The off season has just begun, but we’re already seeing a new phenomena: a big jump the the salaries offered to players. Jason Werth earned 7 years, 126 million. Adam Dunn, in a crowded market for his services, earned 4 years, 56 million. Cliff Lee is bound to earn at least 6 years, 150 million, and could earn even more. Troy Tulowitzki earned his 157 million dollar extension. The list goes on – John Buck, Jorge De La Rosa, Hiroki Kuroda, Ted Lilly, Bronson Arroyo – all received or will receive huge deals. Going back a little further, we can look at Joe Mauer and Ryan Howard.
We’ve been waiting for the next round of real baseball inflation to come for awhile now. It looked like it was coming in 2006 when Alfonso Soriano, Vernon Wells, Barry Zito, and Johan Santana earned big extensions. This round probably began after the 2008 season when the Yankees paid 23 million per year to Sabathia and Teixeira, and an absurd 18.5 per year for Burnett. The market corrected itself after 2006, but I don’t think that we’re going to see that again. Baseball has long waited for the AAV of major free agent contracts to balloon upwards again after most flat-lining through the 2000s. Baseball made something like $6.8 billion last year, more than double what MLB made in 2000, but the average player salaries has only increased from about $2,000,000 to $3,000,000. In graph form:
[image title="Mean player salary" size="full" id="23554" align="center" linkto="full" ]
We’ve been waiting for real growth for awhile now, but haven’t seen it. I sense that it is because of a combination of teams locking up their young stars through their late-20s today, combined with an unbalanced talent base – the 2000s just didn’t have that many particularly awesome players hitting free agent age. However, teams are not awash with money, and looking for places to spend it. While there aren’t any Alex Rodriguez’s or Manny Ramirez’s out there, there are some reasonably attractive options, and the market prices are skyrocketing. Also, I think that MLB is increasingly confident in its market position once the economy gets back into full swing.
This is a mixed blessing for the Yankees. If prices correct themselves, that means other teams are spending more money. The Yankees will lose much of their financial advantage unless the Steinbrenners choose to raise Cashman’s budget. On the other hand, major baseball inflation (late-90s style) would make a lot of their long term contracts seem like dire, especially the Alex Rodriguez deal. If the Yankees do maintain their budgetary edge over other teams, they’ll be able to take advantage and reduce some of the pain from past mistakes.
This is kinda-sorta an argument for signing Cliff Lee, even though I still have some of the reservations that I expressed earlier. If the Yankees really believe that a) major baseball inflation is coming and b) they want to increase their payroll significantly, then they should sign Lee. However, we’ve seen no indication that the Steinbrenners are willing to go into the 250+ million dollar range that this scenario would suggest.
On a side note, that graph just screams to me, “Painful CBA negotiations after this season” when the next round of labor talks begin. MLB players really are due for a big raise.
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7 Responses to Is the next round of baseball inflation finally here?
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TIQ IQ
On the contrary, I think the graph suggests a relatively easy CBA. The MLBPA has been consistent in wanting the market to determine their cut of the pie, so there is no reason they would seek an alternative (players are not guaranteed anything beyond minimum salaries and benefits). Although baseball players’ percentage of revenue does fluctuate, the irony is owners do much better without a salary cap…the principal reason the NFL is headed toward a lockout.
The reason we are seeing a return to big contracts is because MLB has emerged from a brief flat period to post almost 15% growth in 2010. In other words, business is good, and when that’s the case, everyone gets richer.
I don’t disagree at the cause, but we’re still looking for the market correct that should have come when the mid-2000s growth shot up. Revenue shot up from 4 billion to 6 billion in just a few years, but salaries essentially flatlined during that time.
Basically, I agree with you, but should add that we’re one correction short still.
You really think there could be labor issues EJ? I’m def not an economics wiz, but I would think it’s easiest to negotiate now when both sides are making money, especially the owners. As long as they don’t ask for a cap (which they shouldn’t since again, they’re making a ton of money) I can’t forsee any potential hang ups. What am I neglecting to see? Possibly a draft slot system, but that doesn’t affect the current players so that can’t be a huge issue right?
So, I’m no expert on MLB labor negotiations (NHL, on the other hand), but I’m not sure that how much money the league is making is a good indicator of how much trouble the negotiations could cause. Right now, players are making somewhere in the mid-40s of revenue in their salaries. Their peers in the NBA, NHL, and NFL all make (CBA-mandated) about 54-57% of revenue in their salaries. Looking at the graph and drawing the appropriate slopes, you’re looking at about a 2 billion dollar difference in where salaries are and where they sorta should be.
That’s a lot of money. In most industries, there would be a huge fight. Will there be one in baseball? To me the only that stopped negotiations last time as lingering pain from the mid-90s labor negotiation. The last two CBAs have been heavily ownership-favored: the luxury tax and steroids testing, for example.
I don’t think there will be a play stoppage. But if I’m the MLBPA, I want my money. And the owners probably don’t want to give it to them.
But, how do the players “get their money”? The only way to ensure a guaranteed percentage is to accept a salary cap structure, which we know the MLBPA definitely does not want. The only area in which the MLBPA may seek changes is the luxury tax structure. Otherwise, I am sure the MLBPA would be quite happy with a renewal of the CBA.
See my post below. There are a lot of things they could do.
This is worth a full post, but for now I’ve been thinking about what a higher salary targeted CBA might look like. You’d see entry level contracts become more expensive. You’d see a raising of the luxury tax. You might move up either arbitration or free agency by a year. You could have some kind of minimum salary floor, possibly tied to revenue sharing.
I also think the union would try to convince its younger members to resist being locked up long term for cheap. I feel like those deals have been very team-favored recently.