How MLB Keeps Its Players' Salaries Down

Baseball's labor contracts are full of technicalities that depress Major Leaguers' earnings. Meanwhile, in the minors, things are even worse.

Lucy Nicholson / Reuters

With less than a year remaining on the existing contract between Major League Baseball’s owners and players, the executive director of the MLB Players’ Association, Tony Clark, had this to say about the sport’s revenue: "The quote-unquote ‘player share’ is as close to 50/50 as it has been in a long time." Which is a curious thing for a man in his position to say: Clark is going to be sitting across from owners at the negotiation table relatively soon. As the head of the Players’ Association, he shouldn’t be weakening his position by essentially calling the current arrangement equitable.

Yet Clark’s tactical blunder belies the bigger story. The notion that ownership and players are sharing revenue at the same rate is completely wrong—owners are getting richer far faster than players. Payroll data from the independent statistics site Baseball Reference and Forbes’ annual valuations of teams clearly show that while payrolls have grown over the four-year course of the current labor agreement, ownership has seen far more growth in its assets (thanks largely to heavily-inflated television deals) over the same period, with last year being the most unbalanced. To be fair, valuation is not the same as revenue, but the latter greatly informs the former—and, aided by these television deals, almost every team saw significant revenue growth last year as well. Given the trajectory from 2014 into 2015, Clark’s statement that players and owners are closer to 50/50 than ever is likely to only get more wrong over time—or at least until the cable-sports bubble propping up these valuations pops.

MLB Teams’ Payroll, Valuations, and Revenues, in Millions, Between 2011 and 2015
Note: Revenue data not available for 2011 and 2012 | Data: Baseball Reference, Forbes

Pretty clearly, the existing structure is far more beneficial to owners than it is to players. The current labor agreement—the one that expires next December—is a large part of the reason for this asymmetry. In November, it was announced that the minimum salary for a MLB player will remain $507,500, the same as last year’s figure. Without question, over half a million dollars is a significant amount of money. Equally without question, though, is this: Major League Baseball players are grossly underpaid. And their minor league counterparts are even worse off.

Ironically, while the labor agreement between players and owners has long favored owners, much of the current inequity is a function of the same focus on analytics that’s changed the way the game is played and how players are valued. Just as scouts and analysts now know more about how best to utilize the talent on their rosters, general managers are now far more savvy about how best to populate that roster in the first place. And, with few exceptions, the approach they end up taking is to fill their rosters with relatively affordable young players.

Young players come with two primary advantages. The first is obvious: They’re cheaper than their veteran counterparts. This is by design: Even though the agreement between players and owners covers both the major and minor leagues, only Major Leaguers have the right to vote on it. As a result, veterans helped craft a deal that is most advantageous to themselves, leaving younger players relatively worse off.

In broad strokes, the current compensation system works something like this: Most players, upon entering the league, make the league-wide minimum for their first three seasons. Starting in their fourth year, they can start to make larger and larger percentages of what they might make on the open market. And after six years of MLB service , a player becomes eligible for free agency, at which point he can finally see the sort of compensation that most people associate with pro athletes.

Yet savvy owners have figured out a way to put off fully realized salaries for longer than that: They can leave players likely to be superstars in the minor leagues for an extra week or two at the beginning of their careers and effectively squeeze out a seventh year before those players can reach free agency. This practice recently received widespread attention because of the Cubs’ treatment of the 2015 Rookie of the Year Kris Bryant—which was blatant enough for Bryant to file a grievance—but this was by no means an exceptional case. The league is littered with young stars who’ll reach free agency a year later than they reasonably should have.

And then there’s another aspect of the labor agreement that disadvantages the players who manage to reach the six-year mark—the existence of a “qualifying offer.” A qualifying offer is a one-year contract whose salary is automatically set as the average of those of the 125 highest-paid players in the league. (For the coming season, that’s $15.8 million.) But since practically no players ever accept qualifying offers—a team, after all, only presents them to free-agents-to-be who are likely to make more than that on the open market—this rule has depressed earnings. That's because when a team signs a player who declined a qualifying offer, that team must forfeit a draft pick—a penalty designed to discourage wealthier teams from raiding poorer teams' rosters. For this reason, the cost of losing a draft pick is factored into a team’s calculation of a player’s value, lowering the amount it’d be willing to pay him. Scott Boras, baseball’s most powerful agent, has called it “something that’s really wrong with baseball.

Yet all of that only addresses the cost advantage of young players. It’s the other advantage that exacerbates all these problems, because it wasn’t as well understood until relatively recently: Young players are better than veteran players. Plotting a common metric for a player’s value (a statistic called “Wins Above Replacement,” or WAR) against player age, it’s immediately clear that by the time a player hits his early 30s, he’s trending downward.

Performance of MLB Hitters by Age, Between 2010 and 2015
Note: The shape of the graph remains roughly similar even when using other, more traditional metrics for hitting or pitching, such as OPS or ERA. | Data: Fangraphs

What’s also clear is that teams are aware of this decline in performance: There are a ton of MLB players between the ages of 24 and 27, but with each subsequent year of age, fewer players remain. (As a side note, the high performance of 20- and 21-year-olds has less to do with youth and everything to do with the fact that it’s an age typically represented only by budding stars such as Bryce Harper and Mike Trout.)

The combination, then, of lower salaries and higher performance pinches players’ earnings potential. Given that the above graph also shows that most players don’t even arrive in the Majors until their mid-20s, they aren’t accruing the requisite service time to reach free agency until they’re in their early 30s, just in time for their athletic decline.

So, savvy teams don’t bother offering lucrative long-term contracts to most players eligible for them, which means that despite having toiled for years, most players never reach the free-agency payday associated with superstars. To be sure, the occasional headline-making, multimillion-dollar deal bucks the trend, but by and large, players’ earning power is peaking right when they’re beginning to look less appealing.

Granted, even underpaid, the average Major Leaguer still earns a lot of money. No MLB player is at risk of going without. Instead, that ignoble end is left for the minor leaguers.

At the lowest end of the minor-league payscale, players earn barely over $1,100 per month. To make matters worse, that per-month salary doesn’t apply to the entire year, but rather only during the season. In other words, there a number of minor-league players whose baseball incomes, unsupplemented, put them well below the federal poverty line. Given that only about 10 percent of minor leaguers ever reach the Majors, that’s an awful lot of players earning very little, just for a longshot chance of making a livable wage, and an even longer shot at a generous contract in free agency.

Dirk Hayhurst, a sportswriter and former player, chronicled the struggles of minor league life in his memoir The Bullpen Gospels. He told of players living with host families, or, failing that, renting 1-bedroom apartments that they shared with several others. The clubhouse pantry is raided for whatever free calories are available—usually, that’s peanut butter. Another player-turned-analyst, Gabe Kapler, detailed the eating habits of the typical minor leaguer, which leans frighteningly heavily on whatever fast food and candy the team bus can locate as it shuttles the team from city to city—not exactly the diet one associates with athletes.

Given that baseball is a sport dependent on physical performance, putting players in these working conditions seems counterproductive. Indeed, Baseball Prospectus’s Russell Carleton wrote an analysis of what it would take for an organization to bring its minor leaguers’ living standards up to snuff, going beyond the moralistic argument and citing potential returns in player development and on-field performance. To date, though, no team has stepped up to try the experiment.

Considering all this, baseball’s existing labor agreement doesn’t look very equitable, regardless of what the leader of its players’ association says. Even setting aside the question of minor leaguers, young MLB players are increasingly disadvantaged by the current labor agreement. Given that the vast majority of teams are overwhelmingly profitable, it would seem that owners could even things out without taking too much of a hit to their balance sheets. Considering the struggles most players have to go through, that’d be more than deserved.

Realistically, though, neither side in the negotiation wants to repeat the disaster that was the work stoppage of 1994. Despite the popularity of articles to the contrary, Major League Baseball is healthier than ever, and the next labor agreement will not do anything drastic to jeopardize that health. As such, while some of the individual tactics owners use to depress salaries, such as the qualifying offer and stretching six years’ service into seven, will likely no longer be viable, the lopsidedness of the next agreement will significantly resemble that of the current one. That’ll leave young MLB players only slightly better off than they were previously, and minor leaguers just as poorly off as they are currently. And that, perhaps, is the biggest conclusion one can draw from Tony Clark’s statement: He is content to pretend the current bad deal is a reasonable framework.