Article: MLB Shift Driving Market Realities

[srmcginnity]

Good article. I think these guys should be trying to get as much money as possible but the years teams are committing to is debilitating and a lot to eat (the roster spot as much as the mony that goes with the the years). Most of the time, these guys aren’t even close to their original value later in the contract. Which is the risk you take, 8 get it. But the owners and the data is telling owners not to take the risk of years anymore. Sure, pay the players more but do it with less years committed.

[Deduno Abides]

One thing I do want to address regarding a few comments. If you’re suggesting it’s unfair for players to have demands, I can’t agree. Again, they’re millionaires taking billionaires money. Sure, in comparison to our norms, you’ll never be able to wrap your head around it. From a basic economic structure though, that argument is rather baseless. Players deserve to be paid, regardless of how lopsided it looks in regards to societal norms.

Definitely agree, but note that this winter’s issues are substantially created by the players or their agents.

 

1. If Darvish and Martinez want more than the 5/$125 they’ve been offered, that’s their right, but they shouldn’t complain about being treated unfairly. Similarly, Boras has nothing to complain about when Hosmer is offered 7/$140, but wants an 8th year. Those offers are more than reasonable for those skill sets.

2. The players wanted salaries held down for younger players, thinking that would leave more of the pie for the veteran free agents. However, management has learned that the difference in quality is much less than the difference in cost, especially when factoring in the high risk that a long term free agent contract can cause long term damage to the team.

[Riverbrian]

 

The trouble with front offices now getting "sensible" about the returns on free agent contracts is it takes money out of the overpaid end of the system that won't go back into the underpaid end of the system. If this is going to continue, players need to reach free agency quicker so their peak seasons earn them more equitable pay.

 

You are absolutely right. However... I don't believe that quicker Free Agency is the answer. The Twins and small market brethren will get killed by this. Baseball needs hope in Pittsburgh and Kansas City to be truly strong. 

 

The owners and front offices need to realize that if they decide to play hardball with the free agents because the metrics are suggesting they should (and they do). They will force the players union to become impossible to satisfy during the next collective bargaining agreement negotiation.

 

 

 

 

[Riverbrian]

 

The problem I see with this, is that if the bulk of the players salary is determined by performance, only the desirable cities will attract top free agents; New York, Boston, DC, Miami, LA, San Francisco, etc.

What is Kansas City going to be able to offer to put them over any of those teams, if they can't offer more money?

 

Playing Time

[Riverbrian]

 

This all sounds great, but voluntarily reducing revenue will ultimately destroy the game.  You'll attract worse owners.  Teams will not have incentive to build beautiful ballparks, provide world class entertainment, or provide safe experiences for players or fans for that matter.  

Ironically, the issue we're talking about is one predicted by evil empire emperor himself, George Steinbrener.  When the Twins were being considered for contraction, revenue sharing was being discussed.  Steinbrener was furious, and called out the Twins ownership specifically.  His issue wasn't even that he'd have to pay money to his competitors so they could sign away his players through luxury tax and revenue sharing.  Even he could see that a level playing field would be beneficial to the game.  His anger arose from the fact that he would have to pay money to owners who would NOT be required to invest back into their team and improve the balance in the league.  In short, the Polads were pocketing the revenue sharing money.  Same as they pocket the added profits they promised they'd reinvest from increased team and stadium revenue.

The market between player and owner will balance itself out.  The problem is that the market at the ownership level is incredibly slow to react because there is almost no competition.  No one is that rich. Public ownership is an idea.  Potentially, a team could operate at break even or even at a deficit as long as shareholders allowed.  This would force other ownership to have to spend in order to compete.  The problem is, that human nature takes over.  The desire to make a profit will still be there.  Let's say you bought a $5,000 share, and at the end of the season, you could have a $6,000 share plus a $250 dividend, or have your share go down in value (you paid for the team based on profitability, and through payroll, you've made it less profitable) and sign more players/pay your farm system better, etc.  Suddenly, you're no better than the Polads.

The other option to achieve your goal of lower fan prices is to expand. You'll spread demand by increasing supply.  But that's just another word for watered down.  We see that even with implementation of a salary cap.  You have no super teams in the NFL.  Some might say the Patriots disprove that theory.  I disagree.  I think the Patriots have taken advantage of the watered down league. Ditto the Cavs and Warriors in the NBA.  If players take pay cuts to play for one team, no one can break the bank to compete with them.  It's not allowed.  We could have 60 MLB teams, and we'd have a lot lower ticket and beer prices.  Player salaries would come down.  Billionaires would dilute their profits.  It may be easier for teams to compete.  You'd probably only need 2 really good pitchers and a hand full of average roll players.  However, how much of a decline in overall product will people be willing to accept before leaving the sport?  If allowed the market would adjust, but not for maximum entertainment value, but rather maximum profitability. 

But since the league can't feasibly grow and shrink with every market change, we may have to just stomach some market inefficiency.  In this case, lack of reinvestment by ownership and wage disparity between players (brought about by the artificially low supply of teams and major league roster spots).

I'd support some form of revenue sharing and luxury tax over a hard cap, but teams would be required to meet a spending threshold in order to obtain funds.  I would also make players arbitration eligible immediately.  Why fight paying players what they're worth?  It's the 6 years of team control that is valuable.  This should combat wage disparity.  Tanking would be less advantageous.  FA contracts would be balanced by lower payroll pools and a larger FA pool (teams offering FA rather than going to arb) but also by the fact that FA would be relatively more valuable because of larger buyer pools and internal options having less payroll advantage.  You'd get truer values for both FA and for younger players.  

Finally, I'd give teams and players the option of buying out arb years while players are in the farm system.  IE, young players often need more money when they're getting started.  Then have more money than they need once established.  If you want 3 years of league min. salary, with no arb options (current system) you have to buy those years out before the players debuts.  
 

 

This is an excellent post. It's really hard to argue any of it. 

 

I gave you a like... However... I'm still going to get the water to water it down. 

 

Baseball has a numbers problem that will have a bill to paid in the near future.

 

Baseball needs to focus on cume in the short term and return to bleeding the customer for more after they restock with sell-able demographics. 

[Mr. Brooks]

Playing Time

I'm talking about really good players. Not players whose playing time would be in doubt.

[TheLeviathan]

Until baseball starts sharing revenues, im done giving the league my money. Its already nothing more than a feeder system for big markets. A breaking point is coming, i hope the fans win this time. The health of the game demands it.

[Riverbrian]

I'm talking about really good players. Not players whose playing time would be in doubt.

I know... it’s all I could come up with. 

[Nine of twelve]

Playing Time

For low-level FA's that will be a factor. For high-level FA's playing time will be the same everywhere.

[Riverbrian]

 

For low-level FA's that will be a factor. For high-level FA's playing time will be the same everywhere.

 

I know... it’s all I could come up with. 

[laloesch]

This all sounds great, but voluntarily reducing revenue will ultimately destroy the game. You'll attract worse owners. Teams will not have incentive to build beautiful ballparks, provide world class entertainment, or provide safe experiences for players or fans for that matter.

Ironically, the issue we're talking about is one predicted by evil empire emperor himself, George Steinbrener. When the Twins were being considered for contraction, revenue sharing was being discussed. Steinbrener was furious, and called out the Twins ownership specifically. His issue wasn't even that he'd have to pay money to his competitors so they could sign away his players through luxury tax and revenue sharing. Even he could see that a level playing field would be beneficial to the game. His anger arose from the fact that he would have to pay money to owners who would NOT be required to invest back into their team and improve the balance in the league. In short, the Polads were pocketing the revenue sharing money. Same as they pocket the added profits they promised they'd reinvest from increased team and stadium revenue.

The market between player and owner will balance itself out. The problem is that the market at the ownership level is incredibly slow to react because there is almost no competition. No one is that rich. Public ownership is an idea. Potentially, a team could operate at break even or even at a deficit as long as shareholders allowed. This would force other ownership to have to spend in order to compete. The problem is, that human nature takes over. The desire to make a profit will still be there. Let's say you bought a $5,000 share, and at the end of the season, you could have a $6,000 share plus a $250 dividend, or have your share go down in value (you paid for the team based on profitability, and through payroll, you've made it less profitable) and sign more players/pay your farm system better, etc. Suddenly, you're no better than the Polads.

The other option to achieve your goal of lower fan prices is to expand. You'll spread demand by increasing supply. But that's just another word for watered down. We see that even with implementation of a salary cap. You have no super teams in the NFL. Some might say the Patriots disprove that theory. I disagree. I think the Patriots have taken advantage of the watered down league. Ditto the Cavs and Warriors in the NBA. If players take pay cuts to play for one team, no one can break the bank to compete with them. It's not allowed. We could have 60 MLB teams, and we'd have a lot lower ticket and beer prices. Player salaries would come down. Billionaires would dilute their profits. It may be easier for teams to compete. You'd probably only need 2 really good pitchers and a hand full of average roll players. However, how much of a decline in overall product will people be willing to accept before leaving the sport? If allowed the market would adjust, but not for maximum entertainment value, but rather maximum profitability.

But since the league can't feasibly grow and shrink with every market change, we may have to just stomach some market inefficiency. In this case, lack of reinvestment by ownership and wage disparity between players (brought about by the artificially low supply of teams and major league roster spots).

I'd support some form of revenue sharing and luxury tax over a hard cap, but teams would be required to meet a spending threshold in order to obtain funds. I would also make players arbitration eligible immediately. Why fight paying players what they're worth? It's the 6 years of team control that is valuable. This should combat wage disparity. Tanking would be less advantageous. FA contracts would be balanced by lower payroll pools and a larger FA pool (teams offering FA rather than going to arb) but also by the fact that FA would be relatively more valuable because of larger buyer pools and internal options having less payroll advantage. You'd get truer values for both FA and for younger players.

Finally, I'd give teams and players the option of buying out arb years while players are in the farm system. IE, young players often need more money when they're getting started. Then have more money than they need once established. If you want 3 years of league min. salary, with no arb options (current system) you have to buy those years out before the players debuts.

 

Public ownership of many mlb teams is a fantasy. And allowing players to be arbitration eligble from the get go will only make matters worse for the have nots franchises. The simple truth is this. You have 4 or 5 teams that have north of $400 million in revenue, and 4 or 5 more with 300 million + in revenues with the Yankees leading the pack by A LOT. What happened before the luxury cap? These very teams lead by the Yankees, Dodgers, etc. went out and bought every player they needed by pillaging the smaller franchises of younger players as they approached free agency and realized they couldn't afford to sign their premier free agents. They did this over and over and over again from the late 90's, through the 2000's. Its not until the luxury tax started kicking in that finally put the brakes on the big market spenders. Unfortunately, the damage has been done. These reckless spenders have driven salaries so high along with player expectations that small market teams are left with no choice but to intentionally tank and force rebuild in order to attain a short window of contention before repeating. A hard salary cap years ago would have prevented this in my opinion. Edited February 5, 2018 by laloesch

[Jham]

Public ownership of many mlb teams is a fantasy. And allowing players to be arbitration eligble from the get go will only make matters worse for the have nots franchises. The simple truth is this. You have 4 or 5 teams that have north of $400 million in revenue, and 4 or 5 more with 300 million + in revenues with the Yankees leading the pack by A LOT. What happened before the luxury cap? These very teams lead by the Yankees, Dodgers, etc. went out and bought every player they needed by pillaging the smaller franchises of younger players as they approached free agency and realized they couldn't afford to sign their premier free agents. They did this over and over and over again from the late 90's, through the 2000's. Its not until the luxury tax started kicking in that finally put the brakes on the big market spenders. Unfortunately, the damage has been done. These reckless spenders have driven salaries so high along with player expectations that small market teams are left with no choice but to intentionally tank and force rebuild in order to attain a short window of contention before repeating. A hard salary cap years ago would have prevented this in my opinion.

I agree on the disparity aspect. That's why I argued for a revenue share. But rather than a cap which tends to hurt players, a luxury tax and revenue share mandatory spending provisions makes sense to me. Part of what made teams into b Yankee farm systems want that they couldn't compete, but rather they refused to compete. The have not teams engage in a race to the bottom. Fans lose out. Players lose out. Cheap owners pocket extra money and the Yankees who willingly spend don't subsidize the teams that don't. I get that the Yankees can afford to be more aggressive. But they certainly don't have to be. They still push the envelope.

 

And I don't see how arb eligibility changes things for the haves and have nots. Years of control remain the same. It prevents stockpiling of young stars at a discount which is more fair to players, but you can always buy out arb years, and I think it would drive down the price of free agents on the higher side.

 

But I'm not dead set against a cap.

Edited February 5, 2018 by Jham

[Jham]

This is an excellent post. It's really hard to argue any of it.

 

I gave you a like... However... I'm still going to get the water to water it down.

 

Baseball has a numbers problem that will have a bill to paid in the near future.

 

Baseball needs to focus on cume in the short term and return to bleeding the customer for more after they restock with sell-able demographics.

Agreed. The free market has limitations. It can devolve into a race to the bottom. What's most profitable in the short term is often, perhaps rarely the most sustainable in the long run. Too many decisions which tend toward profits instead of fans and the free agency problem will solve itself because there won't be fans, free agent dollars, or competition.

[beckmt]

You will never get the owners to agree to a revenue sharing, you will never get the players to agree to a hard salary cap.  Something has to give or we are looking at a major workstopege when the current contract runs out.  

Some of this is on the owners, some of this is on agents like Boras who always seem to find an owner to give into his demands.  What you are seeing is an adjustment period, and the players do not like it.

 

I had wondered how long it would take the teams to realize the small quality difference between the average position player and the top flight of youngsters coming up.  And this verus the dollars between the two.  Players have played the owners for being stupid.  Payback looks like it is coming.

[laloesch]

 

As I replied in the blog space, the players should continue to get a significant portion of the pie. I'll side with millionaires over billionaires all day long. The problem is they're attacking it in the wrong way, and not playing into market trends.

 

LOL, I don't side with either one because at the end of they day they are both getting rich off of me via my already high cable bills.

[ashbury]

You will never get the owners to agree to a revenue sharing

But the big teams already subsidize the small teams in various ways. The draft, the years of team control over a player at minimal salary, the new luxury tax - these are a way of roping off some of the talent, and letting the bidding happen only for a subset of worthwhile players, and making it punitive to really go overboard. Artificially making a small team's dollars go farther is a form of sharing. The big teams understand the dilemma - they develop the big markets and should reap a lot of the reward for doing that, but it would be for naught if there are not enough opponents to play against to make it interesting. Of course there has to be incentive for the small teams to develop their own markets to their fullest too. It is all a matter of scale, but sharing has already been decided long ago. We're now just debating a further tweak to the process. A syndicate of unequal partners probably can never remain static.

 

[Mike Sixel]

IMO, the issue is also partly that winning has very little to do with revenue any more....so what, exactly, is hte incentive to spend money to win?

 

TV, MLBLAM, radio, revenue sharing, etc.......has there ever been a time where winning mattered so little to revenue?

 

As for the solution, there are SO MANY unintended consequences of any change that you almost have to change the whole compensation system, if you change any of it. 

 

I don't see any long term issues to the sport, or most any sport, though. It's all a bunch of talk, and yet tv payments keep going up, and ticket prices keep going up, and teams keep making more money.....

 

for all the talk of the "NFL IS DYING"....Fox sports just agreed to pay $100MM  more per year for Thursday night football.......

[KirbyDome89]

I don't think anybody would rather see the owners pocketing $ rather than trying to improve the team. 

 

That said, as a Twins fan, I want the team to make smart decisions. If there was a need at 1B and Hosmer was asking for 8 years I doubt I'd be thrilled if MN pulled the trigger on that. I've been on the Darvish train all offseason, but even I cringe at a 7th year.

 

I agree 100% with the article that players should should make demands, but I think it was a great point to also say those demands should be rooted in reality. If this was a case where owners were colluding to depress the market and players were actually being undervalued than the agents who have been vocal would have a legitimate gripe. Ted was right, there is an upper threshold. IMO it looks like the top end FAs have made demands that go beyond that threshold, and have refused to back down, and in doing so they're holding the entire market hostage.  

[jkcarew]

 

I don't see any long term issues to the sport, or most any sport, though. It's all a bunch of talk, and yet tv payments keep going up, and ticket prices keep going up, and teams keep making more money.....

 

This is true, but I see it as a bubble forming...because it really doesn't seem to make sense to me.  Viewership is declining and attendance is dropping.  The popularity of MLB is not on a positive trend.  How long can the revenue model hold?  It seems something's got to give.

 

Admittedly, bubbles can last a long time...and sometime they don't end in ugliness because changes happen that relieve the pressure before things get too dire.  Maybe we're starting to see that here.  But I can't say I'm optimistic at all.

[Mike Sixel]

 

This is true, but I see it as a bubble forming...because it really doesn't seem to make sense to me.  Viewership is declining and attendance is dropping.  The popularity of MLB is not on a positive trend.  How long can the revenue model hold?  It seems something's got to give.

 

Admittedly, bubbles can last a long time...and sometime they don't end in ugliness because changes happen that relieve the pressure before things get too dire.  Maybe we're starting to see that here.  But I can't say I'm optimistic at all.

 

and yet fox just increased payments to the NFL by nearly 20% per year for 1 game a week......no bubble bursting in site just yet.

[jkcarew]

 

and yet fox just increased payments to the NFL by nearly 20% per year for 1 game a week......no bubble bursting in site just yet.

I see the NFL challenges as political (player health, perceptions of player conduct, etc.), I see MLB's as more fundamental to their economic structure.

 

But your point is well taken.  I worry too much.  The national debt has bothered me for about a quarter century now...and the current yield on a 10-year treasury bond is 3%. 

[Mike Sixel]

 

I see the NFL challenges as political (player health, perceptions of player conduct, etc.), I see MLB's as more fundamental to their economic structure.

 

But your point is well taken.  I worry too much.  The national debt has bothered me for about a quarter century now...and the current yield on a 10-year treasury bond is 3%. 

 

sports have been part of the entertainment world for thousands of years. Sure, baseball will eventually die off, but it will be replaced with something. Probably rollerball....

[Jham]

I see the NFL challenges as political (player health, perceptions of player conduct, etc.), I see MLB's as more fundamental to their economic structure.

 

But your point is well taken. I worry too much. The national debt has bothered me for about a quarter century now...and the current yield on a 10-year treasury bond is 3%.

National debt is roughly equivalent to the yearly Gross National Product. Jham's debt is roughly equivalent to 3-4x his gross annual income.

 

Go to law school and buy a house they said. It'll be fun they said.

 

My mortgage lender has assured me I'm carrying a healthy level of debt given the interest rates. So I'm going to say the US debt isn't the biggest economic issue we're facing. It's all relative. Which is the point of this discussion.

 

I still favor early arbitration. Get rid of the incentive to tank and save money. Small teams can still compete as top salaries should come down (as we're seeing already).

[bobs]

  Darvish wants to go to LA or NY.  LA and NY don't want to spend over the luxury threshold because of the luxury tax.  There's your slow pitching market.  If they stay under it this year and then go over it next year when guys like Harper and Kershaw are available, I believe tax is lower.  

  Darvish will be the first pitching domino to fall.  To be honest, guys like Cobb, Lynn, etc., are not worth what they'll get or at least what they're trying to get.  Being the 2nd best pitcher in a weak FA market doesn't mean you get big money.

  For position players, advanced metrics are telling us what any baseball fan with some common sense knew all along...guys who hit 35 HR and drive in 100 runs really aren't helping their team all that much if they can't get on base any other way and are a liability on defense.  Those same metrics say guys like JD Martinez are not as valuable as once thought.

  Similar situation to pitchers.  B/c Moustakas is the best 3B available doesn't mean he should get what Manny Machado will get next year.  To me, that kind of sums up this whole freeze on FA.  FO are just getting smarter with how they spend.

  Last, I have a real hard time having sympathy for players like Hosmer who turn down a 7-year offer for an obscene amount of money (even if we don't know the exact numbers, no matter what the offer is it's an obscene amount of money).  I make $45k working my tail off in a profession that actually makes a difference in this world - teaching.  These guys are pampered athletes who won't sign for "only" 15million a year or for "only 5 years".  Give me a break.