How slow salary growth, tanking persist in era of record MLB revenues
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Baseball’s new collective-bargaining agreement already looks worse than the previous CBA for many of the major-league players who negotiated it.
For the same reasons, it could also be worse for many fans.
This was the case that agent Scott Boras made during the recent general managers meetings when he talked about the cost of residing in baseball’s “Playoffville,” railing against teams that limit player spending based on the luxury tax threshold in the CBA.
He criticized the Mets, goaded the Cubs, and he called out the Marlins for claiming losses during a time of unprecedented profits across the board in baseball.
Boras’ agenda is driven by the fact that he has most of the top free agents on the market this winter, including the Cubs’ Jake Arrieta and the Diamondbacks’ J.D. Martinez. But the larger point is undeniable: Teams are awash in vast media revenues that have skyrocketed in the last decade, with overall industry revenues going from $7 billion to $10 billion in just the last six years, according to Forbes.
The media gold rush (TV rights and digital revenues) in the last 10-15 years has overtaken attendance as the primary source of team revenues for the first time in history — consequently making attendance less of a consideration in business practices.
One natural byproduct is the growing popularity of tanking in MLB, which has been great so far for teams such as the Cubs and Astros but a problem for baseball’s competitive integrity.
Along with the revenue growth, franchise values have grown even more dramatically, according to Forbes, with the average value more than tripling in 10 years, to $1.54 billion in 2017. Between 2014 and 2015, the number of teams valued at $1 billion or more rose from five to 15 — half the teams in the majors.
As Boras said, no team is losing money anymore — not even the poverty-pleading Marlins, who gave out the richest contract in MLB history to Giancarlo Stanton three years ago and now, under the new Derek Jeter-led ownership, are shopping Stanton.
Any stated losses are a function of debt structure or profit-taking, Boras said, appearing to state the obvious. In April, Forbes wrote, “Long gone are the days when MLB was replete with teams bleeding cash.”
Major-league salaries have risen as well. But not nearly at the same rate.
And that gap figures to grow, with the players themselves to blame for agreeing to a CBA that sets the payroll thresholds for triggering the competitive balance (or “luxury”) tax at $197 million next season, $206 million in 2019, $208 million in 2020 and $210 million in 2021.
In recent years, only the Dodgers have been willing to spend beyond that threshold with little or no lip service to getting below it. The Yankees have regularly overspent the limit but have talked for several years about getting under it. Five teams exceeded it in 2017. Those who don’t stay under it face increasingly steep penalties that can involve draft-pick position and draft-pick compensation for free agents.
So who cares if every team stays under the threshold, the industry thrives and young players continue to get more opportunities? Maybe the next Jason Heyward doesn’t get $184 million or the next Homer Bailey $105 million. For some front offices and fan bases, that could certainly be a great thing.
And to be fair, some of the recent player spending has included increases in international amateur spending (though that’s been regulated downward in the new CBA, too).
But agents’ personal concerns aside, the game has an integrity problem when it’s flush with enough revenue across the board to assure a reasonable distribution of talent across all teams, yet 20 percent or more of its teams see tanking as a viable team-building concept with few consequences Cubs fans saw this play out from 2012 through 2014 before the competitive turnaround, and White Sox fans are going through it now.
Along the way, ticket prices at Wrigley Field remained among the highest in the game during the famine years, then spiked during the feast years.
And what if the Sox’ process doesn’t bear the same results? Not everybody can be the Cubs or Astros — especially if a team isn’t willing to pay the big-ticket price for Jon Lester or Justin Verlander when the time arrives to compete.
And there’s this: The Cubs consider the next four or five years part of the extended competitive window that Theo Epstein’s front office has built. Their industry-leading economic growth has included an estimated $80 million to $100 million in additional revenue from their three deep postseasons runs in 2015-17 alone.
And they need lots of pitching to get back to the levels of the Dodgers and Astros as World Series favorites. But the luxury-tax threshold remains a factor in the Cubs’ plans. And against that backdrop, they have no intention to accelerate spending in one given market if it means compromising their ability to spend in another that may be more attractive.
The Cubs have seen immense growth since overcoming years of debt related to the 2009 purchase of the team. Boras called it “the economic hurricane in Chicago’’ — and later called it a “Cubbi-cane.”
“The amount of money rolling in — the revenues annually, in the future — the Cubs can do whatever they choose to do in this free-agent market and the next one,” he said.
He’s right. That doesn’t mean the Cubs are wrong in the microeconomic decisions for their team.
But it’s a macroeconomic problem for MLB and its fans.
In 1994, Sox chairman Jerry Reinsdorf and other hardline owners were so hawkish on salary containment, including hard cap proposals, that baseball lost three months of games and a postseason over the 1994-95 labor stoppage — without ever getting the hard cap.
More than two decades of labor peace later, it looks like he won after all.
Follow me on Twitter @GDubCub.