Shohei Ohtani was the most sought-after free agent in all of baseball this off-season. Based on his career so far in his native Japan, the 23-year-old star, who signed on Friday with the Los Angeles Angels of Anaheim, may turn out to be the first player since Babe Ruth who can both pitch and hit at a major-league level—a possibility that led Robert O’Connell to write in The Atlantic that Ohtani might be revolutionary not for his new team, but for baseball as a sport.
Ohtani is so promising that scouts estimate he would be worth more than $200 million, cumulatively, between now and the time he’s 30. The Angels, though, signed Ohtani at a bargain rate—the league-minimum salary of $545,000 per year, plus a one-time signing bonus of $2.3 million. If he’s such a valuable player, why is he making the lowest the league is allowed to pay?
Under Major League Baseball’s collective-bargaining agreement, or CBA, an incoming international player under the age of 25 like Ohtani can only sign for the league minimum salary; he’s now committed to the Angels for six years at that rate (unless they trade him, a decision in which he will have no say). Until this year, the CBA permitted teams to offer large signing bonuses that would make up at least part of the difference between a player’s salary and his actual value. Unfortunately for Ohtani, though, a provision in the new CBA ratified earlier this year severely limited those signing bonuses for international players; the $2.3 million the Angels offered was among the largest put forward by any team. (For added irony, the Angels will be paying Ohtani’s former team in Japan, the Nippon Ham Fighters, $20 million just for allowing him play in the U.S.)
Even Ohtani’s current contract is an impressive amount of money to make playing baseball, and there’s been no indication that he is unhappy with his lot. Still, that Ohtani will be making so little while potentially redefining baseball reveals one of the biggest paradoxes in American pro sports: Though they may look meritocratic, leagues dramatically underpay their talent, to the great benefit of league front offices and teams’ owners, who do far less than the players to influence the on-the-field outcomes fans pay to see.
Ohtani’s massively deflated contract is an especially extreme example of this trend. Under the CBA, any international player who enters the majors or minors under age 25 gets the same basic deal, as do American players who enter through the draft. Ironically, says David Berri, a sports economist at Southern Utah University, the initial goal of that standardized contract was to spark bidding wars and increase the salaries of star players. In 1974, an arbitration ruling struck down the “reserve clause,” which allowed teams to hold onto their players indefinitely and prevent the players from negotiating with other teams. “What basically was facing baseball [at that time] was, every player was going to become a free agent, so the market was going to be flooded with free-agent talent,” Berri says, which would have driven down players’ salaries. Berri went on, “But Marvin Miller, the head of the union in baseball, suggested, ‘Why don’t we have it be that you can only become a free agent after six years?’ That way, in any given year you’d only have a few free agents, and their price would be elevated.” By staggering when players became free agents, Berri says, the union ensured that “baseball salaries went up dramatically, and star players got paid a ton of money.”
But in the last 20 years, Berri says, owners have found a way to exploit this arrangement. As statistical analyses have started to show, hitters tend to peak in those first six years under team control, then steadily decline beginning at age 26 or 27. The aging curve is even harder on pitchers, who typically see their velocity start to decline the moment they make the majors. Increasing recognition of these trends, coupled with the prevalence of young superstars like Mike Trout, Bryce Harper, and Francisco Lindor, means that the demand for older players—and in baseball, “older” means “30 and up”—has begun to shrink.
That leaves a player like Ohtani in a bind. Were he to wait two years and enter the league at 25, he could plausibly get the $200 million contract his talents dictate—or more, given that average salaries increase just about every year—while gaining the ability to negotiate the length of his contract. But he would be banking on teams either being willing to pay him into his likely decline based on just his track record in the less competitive Japanese league or to sign him for a shorter length of time, not to mention gambling on the prospect of injury or physical deterioration while still in his home country. Suddenly, that $2.3 million and a guaranteed six years at the league’s minimum pay sounds a lot more appealing, even if it does mean giving a team a $200 million discount.
The cumulative effect of this system—which, as Berri noted, was initially implemented to benefit players—is to doubly advantage owners and the league. Teams are able to not only load up on young players at a steep discount but also to hold onto those players for longer than most free agents would choose to sign. This shift helps explain why, as the Indiana University professor of business economics and sports law Nathaniel Grow noted in a post on the baseball website FanGraphs, the share of the league’s overall revenue going to players has dropped precipitously, from 56 percent in 2002 to 38 percent in 2015, with the difference going to owners and the league’s front office.
The question, then, is not how Ohtani ended up so dramatically underpaid; it’s how a system that so dramatically underpays its most visible and valuable employees perpetuates itself.
The most obvious culprits are the system’s biggest beneficiaries: owners and the league’s front office, who push for many of the measures that allow them to take home more and more of baseball’s revenues. From their perspective, says Grow, “they would say they need to limit the amount of money teams are able to spend because it’s a competitive-balance issue. If you had a totally free market, high-revenue teams could spend massive amounts of money to always sign the best amateur talent, and over time that would cement their dominance on the playing field. There’s probably some hint of truth to that.” Backing up Grow’s description, international signing-bonus allocations are tied to a league provision called “Competitive Balance Picks.”
Berri is less charitable toward the league’s and owners’ claims about competitive balance. “There’s no evidence that it works that way,” he says, adding, “These [rules] are all designed to throw money at the owners. It has nothing to do with anything else.”
But it’s also important to recognize the players union’s role in perpetuating the skewed system. “The Major League Players Association only represents players who are currently in the major leagues,” Grow notes. “They do not represent players who are incoming professional talent, nor those players who are in the minor leagues.” As players’ share of revenues have declined, “the Major League Players Association realizes that it's getting pinched financially,” Grow says, “so that motivates them even more to give up on the rights of amateur players, to try to preserve as much as they can for their current membership.”
These trends help explain not only why valuable young major-league talent is so underpaid but also why thousands of minor-league players still make poverty-level wages. “As long as the players union signs off on it,” says Berri, “there’s no motivation for Major League Baseball to give more money than they have to. From Major League Baseball’s perspective, that’s a good thing, because then it impacts the bottom line: They see more money, and they see less of it flowing out to labor costs.”
However one allocates the blame, the vast discrepancy between what teams actually pay and what they’d be theoretically willing to offer is in practice a giant loophole for creative front offices. As an example, Grow points to Yoan Moncada, a Cuban prospect who signed with the Boston Red Sox in 2015 and now plays second base for the Chicago White Sox. Under the rules in 2015, the Red Sox had roughly $1.9 million to spend on signing bonuses for international amateur free agents; every additional dollar incurred a 100-percent penalty from the league. So when the team gave Moncada a record-shattering signing bonus of $31.5 million, it also agreed to a fine of more than $29 million, effectively acknowledging that the team would have been willing to pay Moncada at least $60 million if not for the CBA’s deflationary provisions. (Similarly, by paying the Nippon Ham Fighters $20 million to sign Ohtani, the Angels signaled that he is worth at least that much more than his contract.)
Egregious though it looks, the Red Sox’s deal with Moncada was governed by the CBA as any other agreement would be (and, according to Grow, was actually part of the league’s decision to push for the stricter provisions at play in Ohtani’s contract). The Atlanta Braves were less scrupulous. In November, the league penalized the Braves for several contract violations, including routing money to players through friends and associates, all designed to offer young international prospects more than the team could through official channels. In doing so, the Braves demonstrated not only that the players’ values exceed the dollar amounts on their contracts but also that the team was willing to risk harsh penalties to sign the players, suggesting their true value was even more than the sum of the aboveboard and off-the-table payments. (The new CBA aims to further crack down on such activity, although the MLB will launch an investigation into Ohtani’s contract negotiations with the Angels, just to be safe.)
Though the rules differ from league to league, the wage-suppressing dynamics in Major League Baseball pervade American professional sports. The National Basketball Association, the National Football League, and the National Hockey League all have maximum salaries for teams, players, or both; in the NBA, these have also inadvertently contributed the rise of “superteams,” undercutting claims that the provisions create competitive balance.
The most extreme example, though, is the National Collegiate Athletics Association, or NCAA, whose rules explicitly bar players from receiving compensation for their play. Though ostensibly in place to make sure athletes prioritize academics, the rules have been enforced to punish everything from schools inflating players’ grades to ensure eligibility to coaches buying meals for students. And even with such seemingly strict enforcement, schools are still so routinely busted for recruiting violations (the University of Louisville in particular has been a repeat offender in recent years) that the illicit flow of money in college recruiting has long been a talking point in favor of allowing schools to pay their student-athletes. After all, what is a recruiting violation other than a tacit admission that the players are worth enough to the school to risk the ensuing punishment?
To Berri, this kind of bad behavior is the inevitable result of deflating athletes’ pay, whether the resulting salary is enormous or nonexistent: “The fact is, if you’re going to restrict how much somebody can bid for a player, and it’s below their market value, then you’re definitely going to be encouraging cheating.”
The inevitable rebuttal to all of this is that professional athletes are still paid handsomely for their abilities to hit and throw small white balls with wooden sticks. And when it comes to student-athletes in particular, some argue that scholarships, plus the chance to become a rich professional, should be reward enough.
In Berri’s opinion, this attitude fundamentally misses the point. “People imagine that these people's lives are glamorous, and they’re getting something they couldn’t get, and the fact that they’re not adequately compensated is fine,” he says. “They never think of the flip side: That really, what this means is that an owner who’s never done anything gets all of the money. You have this small number of people, typically older white males who’ve never done anything, are being handed over money that other people are making. Shouldn’t that bother people to some extent?” Perhaps. But Ohtani, for one, doesn’t seem to mind—or at least, not enough to hold out long enough to be paid what he’s really worth.
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