MLB Players Ought to Fight for a Payroll Floor

Free agency, as we know it — as major-league players know it — is under duress.

The current post is related to one I published yesterday on stresses facing the middle-tier player in free agency. But the issue is really larger and more fundamental in scope than that. A comment from an anonymous major-league GM — which appeared in a piece by Yahoo’s Jeff Passan — struck me:

Added a GM: “Teams are smarter. They know how terrible free agency is.”

Those are fighting words: “They know how terrible free agency is.” The union was built on free agency. Even a decade ago, free agency was seen by players as a panacea. Well over a billion dollars will be spent on free agents this winter.

At FanGraphs, we often write about and examine moves from the club’s perspective. When analyzing free-agent signings, trades, etc., we often praise or criticize those decisions from a team-based perspective because we ultimately are concerned with wins and losses, with the process of roster construction. We praise efficiency. We don’t write as often from the players’ perspective. Efficient spending, however, is not a friend of the player.

While MLB revenues keep breaking records, the players’ slice of the pie appears to be shrinking. While MLB players are enjoying record average salaries, their share of revenues has declined over the last 15 years. And with the lukewarm hot stove to begin the present free-agency period, there should perhaps be some concern from the MLBPA that this trend is only going to deepen.

While the stars will be paid, while J.D. Martinez and Yu Darvish will sign lucrative deals, while Bryce Harper is expected to sign a record contract next offseason in a historic free-agent class, player age is trending downward and teams have never more valued young, pre-arbitration talent.

Wrote Nathanial Grow for FanGraphs back in 2015:

Since the dawn of the free agency era in 1976, the MLBPA has relied on a simple but – for the most part – insanely effective strategy. By staunchly opposing a salary cap, the union ensured that owners would remain free to spend as much as they wanted on player salaries. And because a sufficient number of owners have always been willing to sign players to reckless contracts – gains that trickle down to the entire union membership through the salary arbitration process – players’ salaries rose exponentially throughout the 1980s, 1990s and 2000s. ….

At one point, the prospect of a salary cap was bad for players. But teams are operating differently now; they’re seeking efficiency. They’re often operating more rationally given the rules in place, with a better understanding of aging curves and performance value. (Though one could argue some teams have cost themselves modestly priced wins in preference for greater efficiency.) Free agency has largely been de-emphasized. In a perfect world, a team would have a roster full of homegrown, pre-arb stars. There is no mechanism in place forcing owners to spend. Grow found that players’ share of revenue had peaked at 56% in 2002 and declined to 38% in 2015.

Ironically, a cap (with a floor) system, against which the MLBPA has fought in the past (see: the 1994 strike), would perhaps now best serve players.

The other major North American pro sports have cap-and-floor systems that guarantee players a certain percentage of revenue, typically around 50%, when including benefits. What’s remarkable to this author is that, while baseball has a soft salary cap in the form of its luxury tax, while the industry has a mechanism to limit spending, there is no floor, no mechanism, to force spending on the lower-end of payrolls in a $10 billion industry where smaller-market teams enjoy revenue-sharing.

So what would a salary floor look like? I employed the NBA’s system as a model. Among major sports, the NBA is perhaps most similar to baseball in how it generates revenue, having both significant local and national media revenue streams, and a high volume of games. I used a similar approach while writing for the Pittsburgh Tribune-Review two years ago. In the NBA, the cap is set at 44.7% of revenue — or basketball-related income — divided by 30 clubs. The salary floor is 90% of the cap.

In baseball last season, using that 44.7% rate, the floor would have been $134 million in team payroll. A $195 million luxury tax is already in place

How many teams would sit below the floor according to Spotrac salary data? Last year, it would have been 11 of 30 clubs.

The five teams in red currently occupy a space above the $195 million luxury tax, according to Spotrac. USA Today reported that six teams were above the tax in 2017 after adding in benefits and total 40-man roster costs. The teams in yellow are below the hypothetical floor. Those clubs below the floor would have combined for $386 million less spending in 2017 than is such a floor existed. In the NBA, any such deficit in salary goes back to the players.

(The Spotrac figures do not include player benefits, amateur bonuses, and minor-league costs. This is just a study of MLB payroll. But the $10.5 billion revenue figure from MLB does not include all baseball-related revenue, including MLBAM revenues.)

Baseball is different from the NFL and NBA because it develops its own players. Major League Baseball contended back in the spring of 2016 that, when including amateur bonuses and spending on its minor-league system, players’ share of revenue has remained steady. MLB released financial data to the Associated Press in the spring of 2016 as evidence. MLB claimed that the players’ share was still above 50% and holding steady.

Of course, since that time, the international system has been overhauled, restricting signing bonuses. Not only is the middle-class of player being squeezed, the unrepresented player — the amateur player entering the game — has seen his earning and negotiating power greatly diminished.

Scott Boras said during the 2015 offseason that revenues had dropped to 43% when including MLBAM revenue — about a 10-point difference from MLB’s numbers. Boras knows how efficiently teams are being run, as he has developed a practice in recent years of doing an end-around of front offices and appealing directly to ownership.

Disputes between millionaires and billionaires typically don’t engender much sympathy from the public at large, but when it involves a public institution, like Major League Baseball, it should have our attention, because there is perhaps a growing threat to labor peace.