By Craig Edwards
In the next round of negotiations between the players’ union (MLBPA) and the owners, the union’s aim will be to close the growing gap between player salaries and owner revenues. Player salaries a decade ago represented 50% or more of revenue, but that percentage has fallen under 40% as salaries have not kept pace with revenue. The players have several options to try and increase salaries, but the simplest and perhaps most effective route is to significantly increase the minimum salary.
The players separate themselves into classes based on service time, prioritizing the money in free agency upon reaching six years of service time above all else. A tier below the free agents are those with at least three years of service time who are eligible for salary arbitration and generally receive between 40-80% of free agency salaries on one-year contracts. A step below the arbitration eligible-players are active Major League Baseball players with under three years of service time (except for the top 22% of players with between two and three years of service time who are also eligible for arbitration). The MLB players not eligible for arbitration have their salary set by their team, usually very close to MLB minimum which is currently $507,500 and has slowly increased in the past decade. In the tiers below active players, there are players on the 40-man roster in the minor leagues who receive union protection and a minimum minor-league salary, and then there are the rest of the minor leaguers who are not in the union and had many potential protections and salary bonuses bargained away by the players’ union.
The non-MLB player tiers certainly deserve more attention, but in terms of increasing player salaries, some of the focus needs to placed on the minimum player salary. In 2002, the major-league minimum was $300,000. Over the past decade, the minimum salary has risen in line with salaries for the rest of the players, but that means that, just like for the rest of the players, salaries have not kept pace with total MLB revenues.
The union’s top-down approach worked well a decade ago when veteran free agents were more effective and sought after. The cost of buying a win on the free agent market continues to rise, but the number of players and the wins produced by veteran free agents has decreased. From 1995-2004, there were 664 hitters at least 30 years old who qualified for the batting title and those players produced 1912 WAR, an average of 2.9 WAR per player. From 2005-2014, the number of qualified hitters dropped to 625 and they produced 1590 WAR, an average of 2.5 WAR per player. If teams would still be paying the current going rate for a win to veteran free agents, the decline in production for players over 30 has cost the players around $200 million per year over the past few years. Absent a change in veteran production, the union could shift its focus on younger players to make major gains in the next collective bargaining agreement.
Getting to free agency or arbitration a year earlier is certainly a measure that would transfer more wealth from the owners to the players, but the easiest change affecting the greatest number of players is to move the minimum salary upwards. If the players view the amount of player salaries as a fixed amount, then giving more money to the youngest players takes away money from veterans. However, if the players view the total revenue of the league, then giving more money to younger players simply takes away money from the owners and potentially gives more money to all players, not just those that receive the direct salary increase.
Including those on the disabled list, roughly 900 players receive major-league salaries, and roughly one-third of those players make the minimum or very close to it. Doubling the minimum salary to $1 million adds $150 million to player salaries for the 300 lowest-salaried players as well as another $10 million for 50 players who make more than the minimum, but less than $1 million. If the change had been enacted over the previous four years, here is how revenue and player salaries would look considering only the increase in minimum salary:
That orange sliver looks small, but the $160 million is a bigger number than the combined effect of designated hitter in the National League and adding an additional roster spot. It would increase the players’ share of the revenue from 38% to 41%. While doubling the minimum salary sounds drastic, tripling or even quadrupling the minimum salary does not get the players to 50% of total revenue without other factors affecting salaries. Increasing the minimum to $1.5 million adds another 60 players and $20 million for those players earning between $1 million and $1.5 million in addition to the 350 players affected above. The revenue share then looks like this:
For 2014, without considering other factors, the player share moves up to 43%. Repeating the exercise at a $2 million minimum salary gets the players to 45% of revenue, but the potential benefits outside of the simple salary calculation should be far greater. In the short term, teams could attempt to keep salaries low by shifting money from veterans, but over the course of the next CBA, players should see the dividends of a higher minimum salary. The players could choose a minimum salary based on service time, but it is doubtful that the players would agree to rules that provide further incentive for teams to choose younger, cheaper players over more expensive veterans.
Currently, the most opportune time to sign a young player to an extension is right before his last season ahead of arbitration. Players at that stage of their careers have earned $1 million to $1.5 million and stand to earn $500,000 before reaching arbitration with no guarantee for future earnings. Teams use this opportunity to buy out precious free agent years. With a higher minimum salary, if a player has already earned $2 million to $4 million and is earning a salary in excess of $1 million, that player might be less enticed by the current market for long-term extensions. Those extensions that do occur will cost considerably more money, transferring more money to the players. If fewer extensions happen as a result, players are more likely to hit free agency in their prime and reap the benefits of a bigger, long-term contract.
The MLBPA’s current model favoring veterans worked extremely well when quality veterans were plentiful, driving up total free-agent prices and growing the players’ share of the pie. With the number of quality players over 30 years old shrinking, the union should shift its focus if they intend on obtaining a higher share during the next Collective Bargaining Agreement. Significantly increasing the current minimum salary for players is likely the simplest and most direct way to get more of baseball’s soaring revenues in the hands of the players.
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