The Salaries For Young MLB Stars Aren't Keeping Pace With Revenues
For the second straight year, the Hot Stove League has run cold. Some teams progressed in their rebuilding projects, others steered clear of the luxury-tax threshold, and free agents, once again, wondered what hit them.
There are many reasons for the weak demand. The addition of the second wild card cleaved a full playoff spot into two halves, and teams have responded by tempering their efforts to win one of them. The increased flow of guaranteed money to all 30 teams, money that allows teams to lock in profits regardless of on-field performance, has diminished the incentives to take financial risks to add wins. The most recent Collective Bargaining Agreement targeted large-market, high-revenue teams with surgical precision, beating them back behind the luxury-tax threshold.
Most important, though, is the devaluation of service time in the market. The baseball compensation system is built almost entirely on rewarding service time. You can hit 100 homers in your first season, but the best you’re likely to do in your second is a small raise above the major league minimum.
The Rookies of the Year, Ronald Acuña Jr. of the Braves and Shohei Ohtani of the Angels, will be paid less than a hundred generic relief pitchers of less talent and accomplishment. Indians shortstop Francisco Lindor has been a top-five player in Major League Baseball since the start of the 2016 season. He made less than $2 million in that time, and he will make $10.55 million in 2019 as a first-year arbitration-eligible player.
You gain rights as you accumulate time, not wins above replacement: The right to arbitration after three seasons, the right to free agency after six, the right to block a trade after 10 (and five with your current team). This structure is more than 40 years old, and it doesn’t work any more. Teams have a better grasp on career arcs than they did in 1976. There’s some respect for what veterans can bring off the field, but not enough to pay a 31-year-old at 10 or 20 times what you can pay a 23-year-old for similar performance on the field. Better projection models, informed by Statcast data, allow teams to be ruthless in deciding which players to pursue, and just how much or how little to pay them.
These efficiencies have produced the youngest league since the early days of free agency. Per Baseball-Reference.com, the average position player last year was 28.1 years old, the youngest since 1979. The average player’s age has dropped nearly a full year since 2010. Teams have every incentive to replace older players with younger ones, because the compensation structure encourages it.
The minimum salary will be $555,000 this year. That figure has risen 38 percent since 2010, while revenues have jumped 68 percent in that time. Go back to 2002, and you find revenues have nearly tripled, while the minimum salary hasn’t even doubled. This artificially low minimum is what drives the gap between what you might have to pay a veteran, and what you can pay a rookie. It helps subsidize the “tankbuilding” efforts undertaken by teams like the Astros and Cubs earlier in the decade and a half-dozen teams in their wake.
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MLB owners spent years trying to put the brakes on spending at the top of the free agent market. The most recent CBA has been incredibly effective at doing so, with draconian repeater penalties for teams going over the tax threshold—and even extending those penalties into the draft—with incentives for large-market teams that stay under the threshold. What doesn’t exist are comparable incentives at the bottom of the scale, only the “payroll floor” of 25 roster spots times $555,000 a year, which works out to an outlay of $13.875 million.
You don’t need complicated schemes to fix this problem, you just need to raise the minimum salary in proportion to revenues. A minimum MLB salary of $1.5 million would better compensate the players who are getting the playing time and producing the value, while diminishing the incentives teams have to abandon free agents in favor of minimum-salaried players. This also raises the implied payroll floor, which should inhibit teams from going into long, multi-year rebuilds, financed by shared revenue, that chase away the local fans.
With players better compensated in their first three seasons, you can balance the scales by cutting back on arbitration eligibility, say limiting it to players with at least four years of major league service. The additional millions a player makes in his first three seasons would be “paid back” to some extent by losing access to arbitration for one year. Teams would still look to sign young players to long extensions that buy out years of arbitration and free agency, but the players, better compensated once in the league, would have more leverage in those talks.
We’re going to hear a lot about free agency in the two years leading up to the expiration of the current CBA. The problem, though, isn’t teams rejecting free agents, who by and large are past their peaks. The problem is that the players producing the most value, the ones who have no leverage, are not being fairly compensated for their performance.
If teams aren’t going to start paying for old players again, the MLB Players Association has to insist that they pay for the young ones.