After a quarter century of labor peace, Major League Baseball is confronting apparent turbulence in its relationship with the Baseball Players Association. The association and the players’ agents are concerned that several star free agents and dozens of others have not been signed yet. Some agents are even making noises about owner collusion, a claim not heard since the late 1980s.
Although (a) baseball’s collective bargaining agreement is far from perfect, (b) some owners may be exploiting a system that is meant to lift smaller-market clubs, and (c) it is understandable that agents are trying to get the highest possible salary for their players, the laggardly pace of free agent signings this offseason is easily explained by objective factors. The claims by the players’ union of possible collusion are unfounded and counterproductive.
So, how can we explain the slow players market? First, the owners are operating under a new collective bargaining agreement that goes through 2021. Even though MLB does not have a salary cap, since the late 1990s it has had a luxury tax. In 2018, this tax is levied in a progressive form for all teams whose payroll exceeds $197 million. The new CBA increased the progressivity of the tax and instituted a variety of penalties (e.g., a lower pick in the amateur draft, limitations on signing international players) for teams that surpass the tax threshold.
The players market has always been pushed by the big-market teams. The New York Yankees and the Los Angeles Dodgers, along with a few other clubs, have led the way in raising annual salary levels and in length-of-contract provisions. These are the same clubs that are now pulling back to avoid the heightened penalties of the luxury tax. The players’ union negotiated these terms. Now it is complaining that the new disincentives to high payrolls are working.
Second, also contributing to the blunting of the free agent market is the growing penetration of analytics in baseball’s front office culture. The assessment of player skills is turning more and more to empirical measurement and away from subjective or emotional factors. The Kansas City Royals, the Chicago Cubs, and the Houston Astros built their teams from the bottom up, emphasizing player development rather than high payroll. These teams won the World Series the last three years, reinforcing the new analytical approach. There is probably not a general manager in baseball today who would not first ask his analytics department to estimate a player’s long-term value to the team prior to making a multi-year offer.
Third, the players market this year was delayed by the sweepstakes for the Japanese two-way superstar Shohei Ohtani.
Fourth, another delay has been brought on by the agents themselves. Agents like Scott Boras have advised their clients to hold out for better offers. Consider, for instance, the market for J.D. Martinez, one of the game’s best hitters. Martinez has been linked to the Boston Red Sox throughout the offseason. He is coming off a career year with the Detroit Tigers and Arizona Diamondbacks, with an on-base percentage of .376, 45 home runs, and 104 RBI.
The Red Sox finished 26th in MLB last season in slugging percentage (.407) and 27th in home runs (168). The Red Sox reportedly offered Martinez a five-year $125 million contract. His agent, Scott Boras, according to some stories, told Martinez to hold out for $200 million. On Feb. 6, Martinez put out the word that he wants to sign with another team because, he said, the Red Sox have been inflexible.
Martinez had every right to hold out and sign with whatever team he wanted. But Martinez is a lifetime .285 hitter with an average of fewer than 25 home runs per season. He will turn 31 in August, is not swift on the bases, and is not a strong outfielder. The Red Sox apparently did not sense that there was another top bidder for his services and did not want to bid against themselves.
The Sox strategy worked. The team signed Martinez earlier this week for $110 million over five years. Similarly, with other leading free agents, if the agents are overvaluing their players, the market will evolve slowly.
More generally, owners have every reason to be cautious about long-term contracts for players over 30. Such contracts do not have a good track record.
The Players Association has also complained that some small-city teams are not spending their revenue-sharing money on improving the quality of their teams. Baseball’s revenue system transfers close to $400 million annually by taxing the rich teams and subsidizing the poor teams. The poor teams that are receiving tens of millions of dollars yearly in transfers are supposed to spend this money on improving the competitiveness of their teams and, hence, improving baseball’s competitive balance. While the union’s critique might apply properly to a few clubs, it is also an issue that could have been resolved in collective bargaining. On multiple occasions, the owners have offered to institute a payroll floor that would tax teams that fell below a determined level. Each time, the union has rejected the proposal.
Ultimately, here are some statistics that matter. Major League Baseball players received compensation last year equal to 49.9 percent of MLB revenue. This is at or above the player shares in the NFL, NBA, or NHL. Further, MLB team owners also pay the salaries and signing bonuses of all the players in their minor league systems, each with six or seven teams. When the minor league player compensation is added, the total player share in baseball in 2017 was over 55 percent. There are no minor league salaries that NFL owners have to pay, and there are only diminutive minor league salaries paid in the NBA and NHL.
So the Players Association and its player agents next time should pay more attention to the collective bargaining agreement they negotiate.Andrew Zimbalist is professor of economics at Smith College and author of “Circus Maximus: The Economic Gamble Behind Hosting the Olympics and World Cup.”