The Escalating Trend of Paying for Prime Years

On Wednesday, the Braves announced that they had signed Freddie Freeman to an eight year, $135 million extension. I’ve already written about the diminishing need for a track record and about whether this deal heralds a coming market correction, but hopefully you’ll indulge some more thoughts about this contract and the changing economic structure of Major League Baseball.

There’s no question that teams are throwing more and more money at players who haven’t reached free agency; this is the 15th extension of $100+ million signed in the last three years by a player who was still under team control for at least another year. Players no longer have to reach the open market in order to obtain nine figure contracts, and as we’ve seen with Joey Votto, Elvis Andrus, and now Freddie Freeman, players don’t even have to get to their walk year to land a monster extension anymore. And while this shift towards big money deals for non-free agents is a new thing in MLB, it might be part of an ongoing trend that is shifting baseball’s payroll distribution back to what it was before “the PED era”.

The Baseball Databank has historical salary data going back to 1985, so I asked Jeff Zimmerman to break down the overall salary distributions by age group for each year since then, giving us almost a 30 year window into where teams have been spending their money. The graph is pretty fascinating.

At the end of the 80s and the early part of the 90s, the distribution was pretty steady, with about 40% of the league’s total spending going to players in both the 26-30 and 31-35 buckets. These are the years you expect players to be most productive, and most of the players in these buckets are going to have their wages generated through free agency, so this is where the big contracts are going to go. The 18-25 guys are almost always pre-arbitration cases, so they just get the league minimum and live with it, since they have no real leverage, so they hang around 4-5% of total spending in most years. That left around 10-15% of total spending to go to the older crowd.

From 1988 to 1997, there’s not a lot of movement in that distribution, and the graph is pretty flat for each line. In 1998, though, we start to see the beginning of a shift, as the 31-35 age group makes up 48% of total spending, while 26-30 falls to 38%. This goes to 50/31 in 1999, as the 26-30 group falls even faster than the 31-35 group rises, and the oldest group of players begins to really see their share of the pool grow, jumping from 11% to 14%. This is the trend that would take over, as the 36+ group jumped to 17% of total spending in 2000 and continued growing up to 22% in 2004, double what their share was in 1998. In six years, spending on players age-36 and beyond went from $134 million to $446 million.

Some of that uptick is simply due to there being more productive older players in baseball during that stretch than there was any at time before or since. But, contrary to the popular notion that the PED era gave the largest advantage to big bulking sluggers, the big increase was actually on the pitching side of things. In 1998, pitchers age-36+ accounted for 5% of the innings and 6% of pitching WAR, while in 2004, they accounted for 10% of the innings and 12% of the pitching WAR, while older position players went from roughly 6% to 8%. Here’s a graph of total pitcher WAR by age group for this same 1985-2013 time period:

You can see where the oldest pitchers really began to make a surge in the middle of the 2000s, and this correlates to the rise in payroll going to that age group. That new 50/30/20 distribution held for a good chunk of the 2000s, and has only recently begun to reverse course, as older pitchers have returned to their formerly lower levels of production. In 2011, the payroll distribution fell to 44/36/16, and then in 2012, it went to 41/40/15, nearly an even split again, as it was for most of the 90s. Then, in 2013, players in the 26-30 bucket made more money than players in the 31-35 bucket for the first time since 1994. For nearly 20 years, MLB teams spent more on players in the beginning of their decline phase than they did on players in their primes, but if the last few years are any indication, that allocation pattern seems to be going away.

It is difficult to miss the trajectory of the recent red line in that graph, as it is the steepest increase of any group at any stretch in the time period covered. From 2008 to 2013, the 26-30 group went from $750 million to $1.25 billion in total spending, while the 31-35 group went from $1.25 billion to $1.16 billion. If you look at total spending for the three groups besides 26-30 in that 2008-2013 window, the overall total actually went down from $1.9 billion to $1.76 billion. Essentially, the entirety of MLB payroll growth over the last five years has been allocated to players between ages 26-30.

And I think you can make a pretty good case that the sport is healthiest when players in their primes are getting the most money. Players between ages 26-30 account for roughly 50% of the total WAR in any given year — they actually surged to 55% of total WAR last year, their highest mark since 1995 — so allocating more money to players in that time frame should lead to fewer contracts where the salary and the performance do not align. The 31-35 group is essentially already getting the money that would otherwise go to 18-25 year olds — both groups produce about 20% of total WAR, but 31-35s get 40% of the payroll while 18-25s get 4% — and pushing any more money to that group is going to be paying for past performance, not current production.

While MLB’s salary structure certainly isn’t setup to equate single year performance and salary, it isn’t really in anyone’s best interests to have a system that creates a never ending series of albatross contracts. By shifting the payroll allocation towards younger and more productive players, MLB teams are decreasing the likelihood of paying large salaries to unproductive players. Essentially, they’re trading in what used to be bargain years for more equitable payments during a player’s most productive years in exchange for not having to continue to finance their incomes well beyond their own usefulness.

We don’t have enough data to say that this trend is going to continue, or if we’ve returned to the 40/40 equilibrium of the past, but it seems clear the days of past-their-prime players getting 50% of the pot is coming to an end. Deals like Freemans are not going away. They might seem exorbitant based on what players that age got 10 years ago, but the economics of MLB are changing, and players in their 20s are now going to command a much larger share of the pie than they used to.