MLB’s coffers are overflowing

This offseason should be quite a telling one for baseball. It will tell us which teams are most interested in acquiring talent and which ones instead are focused on lining their pockets.

Why is this winter different from past offseasons? Well, because the television contracts Major League Baseball negotiated over a year ago kick in for the 2014 season, and those deals more than double the amount of national TV money each team receives.

The overall effect is that baseball will take in approximately $750 million more each season via the new pacts than what the old contracts delivered. That’s an average of $25 million in new money per team. And that doesn’t account for the huge local broadcast deals some teams have signed.

So, the question is, what will each franchise do with that $25 million annual windfall?

It’s a rich man’s world

For the biggest of spenders, most of that new money likely will be poured into player salaries.

The New York Yankees have talked about getting under the $189 million soft salary cap luxury tax threshold, but they just signed Brian McCann to a five-year deal averaging $17 million a season. And Robinson Cano is more likely to return to the Bronx—at a cost of well over $20 million a season—than he is to take his talents elsewhere. And sure, an Alex Rodriguez suspension would lower the Yanks’ 2014 salary obligations, but he would be back on the books in ’15 barring a not-so-friendly arrangement to make him go away.

In addition to the Yankees throwing money everywhere, the new-look Los Angeles Dodgers showed last year that money is no object, and there’s little indication upcoming seasons will be any different. With a 2013 payroll well over $200 million and Clayton Kershaw‘s pending free agency following the 2014 campaign, it’s likely LA will be using its new money to keep its ace and two-time Cy Young Award winner in the fold. That, the Dodgers’ signing of Cuban second baseman Alexander Guerrero, and their need for a third baseman all indicate the Dodgers will be writing plenty of big checks for a long time.

After winning the World Series this fall, the Boston Red Sox have to at least make a show of spending what it takes to keep up their success. With Jacoby Ellsbury, Stephen Drew, Mike Napoli and Jarrod Saltalamacchia all free agents, Boston will pay to bring either them back or their replacements into the fold, although Xander Bogaerts, Will Middlebrooks and Jackie Bradley Jr. could serve as cheaper alternatives. Actually, these bargain fill-ins could offer even greater incentive to spend big to fill other holes.

Detroit, San Francisco, the Los Angeles Angels of Anaheim, Philadelphia and Texas are other teams with huge salary budgets and the incentive to up them further. In the next tier, St. Louis, Washington, Baltimore, Cincinnat, and Atlanta are competitive teams with the means to add this found money to their payrolls without breaking a sweat. And while $25 million doesn’t go as far as it used to, it could acquire enough additional talent to push these teams further toward their goal of a world title.

It’s no surprise that they’re giving none away

And then there are those who will take the money and run, balking about bad timing in their competitive cycle, poor attendance, and a host of other reasonable and absurd reasons not to spend money.

Sitting proudly in the corner with his dunce cap on will be Jeffrey Loria, owner of the Miami Marlins, the poor south Florida franchise that could afford to spend big two offseasons ago to bring in a wave of talent, only to deal those players away a year later and drop its payroll under $40 million. The Marlins took in enough money between the old national TV deal and revenue sharing to cover their payroll. The rest of their intake was gravy. This new TV money? Well, if Loria has some new insanely priced artwork hanging in his owner’s suite, you’ll know ESPN, Fox and TBS paid for it.

The Houston Astros actually have good reason not to throw around their new windfall. Whether or not it was the most profitable team ever last season, Houston has little incentive to spend big this winter. In addition to paying off team debt, the Astros know they have no chance to compete for a playoff spot next year, and most likely not the year after. However, at some point, they’ll have to bring in some free agents or sign their young players to extensions. When that time comes, they ought to have banked plenty of cash.

Tampa Bay, Oakland and Pittsburgh all made the postseason in 2013 with bottom-five payrolls. And while the rising tide will lift all boats this winter, each of these clever teams now has at its disposal a significant sum with which to upgrade its on-field talent. I have a feeling the Plexiglass Principle could bite the Pirates, but the Rays and A’s ought to have enough tricks up their sleeves to stay in the running with the big boys throughout next season. And Pittsburgh does have the benefit of playing in a division without a financial juggernaut, so it’s not like the Pirates are a clear one-and-done team.

People would lie to their mother

Regardless of where teams are in the payroll continuum or the competitive cycle, whether they have a new local TV deal or a stadium, or whether they’re highly profitable or just scraping by, they all have one thing in common: they’ll never tell the public the truth about their finances.

Forbes tries its best to estimate who makes what, but its numbers can only be so accurate without an insider’s perspective. We all expect sleight of hand, misdirection, and numerous other conjurer’s tricks from team front offices as they obfuscate—anything but the truth.

And why not? This approach has served teams well over the years. More than 20 new stadiums have been built in the past quarter century, funded largely by the public. Why be honest when deception can be so profitable?

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And it’s certainly not that teams are spending a higher percentage of their revenues on player salaries. This article, direct from the horse’s mouth, tells the tale of baseball’s revenue growth:

In 1992, when Selig assumed leadership of the game, total industry revenues were at $1.2 billion; by 2012, revenues had grown more than 600 percent to a record total $7.5 billion.

That “more than 600 percent” growth is actually a 625 percent increase if you simply calculate $7.5/$1.2. Nice returns if you can get them.

Then look at the growth in player salaries over the same time frame. This Baseball Cube post shows the average player’s salary increasing from $798,185 in 1992 to $3,438,241 in 2012. That’s not bad money, either, but $3.44/$0.80 works out to a 430 percent gain.

So the owners are keeping a larger percentage of the money they take in as the dollar amounts grow bigger and bigger. People talk about owners taking on the greatest risk with a business because it’s their money. It seems major league owners have found a way around this—fans’ gullibility.

Money changes everything

Well, not everything. Yes, baseball is getting an extra $750 million in 2014. No, owners won’t be spending all of it—probably not half of it—to improve their on-field product. Some teams will invest in foreign acadamies, others will go after international free agents, and a bold few will scoop up the best talent on the major league free agent market in an attempt to capture a World Series championship.

Keep a close eye on who is who. Some teams will go for it in a big way in 2014. Others will prep for their time in the sun later down the road. And a few will tuck the money under the mattresses and cry about not having enough.

It’s that last group of franchises that needs to find new owners who will make the effort to compete that their fans deserve.


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Greg has been a writer and editor for both The Hardball Times website and Annual since 2010. In his dreams, he's the second coming of Ozzie Smith. Please don't wake him up.
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Bad Bill
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Bad Bill
There’s a bad logic error here, which I summarize as follows: “More money is coming in, and it’s not going to the players in fair proportion, therefore the owners are keeping an unfair proportion of it.”  The error is that there are plenty of other things for owners to spend money on, and in some cases things are ramping up considerably beyond foreign academies.  In particular, it would be very interesting to know just how many teams are significantly buffing the business side of their organization, and by how much.  Exhibit A is probably Houston, with their acquisition of stat… Read more »
Detroit Michael
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Detroit Michael

Comparing average player salaries from 1992 to 2012 doesn’t completely tell you what the total player salaries are.  There are 30 instead of 26 teams now.  Furthermore, due to increased use of the disabled list, there may be more players per team now than in 1992.

Jim
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Jim

Nice categories.  Even though they weren’t mentioned, we know which category the Rockies are in.  They are just like their expansion brothers, the Marlins.  But then with over 3 million attendance, who needs a winning team?

Greg Simons
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Greg Simons
Bad Bill – You’re right that I didn’t touch upon all the other ways teams might be spending money to improve the product.  But if a team brings in a couple dozen analysts at $100k a year (a total SWAG), that’s only 10% of their new inflow.  I have a very difficult time envisioning a scenario in which any owners are poorer than they were last year. @Detroit Michael – Good point about total player salaries.  I’ll see if I can dig up historical data on total money spent on player salaries. This page: http://www.cbssports.com/mlb/salaries puts total 2013 salaries at… Read more »
gdc
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gdc
I don’t read enough to know if this has been proposed, but maybe rather than have a luxury tax beyond regular revenue sharing that lower teams may just pocket, there could be 1 roster space removed for being double the avg payroll, 2 for 3x, etc.  So the big market teams who can afford it are free to spend just what they spend rather than give to the free agent plus the other team, but sacrifice being able to hold onto some minor leaguers that another team might snap up rather than just get cash to sign old players. So… Read more »
MGS
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MGS
I have no interest in defending Loria or others like him, but the problem has never, ever been that some franchises “don’t have enough”.  Articles like this one get published on nearly an annual basis and they continue to obfuscate the economic disparity in baseball that MLB permits to create significant competitive imbalance on the field.  Small market teams getting an additional 25 million per year and others tracking what they do with it tells you basically nothing.  They could plow that extra 25 million into free agent acquisition and it doesn’t solve the problem.  Why?  Because that extra 25… Read more »
Area stoner
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Area stoner

Bravo on the Pink Floyd reference, Dude!

Greg Simons
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Greg Simons
@MGS – I’m not sure what I did to “obfuscate the economic disparity in baseball.”  I didn’t say every team needs to buy a big-time free agent to demonstrate that it’s trying to win. I talked about the Yankees and Dodgers having huge payrolls.  I said it makes sense for some teams (such as the Astros) to pay down their debt, invest in foreign academies, or spend in the international free agent market.  (“Others will prep for their time in the sun later down the road.”) There are more ways to compete than by signing MLB free agents.  And I… Read more »
Greg Simons
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Greg Simons

@Area stoner – Thanks.  I’m glad at least one person noticed that.

Greg Simons
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Greg Simons

@Gyre – It’s not “a player (or two)” per team that get a qualifying offer.  There were 13 QOs extended this winter, and all were declined.

People continue to be upset that players make more and more money, but more and more money is pouring into the game.  It has to go somewhere.

If teams play a sub-par player being of his salary, that’s the team’s problem, and the fans should be upset.  The front office and manager should put the best team possible on the field.

Dave Cornutt
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Dave Cornutt
Greg, I think part of the problem here is that, with the current setup, teams have to assume nearly all of the risk of player contracts.  If a high-dollar player gets hurt, or just doesn’t feel like playing hard, it’s no skin off his nose.  He gets paid no matter what.  Yes, sometimes teams give out bad contracts—but that makes it worse, because other smarter people in baseball observe those occasions and conclude that high-priced players are too much of a risk.  That’s the thing… it’s not just the cost, it’s the cost coupled with the risk. To add to… Read more »
mgs
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mgs
Greg: You’re masking the actual problem because your article suggests that the real problem is small market owners who don’t care if they win.  I’ve got no problem with people ripping Loria because he essentially perpetrated a fraud on south Florida by taking actions that made people (foolishly) believe he would spend $ if he got a new stadium.  But that’s vastly different from other small market owners who recognize the futility of awarding $50-200 million dollar contacts to players who are at or near the age where they are highly likely to produce diminishing returns. Your analysis, for example,… Read more »
Greg Simons
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Greg Simons
@Dave – Sure the teams take on risk with FA contracts, but franchise values continues to soar, so I think owners’ financial risk overall is minimal. Plus, teams have players at insane bargain prices for three years (i.e. Mike Trout for $500k), then they get them for reduced prices for the next three years.  During these six seasons, if a player gets hurt, he’s gone, and the team typically owes him nothing beyond that season’s salary.  And this is after paying him a pittance in the minors for some period of time. I’m not yet ready to say the new… Read more »
Greg Simons
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Greg Simons
@mgs – You’re misreading my narrative.  I never said the problem is small-market owners who don’t care to win.  I said it’s any owners who don’t want to win. And I stated in my article and in at least two other comments that spending on ways other than on MLB FA is a legit investment in the future.  (Astros example and one of my final lines, “Others will prep for their time in the sun later down the road.”) As far as the example of the Brewers, Attanasio signed Ryan Braun through 2020, guaranteeing him about $145 million (existing deal… Read more »
Gyre
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Gyre

“All the extra 25 million does is inflate the market value of the players who are free agents this year.”

Yup, I cannot believe the number of players considered to be worth 14Mill. Most teams have a player (or two) that will get a Qualifying Offer and I can see that new money disappearing into them.

And then the players that turn down a QO simply ensure that next season, the minimum will be even higher.  Then the fans get stuck with a sub-par player (most likely because of small injury) being in the game, because of the salary.

Jim
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Jim
Earlier, I stated the Rockies were like their brethren, the Marlins.  I stick by it no matter what MGS says.  Until the cattle barons in Greeley tell or show us what they are doing with the extra money we have to presume that business in normal and they are lining their pockets with it, just like profits in other years.  I’ve said it before and I will say it again.  The Rockies need to draft ONLY pitchers and try to find someone who knows how to develop them for high altitude pitching (yes there are quite a few around, I’ve… Read more »
Greg Simons
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Greg Simons

@mgs – One more time, I never said small-market teams don’t try to win.  If you want to tell yourself that’s what I said, there’s nothing I can do about that.

Tell me, what is your solution?  You’ve complained repeatedly about the economic disparity, but what would you suggest be done about it?  Greater revenue sharing?  A salary cap?  A limit on the number of free agents a team can sign?  Please present some sort of proposed solution.

mgs
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mgs
Greg: “I see that as parity.”  What nonsense.  Yes, teams with small revenue streams make the playoffs.  The Rays are particularly good at it, and they regularly get trotted out when people try to defend the current paradigm.  I’ll readily admit that the past 10 years have been significantly better than the 1990’s were when it came to on the field competitiveness and there are examples, like the Rays, of how to do it. But it wasn’t all that long ago that people used to trot out the A’s as exhibit A in the defense of baseball’s economic structure.  That… Read more »
mgs
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mgs
Read your own article.  This is a broadside against any owner that doesn’t increase their payroll by 25 million prior to the 2014 season.  You’ve back-pedaled a bit on that in the comment threads, but that only goes to demonstrate my point that this was a poorly thought out piece that doesn’t deliver much in the way of new information, as most Hardball Times readers were likely already aware that the teams were getting more out of the national TV contracts.  The solution is simple:  a hard cap and a hard floor, with a guarantee in the CBA that the… Read more »
Marc Schneider
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Marc Schneider
Why would the baseball players have any incentive to agree to any kind of salary cap?  In hockey, they did because the owners locked them out for an entire season and claimed that they needed the cap to maintain the viability of the league, a perhaps not implausible scenario for the NHL.  The NFL players did so because their union is weak.  MLB is not facing any financial problems and the union is strong.  Frankly, why should players care about competitive balance-assuming that the cap is necessary for that? As long the the league isn’t literally facing financial ruin, as… Read more »
Dave Cornutt
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Dave Cornutt

So the Rockies have opened their books to the Denver Post today, and they are showing that of the new TV money, $20M is already committed to arb raises for existing players and to other club expenses, leaving only $5M free.  There would have to be a close examination to verify all of the claimed expenses, but so far it looks plausible.

Greg Simons
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Greg Simons

@Marc – I’m opposed to the idea of a salary cap because I think it primarily limits players’ earning potential and inflates owners’ profits.  As you said, it may have been necessary in the NHL to save the sport, but MLB isn’t there.

I asked mgs for a proposal, and if we were to assume a salary cap was necessary, I think his idea would be a reasonable starting point for negotiations.  I mentioned that the owners would have a tough time agreeing to it, and you’re quite right to point out that the players’ union would be firmly against it.

Greg Simons
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Greg Simons

@Dave – Interesting article about the Rockies.  Here’s a link if others want to check it out:

http://www.denverpost.com/rockies/ci_24630592/rockies-owner-dick-monfort-provides-detailed-look-at-teams-budget-financial-structure

I hadn’t heard about the $8M per team possibly going to the central fund.  Interesting.  And I like the fact that they combined the $4-5M in new money with expired contracts such as Todd Helton’s to arrive at $11M to add to the payroll.

I certainly appreciate the transparency.

Greg Simons
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Greg Simons

It’s a solid proposal, and I’m not going to take potshots at it, though I think getting buy-in from 30 owners would be extremely difficult.

I do wish your reading comprehension skills were better, because I never said what you’re claiming I said.

mgs
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mgs
Greg: My reading comprehension skills are just fine, thanks.  It’s a large part of what I do for a living, and I get by just fine.  Marc: I agree with Greg (and you) that it would be a tough sell.  Historically the idea was abandoned because the MLBPA indicated they would refuse to consider any deal with a cap as part of the scheme.  But in other sports, particularly the NFL, the union agreed to a cap even though business was booming, so I think it’s an overstatement to suggest that the survival of the sport has to be at… Read more »
Marc Schneider
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Marc Schneider
msg, Interesting points.  My only issue is that, even pre-free agency, there was a revenue gap between large and small markets.  The Yankees certainly had an advantage over, say,the St. Louis Browns.  Yet, baseball was a truly national sport at a time when one team won the World Series 20 times in a 44 year period.  But I don’t dispute that, with the growth of the NFL, it’s much more difficult-or maybe impossible-for baseball to ascribe to national status.  There are a lot of reasons for this, including the fact that, IMO, football is a better TV game than baseball-and… Read more »
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