MLB Payroll Might Decrease for First Time in Long Time

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Three months later, that graph is a bit outdated.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.

That graph also reflects estimates of potential spending. We are now at a point in the offseason where actual spending is more relevant, especially as it relates to our expectations. Instead of framing the information as potential to spend, it is probably now better looked at in terms of how much payroll teams are cutting compared to expectations. To that end, here is the same information from above, but viewed in terms of a percentage increase or decrease compared to expectations.

Yikes. Milwaukee has seen their payroll grow quite a bit; it could grow even higher, too, as they step out of their rebuild. Arizona’s commitments have increased, too, although a lot of that has been the result of arbitration raises. Houston’s big move was to add Justin Verlander last year. That’s the cause of their larger obligation.

On the other end of the spectrum, we have a bunch of teams not only failing to add salaries, but also refusing to replace the salaries of players who are departing. These changes are massive and across the board. There is some spending left to be done, but it is pretty clear that we won’t have anywhere near a 5% increase in spending this year. We can run the graph again, showing comparisons to Opening Day last year without a 5% increase, and it still looks bad.

Again, there are still free agents to be signed. Nevertheless, this doesn’t look good. More than half the teams in the league have cut spending and nearly one-third have done so by more than 20%. The graph still understates the amount of spending that is being cut because those teams on the left already had low payrolls. Increasing the Brewers spending by 43% only augments their payroll by $27 million. Nine teams are seeing decreases of at least that much. All of the increases, meanwhile, amount only to around $147 million. The drops of the Detroit Tigers, Los Angeles Dodgers, and New York Yankees add up to $147 million alone.

On Opening Day last year, payroll commitments amounted to roughly $4.1 billion. Right now, with the commitments that have been made thus far, we are looking at $3.78 billion. If not another dime were spent, that would be a decrease of nearly 8%, which would be unprecedented. In the last 30 years, here are the situations where payroll has gone down.

• In 1994, payroll declined about 4% from 1993 as the previous CBA expired. There was eventually a strike followed by a lockout.
• In 1996, payroll declined about 3% from 1995 as a new CBA again needed to be negotiated. Payroll would compensate for that shortfall in 1997 with a 19% increase, the first of five straight double-digit percentage increases.
• In 2004, payroll decreased by around 2% after modest growth the previous two seasons. Notably, the 2004 season was the first one where players could be suspended for a positive PED test. Since that time, payroll has increased at around 6% annually even with slow growth from 2009 to -11.

We aren’t going to see an 8% drop in payroll like the numbers currently reveal, but it is unlikely that we’ll witness a return to last year’s numbers. I went through the unsigned players in Dave Cameron’s top-50 free-agents post from the beginning of the offseason. I counted 24 players on that list yet to be signed. If we go by the crowd’s estimates, those players will sign deals for a total of $309 million. If that were to happen, we’d be just about $10 million short of the figure from last year. Add in anything close to $60 million for other players not on the list, and we will see something under 1% in terms of an increase from last year. That isn’t good, but we might put some hope in a one-year blip that sees some overcompensation next year with better players and more teams competing.

It’s important to note, however, that the $309 million figure I’ve cited above is based on crowd estimates that might be overstating what players will receive in the current market. If those players’ salaries end up getting discounted by 20%, we are going to be talking about a payroll that did not raise from 2017 to 2018 despite massive revenue streams available to owners. The time has already passed for players to think a typical increase in payroll is coming this season. The question now is whether players will see any increase at all.

All of the theories about why free agency is slow are probably right. There aren’t enough teams in competitive situations; teams at the top are secure, while teams at the bottom have little reason to spend. The players in this market certainly have flaws. The new CBA has emphasized the benefits of getting under the competitive-balance tax and two massive spenders are doing it simultaneously. Maybe teams have gotten a little bit smarter. Maybe Scott Boras is still going to get owners to bid against themselves at some point. Theories are boundless, but the results are pretty close to being in. The players are about to have stagnant, at best, payroll numbers next year at a time when owners are making greater profits than ever. That’s a pretty bad look for baseball.