The Economic Impact of Yesterday’s CBA Proposals

After more than a month of silence, talks between the league and the Players Association have finally heated up. Over the past week, the parties have exchanged proposals and counters, a welcome change from the negotiations’ previously slow pace; 42 days elapsed between the owners’ initiation of the lockout and their first proposal to the MLBPA. Yesterday, the two sides reportedly focused their discussion on players who have not yet qualified for salary arbitration, a key sticking point in the negotiations. Let’s go through each of those proposals and see what they would do to change the way young players get paid.

Before we begin, it’s worth mentioning that the two sides each recently dropped aspects of past proposals that the other disliked. The league had previously proposed changes to the arbitration system, including the elimination of the Super Two classification that allows some players to reach arbitration a year early, a non-starter with the union. The union had proposed an age-based free agency system that would shorten team control in many instances, which was similarly unpopular with the league. Each side dropped those long-shot ideas in this round of bargaining. Now, on to what was proposed yesterday.

First, both sides proposed instituting new salary minimums. The MLBPA suggested a new minimum salary of $775,000. The league countered with a tiered structure – $615,000 for players with less than one year of service time, $650,000 for players with between one and two years of time, and $700,000 for everyone else on a minimum salary.

“Players on a minimum salary” might not sound like a key part of the structure of baseball, but they absolutely are, as FanGraphs alum Travis Sawchik has covered. These players aren’t a huge part of the money, of course – “minimum” is a helpful word there. In 2021, teams spent roughly $3.842 billion on player salaries, per Spotrac. Minimum salaries accounted for roughly $289 million of that, or 7.5% of the total outlay.

On the other hand, those players accounted for roughly 47% of the service time accrued in 2021. That’s not quite the same as games played – you accrue service time while on the injured list or while on the 26-man roster but not appearing in games – but the player pool skews heavily towards pre-arbitration players no matter how you slice it. 58% of all players to appear on a 26-man roster in 2021 haven’t yet reached arbitration.

When you consider the composition of the major league player pool, these small-sounding changes in pre-arbitration salaries take on increased importance. The union’s proposal would move that outlay for minimum-salary players from roughly $289 million to roughly $386 million, a $97 million increase. That’s small potatoes in the business of baseball, of course – the league reportedly saw $10.7 billion in revenue in 2019, and even if you just compare it to the overall player salary pool, it’s only a 2.5% increase in the total salary pool. The league’s proposal is for an even smaller increase – it would have paid minimum-salary players roughly $319 million in 2021, a 0.7% increase in total player salaries.

While these are small numbers for baseball writ large, it’s a significant change for players making those salaries, particularly players making those salaries who are unlikely to score significant raises in arbitration. More than half the league gets paid the pro-rated minimum. For those players, having their salary keep up with inflation is a greater concern than it would be for, say, Mookie Betts. In 2017, the last time the CBA was re-negotiated, the minimum salary was set to $570,000. Since then, the CPI-U, the most commonly used measure of consumer price inflation in the US, has increased by 14.8%. If the minimum salary kept up with consumer inflation, it would be $654,000 today.

Wage growth has actually increased at a slightly faster clip than that, per the Atlanta Fed’s Wage Growth Tracker. And while it would be strange to expect the baseball economy to track the broader economy, the player cohort receiving the minimum salary seems like a much better proxy. In the 2016 season, 779 players accrued at least one day of service time while ending the season eligible to receive the minimum salary. 51% of those players still haven’t reached arbitration, which means they’re unlikely to – those are essentially players who got a cup of coffee but didn’t have a significant major league career. Of that group of 779, only 112 have reached free agency. Minimum-salary players are the biggest part of the MLBPA – and most of those players will never get the kind of gob-smacking payouts associated with premium players in free agency. In addition, most of them don’t play the full season in the majors, which makes their take-home pay significantly lower than the quoted minimum.

Speaking of premium players, the league reportedly also agreed to accept in principle the creation of a bonus pool that would reward pre-arbitration players for reaching various as-yet-undefined milestones. These have been connected to awards voting and a top-30 WAR finish among pre-arb players, though neither has been fleshed out.

It’s safe to assume that the players receiving these bonuses will mostly be of the group that eventually gains the most in arbitration and free agency, which will make this bonus pool function like an extra arbitration system that kicks in sooner. I like the concept of that quite a bit, though it’s actually a very difficult system to enforce in practice. How are the award votes taken into account? Which version of WAR would be used? What happens if park factors, or defensive valuation systems, or even positional adjustments change? What if the 30th and 31st most valuable players by WAR are only separated by a fraction of a win? We don’t want to imply that WAR is more precise than it is, but a hard cutoff suggests just that.

It also hasn’t yet been reported how the bonus pool would be split. It would likely be tiered in some way, but at this early stage in the negotiation, there have been no public discussions of how that would work in practice. In addition, it’s unclear how these bonuses would affect competitive balance tax calculations, as the money would be paid from central revenues, not by individual teams. There’s time to work out those finer points, but there’s still quite a bit of uncertainty on the specifics of the proposal.

In the league’s version, that work hardly seems worth it. They proposed to set aside $10 million out of central revenues to pay players who hit those bonuses. That’s, well … not enough. Using the top-30 WAR benchmark and assuming the pool is distributed evenly, that’s $333,333 per player using the league’s numbers, and while that’s nice, it’s just not enough money to move the needle when it comes to rewarding impactful early-career performances. The union proposed a $105 million pool, which feels like it goes too far the other way. The players who would receive these bonuses are likely to get large payouts eventually anyway, and having nearly a quarter of the pre-arb salary pool league-wide payable as bonuses (if both player proposals were applied to the 2021 season, minimum-salary players would make roughly $490 million in salary plus bonus) strikes me as a poor way to allocate money to minimum-salary players.

Both of these bargaining points focus on what I consider to be the most important part of the negotiation: salary structure for pre-arbitration players. The current structure has let salaries at the top rise – though perhaps not as fast or as high as the union would like – while minimum-salary players have mostly stayed the same, even as they’ve become a bigger part of teams’ plans.

Whatever form the final deal on minimum salaries and the pre-arb bonus pool takes, don’t think of this as a one-for-one increase in the players’ share of the pie. The competitive balance tax continues to act like a de facto salary cap at the top of the league – if a team near the tax adds money on minimum-salary players, they’re unlikely to simply accept it and push through the tax thresholds. Instead, they’ll probably cut costs elsewhere, which means this will trickle down into spending in arbitration and free agency.

Still, it will definitely act as an overall increase. At the moment, we project the Pirates for the lowest salary in baseball in 2022, at $39 million. They have seven players on their roster who are either free agents or qualify for arbitration. That leaves 19 pre-arb players. Under the union’s proposal, that’s an additional $3.8 million in payroll; under the league’s proposal, it’s closer to $1 million. Either would be a meaningful increase for Pittsburgh compared to their current payroll – and still leave the Pirates with the lowest salary in baseball, even if the minimum-salary change only affected them. The change won’t be earthshaking, is the point I’m trying to make here, even as it means a lot to individual players. Instead, it will be an incremental change, as those players get paid more without suddenly becoming better, which might actually make better players with higher salaries relatively more attractive.

While the specifics of the numbers being discussed remain far apart, I believe that the proposals exchanged yesterday demonstrate significant common ground. The league has room to give here, because minimum salaries have become relatively cheap to them as revenues and overall inflation have risen. The players want a minimum salary increase as well, because it helps a huge swath of the union. Meanwhile, owners can convince themselves – and they may even be right – that making concessions here won’t cost them all that much in actual dollar outlay, and certainly less than 100% of the sticker price they’re conceding, as teams bumping up against the luxury tax, for example, will reduce costs elsewhere to offset increased minimum salaries. At the same time, veteran players can convince themselves that they’re getting something for the younger generation without explicitly sacrificing anything for themselves – even though owners might penny pinch elsewhere to make room for higher minimums, it’s not as though the union is trading those salaries for a hard salary cap or anything of that nature, and it obviously wouldn’t affect existing contracts.

What will the final structure of pre-arb player compensation look like? I’m not sure, and yesterday’s proposals didn’t suggest an obvious end state. The bonus pool concept might reach a happy medium, or it might stay at the league’s ornamental level while the union exerts more pressure on increasing minimum salaries. The owners’ proposed $615,000 minimum strikes me as the most egregious number exchanged yesterday, but the players’ proposed $105 million bonus pool looks unrealistic to me as well.

But now that the two sides have common ground on how they’ll address this part of compensation, a solution strikes me as likely. This part of the argument is over how much more money pre-arb players should get — and the disagreement is roughly $150 million, or a bit over 1% of league revenues. That sounds like a bridgeable gap. It’s not totally bridged yet, not by a long shot. Some parties in the discussions questioned how much movement the league made, and Jeff Passan described the talks as “contentious” even as the two sides at least agreed on the broad strokes of what they were bargaining on.

If the sides can reach an agreement here — not a given, but something I’m optimistic about — that’s one item crossed off the list. All that remains is the competitive balance tax, changes to the draft, restrictions on tanking, a new playoff structure, a proposed international draft… well, lots of things remain. But at least a little bit, Tuesday’s meeting moved one thing to the “likely to be resolved” side of the ledger.

Appendix: Minimum Salary Calculations

I thought it would be worthwhile to show my work here, or at least explain it. To work out how many players received pre-arbitration salaries in 2021, I took each player’s service time at the conclusion of 2020 and the conclusion of 2021 and compared them. I considered each player who finished 2020 without being eligible for arbitration (and hadn’t signed a pre-arbitration extension, like Evan White) and accrued service time in 2021 to be a minimum-salary player.

Where salaries were reported (Cot’s Contracts lists opening day salaries), I pro-rated those based on service days accrued in 2021 to work out each player’s yearly salary. If a salary wasn’t available, I assumed they made the minimum. I pro-rated salaries based on a 172-day league year, the minimum number of days to qualify for a year of service time.

To calculate the share of league days that were accrued by players making the league minimum (or near the minimum), I used the same calculations, but for the entire league rather than the cohort of pre-arbitration players. To calculate the proposed economic impact of the changes, I used the same pro-rating calculation, but substituted in either the league’s proposal (a sliding number based on a player’s service time as of the end of 2020) or the union’s proposal (a flat $775,000).