Examining the Economics of MLB’s Latest Proposal to the Players

On Tuesday, MLB delivered its first economic proposal concerning player pay to the MLBPA since the two sides reached an agreement in March. There were reports that owners had previously agreed to propose a 50/50 split of revenue for what looks to be an abbreviated season played to empty ballparks, but after that potential offer leaked, it was never formally proposed due to the negative public response from the union. MLB’s actual proposal, which includes a paycut for all players from the prior pro-rated agreement in March, was particularly harsh to those making the most money, as the proposed cuts were on a sliding scale with the highest-paid players taking the deepest reductions. Jay Jaffe laid out yesterday why the proposal wasn’t likely to fly with the players, a sense confirmed by Max Scherzer last night:

After discussing the latest developments with the rest of the players, there’s no reason to engage with MLB in any further compensation reductions. We have previously negotiated a pay cut in the version of pro rated salaries, and there’s no justification to accept a 2nd pay cut based on the current information the union has received. I’m glad to hear other players voicing the same viewpoint and believe MLB’s economic strategy would completely change if all documentation were to become public information.

Jeff Passan and Jesse Rogers first reported the proposed salary breakdowns at ESPN:

The formula the league offered, for example, would take a player scheduled to make the league minimum ($563,500), give him a prorated number based on 82 games ($285,228) and take a 10% cut from that figure, leaving him with a $256,706 salary.

The scale goes down as salaries go up, with every dollar:

• $563,501 to $1 million paid at 72.5%
• $1,000,001 to $5 million paid at 50%
• $5,000,001 to $10 million paid at 40%
• $10,000,001 to $20 million paid at 30%
• $20,000,001 and up paid at 20%

On top of salary, there’s also roughly $200 million in proposed playoff bonuses that would mostly go to the more highly-compensated players. To figure out exactly how the compensation might work out, I consulted our payroll pages at RosterResource. In an 82-game season, the nearly 500 players scheduled to make more than $1 million in a full 2020 season would take in around $900 million, that compared to the $3.9 billion they were originally slated to receive if a full season had been played. Around 300 more players were set to make Opening Day rosters making roughly the league minimum salary, with another couple hundred expected to play during the season at the same rate. Those players were to receive around $130 million under MLB’s plan as opposed to $145 million under the March agreement. Expected buyouts and bonuses add another couple hundred million, making the pre-playoff player payroll under MLB’s proposal around $1.25 billion or around $1.45 billion with playoff bonuses.

According to MLB’s own projections, players were set to receive $2.36 billion under the pro-rated plan. As a result, this plan involves a pay cut for the players amounting to over $900 million, a reduction of nearly 40% compared the March agreement or a 67% cut compared to full-season salaries. The plan is slightly different than the 50/50 proposal floated a few weeks ago, but monetarily, the new plan shows few differences. Let’s look at the different plans compared to the March agreement with and without playoffs:

The owners waited two full weeks after approving the 50/50 split proposal to come up with an alternative only to give the players a renegotiated pay plan that is just as bad financially. It’s possible the owners believed they could drive a wedge between the union’s members by asking the highest-paid players to take the biggest cuts. The table below shows how the proposed pay cuts break down based on pre-pandemic 2020 salary information:

We can see the top 5% of players salary-wise are taking the biggest hit while the players further down the pay scale still see a pay cut from the March agreement, though one that is less significant than the group at the top. When we look at the total amounts given up by group, we see the same effects:

These numbers don’t include the $200 million in potential playoff bonuses, but they gives us a general idea of which players would be giving up the most money. We see the vast majority of players accounting for only about 5% of the pay cut from the March agreement. Perhaps the plan was to cause discord between the higher-salaried players and those making a million or less, but there’s further reason to think that plan might not work beyond that.

In the March agreement, MLB agreed to advance players $170 million. In the event that the season was played, that advance would count toward players’ season salaries. If no season took place, the money was for the players to keep. Established players who had reached arbitration were to receive around $287,000 in April and May regardless of salary level. Younger players like Juan Soto were to receive around $60,000 for the first two months. An established player expected to earn $1 million this year would receive roughly $416,000 under MLB’s current plan. To play an 82-game season, that player would receive just $129,000 more than he already received compared to not having a season at all.

Below is a table that includes potential playoff money for players, showing how much of their potential salary they have already received and consequently, how much they keep if there’s no season:

Well over half the players have already received more than 20% of MLB’s proposed pay and for a significant number of players, that figure is at 50% or more.  While a few hundred thousand dollars isn’t nothing, when factoring in the health risks and the money already received, the plan isn’t as beneficial to younger players as it might seem. MLB came up with a plan designed to upset the game’s biggest, highest paid stars while also failing to provide significant incentive for the younger players to break ranks. MLB has asked the players to shoulder a billion dollar pay cut on top of the $2 billion cut already taken in the March agreement, but it hasn’t provided justification beyond talking points for doing so. Max Scherzer and the players seem upset and they appear unified. The owners had two weeks to come up with a decent proposal, and instead they made an offer that only takes the parties further apart.