MLB Payroll Might Decrease for First Time in Long Time

I probably don’t need to rehash here the stuff we’ve been writing all winter instead of writing about free-agent signings. We all know the market has been remarkably slow. We all know the theories behind the slowness. Most of those theories are probably correct to some extent.

What’s curious to me — and what prompted this article — is that, even after all of the free agents sign, there is a very real possibility that total payroll might actually decrease from a year ago. That’s pretty rare and the implications much worse than I had anticipated.

Near the beginning of the offseason, I took a pretty simple look at how much teams might be willing to spend in free agency. To get those numbers, I took Opening Day payrolls from last season and added 5% to every team — that is, roughly the observed rate of annual inflation of the game over the last few decades. With those numbers, I looked at current team commitments, including arbitration estimates, to get a sense of how much room every team had to spend.

This graph was created with payroll numbers from Cot’s Contracts:

Three months later, that graph is a bit outdated. The market has been slow, yes, but teams have nevertheless made some moves affecting payroll.

That graph also reflects estimates of potential spending. We are now at a point in the offseason where actual spending is more relevant, especially as it relates to our expectations. Instead of framing the information as potential to spend, it is probably now better looked at in terms of how much payroll teams are cutting compared to expectations. To that end, here is the same information from above, but viewed in terms of a percentage increase or decrease compared to expectations.

Yikes. Milwaukee has seen their payroll grow quite a bit; it could grow even higher, too, as they step out of their rebuild. Arizona’s commitments have increased, too, although a lot of that has been the result of arbitration raises. Houston’s big move was to add Justin Verlander last year. That’s the cause of their larger obligation.

On the other end of the spectrum, we have a bunch of teams not only failing to add salaries, but also refusing to replace the salaries of players who are departing. These changes are massive and across the board. There is some spending left to be done, but it is pretty clear that we won’t have anywhere near a 5% increase in spending this year. We can run the graph again, showing comparisons to Opening Day last year without a 5% increase, and it still looks bad.

Again, there are still free agents to be signed. Nevertheless, this doesn’t look good. More than half the teams in the league have cut spending and nearly one-third have done so by more than 20%. The graph still understates the amount of spending that is being cut because those teams on the left already had low payrolls. Increasing the Brewers spending by 43% only augments their payroll by $27 million. Nine teams are seeing decreases of at least that much. All of the increases, meanwhile, amount only to around $147 million. The drops of the Detroit Tigers, Los Angeles Dodgers, and New York Yankees add up to $147 million alone.

On Opening Day last year, payroll commitments amounted to roughly $4.1 billion. Right now, with the commitments that have been made thus far, we are looking at $3.78 billion. If not another dime were spent, that would be a decrease of nearly 8%, which would be unprecedented. In the last 30 years, here are the situations where payroll has gone down.

  • In 1994, payroll declined about 4% from 1993 as the previous CBA expired. There was eventually a strike followed by a lockout.
  • In 1996, payroll declined about 3% from 1995 as a new CBA again needed to be negotiated. Payroll would compensate for that shortfall in 1997 with a 19% increase, the first of five straight double-digit percentage increases.
  • In 2004, payroll decreased by around 2% after modest growth the previous two seasons. Notably, the 2004 season was the first one where players could be suspended for a positive PED test. Since that time, payroll has increased at around 6% annually even with slow growth from 2009 to -11.

We aren’t going to see an 8% drop in payroll like the numbers currently reveal, but it is unlikely that we’ll witness a return to last year’s numbers. I went through the unsigned players in Dave Cameron’s top-50 free-agents post from the beginning of the offseason. I counted 24 players on that list yet to be signed. If we go by the crowd’s estimates, those players will sign deals for a total of $309 million. If that were to happen, we’d be just about $10 million short of the figure from last year. Add in anything close to $60 million for other players not on the list, and we will see something under 1% in terms of an increase from last year. That isn’t good, but we might put some hope in a one-year blip that sees some overcompensation next year with better players and more teams competing.

It’s important to note, however, that the $309 million figure I’ve cited above is based on crowd estimates that might be overstating what players will receive in the current market. If those players’ salaries end up getting discounted by 20%, we are going to be talking about a payroll that did not raise from 2017 to 2018 despite massive revenue streams available to owners. The time has already passed for players to think a typical increase in payroll is coming this season. The question now is whether players will see any increase at all.

All of the theories about why free agency is slow are probably right. There aren’t enough teams in competitive situations; teams at the top are secure, while teams at the bottom have little reason to spend. The players in this market certainly have flaws. The new CBA has emphasized the benefits of getting under the competitive-balance tax and two massive spenders are doing it simultaneously. Maybe teams have gotten a little bit smarter. Maybe Scott Boras is still going to get owners to bid against themselves at some point. Theories are boundless, but the results are pretty close to being in. The players are about to have stagnant, at best, payroll numbers next year at a time when owners are making greater profits than ever. That’s a pretty bad look for baseball.

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Craig Edwards can be found on twitter @craigjedwards.

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williamnyy
Member

With so little going on, I understand the desire to analyze this off season’s spending before all the players have signed, but with so many high profile players still unsigned, we really need to wait before jumping to conclusions.

Also, I’d be interested to have more information about the sources used for all the data in this graph, but according to the database I have been compiling, which includes official payrolls since 1999 (released by MLB in December of each year), some of the claims are in conflict. For example, based on official figures, 2004 payrolls declined by 8.5% after increasing 17.6% the year before. Also, if you break up the period since 1999 into three six year periods, the average annual growth rate has been 7%, 6% and 6%, but with decreasing volatility over each subsequent period.

Before we determine the true impact of the new CBA, and whether it has been good for the players, we really need to see not only this winter play out, but also next year as well. I understand why some players and nearly every agent have been sounding alarms, but the data doesn’t yet support the notion that players have placed themselves in a disadvantaged situation.

ThomServo
Member
ThomServo

Agreed- the author keeps pushing the counterfactual narrative that this offseason is a disaster for the players.

The research for this article is biased- using words like ‘it looks bad,’ and ‘it doesn’t look good,’- when in reality, MLB payroll is very likely to increase from last year and set a new record high.

It’s misleading at best to compare spend on February 2nd to opening day totals. The 8% drop ‘if no teams spent anymore’ isn’t worth noting, since there is no chance that MLB teams refrain from spending several hundred million more in the next 60 days. And as you’ve pointed out, total spend has decreased year-to-year twice in recent times, so it’s moderate increase this year isn’t rare, nor does it have the big implications the author suggests.

Teams are likely to add $8-13m a piece before opening day, so the author’s point that only 12 of 30 teams had so far increased spending hardly matters- as clubs like Minnesota, Chicago, Toronto, St. Louis and Atlanta will all have increased their spending over last year, but at present are $6 or less under last year’s opening day number.

DBA455
Member
Member
DBA455

“in reality, MLB payroll is very likely to increase from last year and set a new record high”.

This. Yes.

The article is strangely alarmist for an off-season that’s not yet over, and probably points to something like flat YoY payrolls – which (a) would still be a powerful growth CAGR over the past 3/5/10 years and (b) is an advance of what could be an extraordinary free agent class a year from now.

As far as I can tell, in the history of professional sports there has been exactly one guaranteed deal >$275M. We might get more than that in a week later this year with Harper and Machado. (Who will be joined by Kershaw, Donaldson, Blackmon, and too many more to mention in a class that’s almost sure to increase payrolls).

Are the same parties who are shrieking about a crisis of underpayment today going to be doing the opposite then? I am skeptical.

[Only tangentially related, I’m also growing weary of the narrative (not explictly expressed here) that the MLBAM sale is extra “revenue” for the clubs – a statement that confuses income and proceeds from asset sales.]

The MLBPA has made an explicit choice, again and again, to sell out younger players for a system that benefits older ones. As the market wises up to the fact that older players can be a (rapidly) depreciating asset, what’s playing out now seems to me to be perfectly reasonable.

jfree
Member
jfree

The MLBPA has made an explicit choice, again and again, to sell out younger players for a system that benefits older ones.

This. Hard to empathize with the whiny millionaires when they are the ones who turned kids into below-minimum-wage indentured servants. As for the billionaires, they are pond scum.

It’s time to take the game back from all these trough-swilling pigs.

francis_soyer
Member
francis_soyer

Are the whiny mllionaires the players or the owners ?

I never understood why the players get crap for playing for millions while owners get the benefit of the doubt for making millions by overcharging for beer and getting subsidies from local taxpayers.

jfree
Member
jfree

I never understood why the players get crap for playing for millions while owners get the benefit of the doubt

Neither should get any benefit of doubt – but it is the MLBPA that threw minors players (their own future members) under the bus for the benefit of the stars. The salary minimum difference between AAA ($17k – and still no free contracting of players) and MLB ($500k) is purely a result of collective bargaining since no actual free market or economic competition is allowed in baseball. Just two groups of rich whiners collecting cartel rent and screwing everyone else. It’s why MLB fringe players have to go to Japan/Korea instead.

RonnieDobbs
Member
RonnieDobbs

Nobody plays baseball against their free will… except maybe some ten year old kid whose father will not let him quit…