League-Wide Payroll Spending, 2008-2012

As we head into the 2012-2013 offseason, I thought it was a good time to take a snapshot of total payroll spending by the 30 Major League Baseball teams over the last five seasons, in order to see how much total spending had increased year-over-year and how that compared to the inflation rate in the same year-over-year time period. We relied on the team payroll numbers published each spring by the Associated Press.

First, actual year-to-year payroll numbers for the 30 major-league teams combined:

And this is FanGraphs, of course, so we’ll give to you in chart form, as well:

We see a dip in spending from 2008-2009, which reflects the recession America faced in the same time period. Then we see slow growth from 2009-2011 and a significant increase from 2011 to 2012. The big jump in the last year came, in part, from the Angels, Tigers, Rangers and Marlins throwing their cash around in free agency. However, the small market teams also raised their payrolls significantly from 2011 to 2012, and these payroll increases more than offset payroll cuts by the Yankees, White Sox, Twins, Cubs and Mets.

Now let’s look at how payroll spending compared to inflation. I started with the 30-team combined payroll for 2008 and used USInflationCalculator.com to calculate what the combined payroll would have looked like if it tracked year-to-year inflation from 2008 to 2012.  Those figures are then compared to the actual growth figures shown above.

And now in chart form:

The changes in payroll spending do not track the inflation rate precisely, but from 2008 to 2011, it’s pretty close. The big difference, of course, is the substantial increase in spending from 2011 to 2012, which outpaced inflation to a significant degree.

From a purely economic standpoint, the relationship between MLB payroll growth and U.S. Inflation should be pretty strong, but MLB can grow their own revenues at a faster rate than the U.S., and when they do, that money makes its way to the players. The real question for this off-season is whether the promise of future revenue — in the form of new national television contracts that go into affect in 2014 — will lure teams into spending it this winter on a free agent class that is weak at the top end, or whether they’ll wait until those checks actually start arriving to increase the amount that goes to the players. Because most long term contracts are backloaded, teams have the capability of using known increases in future payroll to sign players even before their payroll actually goes up.

This is precisely what the Marlins did last year, for instance. Here are the obligations, by year, that they committed to Jose Reyes, Mark Buehrle, and Heath Bell last winter.

2012: $23 million
2013: $32 million
2014: $46 million
2015: $42 million (just Reyes/Buehrle)
2016: $22 million (just Reyes)
2017: $22 million (just Reyes)

The Marlins structured their free agent deals so that they weren’t really putting out much in terms of salary up front. They essentially borrowed from future payrolls to upgrade their team in the present, even before they had realized any of the boost they expected to get from their new stadium.

Will other teams follow suit, knowing they have significant national TV revenue increases beginning next year, or will they take a look at the crop of potential free agents and decide that there aren’t any players worth borrowing from the future to acquire in the first place? That remains to be seen, but without an Albert Pujols or Prince Fielder to command a huge contract, it seems likely that we’ll see overall payroll growth go back more towards the growth rate from 2008-2011, rather than what we saw last winter. Next year, though, once those revenues actually kick in, all bets are off.