The Escalating Trend of Paying for Prime Years

On Wednesday, the Braves announced that they had signed Freddie Freeman to an eight year, $135 million extension. I’ve already written about the diminishing need for a track record and about whether this deal heralds a coming market correction, but hopefully you’ll indulge some more thoughts about this contract and the changing economic structure of Major League Baseball.

There’s no question that teams are throwing more and more money at players who haven’t reached free agency; this is the 15th extension of $100+ million signed in the last three years by a player who was still under team control for at least another year. Players no longer have to reach the open market in order to obtain nine figure contracts, and as we’ve seen with Joey Votto, Elvis Andrus, and now Freddie Freeman, players don’t even have to get to their walk year to land a monster extension anymore. And while this shift towards big money deals for non-free agents is a new thing in MLB, it might be part of an ongoing trend that is shifting baseball’s payroll distribution back to what it was before “the PED era”.

The Baseball Databank has historical salary data going back to 1985, so I asked Jeff Zimmerman to break down the overall salary distributions by age group for each year since then, giving us almost a 30 year window into where teams have been spending their money. The graph is pretty fascinating.

PayrollAllocations

At the end of the 80s and the early part of the 90s, the distribution was pretty steady, with about 40% of the league’s total spending going to players in both the 26-30 and 31-35 buckets. These are the years you expect players to be most productive, and most of the players in these buckets are going to have their wages generated through free agency, so this is where the big contracts are going to go. The 18-25 guys are almost always pre-arbitration cases, so they just get the league minimum and live with it, since they have no real leverage, so they hang around 4-5% of total spending in most years. That left around 10-15% of total spending to go to the older crowd.

From 1988 to 1997, there’s not a lot of movement in that distribution, and the graph is pretty flat for each line. In 1998, though, we start to see the beginning of a shift, as the 31-35 age group makes up 48% of total spending, while 26-30 falls to 38%. This goes to 50/31 in 1999, as the 26-30 group falls even faster than the 31-35 group rises, and the oldest group of players begins to really see their share of the pool grow, jumping from 11% to 14%. This is the trend that would take over, as the 36+ group jumped to 17% of total spending in 2000 and continued growing up to 22% in 2004, double what their share was in 1998. In six years, spending on players age-36 and beyond went from $134 million to $446 million.

Some of that uptick is simply due to there being more productive older players in baseball during that stretch than there was any at time before or since. But, contrary to the popular notion that the PED era gave the largest advantage to big bulking sluggers, the big increase was actually on the pitching side of things. In 1998, pitchers age-36+ accounted for 5% of the innings and 6% of pitching WAR, while in 2004, they accounted for 10% of the innings and 12% of the pitching WAR, while older position players went from roughly 6% to 8%. Here’s a graph of total pitcher WAR by age group for this same 1985-2013 time period:

PitchingWARAllocation

You can see where the oldest pitchers really began to make a surge in the middle of the 2000s, and this correlates to the rise in payroll going to that age group. That new 50/30/20 distribution held for a good chunk of the 2000s, and has only recently begun to reverse course, as older pitchers have returned to their formerly lower levels of production. In 2011, the payroll distribution fell to 44/36/16, and then in 2012, it went to 41/40/15, nearly an even split again, as it was for most of the 90s. Then, in 2013, players in the 26-30 bucket made more money than players in the 31-35 bucket for the first time since 1994. For nearly 20 years, MLB teams spent more on players in the beginning of their decline phase than they did on players in their primes, but if the last few years are any indication, that allocation pattern seems to be going away.

It is difficult to miss the trajectory of the recent red line in that graph, as it is the steepest increase of any group at any stretch in the time period covered. From 2008 to 2013, the 26-30 group went from $750 million to $1.25 billion in total spending, while the 31-35 group went from $1.25 billion to $1.16 billion. If you look at total spending for the three groups besides 26-30 in that 2008-2013 window, the overall total actually went down from $1.9 billion to $1.76 billion. Essentially, the entirety of MLB payroll growth over the last five years has been allocated to players between ages 26-30.

And I think you can make a pretty good case that the sport is healthiest when players in their primes are getting the most money. Players between ages 26-30 account for roughly 50% of the total WAR in any given year — they actually surged to 55% of total WAR last year, their highest mark since 1995 — so allocating more money to players in that time frame should lead to fewer contracts where the salary and the performance do not align. The 31-35 group is essentially already getting the money that would otherwise go to 18-25 year olds — both groups produce about 20% of total WAR, but 31-35s get 40% of the payroll while 18-25s get 4% — and pushing any more money to that group is going to be paying for past performance, not current production.

While MLB’s salary structure certainly isn’t setup to equate single year performance and salary, it isn’t really in anyone’s best interests to have a system that creates a never ending series of albatross contracts. By shifting the payroll allocation towards younger and more productive players, MLB teams are decreasing the likelihood of paying large salaries to unproductive players. Essentially, they’re trading in what used to be bargain years for more equitable payments during a player’s most productive years in exchange for not having to continue to finance their incomes well beyond their own usefulness.

We don’t have enough data to say that this trend is going to continue, or if we’ve returned to the 40/40 equilibrium of the past, but it seems clear the days of past-their-prime players getting 50% of the pot is coming to an end. Deals like Freemans are not going away. They might seem exorbitant based on what players that age got 10 years ago, but the economics of MLB are changing, and players in their 20s are now going to command a much larger share of the pie than they used to.

We hoped you liked reading The Escalating Trend of Paying for Prime Years by Dave Cameron!

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walt526
Member
walt526

“While MLB’s salary structure certainly isn’t setup to equate single year performance and salary, it isn’t really in anyone’s best interests to have a system that creates a never ending series of albatross contracts.”

I disagree. The potential beneficiaries are smart, smaller market teams. It’s been discussed quite a bit (both Fan Graphs and elsewhere) that “Moneyball” teams are getting a lot harder to field because market inefficiencies are fewer (or at least less obvious) than they were a decade ago. The teams most likely to sign albatross contracts are the big money spenders. While a bad contract doesn’t necessarily cripple them to the same degree it would a smaller market team, at some point every team has a budget. To that extent, bad investments by teams like the Dodgers and Yankees are not necessarily a bad thing for their smaller market rivals, as it diminishes the advantage of being able to field a team with a much large payroll.

TK
Guest
TK

The big market teams are also the ones that can afford the “albatross” contracts, therefore not acting as an actual albatross. Instead these team merely treat them as the sunk cost that they are and move on. E.g. Vernon Wells & the Yankees record offseason. Meanwhile if a small market team has an albatross contract its impact can be much larger like Nick Markakis in Baltimore.

pft
Guest
pft

The albatross free agent contracts are being subsidized by the cost controlled players. Teams looking mainly at total payroll as a percentage of revenue which is more important than how any one contract pans out. If its around 50%+/5, they are good.

If cost controlled players are making up a bigger slice of the pie, there is less subsidy for free agents, and a smaller slice.

Technically, this is a poor strategy to pay cost controlled players more than they need to pay them in return for a couple of free agent years, especially for pitchers who are more susceptible to injuries. Teams are probably better off keeping these extensions for the elite players like Trout, and freeing up money to spend on filling holes in free agency.

Even the best of farm systems won’t fill much more than 1/2 of a 25 man roster from homegrown talent, at least not if they hope to compete.

Braves just committed a ton of money for Freeman and their 2014 team is no better off for it. That same money could have landed them 3 decent free agent players who could have helped in 2014.

Scalious
Member
Scalious

He is only getting 5.12 Mil for his Arb 1 year

8.5 for is Arb 2 Year. 12 Mil for his Arb 3 year. So, no, its not preventing them from getting other guys during his Arb Years.

They basically just signed him a 5/106.5 for his FA years. But they did it 3 years in advance. Which is a risk, obviously. Since its being done so early. But the reward is having that deal from age 27-31. Which is his prime, without having to buy decline. Since if they had waited until FA or 1 year before. He would have most certainly asked for more years.

NS
Guest
NS

Unless of course he’s injured or not very good in any of those 3 seasons, a scenario Braves fans delight in ignoring despite the fact that it’s those exact risks that significantly shape the value of any pre-market deal.

Kevin S.
Guest
Kevin S.

Well, yes, that’s the concept of the discount. Freeman leaves potential earnings on the table, the Braves in exchange cover his downside risk. Had he made it to free agency and all went well, he’d have gotten quite a bit more than 5/$106MM. I think people excited about this deal understand the dynamics of the trade-off.

BMarkham
Guest
BMarkham

“Even the best of farm systems won’t fill much more than 1/2 of a 25 man roster from homegrown talent, at least not if they hope to compete.”

Tell that to the Cardinals.

Molina
Cruz
Adams
Wong
Descalso
Carpenter
Craig
Jay
Wainwright
Lynn
Miller
Garcia
Wacha
Rosenthal
Martinez
Siegrist
Maness
Kelly

That’s 18 players who have only played in a Cardinals jersey in the majors that are a sure thing to be on the 25 man roster on opening day. And that doesn’t include Motte, another home grown player who might not be on the roster opening day but will be once he recovers from injury. Or super-prospect Oscar Taveras. The Braves and A’s probably also have developed more than half their roster.

That Guy
Guest
That Guy

The A’s? Hardly. Nobody in their outfield is homegrown. The only homegrownn player in their infield is Donaldson, and there’s a caveat at that.

Cool Lester Smooth
Guest
Cool Lester Smooth

Vernon Wells was irrelevant to this offseason. The Angels were paying his salary either way.

That Guy
Guest
That Guy

LOL at Markakis being what sinks the “small market” Orioles.

Dan
Guest
Dan

I *think* he meant that it isn’t in the best interest of any of the majors groups involved whether it’s players or teams. It’s obviously in somebody’s best interest to have terrible albatross contracts, for one the player getting that contract.

But it isn’t in the interest of either players or teams as a whole to have those contracts floating around.

Rainja182
Member
Rainja182

There will always be market inefficiencies. It seems now that older, past their prime on a down year players is where small market teams will make their mark. Ala Russell Martin.

Alec
Guest
Alec

Last season, the A’s, Rays, and Pirates all made the playoffs, and the Reds came damn close. The Yankees did not make the playoffs. Neither did the Angels or either Chicago team.

BMarkham
Guest
BMarkham

The Reds did make the playoffs.