In light of the fact that we might be within a year of having the upper end of the salary scale in Major League Baseball redefined, I wanted to throw out two statements. The point of these statements is to get you in the right frame of mind for the numbers that I’m going to be throwing at you.
The salary structure in Major League Baseball is absurdly out of hand.
A salary cap would go a long ways to helping fix MLB’s salary problem.
THE NUMBERS
In 2001, Major League Baseball teams spent $1.66 billion on payroll and in 2009 the teams spent $2.23 billion, an increase of 34.2%. Considering that this represents an increase in average team payroll from $55.4 million up to $74.4 million, it doesn’t really sound like an extraordinary increase. However, when its compared with the Consumer Price Index, one of the most commonly used tools to measure inflation, that rate of payroll increase is well over the increase in the CPI (20.6%).
Does this mean that MLB salaries are getting too high? Not necessarily. Over the same time period, NFL payrolls have increased by 55.7% while NBA payrolls have gone up 69.8%. The difference between Major League Baseball and those other two leagues is that they have a salary cap while baseball does not. So why then are their payrolls numbers rising faster than the league that has no salary cap?
Is it because revenue streams are better in the NFL and the NBA? Not really. Major League Baseball has had record setting revenues the past few years. Is it because of labor uncertainty that has caused baseball owners to be more reluctant to hand out dollars to players? Nope. In fact, Major League Baseball is the only of these three leagues that is not heading into uncertain waters with regards to labor negotiations between the players and the owners. It is entirely possible that the dramatic rise in payrolls figures in the NBA and NFL are contributing to their current labor situations.
Basically what all of that says is that if the Major League Baseball salaries are rising at alarming rates, then salaries in the NFL and NBA are rising at an even more alarming rate. So then the question becomes whether or not there is any truth to the first statement above and most of that answer depends on what your definition of “absurdly out of hand” is.
In that case, why have salaries been in the news so much in the past few years? Well, a lot of it has to do with the Yankees and other than that, it mostly has to do with the high profile signings of the past few years. Joe Mauer, Ryan Howard, Matt Holliday, Cliff Lee, Carl Crawford, and Troy Tulowitzki are just a few of the players who have signed contracts or contract extensions worth an amount in excess of $100 million. On top of that, three high profile players are going to sign very large contracts within the next year; Adrian Gonzalez, Prince Fielder, and the man who will be resetting the curve when it comes to large contracts, Albert Pujols.
Maybe this is the question we should be asking. Overall payrolls in Major League Baseball have been climbing at a much steadier rate through the past ten years than those of the NBA or the NFL. However, the higher end of MLB contracts has skyrocketed to the point where the highest paid player now makes roughly ten times the league average. Is the payroll situation in baseball getting its reputation because of the aristocratic class of players that are getting paid much more than the league average?
FORMATION OF AN ARISTOCRACY?
In 1997, Albert Belle became the first player to earn $10 million in a single season and he earned exactly that amount. In 2010, 79 different players were paid at least $10 million and Alex Rodriguez was paid more than triple that amount ($33 million). Over that time period, the overall salary figure in MLB has jumped from $969 million to $2.61 billion, an increase of 169.5%.
That’s great and all but the active roster of a Major League Baseball team is 25 players and if we assume that as many as 8 or 9 players get included into the payroll numbers, that still gives us a pool of roughly 1,000 players. If only 8% of players are earning that amount of money, can it really skew the payroll numbers that much? The answer is absolutely.
If we assume that there is a pool of 1,000 players that go into baseball-reference.com’s payroll numbers that means that 999 players earned less than $10 million in 1997 and that number shrunk to 921 by last year. In the past 14 years, the amount of money paid to those players has gone up from $959 million up to $1.46 billion. This represents an increase of just 52.7%, far below the overall increase.
Here’s the amazing part. Last year, the 79 players who earned over $10 million were paid a grand total of $1.15 billion, or 43.9% of the total money paid out in salaries. In 1997, that was just 1.03%.
An aristocracy is a system of government where the power is consolidated amongst a few of the citizens. If the question is whether or not a sort of aristocratic class has developed in Major League Baseball, the answer is an emphatic yes. If there is a problem with the salary structure in baseball, it lies in the fact that the top 8% of wage earners are earning 44% of the money being paid to players.
Is a salary cap a solution to this “problem”? The problem with imposing a salary cap on Major League Baseball is that it provides no disincentive to teams wanting to sign a player to a contract worth $20 million per season. Teams will simply start paying one player that much money and the rest of the roster will be filled with players somewhere on the lower end of the payroll spectrum. If they want to reduce the salaries of the top tier of players, they would need to institute rules in the collective bargaining agreement limiting the maximum size of a contract a player can sign, much like the NBA. Being the highest paid player in the NBA isn’t that big of a deal anymore because the amount of money the top tier of players are getting paid is all the result of an equation based on how long they’ve been in the league.
CONCLUSION
Does the salary structure in baseball need fixing? In my opinion, it does not. Teams that have enormous revenue streams from ticket sales, merchandise sales, advertising, and broadcasting contracts can spend whatever they want on a team. However, if they spend too much too often, they have to pay the luxury tax which goes to teams that do not have the type of revenue streams that the Yankees and Red Sox have.
This system works for baseball and would not work as well for the NBA or the NFL. In the NBA if you have the best player at every position, you’re probably going to win 75 games and win the NBA title. If you have the best player at every position in the NFL, you’ll win 14-15 games every year and play in the Super Bowl more years than not. If you have the best player at every position in baseball, it will give you an excellent shot at the playoffs every year but not necessarily the World Series. From 1996-2001, it can be argued that the Yankees didn’t have one player on their roster that could be considered the best at his position and they won four World Series title in those six years and played in another. Baseball is all about having good players at every position with as few holes as possible. In other words, no matter how much money you spend on putting together the best roster in the history of baseball, it still doesn’t guarantee you a World Series title.
For all of you out there who think the system is broken and a salary cap is necessary, don’t forget that in the last ten years, only one team with the highest payroll in baseball has won the World Series (the 2009 Yankees).
The system isn’t broken, it just might need a tweak or two…
Monday, February 21, 2011
Friday, February 18, 2011
The Albert Pujols Saga
It's been a while since I've written in this space and the reason is quite simple. Between the Super Bowl and the beginning of the NCAA men's basketball tournament is one of the dullest times of the year when it comes to my sporting interests. I've had many ideas for posts rolling around my head but nothing seemed to stick... until this situation came about and then came to a head in the past week.
As any of you who have been paying attention already know, the deadline has passed. Unless the Albert Pujols camp changes their minds over the course of the next eight and a half months, he will become one of the most coveted free agents in the history of sports. Not just baseball, but all sports. It is very rare for a player of his talent and stature to become a free agent and for the most recent example in all sports; we only have to go back to the Decision. As far as baseball is concerned, Pujols will easily be the most coveted free agent since the winter of 2000 when Alex Rodriguez hit the free agent market with a career slash line of .309/.374/.561 and 189 home runs… at the age of 24.
So the questions on everybody’s mind are obvious.
First, what team will he sign with?
Second, how many zeroes will be on his new contract?
Lastly, will he be worth it to whoever makes history?
THE MONEY
In my opinion the second question is the easiest to answer. The most common numbers being kicked around are 10 years at an AAS (average annual salary) of $30 million, besting Alex Rodriguez’s record deal when he resigned with the Yankees a few winters ago. The thing that nobody knows outside of Pujols, his agent, and perhaps the Cardinals negotiating team, is how much higher Pujols wants to set the bar. Does he want $35 million per season? $40 million? Does he want a contract that will eventually make him a partial owner in a team, potentially worth much more than just the dollar value?
The one thing Pujols can’t do is overplay his hand. Granted, he’s going to have several suitors with extremely deep pockets but if he demands something truly ridiculous, I have a feeling that teams will tell him to take a hike. However, if the Yankees and Red Sox get into a true bidding war, it might be the final straw for the owners to start demanding that Major League Baseball take steps to help get player contracts back under control.
THE TEAM
This is where things get really tricky. He’s played 10 years for the St. Louis Cardinals and has become a hero to the city. In those years, he hasn’t said anything that could be construed as a complaint about the organization. Having said that, if he was willing to give the Cardinals any sort of home-town discount, I think he already would have signed an extension.
What other teams have a chance?
The Yankees and Red Sox certainly do because they both have the resources to offer Pujols anything he wants. Because of the money involved, I believe that those will be the three major players in these negotiations and if anyone else makes a play for Pujols, it’ll be someone unexpected.
So who has the best chance?
Right now my gut tells me that the Cardinals still have the inside track and after them, my money is on the Red Sox. They have a very modest sum of money invested in Adrian Gonzalez this year and then he becomes a free agent next winter. If they want to make a play for Albert Pujols, it would make perfect sense for them to either trade Gonzalez or simply let him play for a year and then let him leave in free agency. Either of those scenarios opens up first base and money for Pujols.
On the other hand, Mark Teixeira is two years into a 8 year, $180 million contract that includes a full no-trade clause. Pujols joining the Yankees would involve a position switch or trading Teixeira with the Yankees picking up a serious amount of the remaining $140 million left on his contract. Will they be willing to do that? If the Red Sox start gearing themselves for a serious run at Pujols and the Yankees fall short of the playoffs for the second time in three years, absolutely anything is possible.
In addition to the usual suspects, there are always teams like the Dodgers, Angels, Mets, and Cubs that could all throw more money at Pujols than anyone else offers. If nothing else, it’ll be entertaining.
THE VALUE
Before we delve too deep into the dollars and cents, I need to say a few words about the difference between Major League Baseball and the NBA and NFL. In those two leagues, players are paid largely based on their potential for the future and in baseball, they are paid for what they’ve done in the past with the high hopes that the players will replicate that success.
For instance, on July 30, 2010, Sam Bradford signed the richest contract for a rookie in NFL history. The contract is worth at least $50 million over 6 years with a maximum value of $86 million. All of this was before he had thrown a single pass in the NFL.
In his first three years with the St. Louis Cardinals, Albert Pujols had a slash line of .334/.412/.613, he hit 114 home runs and drove in 381 runs. He won a batting title and finished in the top four of MVP voting all three seasons. Lastly, Pujols was good for 23.6 WAR. In his first three seasons in a Cardinals’ uniform (2001-2003) 88 different players recorded at least 500 plate appearances in each of those three seasons. Only two bested Pujols’ mark of 23.6 WAR.
In those seasons, Barry Bonds earned $40.8 million.
Alex Rodriguez earned $66 million.
Albert Pujols earned $1.7 million.
So the point of that tangent is that in baseball, big contracts are handed out both for what a player has done as well as what a team hopes he will do.
THE NUMBERS
For the sake of argument, for this section we’re going to assume that Pujols signs for 10 years at $300 million. Will he be worth it? First of all, let’s talk about money that comes in from selling tickets. In 2009, teams drew an average of 2,447,686 people to their 81 home games and according to the Team Marketing Report, the average ticket price was $26.74. That means that in 2009 teams brought home an average of $65.5 million in ticket revenues.
If Albert Pujols were to sign and that was to increase ticket revenue by 10% (hardly an outrageous figure) that means that just with selling tickets, he’ll bring an extra $6.55 million to the average team. That doesn’t take into account the sales of concessions or the sales of merchandise which will spike as well.
There’s one flaw in that logic though; we’re not talking about the average franchise when we talk about the potential suitors for Pujols’ services. Now let’s examine the impact that he could have on the Yankees and Red Sox. Instead of average attendances of 2,447,686 and average prices of $26.74, the Red Sox had values of 3,062,699 and $50.24 while the Yankees had values of 3,719,358 and $72.97. instead of modest ticket revenues of $65.5 million, the Red Sox took in $153.8 million while the Yankees took in a ridiculous $271.4 million. Now imagine Pujols adding a potential 10% to those figures…
As far as the Red Sox and Yankees are concerned, the only real problems I see are a lack of flexibility with regards to their rosters and payroll and that the Yankees already have a high priced first baseman under contract for six more years.
Lastly, there is a very justified worry about giving a 31 year old player a 10 year contract worth this much money, especially given the long line of albatross type contracts that have hung around the necks of Major League franchises in the past… but have they?
There have been a grand total of 27 seasons in which a player earned more than $20 million. On average, they have produced 4.8 WAR (Wins Above Replacement player), a very good mark, but not quite worth that much money. However, there is one interesting trend amongst those players. As a rule, they kept very similar value to what they had before earning such large paydays.
Those 27 seasons were recorded by 9 different players and 6 of them put forth increased production (according to their WAR value) compared to when they were making less than $20 million per season. One of those can very easily be thrown out because in his only season earning more than $20 million, Barry Bonds was injured and limited to only 52 plate appearance. Therefore, 75% of the players in this sample (which Pujols is about to join) increased their Wins Above Replacement after signing their huge paydays.
Considering that Pujols has averaged 8.38 WAR per season in the majors, the thought of him increasing that average is just downright scary.
PREDICTION
He’ll get his 10 year contract; I have no doubts. For money, my guess is $250-300 million in guaranteed money with incentives and potential ownership options worth anywhere from $25 million to $100 million more. I know, way to narrow it down, right?
The tricky question is where he’ll end up. Based on what happened this past offseason, I’m not sure that the Cardinals are looking to give him a record breaking contract and if that’s the case, he won’t be playing in St. Louis next year. If he leaves St. Louis, my best guess is that the Cubs will come up with the money to sign him but only after seriously outbidding the Yankees and Red Sox…
Either that or he takes a serious paycut to join the Mariners…
I can dream, can’t I?
As any of you who have been paying attention already know, the deadline has passed. Unless the Albert Pujols camp changes their minds over the course of the next eight and a half months, he will become one of the most coveted free agents in the history of sports. Not just baseball, but all sports. It is very rare for a player of his talent and stature to become a free agent and for the most recent example in all sports; we only have to go back to the Decision. As far as baseball is concerned, Pujols will easily be the most coveted free agent since the winter of 2000 when Alex Rodriguez hit the free agent market with a career slash line of .309/.374/.561 and 189 home runs… at the age of 24.
So the questions on everybody’s mind are obvious.
First, what team will he sign with?
Second, how many zeroes will be on his new contract?
Lastly, will he be worth it to whoever makes history?
THE MONEY
In my opinion the second question is the easiest to answer. The most common numbers being kicked around are 10 years at an AAS (average annual salary) of $30 million, besting Alex Rodriguez’s record deal when he resigned with the Yankees a few winters ago. The thing that nobody knows outside of Pujols, his agent, and perhaps the Cardinals negotiating team, is how much higher Pujols wants to set the bar. Does he want $35 million per season? $40 million? Does he want a contract that will eventually make him a partial owner in a team, potentially worth much more than just the dollar value?
The one thing Pujols can’t do is overplay his hand. Granted, he’s going to have several suitors with extremely deep pockets but if he demands something truly ridiculous, I have a feeling that teams will tell him to take a hike. However, if the Yankees and Red Sox get into a true bidding war, it might be the final straw for the owners to start demanding that Major League Baseball take steps to help get player contracts back under control.
THE TEAM
This is where things get really tricky. He’s played 10 years for the St. Louis Cardinals and has become a hero to the city. In those years, he hasn’t said anything that could be construed as a complaint about the organization. Having said that, if he was willing to give the Cardinals any sort of home-town discount, I think he already would have signed an extension.
What other teams have a chance?
The Yankees and Red Sox certainly do because they both have the resources to offer Pujols anything he wants. Because of the money involved, I believe that those will be the three major players in these negotiations and if anyone else makes a play for Pujols, it’ll be someone unexpected.
So who has the best chance?
Right now my gut tells me that the Cardinals still have the inside track and after them, my money is on the Red Sox. They have a very modest sum of money invested in Adrian Gonzalez this year and then he becomes a free agent next winter. If they want to make a play for Albert Pujols, it would make perfect sense for them to either trade Gonzalez or simply let him play for a year and then let him leave in free agency. Either of those scenarios opens up first base and money for Pujols.
On the other hand, Mark Teixeira is two years into a 8 year, $180 million contract that includes a full no-trade clause. Pujols joining the Yankees would involve a position switch or trading Teixeira with the Yankees picking up a serious amount of the remaining $140 million left on his contract. Will they be willing to do that? If the Red Sox start gearing themselves for a serious run at Pujols and the Yankees fall short of the playoffs for the second time in three years, absolutely anything is possible.
In addition to the usual suspects, there are always teams like the Dodgers, Angels, Mets, and Cubs that could all throw more money at Pujols than anyone else offers. If nothing else, it’ll be entertaining.
THE VALUE
Before we delve too deep into the dollars and cents, I need to say a few words about the difference between Major League Baseball and the NBA and NFL. In those two leagues, players are paid largely based on their potential for the future and in baseball, they are paid for what they’ve done in the past with the high hopes that the players will replicate that success.
For instance, on July 30, 2010, Sam Bradford signed the richest contract for a rookie in NFL history. The contract is worth at least $50 million over 6 years with a maximum value of $86 million. All of this was before he had thrown a single pass in the NFL.
In his first three years with the St. Louis Cardinals, Albert Pujols had a slash line of .334/.412/.613, he hit 114 home runs and drove in 381 runs. He won a batting title and finished in the top four of MVP voting all three seasons. Lastly, Pujols was good for 23.6 WAR. In his first three seasons in a Cardinals’ uniform (2001-2003) 88 different players recorded at least 500 plate appearances in each of those three seasons. Only two bested Pujols’ mark of 23.6 WAR.
In those seasons, Barry Bonds earned $40.8 million.
Alex Rodriguez earned $66 million.
Albert Pujols earned $1.7 million.
So the point of that tangent is that in baseball, big contracts are handed out both for what a player has done as well as what a team hopes he will do.
THE NUMBERS
For the sake of argument, for this section we’re going to assume that Pujols signs for 10 years at $300 million. Will he be worth it? First of all, let’s talk about money that comes in from selling tickets. In 2009, teams drew an average of 2,447,686 people to their 81 home games and according to the Team Marketing Report, the average ticket price was $26.74. That means that in 2009 teams brought home an average of $65.5 million in ticket revenues.
If Albert Pujols were to sign and that was to increase ticket revenue by 10% (hardly an outrageous figure) that means that just with selling tickets, he’ll bring an extra $6.55 million to the average team. That doesn’t take into account the sales of concessions or the sales of merchandise which will spike as well.
There’s one flaw in that logic though; we’re not talking about the average franchise when we talk about the potential suitors for Pujols’ services. Now let’s examine the impact that he could have on the Yankees and Red Sox. Instead of average attendances of 2,447,686 and average prices of $26.74, the Red Sox had values of 3,062,699 and $50.24 while the Yankees had values of 3,719,358 and $72.97. instead of modest ticket revenues of $65.5 million, the Red Sox took in $153.8 million while the Yankees took in a ridiculous $271.4 million. Now imagine Pujols adding a potential 10% to those figures…
As far as the Red Sox and Yankees are concerned, the only real problems I see are a lack of flexibility with regards to their rosters and payroll and that the Yankees already have a high priced first baseman under contract for six more years.
Lastly, there is a very justified worry about giving a 31 year old player a 10 year contract worth this much money, especially given the long line of albatross type contracts that have hung around the necks of Major League franchises in the past… but have they?
There have been a grand total of 27 seasons in which a player earned more than $20 million. On average, they have produced 4.8 WAR (Wins Above Replacement player), a very good mark, but not quite worth that much money. However, there is one interesting trend amongst those players. As a rule, they kept very similar value to what they had before earning such large paydays.
Those 27 seasons were recorded by 9 different players and 6 of them put forth increased production (according to their WAR value) compared to when they were making less than $20 million per season. One of those can very easily be thrown out because in his only season earning more than $20 million, Barry Bonds was injured and limited to only 52 plate appearance. Therefore, 75% of the players in this sample (which Pujols is about to join) increased their Wins Above Replacement after signing their huge paydays.
Considering that Pujols has averaged 8.38 WAR per season in the majors, the thought of him increasing that average is just downright scary.
PREDICTION
He’ll get his 10 year contract; I have no doubts. For money, my guess is $250-300 million in guaranteed money with incentives and potential ownership options worth anywhere from $25 million to $100 million more. I know, way to narrow it down, right?
The tricky question is where he’ll end up. Based on what happened this past offseason, I’m not sure that the Cardinals are looking to give him a record breaking contract and if that’s the case, he won’t be playing in St. Louis next year. If he leaves St. Louis, my best guess is that the Cubs will come up with the money to sign him but only after seriously outbidding the Yankees and Red Sox…
Either that or he takes a serious paycut to join the Mariners…
I can dream, can’t I?
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