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Baseball’s income inequality: how much – and where – does it matter?


CLARK BUILDING – There was an amazing statistic in USA Today earlier this week that showed the combined wealth of the richest 85 people on the planet is equal to the combined wealth of the poorest 3,500,000,000. Yep, that’s 3.5 billion. The gap between the rich and poor – the amount of wealth the top 1 percent control – seems to be growing in every country,  in every industry, including baseball.

With Tanaka landing in New York, the Yankees have committed more than $400 million to four free agents in Tanaka, Jacoby Ellsbury, Brian McCann and Carlos Beltran. Maybe only the Dodgers and a handful of other teams could make a similar commitment. The Tanaka and Clayton Kershaw deals rivals or perhaps exceeds the annual average dollars from the Pirates’ television contract. The Pirates have spent $7 million on free agents this offseason.


That divide in dollars is a problem for the sport. No other North American pro game has such a slanted economic playing surface. Small-market teams have little chance to sign impact free agents or retain their own stars. This is true and it’s always been true to a degree. Pittsburgh didn’t buy Babe Ruth. The Yankees did.


But there’s actually never been a better time to be out of the free agent market as I wrote about back in November. In some ways the landscape has never been more favorable to those teams that can draft-and-develop well, and avoid making long-term commitments to 30-somethings.


The game is again a young man’s game and that’s a big deal for teams that draft and develop better than others.


*From 1998-2003, players 30 and older combined for 42.9 percent of wins above replacement, a statistic that takes into account a player’s total value. Their share of production fell to 33.3 percent from 2008-13, in line with production from the 1970s and 1980s, according to Tribune-Review research using the Baseball Reference Player Index tool.


*The number of seasons worth five wins above replacement or more produced by players age 30 and older fell from 128 in 1998-2003 to 70 from 2008-13.


*Players 30 and older also combined for hundreds of fewer seasons played.


There’s a good chance Ellsbury, McCann, Beltran and even Tanaka – who has had a heavy innings load in Japan – have already had their best seasons and could be in for significant decline as Yankees. Said one GM to Peter Gammons: “I think the two worst contracts this winter are Tanaka and (Jacoby) Ellsbury.” 


Small-market baseball teams have two great things going for them: they control a player’s first six years of service time, which often covers the prime of his career. And those pre-arbitration years and even the arbitration years artificially suppress a players’ value. As long as those sacred pacts remain part of the game’s compensation scale and structure, smart small-market teams have a chance.


The operative word being smart small-market clubs.


To me here’s the difference dollars make:


1) The Yankees and Dodgers can overcome mistakes. Small-market teams cannot. A big reason why the Yankees have thrown so much money into free agency this offseason, and have again gone over the $189 million luxury tax threshold (Pirates played a role), is because they have done a poor job drafting and developing talent. The Yankees had a number of holes to fill so they threw money at the problem. They have little in the way of young talent at the MLB level or in their farm system. Twenty MLB teams cannot follow that practice. (And the Yankees still might have more significant issues with an infield that averages 36 years of age).  The Pirates can’t afford many mistakes.


2) Perhaps the greater threat to small-market clubs is not the free agency market but arbitration costs. The Rays are entertaining trading David Price because of his growing compensation. If more small-market teams are forced to trade star level players before they reach free agency that’s a problem. Control shrinks from six years to, in practice, four or five. The Pirates want to have Gerrit Cole for at least six more years.


3) With the money in the game, players have less incentive to sign long-term deals with clubs, deals that buy out arbitration and some free agent years. According to Tribune-Review research, 108 players on major league rosters in 2013 had agreed to multiyear extensions before testing free agency, contracts that bought out at least one season of free agency. Those contracts bought out up to 306 free agent seasons, many of them prime years for players.


My man John Hart started this creative practice in Cleveland and it’s been copied heavily by Tampa and other clubs. But fewer and fewer agents are going to be interested in agreeing to the type of deal Andrew McCutchen signed, a deal that might cost him $90 million.


4) When small-market clubs can’t or won’t pay market price for one or two ancillary pieces in an offseason that is troubling. While much of the leveling-the-field conversation is centered on a salary cap, perhaps a spending floor is just as important.



Now, would the game be better of with a salary cap? Perhaps. There’s no doubt more wealth distribution would help more than a dozen teams. (Though the sport needs a spending floor just as badly). But the game already has significant wealth distribution. Thirty-four percent of local TV deals are shared.


But baseball has a cap in the most important talent-acquisition areas: in the amateur draft and Latin American markets.


While there are many folks that think the cap negatively impacts small-market teams in the draft, limiting their ability to spend and operate creatively, I actually think it helps ensure that the best players go in the best draft slots and to the worst teams. Before the draft caps, we were seeing more and more large-market teams beginning to manipulate the draft. The Red Sox and Yankees shelling out seven figures for mid-round picks and some small-market teams (the Pirates) also adopting the practice. Players like Scott Kazmir, Matt Wieters and Rick Porcello slid due to signing concerns.  Without caps, more large-market teams will eventually figure out their best spending utility comes in the draft. With the draft cap there is a level of meritocracy: the best teams at scouting young players will be rewarded for it by simply being able to select the best players on their board.


Remember even in this era of extreme revenue divide, it is not payroll that correlates most with success.  It’s R & D, it’s the draft and development.  Do that well in that area in any sport, and chances are you’ll have a competitive team.



Gerrit Cole? Gregory Polanco? 


*And in other news, Gregory Polanco is fast


– TS



  1. Nate83 says:

    100 million player in the pirates future? What does it mean? It’s more confusing then a double rainbow.

  2. will sanchez says:

    yes..maybe in the year 2525… but no promises…will see how money i make by them’s got to be at least 50 million per year and the franchise be worth a billion before we do it…

  3. Bizrow says:

    Good thing the PBC has such a wonderful TV contract….

    Hi Frank

  4. Foo says:

    Does anyone believe a word Frank C says.

  5. brendan says:

    Without more context it doesn’t necessarily mean much of anything I don’t think. That could be in 2016 or 2036, at which point a $100 million contract will be something entirely different than it is in 2014.

    Most likely I’d guess he probably means there’s the possibility they might sign ‘the right player’ to deal similar to Evan Longoria’s:

  6. Bizrow says:

    Don’t drive drunk ;-)

    How are you, Foo?

  7. Ghost says:

    Somewhere on my computer I have saved the only Auto-tune song I’ve actually ever enjoyed, Double Rainbow Song. So intense.

  8. Ghost says:

    Can’t imagine the union and player agensts ever signing on without a floor. I like the idea someone presented here (or on DK’s blog) recently about making caps (and floors) for, say, three year periods (or five years — whatever). A floor would hopefully minimize the occurrence of owners like Loria and Huizenga from blowing up teams just to maximize profits. And a longer, 3~5 year window would perhaps give teams (at least the better planning ones) a bit of flexibility in meeting the cap and floor. The whole purpose of organized competition is to have everyone play by the same rules. Then you can really see who strategizes and executes the best. WS titles such as the 2009 one by the Yankees was bought and paid for, plain and simple.

  9. LeeFoo says:

    Good Biz….how’s the dachsy’s?

  10. LeeFoo says:

    I love your avatar.

  11. LeeFoo says:

    Bud has let the baseball economic system get so broken, I’m not sure anything can fix it.

  12. LeeFoo says:

    I hope Tanaka’s arm falls off. It’d be a win win. The Yankees get screwed and Tanaka gets to keep the Yankers’ money

  13. BostonsCommon says:

    That Longoria extension is probably the second best contract in MLB, behind Cutch of course. Longoria was already signed through ’16 for way less than market value. They basically got him to sign a 6 extension with an AAV of $15.6M (plus a $13M option), that way under market again! Gotta question his agent at that point.

    Guy is averaging 6 WAR/season for his career. That would be like Cutch signing another extension at a fraction of his market value. I wouldn’t hold my breath, but I guess Longoria proved it’s possible.

    Now that I’m thinking about it, you can actually make an argument that Longoria’s is the best contract in baseball.

  14. Steelkings says:

    You have to consider the way Baseball is set up. Unlike almost every other sport the box office is almost meaningless. Consider the Dodgers. Dodger Stadium holds 56000. The average ticket price is 24 dollars. One player gets practically all of it every time he steps on the field. If he pitches every 5th game at home, he will get 1/6th of the seasons total gate.

    I haven’t done the math but consider the Pirates are generating, with capacity and average ticket pricing, 770, 000 a game. ( If sold out) More than enough revenue to pay the players, coaches and support staff salaries. Concessions, Parking, merchandise, ect should buy down the park and office payroll significantly. Then there is the welfare check the Pirates receive from the big spenders…

    The question is…Where does the top 10 TV deal money go?

  15. LeeFoo says:

    Steelking….good points.

    Maybe THAT’S the answer….make the ‘local’ TV Revenues go into a shared and equal pot. Of course, THAT will never happen, because baseball is making wayyyyyy too much money.

    It’s only us fans that are getting ripped off, and who cares about us?


  16. 21sthebest says:

    35% of all teams local broadcasting revenues go in a pot to be shared.

  17. Jim S. says:

    Local TV is apparently where the biggest inequality is occurring, Foo. So, it is logical to make changes to the revenue sharing that already exists there. They need to keep teams from hiding some of that money by taking equity stakes in the media companies. I believe changes will take place in revenue sharing, but I do not expect the large market teams to willingly create a level playing field.

  18. NMR says:

    Depends on how you define “revenue”.

  19. 21sthebest says:

    There’s only one way to define revenue as far as I know.

  20. 21sthebest says:

    Sorry, 34%.

  21. Jim S. says:

    Last week, I was making the point you make here, Travis, that the teams with the most money were in the process of perfecting how to apply that advantage to the draft until the cap was installed. Seemed obvious to me that since the draft is the best avenue of securing talent, the teams with significant financial advantage would use that advantage more and more as time went on.

    There is no question to me that if the divide in revenues continues to accelerate, as it is now doing, the teams with the financial advantage will employ that advantage more and more in every avenue of the game. The small and medium markets need to force a more equitable distribution of revenues.

  22. NMR says:

    Then assuming you’re counting revenue received from an equity stake in the media companies themselves, the percentage going into the pot is lower than 34 or 35.

  23. NMR says:

    I don’t mean to be obtuse, but can you point out where I’m wrong?

    Wendy’s language is odd. She says teams do have an advantage by shielding revenue from equity stakes, then she says maybe they don’t, but never says exactly how the CBA accounts for that portion (included the additional link).

    Seems consistant with what many writers are saying this year (article was a year old).

  24. Ghost says:

    Jim, I missed what you were saying last week, but I take it you mean that the draft cap was imposed because the wealthy teams didn’t want the poorer teams overpaying for slot and having at least one way to counter the rich boys who swallow up all the premium free agents.

  25. Steelkings says:

    In that regard ,Jim. I dont expect the small market teams to willingly create a level playing field either.

  26. Steelkings says:

    The small and medium markets may not want to force a more equitable distribution of revenues. I mean if you are in this and are looking at it as a business instead of a competition, then you certainly do not want to remove the obstacles , or perceived obstacles that allow you and excuse to not spend money.

  27. 21sthebest says:

    I don’t understand how it’s lower. The formula is net local revenue x 34%, period.

  28. NMR says:

    Can you show me where the CBA explicitely states that revenue from equity stakes are in included in that number?

    This isn’t my idea, 21. I dind’t make it up. I’ve read plenty of writers claim that this is a loophole.

  29. 21sthebest says:

    Okay, I follow you now NMR. The CBA defines the formula. Whether or not income from equity stakes in broadcasting companies is included is hard to tell but I’ll believe whatever you’re reading. I also don’t see how it’s relevant.

    The percentage is 34%, period. If teams can get equity when they’re making these deals, good for them. The revenues they’re still getting that’s included in the 34% calculation still seems pretty high. I don’t see something as a loophole if it’s legal.

  30. Jim S. says:

    What I was saying, Ghost, is that when the changes were made to limit draft spending it did not hurt small market teams, as everyone seems to believe. At least, I don’t think it did. The reason I say that is because of the sudden huge increases in local TV revenue for the large market teams vs. the smaller gains in local TV revenue for the rest of the league, I believe the large market teams were just about to increase draft spending by a huge amount. They are, in fact, going to increase their spending to gain competitive advantages with this new found wealth across the board. So, the draft caps probably helped the smaller markets overall, IMO.

  31. Jim S. says:

    Sadly, that is a good point for at least some of the small market teams, Steel. I hadn’r really thought of it that way, but I think you are right. Some of the small market teams don’t approach things as much from a W-L standpoint as they do from a profit-loss standpoint.

    I was listening to one of the GMs on MLB Radio yesterday, and he talked about what a great thing it was to work for owners who only want to break even. I think it may have been the DBacks GM. You know NH could never say that. I realize MLB is a business, but a lot of teams are not looking to make a profit. They want to win, and they have plenty of other businesses where their #1 aim is profit. How much extra money would that free up for NH if the Nuttings operated under the break even assumption? $20 million? $25 million?

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