I probably don’t need to rehash here the stuff we’ve been writing all winter instead of writing about free-agent signings. We all know the market has been remarkably slow. We all know the theories behind the slowness. Most of those theories are probably correct to some extent.

What’s curious to me — and what prompted this article — is that, even after all of the free agents sign, there is a very real possibility that total payroll might actually decrease from a year ago. That’s pretty rare and the implications much worse than I had anticipated.

Near the beginning of the offseason, I took a pretty simple look at how much teams might be willing to spend in free agency. To get those numbers, I took Opening Day payrolls from last season and added 5% to every team — that is, roughly the observed rate of annual inflation of the game over the last few decades. With those numbers, I looked at current team commitments, including arbitration estimates, to get a sense of how much room every team had to spend.

This graph was created with payroll numbers from Cot’s Contracts:

Three months later, that graph is a bit outdated. The market has been slow, yes, but teams have nevertheless made some moves affecting payroll.

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Last week, I took a look at the unenviable position in which the Major League Baseball Players Association currently finds itself — and, in particular, the relative lack of leverage it is likely to have over ownership during the next round of collective bargaining in 2021.

In addition to noting that there are few substantive concessions the union could offer ownership, my post last week also briefly discounted the extent to which the threat of a work stoppage would benefit the players. The point probably merited further discussion, however, so this post is intended to more comprehensively explain my thinking in that regard.

How a Work Stoppage Would Most Likely Arise

To begin, it’s important to understand how a work stoppage would likely unfold during the next round of collective bargaining. As I previously explained back in 2016, any labor stoppage in Major League Baseball would — at least for the foreseeable future — most likely come in the form of a lockout by ownership rather than a strike by the players.

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The story of the offseason thus far has been the lack of activity on the free-agent market. As has been thoroughly covered elsewhere, this offseason is the slowest in recent memory, with seven of FanGraphs’ top-10 free agents still unsigned halfway through January.

Not only has this lack of activity generated considerable speculation regarding the cause of the offseason’s glacial pace (with theories ranging from a subpar group of free agents and a lack of competitive races to outright collusion), but it has also triggered talk about what the Major League Baseball Players Association should do in response.

Indeed, as I noted back in 2015, major-league players have seen their share of MLB’s overall league revenue plummet in recent years, with player payroll as a share of league revenues falling from a high of 56% in 2002 to just 38% in 2015. So while this offseason’s lack of activity may be unprecedented, in some respects it is simply the culmination of a trend dating back 15 years.

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“I know all teams have plenty of money.”

—Giancarlo Stanton

This season’s National League MVP, Giancarlo Stanton, recently addressed rumors that Miami might trade him, noting that the club could immediately become a postseason contender with the addition of pitching. His suggestion that all teams have plenty of money certainly appears to be a response to speculation that the Marlins intend to slash payroll a few months after having been purchased for more than a billion dollars.

It also stands to reason that he was commenting upon the fact any club could theoretically afford to acquire Stanton and the $295 million remaining on his contract. In one sense, he’s probably right. Revenues in baseball are at an all-time high. For a number of reasons, however, there’s not a direct correlation in baseball between revenues and spending.

One main reason is the competitive-balance tax, formerly known as the luxury tax. The cap for the tax has increased at only about half the rate of MLB payrolls. Accordingly, more teams find themselves up against a tax that was made more painful in the last CBA. Those taxes have pretty drastic effects on the trade market for Giancarlo Stanton, putting some teams out of the bidding and making the cost for others high enough that a competitive offer might be unreasonable.

Two years ago, Nathaniel Grow wrote an excellent piece about the implications of the luxury tax this century, showing how many teams used the tax as a cap, which has driven down spending relative to revenue over the last decade. In the last few years, the tax threshold has grown at a very slow rate, such that, by the end of the current CBA, teams with an average payroll will find themselves just a single major free-agent signing away from transcending it. The graph below depicts both average team payrolls and the tax threshold since 2003.

Over the last 15 years, payroll has grown at a pace 50% faster than that of the competitive-balance tax amount. However, the chart above actually overstates the rate at which the competitive-balance threshold has grown. From 2003 until the beginning of the previous CBA in 2011, the luxury tax grew at a rate pretty close to MLB payrolls, even if it did depress salaries compared to revenue. Beginning with the CBA that started in 2011 and the new CBA, which goes through 2021, the competitive-balance tax has seen barely any growth, especially when it comes to payroll.

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Scott Boras’s life is currently populated by buses to Playoffville, a mythical creature named J.D. Kong, and squirrels in trees with nuts. It’s time, in other words, for teams to get out the checkbook and start paying his clients.

How much those teams can spend will become more clear over the coming weeks. But we can estimate now. By looking at how much every team has on the books currently, it’s possible to identify those teams in the best position to make major moves, either by taking on a contract like Giancarlo Stanton’s or signing a big-name free agent such as Jake Arrieta, Yu Darvish, Eric Hosmer, or J.D. Martinez.

Last winter, there was considerable uncertainty with regard to spending, as the new CBA hadn’t yet been formalized. The players and the owners eventually reached an agreement, and while the implications of that agreement have yet to be fully fleshed out, we have a greater understanding of its effects than we did last year at this time. Teams know how much they can expect to pay and receive in revenue sharing. Big-market teams, meanwhile, have a much better idea of how much they might have to pay in taxes with competitive-balance tax amounts and penalties all spelled out. That could lead to a little more spending this winter than we saw last offseason, but teams could also be saving up for next year’s superior free-agent class, trying to avoid some tax penalties, or simply rebuilding.

To start, let’s take a look at current payroll commitments as teams start to spend more for next season. The chart below depicts a combination of guaranteed salaries and estimated arbitration salaries for each club — plus whatever extra payroll would be required at the league minimum to create a full roster. Data care of Cot’s Contracts.

The figures we see here aren’t all that surprising. The big-money Dodgers, Giants, Nationals, Red Sox, and Yankees lead the way. Way down at the other end we find the the lower-revenue Athletics, Brewers, Padres, and Rays along with the rebuilding Chicago White Sox and the Philadelphia Phillies, the latter having committed less than one-fifth the amount of the Los Angeles Dodgers.

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Since 2000, there have been 101 World Series games played. On average, one out of every eight of those games has gone to extra innings. The most recent World Series produced two such contests. On average, about 60% of World Series games have produced final scores within three runs. For the Houston Astros and Los Angeles Dodgers, it was five out of seven. Only about one-third of World Series matchups reach a Game 7, but the 2017 edition provided one of those, as well. The Astros and Dodgers both scored 34 runs. It’s hard to ask for more than we received — and the television ratings from the World Series reflect the appeal of the games.

The only piece really missing from this season’s championship was some real drama in the final game — and we almost got that, as well. Yes, the Astros quickly took a 5-0 lead and conceded just a single run over nine total innings. In five of those first six innings, though, their opponents recorded a run expectancy of at least .86 runs. While they scored a single run in the sixth inning, probability suggests that it “should” have been more. By the numbers, the Dodgers possessed greater than an 80% chance of scoring at least twice and a 50% chance of coming through three times. A 5-3 or 5-4 lead heading into the ninth would have made for some compelling baseball.

As it happened, the Dodgers didn’t live up to their probabilities over the first six innings, and the game lacked the sort of tension that would have drawn a few more eyeballs. Regardless, the World Series performed strongly in the television ratings for the second straight season. In 2004, the Boston Red Sox won the World Series, sweeping the St. Louis Cardinals and recorded a very high 15.8 rating That figure probably actually understated interest in the series: had it produced a couple elimination games, the ratings would have been even higher.

In the 11 seasons after the Cardinals-Red Sox contest, the World Series averaged a 9.4 rating, failing to hit double-digits after 2009, when the Yankees won their last championship. Last season reversed the trend, accruing a 12.9. This season followed suit with a strong 10.6, lacking the advantage of a Cubs teams looking to end its 100-plus-year drought.

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As the only league among the four major North American sports to operate without some form of a salary cap, Major League Baseball has always been in somewhat of a unique position. Without the traditional ceilings on team salary, the sport has always left itself open to financial disparity and all the articles and opinions that go along with it.

For 20 years, baseball has tried to curb big spenders through the use of luxury taxes. Six teams paid a total of $70 million in taxes this past year, and baseball decided to continue hammering away on high-payroll teams in the new CBA approved last December. While the financial penalties maybe caused teams to think twice before spending on the free-agent market, the luxury tax never directly affected a team’s ability to access one key pipeline of talent: the Rule 4 (or, June amateur) draft.

This all changed last December. As noted by Baseball America’s J.J. Cooper, exceeding the luxury-tax threshold will result in draft-related penalties beginning in 2018. The full list of sanctions is described on page 110 of the 2017-2021 Basic Agreement, but for those who don’t have that kind of time, they can be summarized in two points:

• If a team’s actual payroll exceeds $237 million in the 2018 season (increasing to $250 million in 2021), their highest draft pick will be moved back 10 places.
• If the offending team’s highest draft pick falls in the first six picks of the draft, their second-highest draft pick will be moved back 10 places instead.

For the first time, Major League Baseball has tried to affect a team’s ability to acquire amateur talent after spending large amounts of money. If a team wants to devote an outsized quantity of money (compared to the rest of the league) to acquiring established players, they have to risk the potential of their future by seeing a major source of young talent dry up slightly. However, if you look closely at the new penalties, you see less of a leash on high-payroll teams and more of an inadequate deterrent that will fail to provide any checks at all.

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Towards the end of last week, Maury Brown published the local television ratings for the league’s non-Canadian teams at Forbes. For the sport, the news is generally positive. Even as those in some quarters continue to perpetuate the narrative that “baseball is dying,” the data suggest otherwise.

This isn’t to say that Major League Baseball is without its flaws, of course. Greater attention ought to be paid to some areas, particularly to the matter of local youth outreach and accessibility to the sport, in general. As a business, however, baseball is booming. In terms of general popularity, attendance and television ratings suggest that MLB is a major force. An examination of the numbers reveals a series of encouraging trends. For example, we find that (a) many viewers prefer baseball to other available options and (b) winning clubs attract larger audiences than losing ones and (c) a successful Yankees club helps ratings.

Let’s take a look at some of these trends using the data from Brown’s piece, both overall and among teams. Before we begin, a note about ratings versus attendance numbers. Historically, the former respond to recent success more quickly than the latter. Team’s get a big boost after a strong season, with raised expectations for the next year. It takes some planning and expense for fans to actually attend games, though. To watch them on television, meanwhile, requires just a cable subscription and some free time. So expect these figures to be more reactive to success than similar numbers for attendance.

The chart below shows the change in winning percentage for MLB teams from 2016 to 2017 as well as the percentage change in local television ratings.

Eight of the 12 teams to have recorded at least a 20-point improvement in win percentage from last season have seen also experienced a more or less corresponding improvement in television ratings from. Of the four teams not to have benefited from a ratings bump, only the Diamondbacks have actually been good — although the Rays and Angels are each contending for a playoff spot.

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If the postseason started today, five teams in the top half of major-league payrolls at the beginning of the year would qualify for the playoffs: the Boston Red Sox, Chicago Cubs, Los Angeles Dodgers, New York Yankees, and Washington Nationals*. That means that five teams in the bottom half of Opening Day payrolls would make the playoffs as well — in this case, the Arizona Diamondbacks, Cleveland Indians, Colorado Rockies, Houston Astros, and Minnesota Twins.

*Numbers current as of yesterday.

Presenting the standings in this way might give one the impression that we remain in an age of great baseball parity. An age in which the Kansas City Royals can win the World Series, Cleveland can get there, too, and teams like the Pittsburgh Pirates can sustain multiple years of playoff contention.

That isn’t quite the case, however.

Of the clubs that feature top-six payrolls this season, three have playoff chances of at least 96% (Dodgers, Red Sox, Cubs). A fourth, the Yankees, aren’t too far behind. If the Twins can’t hold on to a playoff spot and are overtaken by anyone but the Rays, the only team in the bottom 12 of payrolls this season to make the playoffs will be the Arizona Diamondbacks, and even their spot isn’t a guarantee. Money buys players, and those players rack up wins for their ball clubs. Last season, at around this time, I took a look at the relationship between payroll and wins, and noted that the relationship was one of the strongest we had seen in a while. This is what it looked like at the end of last season.

Last season saw one of the strongest relationships between payroll and wins to exist in several decades. Here’s how the relationship has developed since 1990, with help from data courtesy Brian MacPherson. 

In the early 90s, Major League Baseball was coming off an era of collusion and lack of expansion. That, combined with a new influx of talent from outside the United States, meant that simply paying for major-league talent wasn’t the only solution to winning major-league games. (To track back further, read Dave Studeman’s piece in Hardball Times on the subject.)

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A half-dozen years ago, the Yankees developed a plan. As a team that had consistently exceeded the luxury-tax threshold, the Yankees were paying an extra 50% on every dollar over Major League Baseball’s competitive-balance tax rate. Their financial commitments also made them ineligible to recoup some of their revenue-sharing money. As a response, the club resolved to reduce spending ahead of the 2014 season, aiming for a payroll figure below the $189-million threshold. That would reset their tax rate to less than 20% in 2015 and reduce their commitments to revenue sharing.

That never happened, though. In 2013, the team failed to make the playoffs and, despite the major gift of having Alex Rodriguez’s salary removed from the books, the plan was scrapped and a massive spending spree undertaken. Four years after the plan was discarded, the Yankees will once again have that same opportunity. This time, they’re in a much better position to execute it.

While the prospect of saving a lot of money in salaries and taxes is enticing even for a team with as much money as the Yankees, the prospect of reaching the playoffs and driving up attendance is also financially beneficial — and probably more enjoyable, too. That’s likely the logic that informed the Yankees’ offseason spree a few years ago. After the club had Alex Rodriguez’s salary removed by suspension, the team went out and signed Carlos Beltran, Jacoby Ellsbury, Brian McCann, and Masahiro Tanaka for Derek Jeter’s final year. The result: a payroll once again over $200 million. The team drew more fans, but fell a bit shy of the playoffs. They secured a Wild Card spot in 2015 but promptly lost to the Astros.

Fast forward to the present, and the Yankees once again have a payroll that will exceed $200 million by season’s end — well above the $195 million competitive-balance tax amount for this season. They also don’t have a great shot at the playoffs according to our projections, which forecast them for 79 wins and a 14% chance of qualifying for the postseason. Just how long of a rebuild the Yankees can stomach remains to be seen, but here are the contracts coming off the books next season.

Among the players listed here, only Pineda figures to be worth the money he’s owed this season. The departure of Tanaka might hurt, too, even with a $22 million salary attached. In 2018, the Yankees will owe Ellsbury, Tanaka, Starlin Castro, Aroldis Chapman, Brett Gardner, Chase Headley and Brian McCann (a portion of his salary with the Houston Astros) a total of $101.2 million. Raises in arbitration to players like Didi Gregorious, Dellin Betances, Aaron Hicks, Austin Romine and Adam Warren might add another $20 million. If we conservatively figure another $15 million for player benefits, that places the club’s post-2017 commitments at something like $135 million, meaning the Yankees have about $60 million to make improvements while still remaining under the competitive-balance tax.

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