Why Baseball Players Are Actually Underpaid
Salaries have skyrocketed the past few decades. Revenues have skyrocketed even higher. Here's a plan to make things fair for baseball's 99%.
Reuters
Americans share two national pastimes each spring. The first is baseball. The second is complaining about how overpaid baseball players are.
Players like Barry Zito and Alex Rodriguez are the stars of the second pastime. Their $20-million salaries shock their nemeses, and their performance too often disappoints their fans. But even moving beyond the litany of bad contracts and small sample sizes that fans ritualistically commit to memory, it's easy to understand why it looks like ballplayers have been making off like bandits. The below chart compares the growth of salaries, television revenue and ticket prices, indexed to 1964. Salaries have boomed.
Case closed? Not so fast. Player salaries have incontestably grown faster than other prices have the past half-century. But aside from a brief window during the steroids era, baseball players have mostly been underpaid. They lag their professional athlete peers in the metric that matters: average payroll as a percentage of revenue. Here are the relevant figures for baseball over the past 80 or so years. (Note: These numbers, courtesy of Michael Haupert from the University of Wisconsin isn't uniformly distributed. Most of the data is from the past twenty years. I constructed the numbers for 2010 myself).
There are three big stories here. First came the rise of radio and television riches. Revenues soared, but this extra money mostly made its way into owners' pockets because players had so little legal leverage. For example, they couldn't change teams, and contract negotiations mostly consisted of owners telling them what they'd get paid.
That changed when the Oakland A's made a $50,000 mistake in 1974. After failing to make a payment into Hall-of-Fame pitcher Catfish Hunter's insurance annuity, a judge ruled his contract void -- including the provision that forbid him, and all players, from negotiating with other teams. Free agency was born. And that was very, very good news for players. Over the next two decades, teams threw ever-increasing gobs of money at players. For a moment in time around the turn of the century, baseball players probably were overpaid. And that brings us to the final part of the story.
Teams have pulled back, albeit modestly, in recent years. Even the Yankees want to save money now. (Maybe the Mayans were on to something). The pullback has been modest, but significant. The players union, of course, has regularly accused the owners of collusion. The more likely culprits, though, are Moneyball and the Great Recession. It turns out that years of near double-digit unemployment is bad news for ticket sales. Baseball owners now spend an even smaller share of revenue on players than their counterparts in the NFL and NBA. The latest collective bargaining agreements for the NFL and NBA pay out 48 and 50 percent of revenue respectively to the players. In 2010, baseball players took home roughly 45 percent of team revenue.*
Oddly enough, a salary cap might help push up baseball salaries. More specifically, it would push up the salaries for players on the Padres, Pirates and other small-market teams. While behemoths like the Yankees and Red Sox spend huge chunks of their revenue, small-market teams spend far less as a percentage. They leach off by the big clubs by spending next to nothing on players and relying on revenue-sharing make money. This is sports' version of an income-redistribution scheme gone wrong.
A collective bargaining agreement that set a ceiling on salaries but a floor on absolute team spending would change this calculus. In basketball, it prevents cheapskate owners like Donald Sterling of the Los Angeles Clippers from being even bigger cheapskates. Baseball needs the same. Ballplayers would lose some of their upside, but get downside protection. That'd be a good deal for the players who play for baseball's version of the 99 percent -- that is, all the players who aren't on the Yankees, Red Sox, Cubs or Phillies.
The drawback is that if baseball adopts a salary cap and floor, we might have to give up our second national pastime. Maybe that'll help us focus on the first.
* Even using a weighted average, baseball players only made 46 percent of overall revenue, versus 45 percent on an unweighted basis. I used unweighted above because that is what Haupert's data set used.
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