Uncompetitive Minor League Wages Might Be Deterring Talent

Minor league players earn about 1 percent of the MLB minimum salary. (via Minda Haas Kuhlmann)

Minor league players earn about 1 percent of the MLB minimum salary. (via Minda Haas Kuhlmann)

In February of 2014, a group of ex-minor league baseball players filed a class action lawsuit against Major League Baseball. They claimed the minor league pay structure violated the United States minimum wage law. Their argument was that players often worked 50+ hour weeks, yet earn just a few thousand per year, which works out to well below the federal minimum of $7.25 per hour.

According to the lawsuit, the majority of minor league players get signing bonuses of about $2,500 and earn between $3,000 and $7,500 over the five-month season. For comparison, that’s roughly 1 percent of the major league minimum of $500,000. Even if you factor in the minor league per diem of $25 per day, that’s still around $10,000 for five months. The suit also notes that players aren’t typically paid for their participation in spring training or fall instructional time, which take place before and after the season, respectively.

All of this while the average major leaguer earns $4.25 million per year, with many earning much, much more. You might think this pay disparity alone is enough to justify better pay for minor leaguers, but that’s something of a philosophical question. After all, nobody’s forcing low-earning minor leaguers to be professional ball players. They made the decision to do what they love, regardless of the pay, and I’m sure plenty of you reading this would change places with them in an instant. Furthermore, addressing income inequality isn’t exactly Major League Baseball’s raison d’être. Major League Baseball’s primary responsibility is to, well, produce entertaining Major League Baseball.

Still, there are less normative and social justice-y arguments for giving minor leaguers a bigger piece of the pie. For one, as Russell Carleton pointed out in August, forcing players to live paycheck-to-paycheck — or playing “hunger games,” as he puts it — can be detrimental to their development as ballplayers. If a player has to worry about affording his next meal, he’s probably not 100 percent focused on becoming a better baseball player. That’s bad for the individual players, but also for the teams who employ them.

There’s another potential consequence that might be even more alarming: These uncompetitive wages seem to be dissuading some from pursuing careers in baseball altogether. They’re poking holes in MLB’s talent pipeline, potentially leading to a lower level of talent on the field.

In many instances, an argument for a higher minimum wage is an argument against the free market. The primary economic argument in favor of a higher higher minimum wage is that income can be transferred from wealthier to poorer individuals. The primary economic argument against a higher minimum wage is that employers may hire fewer people. But unlike jobs waiting tables, the number of roster spots given to minor leaguers is fixed. There is no potential decline in employment, only the transfer of income.

Minor league wages are not dictated by a competitive market at all, but stem from a different system entirely. The current minor league wage isn’t the market equilibrium wage, but is set by a monopolistic employer. It’s not as though individual teams bid up minor leaguers’ wages, even if the current wage is sub-optimal. Rather, a minor leaguer has one employer that can employ them until his becomes a free agent. Until then, the league tells that employer how much players will be paid. And the league happens to set that figure uncompetitively low.

Minor league salaries are uncompetitive when held against even the country’s lowest-paying occupations. Over the course of a year, a typical minor league ball player could make more working full-time as a waiter or fast food cook, or in literally any other job out there.

OccupationsThese meager salaries may not be a huge disincentive for players from middle- or upper-class families. Players from this demographic often have parents and social networks that can provide them with financial support through their minor league years. But a large portion of prospective professional ball players come from low-income backgrounds, and may not have the means to subsidize years of meager pay with no guarantee of future return. For a young player like this, pursuing a career in baseball is more difficult, especially considering how much he’d earn in other fields. One could easily imagine a scenario where a non-elite player from a low-income background decides not to pursue a pro career for financial reasons, especially if the livelihood of his family is at stake.

There’s no easy way to quantify this phenomenon, but it’s possible to detect whether it exists. If non-elite, low-income players are opting against going pro, we’d expect to see a relatively high proportion of minor league players from the low-income demographic make it to the majors. Let me explain why.

For simplicity’s sake, let’s assume that there are two types of amateur prospects: You have the elite ones who ultimately get big signing bonuses. Then you have the non-elite ones who aren’t good enough to get big signing bonuses. If you are in the first group, you’re certainly going to go pro regardless of your socioeconomic status. You get a big signing bonus and get to play baseball for a living. That’s a win-win.

Now let’s say you’re a player in this second group. You’re good enough to go pro, but not good enough to command more than a few thousand in signing bonus. Let’s split this group into sub-groups.

  • If you’re rich, you probably go pro since the money isn’t a huge factor for you. You probably have some money in savings and/or a family willing to support you. But, since you were a fringy prospect to begin with, you probably don’t make it to the majors. This drives down the overall success rate for the rich.
  • If you’re poor, the decision is a tougher one. While the idea of playing baseball for a living sounds great, you also need to put food on the table. You may have very little savings, and your family may not have the means to support you. As a result, an outsized share of the poor group are the guys who got big bonuses (who are also likely to play in the majors). In other words, the low wages are basically weeding out the fringy low-income prospects, which drives up the major league success rate for the poor.

It’s kind of like the old adage: “If you’ve never missed your flight, you get to the airport too early.” Or, if you prefer baseball analogies: If you never get caught trying to steal a base, you’re not running enough (since the break-even point is around 70 percent).

In this case, it’s: If players from an income demographic always make it to the majors (or make it relatively often), not enough of them are going pro. It’s my hypothesis that uncompetitive minor league wages are discouraging fringy, low-income amateurs from “going for it.”

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Testing this hypothesis isn’t exactly straightforward, as data on players’ parents’ incomes or wealth simply doesn’t exist. What does exist, though, is the birth city of every minor league player, which can be linked to median family income data from the Census to give us an idea of the wealth of an area he came from. This proxy isn’t perfect, as even the wealthiest cities have their share of low-income residents and vice-versa. But at the very least, these “income projections” should give us a general idea of each player’s socioeconomic background. I chose to use each birth city rather than high school city since the former is a better predictor of future income for kids who moved after age nine.

Not all of the cities mapped perfectly to the ones in the Census data in my first go-around. So I manually linked any residual cities that produced more than one player, and used county-level data for the multi-player cities that weren’t listed at all. In all, I linked up 97 percent of all players from my original sample.

That sample considers all American-born hitters from 1990-2009 who are currently at least 28, and logged at least 400 plate appearances at a level of full-season ball at least once in their career. It also includes hitters who logged at least 200 PA in short-season ball. I think it’s safe to say I caught nearly all players who spent more than a hot minute playing in the minor leagues.

Next, I plotted these players’ birth city median family income against whether they played in the majors: 1 for “yes” and 0 for “no.” Here are the data broken up into quintiles by income demographic. Each quintile contains roughly 1,100 players.

QuintilesFor a bit more precision, here is what things look like when fit with a nifty loess regression curve. Since median income is very positively skewed, this representation better illustrates the relationship at the high end of the income spectrum.

1My hypothesis appears to hold for players from cities with median family incomes above $45,000. The clear exception, though, is that bottom quintile. While the correlation between income and major league percentage is perfectly clear from $45,000 or so on up, the relationship doesn’t hold at the low end of the income spectrum.

It isn’t immediately clear why the graph does what it does in that bottom quintile. I tried controlling for geography, but that didn’t help. That same trend holds within most states, so whatever’s causing it seems to be causing it everywhere.

I have a couple of guesses as to what might be driving down the major league percentage down on the very low end, but keep in mind these are just guesses:

  • It might have something to do with opportunity cost. Studies show that American men born into low-income families tend to earn significantly less than their high-income counterparts. Perhaps the fringy 30th rounder (who almost never makes the majors) is more likely to go pro if he’s from a very low-income area, where he wouldn’t have many opportunities for well-paying jobs or higher education. On the other hand, the fringy 30th rounder from a moderately low-income area might have other job or education options to pursue.
  • This could also be a symptom of the “hunger games” scenario that Russell Carleton theorized about in his piece. Perhaps the very low-income players are the ones who are struggling to pay for their (or their family’s) next meal. They therefore have less energy to focus on becoming better baseball players, leading to a higher attrition rate.
  • It could also be that players from very low-income backgrounds are less likely to stick it out that extra year, and are working a 9-5 job the year they would have had their breakthrough season.

It seems there’s an omitted variable here, and frankly, I’m not really sure what it is. In any event, there’s a statistically significant negative linear relationship between city income and major league percentage that yields a p-value just under .07. Even if there are things I’m not accounting for here, I think this is fairly strong evidence that income is an explanatory variable of major league percentage.

2To further illustrate the relationship between socioeconomic status and minor league player quality, I calculated the average single-season KATOH forecast for each player in my sample, and plotted it against median family income. KATOH, if you’re not familiar, is my system that forecasts major league performance using minor league statistics. This depicts the same phenomenon as the MLB%-Income graph above, but uses that player’s KATOH forecast as a proxy for talent rather than major league percentage. Consistent with the chart above, players from wealthy areas tend to have lower KATOH forecasts than the rest of the universe, on average. Put differently, fringy prospects tend to be wealthier than the good ones.

3The correlation is stronger than it was with MLB%, which isn’t all that surprising. It makes sense that KATOH would be a better proxy for talent than major league percentage, which can be influenced by outside factors like injury or whether there happens to be an opening at the big league level.

4There are a couple of reasons to think the raw numbers from this study might even be understating the magnitude of the effects of low minor league wages. For one, I used median family incomes for players’ home cities, rather than their actual families’ incomes. City-level data acts as a decent proxy, but is obviously less than 100 percent precise. If I were using these players’ actual family incomes, the trend might be noticeably more stark.

I quasi-tested this theory by breaking out the central cities — the largest city from each metropolitan region — and found that major league percentage tends to vary more across income in areas that aren’t central cities. I believe this is because cities tend to have large populations and high levels of income inequality. Both of these characteristics make a city-wide median income a less reliable proxy for any given individual’s wealth. In smaller and more equal areas, the income-MLB% relationship is more stark.

City CenterSecondly, this study assumes that once a player goes pro, his odds of making the Show are not influenced by his pay. It does not take into account Russell Carleton’s theory that living paycheck-to-paycheck might stunt a player’s development or discourage him from sticking it out an extra year. I have no empirical evidence on whether this phenomenon exists, but it certainly feels like something that could happen from time to time. I can’t imagine sleeping in a car is great for a young player’s development. And if it affects anyone, it would likely affect lower-income players disproportionately, which would serve to flatten out the above slopes.

Let’s adjust the lens a bit to look at race rather than class. Income and wealth correlate strongly with race in America, with the white demographic coming out on top by nearly every measure. So if low minor league wages are obstructing low-income players disproportionately, they might be doing the same for racial and ethnic minorities. Mark Armour and Daniel Levitt showed that the share of African Americans in baseball has been declining since the mid-1980s. As Matt Swartz hypothesized a couple of years ago, it may not be a coincidence that African Americans tend to come from lower-income backgrounds.

Using the Frequently Occurring Surnames database from the 2000 Decennial Census, I estimated the ethnic background of most hitters in my sample based on their last name. I excluded players whose names weren’t in the Census database. This is similar to the methodology the U.S. Consumer Financial Protection Bureau and Justice Department used to identify discrimination by Ally Financial.

This methodology obviously isn’t perfect. For instance, it assumes that all players with my last name — Mitchell — are 64 percent White and 32 percent Black, which are the national averages for that surname. This obviously isn’t true. This ignores the fact any given Mitchell either falls into the 64 percent of whites, or the 32 percent of blacks, or even the remaining 4 percent. Things are further complicated by the fact that some people throughout history — including many freed African-American slaves — have chosen their last names themselves. Still, even if each individual’s demography is slightly incorrect, these “race projections” should be pretty accurate on the aggregate. Over a large enough sample, this should provide directional evidence of whether low wages discourage players of color disproportionately.

Note that the X-axis does not plot the White% itself, but instead plots the White% percentile. The names in my sample skewed very white. Rather than plotting a heavily right-skewed variable, I figured converting it to percentile form would be more revealing.

5The correlation between “whiteness” and major league percentage largely mirrors the correlation between income and major league percentage: Increasing on the very low end, and then a consistent decline. Just like income, white percentage is negatively correlated with major league percentage. This suggests that relatively few non-elite players of color chose to go pro. In other words, the more white your name is, the lower the expected MLB%, because a fringy amateur is more likely to have the means to go pro if he’s white.

Here is the same graph linearly.

6The line slopes in the opposite direction when compared to the “Blackness.”

7And also for “Hispanicness.”

8By making it harder for the lower class to go pro, minor league wages seem to be inhibiting young, non-elite players of color disproportionately.

All of the above suggests that a player’s decision to go pro depends on his socioeconomic status. If so, then more competitive wages would likely flatten out those curves a bit. If these players were paid more, they wouldn’t need to rely as much on their wealth to get by, and those without much wealth would have greater incentive to play professional ball. The slopes in the curve above point to “missing” minor league players whose financial situations prevented them from going pro.

To be frank, most of the “missing” players probably wouldn’t have made it to the majors. Most promising amateurs get decent-sized signing bonuses, which make their salaries less of an issue. However, it’s relatively common for fringy, late-round draft selections to develop into productive big leaguers. Lorenzo Cain (17th round pick), Kevin Kiermaier (31st round pick), Matt Carpenter (13th round pick) and Matt Duffy (18th round pick) are just a few very recent examples. Based on the trends outlined above, it’s entirely feasible — and perhaps likely — that uncompetitive minor league salaries have robbed us of many players cut from that same mold.

Higher minor league wages would certainly help make baseball’s talent pool more inclusive. But they wouldn’t be the silver bullet that tears down all of the barriers for low-income amateurs. Another, possibly larger, hurdle for these players is the cost of travel leagues, which often run into the thousands of dollars for a single year of play. Travel leagues give kids the opportunity to challenge themselves against advanced competition and have become a near-necessity for aspiring professionals, but as Andrew McCutchen has observed at the Players’ Tribune, they’re unaffordable for many families. Similarly, amateur showcases are a great way for high-schoolers to gain exposure, but cost as much as $600 a pop.

Still, even if minor league wages are only one part of the problem, the data suggest their effects are significant. In addition to paying poverty-level wages to thousands of players, the current minor league pay structure acts as a barrier to entry for many more. Raising the wage would plug some of the leaks in Major League Baseball’s talent pipeline. This would incentivize more amateur baseball players to pursue careers as professionals, leading to a more inclusive and diverse sport with more talented players on the field.

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Chris works in economic development by day, but spends most of his nights thinking about baseball. He writes for Pinstripe Pundits, FanGraphs and The Hardball Times. He's also on the twitter machine: @_chris_mitchell None of the views expressed in his articles reflect those of his daytime employer.
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Jonathan Judge
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Jonathan Judge

Chris, this is terrific. If you log the income levels, does that materially change the skew or directionality of the distributions?

Carl
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Carl
Chris, Fascinating article. Couple of my takeaways though differ from yours. 1) The percentage of “blackness” of last name seems very wrong as the percentage of African-American ballplayers is closer to 10% and not above the 20% figure the chart reflects. 2) Given that the slopes of the KATOH forecasts vs. median family income are both downward sloping, as is the slopes of MLB% vs family income, it seems to me that income has minimal, if not a negative impact on the ability of “fringe” prospects to play ball. Perhaps this is evidence that those who can afford the travel… Read more »
Marc Schneider
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Marc Schneider
Carl, I’m not an economist, but couldn’t you argue contra to your point that, while the opportunity cost for kids in wealthier families is higher that they can better afford to take lower-paying jobs for awhile to follow their dream, while being at least partially supported by their families (or, at least, knowing that they have something to fall back on)? Given that minor-league ball is not something you can do forever, someone from a lower-economic background might be forced to look for a non-baseball job that provides more security. The other issue is that you assume that playing baseball… Read more »
Jeff
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Jeff
This. It helps to put earnings in the context of “utility” or pleasure. Basically money is valued on a personal level based on how much utility it will purchase a person. This means money has diminishing returns to its owner so the $10000 opportunity cost a low income player has for playing baseball may actually represent more value to them then the $30000 opportunity cost a player from a higher income family might have. Basically the higher income player probably has $10000 in income support from their family so their opportunity cost is income from 15000-45000 which could represent less… Read more »
Sean O'Rourke
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Sean O'Rourke

If people want a little more information on how the surname-ethnicity mapping works, the CFPB has published their working paper on the technique (called Bayesian Improved Surname Geocoding, or BISG) here: http://files.consumerfinance.gov/f/201409_cfpb_report_proxy-methodology.pdf

Joe
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Joe
I like the general premise of the article, but using median income of birth city isn’t just imperfect, it really doesn’t tell you anything if you aren’t controlling for cost of living in that region. The median income in San Fran is certainly higher than in rural Alabama, but the cost of living is also significantly higher in San Fran. Because a prospect is from San Fran and his family have a higher median income as a result that in no way means that this prospect’s family is wealthy while the prospect from Alabama is not. It’s all relative. As… Read more »
Matt P
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Matt P
“Next, I plotted these players’ birth city median family income against whether they played in the majors: 1 for “yes” and 0 for “no.” Here are the data broken up into quintiles by income demographic. Each quintile contains roughly 1,100 players.” Did you consider looking at the round the player was drafted in? If poor players are drafted in the 40th round, but rich players are drafted in the 6th round, then this would have an impact. Even better (but likely impossible) would be actual signing bonus (because a ninth rounder receiving $800k is a better prospect then a third… Read more »
Jeremy Losak
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Chris, Great work as always. Definitely one of my favorite studies completed on THT and I hope you are looking to publish this in other academic/scholarly mediums (journals, conferences, etc.). It was genius to use city medium income as an instrumental variable for household income. One interesting idea would be to use the ethnicity projections and acquire the medium income for individuals of those ethnicities in those given locations. While income disparity can be great, especially in big cities, ethnicities tend to cluster in certain income spectrum. That could provide you a more accurate proxy of family income. Can you… Read more »
Eli Ben-Porat
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Member
Hi Chris, loved this article, though I do say I disagree with the premise that minor league pay is not competitive enough to attract talent that could provide incremental entertainment value at the major league level. As a baseball athlete, if you are good enough to get drafted in the first 10 rounds of the MLB draft (competing only against NA competition) you are guaranteed roughly $150K, which is a pretty large amount of money for someone straight out of college. There were 315 players who got over $150K signing bonuses last year alone. NBA: If you’re out of the… Read more »
Jeremy Losak
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Chris’ point was not that they are not competitive between sports. He meant they are not competitive between other industries. Not too many players get to the point where they have to choose between the MLB and another league. Some do, but that population is pretty minimal.

Eli Ben-Porat
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Member

True. My counterpoint is that if they are the best in their industry and compared to their peers, are they really doing it wrong? From this perspective, MLB is doing a great job.

Eric C
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Eric C

I wonder if there is something there, if you were to segment the data by when they were drafted? A high school student theoretically has different opportunities than a college graduate, so I wonder if weeding out the college graduates would show a different trend.

Fantastic work!

Guy
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Guy
Great piece, excellent analysis. One thought on the lowest quintile: your premise is that all players can earn more money doing other jobs than they make as minor leaguers. Even if that is true, the *gap* between the minor league salary and a player’s potential non-baseball income will vary quite a bit (based on their non-baseball skills, education, and other social capital). Presumably, that gap is largest for players from high-income communities, and smallest for low-income players. So while the low-income players have less external support to rely on, they also have less attractive alternatives to baseball. A guy whose… Read more »
Guy
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Guy

And following up, do you have data on whether these players went to college, and perhaps which college? If so, you might be able to use that as a proxy for their potential non-baseball income.

baseballfan123
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baseballfan123
Great stuff. The problem with minor league salaries is that the last time MLB revised the “minimum” minor league salary was over 15 years ago!!! While $1,100 a month was a living wage back in 2000, it’s way below poverty line in 2016. I have always had this idea that the minor league minimum should be a percentage of the major league minimum. The $6,600 a year ($1,100 a month) was around 3% of the $200,000 minimum. Therefore a 3% of the $507,500 is $15,225 a year or $2,537.50 a month which sounds fair in my opinion. What do you… Read more »
Foxboro Marmot
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Foxboro Marmot

How does average salary for a minor leaguer change from low A, to A, AA and AAA? Are there more low A and A league roster spots so the average minor league salary skews low? Most kids in the lower levels probably wash out of the system quickly – maybe two or three years – once they and team management see that they’re not up to the higher levels of competition.

Yehoshua Friedman
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Yehoshua Friedman
The problem is that with the oligopoly of MLB there is no economic incentive for MLB to want to raise the competitive level of play. Therefore there is no reason for the results of this study to move the owners one inch. It’s all about the packaging and hype. Most fans see the bling of MLB logos and are impressed, but in a hypothetical blind study they would hardly notice the difference in quality of play. Therefore whatever MLB serves up to the consumer will pay it the same money. So whoever makes it, makes it, and nobody cares. The… Read more »
james wilson
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james wilson

Each major league baseball team has five minor league franchises. How do you compare this to sports that have none?

The cost of doubling the small minor league salaries would be, judging by your figures, a relative pittance. Less than two million a year certainly for all levels together. If there were a benefit to this I would think one of the thirty clubs would be doing this. Alas.

It is equally astounding, if not more so, what minor league umpires make.

Philip
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Philip

Interesting research. But considering that about 25% of minor league ball players are from the Dominican Republic alone, leaving out the impact of foreign-born players on the minor league salary structure makes conclusions inconclusive, to say the least.

Major League Baseball has for decades taken advantage of immigrant players coming here in work visas with clubs saying they can’t find the “employees” they need in the U.S.

Those policies have likely had much more of an effect on driving down minor league salaries than the disparity in wages and standard of living between various income groups in San Francisco and Shreveport.

Randy Russell
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Randy Russell
Thank you for the article, Mr. Mitchell. One aspect of minor league baseball that has always left me baffled are the stories I hear of minor league players cutting corners with their per diems and living on fast food, or whatever they can get for the least amount of money possible. I can at least understand the greed involved with sticking it to minor leagues with their pay, because the teams have all the control. But jeeminy Christmas, why would teams make their prospects play in a system where they’re motivated to have poor diets? Wouldn’t it obviously benefit teams… Read more »
dominik
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dominik

It is also a huge incentive to take steroids for fringy prospects. if you are a 24 year old minor league pitcher who throws 89 and might be released next season it would almost be stupid to not try steroids. if you get caught or it doesn’t work you don’t lose anything (except maybe future health) but if you get up your FB to 93 with steroids that can make a huge difference in salary.

basically those Players have a free shot at steroids. it probably won’t work but if it works you have a huge potential gain from Minimum salary.

conchefritter
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conchefritter
Wonderful piece. Long overdue, little addressed. Tempered stats/recognize limitations, and analyses (whoa, couple of entries had to think back to quantum analyses classes)! Anyway … this sort of argument should at minimum be a starting point to discussion of MLB as organized–stupid exemption from anti-trust laws, and fundamentally a self-aggrandizing oligopoly. I realize that MLB Players Association (relatively effective) can do nothing under current agreement for any minor league players, but could that be a consideration in the next round of negotiations? The current restrictions among owners obviously thwart improving everything from salary considerations of a wide range of player… Read more »
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