Player Salaries: A Mix of Merit and Tenure

Pay scales using merit and tenure seem to be opposites of one another. Under the tenure system, pay rises as more service time accrues; under the merit system, pay is correlated with performance. While two the models might seem at odds, the Major League Baseball Players Association, along with Major League Baseball, have created a bit of a hybrid between the two systems.

Those players without much service time, like Gerrit Cole and Jacob deGrom, have their salaries set for them without regard for their performance, while veteran players like David Price and Jason Heyward are free to receive pay based on their track record and expectation of future performance. While we can debate how fair this system is, particularly for young players, what is more certain is the disparity in pay between players — it is massive.

There will be 750 players on MLB Opening Day rosters, and while we do not yet know the identity of all those players, given the contracts that have been given out, we can get a fairly good idea of the breakdown of salaries and service time of the group as a whole. Looking at all the players with guaranteed contracts and providing minimum salaries to fill out the roster in the same manner I did when projecting 2016 payrolls for all MLB teams, we can get a decent idea of how money is spread out among players.

Taking a broad look at salaries with respect to service time, here is a scatter plot of 2016 salaries and service time.

Salary and service time are well correlated with an r-squared just shy of .5 for the 2016 season. The plot points mass together to form a line right just above zero as the service time increases. That line doesn’t quite do the number of players it represents justice, as those players represent more than one-third of all MLB players. The table below shows the number of players, their total salaries and the average salaries depending on the class of player: pre-arbitration eligible, arbitration eligible, and six-year veterans.

At some point in time during the next year, someone will complain about this or that player receiving millions of dollars to play a kid’s game. There’s greater than a one-in-three chance, however, that he’ll be factually incorrect. Note: the pre-arbitation numbers above do include Cuban and Asian free agents. They also represent 17 of the 21 pre-arbitration players making at least $1 million dollars (Christian Yelich, Jon Singleton, Kolten Wong, and Yordano Ventura are the others). Removing those players pushes the average salary down to around $520,000 and the total money received by that group to around $128 million. Clayton Kershaw, David Price, Zack Greinke, and Justin Verlander will make about as much this season as nearly 250 pre-arbitration eligible players who make Opening Day rosters.

While free agency is often viewed as the promised land, the relationship between service time and salaries is more linear that we might think. The biggest raise occurs not in making the jump to six years of service time, but getting to three years of service time and away from the minimum salary. The players under three years of service include some super-2 players as well as foreign free agents, but don’t make a big difference so far as overall money received by service time, as depicted in the graph below. The higher numbers are not inclusive, i.e. 3-4 includes players with at least three years of service time and fewer than four years of service time.

Note that the rightmost column is reserved for Alex Rodriguez all by himself. I could have lumped him in with the other group, but I thought it was worth a mention that A-Rod has more than 21 years of service time and no other player has more than 18 years of service time in the majors. Looking elsewhere, one finds that, while the biggest raises in a strict dollar sense come when moving into the 6+ and 9-11 service-time bars, the first crack at arbitration provides the greatest boost by percentage — as seen in the table below.

Having already established that those players with fewer than three years of service time represent more than one-third of MLB players — and the players who’ve recorded fewer than six years of service time represent another third — we can thus conclude that there’s some survivor bias present here. Players on the left side of the graph above are not guaranteed spots on the right side of the table, which is where the meritocracy kicks in.

That table reveals part of the real benefit of tenure. Nearly 80% of players to have recorded at least six years of service time have multi-year contracts — this, compared to around 25% of arbitration-eligible players and under 10% of pre-arbitration players (1% without Asian and Cuban free agents). There are as many veterans with 10-year contracts as there are multi-year contracts for pre-arbitration players not form Cuba or Asia. The players in the table above paid their dues, and are now reaping the rewards, but many players who previously belonged to their class never made it to see the same riches.

When comparing the percentage of players in each class to the money they make, the difference is stark. First in table form:

The 38 players to have recorded at least 11 years of service are making more than the 378 players with fewer than four years of service time. Players start to receive close to their share of salaries two seasons from free agency, the final year of arbitration representing the first season in which the percentage of salaries is greater than the percentage of players. Once a player hits the free-agent seasons, he receives double the percentage of salary compared to the percentage of players. For those that survive more than a decade, the number is nearly triple.

In graph form:

Whether this system is fair or not is up for debate. Certainly the young players are not receiving anywhere near their worth. Perhaps there should be some sort of safety net. If the players are able extend their careers past certain notable milestones, they certainly receive the benefits of those efforts. Ultimately, it is up for the players and owners to get together and negotiate the system they desire. The MLBPA would certainly rather have young players receive more money so long as it does not affect older players, but they choose which issues to push and which to leave alone. The MLBPA has to answer the question if there is a middle ground between the two groups, but right now, the disparity is massive.