The Cubs, Astros, and Paying the Young Superstars

Major League Baseball has an interesting economic system, including a pay scale that is intentionally designed to limit the salaries of young players in order to funnel more money to veterans. All players with less than two full years of experience (and most with less than three) effectively have their salaries dictated to them, with no recourse to move the needle in any real fashion. Until a player becomes arbitration eligible, teams get to decide how much they want to pay a player in a given year, and there is nothing the player can do to change that number.

So, naturally, most pre-arbitration players make something close to the league minimum. With no market forces to force prices upwards, or even an arbitration panel to select between two options, there is just nothing in place to push pre-arb salaries up, and teams generally haven’t seen much value in paying higher wages to pre-arb players than they have to.

That might be slowly changing.

This week, the Cubs agreed to pay Kris Bryant $1.05 million for 2017, the highest salary ever awarded to a player with less than two years of service. Bryant’s salary is $50,000 more than Mike Trout got from the Angels back in 2014, and a $400,000 raise over what he made last year. Clearly, the Cubs wanted to reward the reigning NL MVP for helping bring the Cubs their first championship in over a century, and likely also wanted to avoid the negative publicity that would come from looking cheap right after reaping the financial benefits of a World Series title. In addition to giving Bryant the highest pre-arb contract a team has ever doled out, the Cubs also gave out substantial raises to Kyle Hendricks ($760K), Addison Russell ($644K), and Javier Baez ($609K).

Meanwhile, over in Boston, the Red Sox offered Mookie Bets $950K, but he declined to sign the contract, saying that he had a different price in mind. Because Betts has no actual leverage, the Red Sox simply renewed his contract unilaterally at their $950K offer. Betts will now get the third-highest salary for a pre-arb player ever, but he also took what he felt was a principled stand in not actually signing a contract that pays him less than he feels he’s worth.

So, in a few high profile examples, we’ve seen teams give significant raises to their best young players, perhaps attempting to buy some goodwill or some positive publicity for the kind of money that doesn’t really have any impact on a team’s bottom line. But this is still the exception, as most teams continue to determine pre-arb prices by simply creating an algorithm that looks at a player’s statistics and gives them an extra $10K or $20K above the league minimum depending on how they’ve performed in their first few years in the majors.

By simply citing a calculation that treats everyone the same way, teams can claim some degree of equity in a system designed to be unfair to these players, and the salary-by-algorithm model takes away most of the need for negotiation. The team simply says “this is what our model spits out”, and then, most organizations leave a little wiggle room to move up $5K to $10K from the calculated wage in order to give the agent the chance to tell the player they were able to negotiate his salary up slightly.

But this kind of no-leverage-negotiation doesn’t always go well, and some teams use the renewal ability to create a disincentive to not sign the contract, which often creates a small story for the media and pushes the wage structure back into the public eye, where fans are reminded that their best young players have no real say in their early-career wages. This is likely what happened in Houston last week, when the Astros renewed Carlos Correa for the league minimum, which is $535,000 for 2017.

We don’t know the specifics of the negotiation, but in talking with people who work for other teams, the belief within the game is that a minimum renewal for a player of Correa’s stature was probably threatened in order to try and induce him to sign the contract the team offered, and then the team felt obligated to follow through once Correa wasn’t willing to sign. This is a different approach from the one Boston took, where they didn’t create a punitive secondary offer for not signing, and Betts was able to take a cost-free stance on not signing his contract. Correa’s resistance to signing for what Houston may have originally offered likely did cost him some money.

From a pure publicity standpoint, the Cubs and Red Sox certainly look better in this ordeal than the Astros do, but I don’t think this is all as simple as “Chicago good, Houston evil”.

After all, the extra money the Cubs are giving Bryant in his pre-arb years pales in comparison to the money they cost him by sending him to Triple-A to begin the 2015 season, which delayed his free agency by a year. Not long ago, the Cubs chose to use the rights given them under the CBA to create as much value for their organization as they could, even though it came at the expense of Bryant’s future earnings. The Astros could argue that they are simply doing the same thing, using the rules that everyone agreed to in order to maximize the amount of money they have available to spend on free agents.

But a league-minimum renewal for Correa certainly doesn’t help the Astros reputation, which already could use some work. Even if they don’t believe that paying Correa a bit more than the league minimum is likely to buy them any future discount in arbitration or extension pricing — and there’s not much evidence to suggest that a player is going to leave a large amount of money on the table as a thank you for giving him an extra $50K or $100K a couple of years ago — it would seem that at least a few other organizations are acknowledging that there’s some value in rewarding young superstars with raises substantial enough to show up in a player’s bank account, rather than calibrating the salary algorithm to hand out minuscule increases simply because they can.

In the end, the Astros can probably say this will all be forgotten, and they’re probably right about that. And while it’s easy to make them the bad guys here, they’re participating in the system that the MLBPA has pushed for, and the union has made little effort to escalate the salaries of young players, instead focusing their efforts on trying to get teams to be able to pay as much as possible to veteran free agents. By giving pre-arb players no leverage in negotiations, the reasonable expectation is that teams are going to hold down costs for those players, and the union has continued to agree to that system as the accepted salary scale.

But with the Cubs and Red Sox bucking the trend, at least with a few of their best players, the Astros don’t look great here. And perhaps that negative P.R. will become the thing that puts at least some upwards pressure on salaries for young superstars. With teams rolling in money from their local TV contracts, there doesn’t seem to be much benefit to holding a hard line on wages for franchise players. Even though the Cubs gesture to Bryant is probably not going to get them any kind of discount on a long-term contract, and they can’t really be lauded for player-friendly tactics given how they handled the timing of his debut, at least there appears to be some move towards compensating the game’s best players a bit more than before.

In the end, the wage structure that takes money from guys like Bryant, Betts, and Correa and gives it to less-talented veterans is still one the union has tacitly endorsed, and if the players want this system to change, they’re going to have to impress upon their union to fight for a different pay model in the next CBA negotiations. But perhaps the Cubs and Red Sox paying their stars nearly $1 million each will make it less palatable for future teams to follow the Astros model, and baseball’s equivalent of peer pressure can serve as something of a market force for players who have no other leverage.