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