Archive for payroll

If the Milwaukee Brewers had managed to beat the Los Angeles Dodgers in the seventh game of the NLCS, this post would examine one of biggest payroll disparities in World Series history. The Brewers couldn’t quite get the job done, however. As a result, it’s the Dodgers who advance to the final round of the 2018 postseason, and instead we have the most expensive World Series in history.

The Red Sox are projected to record a final a payroll around $237 million, which is the highest in baseball. The Dodgers — after considerable cost-cutting measures during the offseason — will finish the year with a payroll close to $194 million, per Cot’s Contracts. The Dodgers’ figure will likely be the fourth highest in MLB this season behind the Red Sox, Nationals, and Giants. The $423 million spent on payroll by the two World Series participants this season is the most ever.

The payroll totals somehow don’t do justice to how much these clubs have spent to get here. The Dodgers have spent $1.249 billion over the past five years, for an average payroll of $250 million. That’figure comes before accounting for the $28 million per season the Dodgers have paid in competitive-balance taxes. The Red Sox payroll this season — due to the Dodgers’ and Yankees’ efforts to get under the $197 million tax threshold — is more than $30 million clear of the second-place Nationals. When the club’s $10 million tax bill is considered, the team’s payroll is more than 20% higher than the Nationals. The difference between the Red Sox and Nationals is roughly the same as the difference between the Nationals and the 12th-place Mets. The Red Sox have spent $987.1 million on the team over the past five years, for an average payroll of $197 million — and just a bit over $200 million when factoring in taxes paid. Only the Dodgers and Yankees have spent more during that time.

As for the talent actually featured on the current rosters, the two clubs are very even: both had close to $155 million on the active roster in their respective LCSs. The graph below shows salaries (for competitive-balance tax purposes) for the players expected to play a role in the World Series. Players are shown by the amount of money the Red Sox or Dodgers are paying, not necessarily their full salary for the season. For example, Manny Machado is credited only with the portion of his salary for which the Dodgers are responsible following his acquisition from the Orioles.

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Now that real baseball has finally started, we are very likely going to spend a lot more time here at FanGraphs discussing the game on the field. That’s a very good thing for all of us who love the sport. Before wading too deeply into the new season, however, let’s take one more look at how this offseason affected payrolls.

This past winter was an unusual one, with a number of free agents receiving significantly less than expected, and players and teams holding out for contracts all the way until the season’s start. Most of our pieces contained a general caveat that we would need to wait until all players had signed to really determine the effects of this offseason. I even spent some time wondering if we would have to wait until after next offseason to determine the longer-term effects of this past winter.

As we have now reached Opening Day, we have the opportunity to look at current payrolls and compare them to the same point last year. Here’s where we sit on Opening Day, per Cot’s Contracts.

The Boston Red Sox are well out in front of all teams, followed by the San Francisco Giants, Los Angeles Dodgers, Chicago Cubs, and Washington Nationals. Notable by their omission, the New York Yankees don’t appear among the top five. This is notable for several reasons.

• The Yankees haven’t placed outside the top three in MLB payroll since 1992, the year Marlins owner Derek Jeter was drafted. Melido Perez and Danny Tartabull were the team’s top-two players.
• The Yankees haven’t been outside the top two in MLB payroll since 1994, the last time a baseball season ended without a World Series.
• The last time the franchise had an Opening Day payroll lower than $167 million before this season was 2003, before Alex Rodriguez had ever played a game for the club.

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As this offseason confirms, the way in which clubs spend their money has changed perceptibly over the last decade or so. Where it used to be commonplace for an organization to pay a player for what he had already done, teams have increasingly begun to compensate players for what they’re likely to do in the future. We see the emergence of this trend most clearly in long-term extensions for younger players, a development that has led to missing free-agent classes.

Of course, that doesn’t mean clubs have stopped signing free agents altogether or stopped exposing themselves to risk of any kind. Teams still need to address weaknesses, and one means to do that is by way of the open market. In some cases, the performances they expect fail to materialize. In some of those cases, teams decide they’re better off paying someone else to take care of the problem. This is how teams end up with dead money on their payroll.

Dead money is generally any money a team is paying out to a player who no longer appears on their 40-man roster. There are three types of dead money:

1. Money paid to players who have been released. Those players are free to sign with other teams, but the team releasing the player still owes the money remaining on the contract.
2. Money paid to other teams as compensation for players who have been traded. Generally, we see teams cover a portion of a contract to receive a better return in trade.
3. Money paid to players who are still in the organization, but who have been removed from the 40-man roster. Any team could have claimed these players if they were willing to take on the contract, and the player probably could have elected fee agency, but then he would forfeit his right to the guaranteed money.

Last season, nearly $300 million of MLB payroll was of the deceased variety, a sum that was double the amount of the prior campaign. Over the past year, we’ve seen the contracts of Carl Crawford, Josh Hamilton, Jose Reyes, and Alex Rodriguez all come off the books. The result is a $100 million decrease in the amount of dead money from last year. The graph below shows the teams who are paying the most money this season to pay players not on their roster.

Boston takes the top spot this year thanks entirely to Rusney Castillo and Pablo Sandoval. The Los Angeles Dodgers’ dead money, meanwhile, is spread out over seven players. Because of their original trade with the Padres that removed Matt Kemp from their roster, they are actually paying an amount higher than his current salary after having reacquired him. And the Dodgers would actually place higher on this list if they had released Adrian Gonzalez instead of taking on Matt Kemp’s contract when their former first baseman was dealt to the Braves and then released. The team could also still increase its total if the front office decides Kemp is not a fit for the current roster.

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If you’ve been wondering just how slow this offseason has been, Travis Sawchik has the answer for you: it is the slowest ever. Writing about the glacial pace of the market, Sawchik addressed both the short-term problem — that too many players need to find jobs — and hinted at possible longer-term issues caused by the current collective bargaining agreement, as well.

Whether the current issues will persist in subsequent years is a good question. Next winter, when Bryce Harper signs for $400 million or something, ownership’s reluctance to spend on the current free-agent class might seem like a distant memory. It is possible that a few of next offseason’s signings, however, will simply paper over issues that are likely to endure for the next half-decade.

One of the prominent theories regarding this slow winter has been that teams are saving up for a run at free agency next winter. That might help explain why, even after all of the current free agents find homes, total league-wide payroll in 2018 is likely to be comparable to 2017’s mark. The theory is that teams could be avoiding major commitments this year to save up for a bonanza next year. Perhaps that’s hypothesis will bear fruit. In order to make up for next offseason to compensate for this winter’s relative lack of activity, two conditions need to be met. First, next year’s crop of free agents will need to be composed of much better players and, second, teams will have to spend well beyond current levels.

Let’s start with the players involved. Harper and Manny Machado headline next year’s free-agent class. There’s really nobody close to those two this year. With each set to turn just 26 years old in 2019, both Harper and Machado seem likely to double the highest guarantee of any player this winter. After that pair, we find Charlie Blackmon, Josh Donaldson, Clayton Kershaw (who has an opt-out), and Dallas Keuchel. Blackmon and Donaldson are a little bit older than their free-agent peers, but both have been excellent in recent seasons.

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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.

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Scott Boras’s life is currently populated by buses to Playoffville, a mythical creature named J.D. Kong, and squirrels in trees with nuts. It’s time, in other words, for teams to get out the checkbook and start paying his clients.

How much those teams can spend will become more clear over the coming weeks. But we can estimate now. By looking at how much every team has on the books currently, it’s possible to identify those teams in the best position to make major moves, either by taking on a contract like Giancarlo Stanton’s or signing a big-name free agent such as Jake Arrieta, Yu Darvish, Eric Hosmer, or J.D. Martinez.

Last winter, there was considerable uncertainty with regard to spending, as the new CBA hadn’t yet been formalized. The players and the owners eventually reached an agreement, and while the implications of that agreement have yet to be fully fleshed out, we have a greater understanding of its effects than we did last year at this time. Teams know how much they can expect to pay and receive in revenue sharing. Big-market teams, meanwhile, have a much better idea of how much they might have to pay in taxes with competitive-balance tax amounts and penalties all spelled out. That could lead to a little more spending this winter than we saw last offseason, but teams could also be saving up for next year’s superior free-agent class, trying to avoid some tax penalties, or simply rebuilding.

To start, let’s take a look at current payroll commitments as teams start to spend more for next season. The chart below depicts a combination of guaranteed salaries and estimated arbitration salaries for each club — plus whatever extra payroll would be required at the league minimum to create a full roster. Data care of Cot’s Contracts.

The figures we see here aren’t all that surprising. The big-money Dodgers, Giants, Nationals, Red Sox, and Yankees lead the way. Way down at the other end we find the the lower-revenue Athletics, Brewers, Padres, and Rays along with the rebuilding Chicago White Sox and the Philadelphia Phillies, the latter having committed less than one-fifth the amount of the Los Angeles Dodgers.

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If the postseason started today, five teams in the top half of major-league payrolls at the beginning of the year would qualify for the playoffs: the Boston Red Sox, Chicago Cubs, Los Angeles Dodgers, New York Yankees, and Washington Nationals*. That means that five teams in the bottom half of Opening Day payrolls would make the playoffs as well — in this case, the Arizona Diamondbacks, Cleveland Indians, Colorado Rockies, Houston Astros, and Minnesota Twins.

*Numbers current as of yesterday.

Presenting the standings in this way might give one the impression that we remain in an age of great baseball parity. An age in which the Kansas City Royals can win the World Series, Cleveland can get there, too, and teams like the Pittsburgh Pirates can sustain multiple years of playoff contention.

That isn’t quite the case, however.

Of the clubs that feature top-six payrolls this season, three have playoff chances of at least 96% (Dodgers, Red Sox, Cubs). A fourth, the Yankees, aren’t too far behind. If the Twins can’t hold on to a playoff spot and are overtaken by anyone but the Rays, the only team in the bottom 12 of payrolls this season to make the playoffs will be the Arizona Diamondbacks, and even their spot isn’t a guarantee. Money buys players, and those players rack up wins for their ball clubs. Last season, at around this time, I took a look at the relationship between payroll and wins, and noted that the relationship was one of the strongest we had seen in a while. This is what it looked like at the end of last season.

Last season saw one of the strongest relationships between payroll and wins to exist in several decades. Here’s how the relationship has developed since 1990, with help from data courtesy Brian MacPherson. 

In the early 90s, Major League Baseball was coming off an era of collusion and lack of expansion. That, combined with a new influx of talent from outside the United States, meant that simply paying for major-league talent wasn’t the only solution to winning major-league games. (To track back further, read Dave Studeman’s piece in Hardball Times on the subject.)

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It would likely surprise no one to learn that players who reach free agency are the ones who make the most money. The owners and players together have devised a system wherein players at the beginning of their careers make the league minimum, players in their next few years earn a little bit more, and players who possess six-plus years of service time… they make a ton of money. That system has made it so that clubs with greater payrolls typically employ more of this last type of player, while teams on the lower end of the spectrum rely on more minimum-salary players. Let’s examine that gap and which teams are the most reliant on free-agent veterans to fill their rosters.

To illustrate the effects of the system, let’s begin by looking at all MLB player salaries along with service time. The graph below (courtesy of Sean Dolinar) includes 750 data points, each one representing a player likely to appear on a major-league Opening Day roster. While service time is often presented as in years and days, I’ve used a slightly different format here. For the purposes of a better-looking graph, days were divided by 172 (a season’s worth of service time) to get a more accurate picture of how close each player is to having recorded another full season in the majors.

We see a great number of points clustered near the bottom left of the table. Those represent the players who’ve recorded the least service time and are (mostly as a result) also earning the least money. The few outliers on the left of the graph are composed mostly of Asian and Cuban free agents whose situations more closely resemble players with at least six years of service time. Next, there’s another cluster at Year Three. That’s when players become eligible for arbitration. Salaries rise at that point, but only a little. After that, it’s all over the place.

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With free agency more or less in the books and all arbitration cases having been decided, the projected payrolls for Major League Baseball teams are becoming more clear. A few moves could occur before the start of the season — maybe some contract extensions, maybe some trades — but given the information we have, we can come pretty close to projecting Opening Day payrolls for all 30 teams.

Overall, spending has increased moderately since last season. A year ago, the average Opening Day payroll was right around $128 million, which itself represented a very small increase over 2015 despite big spending in free agency. This year, the average payroll is up to $133 million, a 4% increase despite uncertainty with the new Collective Bargaining Agreement and a weak free-agent class.

In what follows, I’ll consider the league’s payrolls in a few different ways. Salary information has been collected from Cot’s Contracts, while the equivalent of the MLB-minimum salary has been attached to open roster spots, bringing each team to 25 players. Money for players not on a club’s roster roster — as in the case of the Reds, for example, who are paying $13 million for Brandon Phillips to play in the Atlanta suburbs — is included in the payroll for the team actually paying the money.

To nobody’s surprise, the Los Angeles Dodgers have the highest payroll in baseball.

The Dodgers come in at around $235 million, which is roughly $40 million clear of the second-place Detroit Tigers. Even after accounting for the competitive-balance tax, it appears as though the Dodgers are still looking at a reduction of more than $30 million from last season. Even if they need to cut payroll more, the result should hardly be debilitating for the health of the team.

The tax amount for this season is $195 million. When you account for the $15 million or so that gets added for benefits and the rest of the 40-man roster, it would appear that the Tigers and Yankees will pay between $5 million and $10 million, the Giants will be right on the borderline, and the Red Sox might actually be under, as Allen Craig and Rusney Castillo don’t count for tax purposes.

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Last year’s free-agent class was one of the strongest we’ve ever seen. With legitimate aces like Zack Greinke and David Price heading the class plus young outfield talent in Jason Heyward and Justin Upton, a bona fide slugger in Chris Davis, along with a host of other mid-rotation starters and solid position player options, teams spent roughly three-quarters of a billion dollars on free agents in 2016 salaries alone. This season lacks talent at the top and depth in the middle, but that doesn’t mean we should expect to see a lot less spending. Nobody is likely to receive $200 million, but teams have plenty of money to spend and it has to go somewhere.

One way to think about how much money teams have to spend this offseason is to consider the salaries departing from their rosters. The chart below measures the money that has disappeared from clubs’ payrolls. To calculate each figure, I began with every club’s Opening Day obligations from 2016 and identified those players making at least $1 million in 2016 who either (a) were traded during the season or (b) have become a free agent in the meantime. I then added up the salaries of the departing players. This shows how much teams are losing in salary based on departures alone, with data gathered from Cot’s Contracts.

We often think of payroll coming off the books as a benefit for clubs. Player contracts, especially large ones, tend not to be very valuable in their final years. Think about the Los Angeles Angels, for example, who enter the season with $60 million less in obligations. The team had large commitments to pitchers Jered Weaver and C.J. Wilson. While both of those pitchers were good at points of their careers, they provided little in terms of on-field value last year. The Angels, if they so choose, can now take the roughly $40 million formerly invested in those pitchers and put it to better use. If we work under the assumption that a win costs $8.5 million in free agency, the Angels could conceivably improve themselves by around five wins by spending that money on contributing players.

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