The salary determined is based on previous contracts offered to players of similar ability. While players can make some more money after arbitration, the bigger and more favorable salaries come from free agency.
Players are qualified to be free agents after completing six full seasons in the Major Leagues. They then have the freedom to accept and negotiate offers with any team in the League. Players can set their own price, and talk with various teams about contract length, no-trade clauses, opt-outs and other favorable contract clauses.
5.6 Years: The Average Career Length for an MLB Player
The average MLB player spends 5.6 years in the Major Leagues, which would not provide him the opportunity to reach free agency and negotiate his own contract. This means that the player never received the free market salary based on his worth that he earned through his performance in the beginning of his career. On top of this, there has been a trend across the League to sign fewer free agents, further limiting the amount of players who take part in the free market. During the 2017 off-season, fewer free agents were signed than the 1994 offseason (when players went on strike and claimed owners were withholding money).
“The Moneyball draft, for better or worse, is kind of a line of demarcation between the way things had been done and the way things are done now.”
Stephen Obenchain, former pitcher for the Oakland A’s, reported by Vice.com
Moneyball describes the idea of replacing an exceptional player with a few average players that can create the same level of productivity. Productivity is measured in baseball by the amount of runs created by a team, and what better way to create runs then to get on base? By targeting less popular, cheaper players who are capable of getting on base (whether it’s by walking, getting base hits, or being hit by a pitch), a team can still be competitive.
The Moneyball philosophy has become increasingly popular over the years, especially by smaller market teams to help give them a competitive edge. The use of statistics and analytics have given organizations the capability to predict how a group of players will perform together, and to analyze lesser-known players who may be overlooked. Through the years, it’s been proven that high payroll does not guarantee a winning team. In fact, it is not uncommon for teams with lower payrolls to be successful. Even this past season, the Tampa Bay Rays won 96 games and reached the ALDS with the lowest payroll in baseball, by consistently using rookie players who get on base and analytics to predict matchups.
While it’s great for organizations to have a new strategy for saving money and still being competitive, a lot of players feel like they are missing out on their earned compensation. Organizations are signing less free agents, and players are missing out. While the league minimum is still a much higher salary than that of the majority of the average population, professional baseball players are elite athletes, and baseball itself wouldn’t exist without them.
While MLB generates billions of dollars each year, which peaked with over $10 billion for the 2017 season, the percentage of revenue seen by players seems to be decreasing. As shown in the graph below (using data from Fangraphs), the decline in free agent signings seems to begin around the same time as Moneyball, demonstrating the impact analytics have had on players and team spending.
Another potential contributor to the decline is the luxury tax. The luxury tax was lobbied for by baseball owners in the 1990s after a player strike cancelled the remainder of the 1994 season. It was established in an effort to maintain an even playing field, creating less of a competitive advantage for richer, large market teams. The goal was to create a competitive balance so that the same teams do not win every year. The luxury tax represents penalties for when teams have a payroll over the threshold. These teams must pay a tax on every dollar spent above the limit. The tax changes depending on how often a particular team is above the threshold. For example, if a team is over the limit for two consecutive years, they will pay a higher tax than a team who is over the limit for the first time.
While the luxury tax has a lot of benefits, it also has a lot of consequences, especially related to free agency. The luxury tax threshold does not increase at the same rate as average team revenue. For example, in 2003, the threshold was $117 million, but teams averaged $130 million in revenue, a $13 million difference. In 2014, this difference increased to $111 million. What this means is that teams are generating millions in revenue, but will be penalized if they put it all back into their team. As a result, teams have an incentive to avoid having a payroll greater than the limit so that they don’t have to pay the luxury tax. In order to accomplish this, teams are looking for players that will not take up too much of their payroll, typically meaning players who aren’t as expensive as the average free agent.
The luxury tax does not affect large market teams as much as smaller market teams because they usually have enough money from revenue to not have to worry about paying the tax. However, paying the tax does add up, particularly in consecutive years, and if teams have a way of avoiding it, they usually take advantage of that opportunity.
Between the rise of analytics and the increasing gap between team revenue and luxury tax threshold, teams are spending less money on free agents. The less number of free agents who are signed, the less number of players who are able to negotiate contracts on their own terms, which is inherently unfair to the players.
Baseball players provide a source of entertainment for millions of people, and sacrifice a lot to do so. They work hard every day of the year, move from one place to another, and constantly adapt to new environments. They deserve to receive the compensation they earned throughout their career, and there is currently a trend in player compensation that suggests otherwise. MLB needs to start thinking about how analytics and luxury tax penalties can be negatively affecting their biggest assets.