Baseball’s Economics Aren’t As Skewed As They Seem

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Last week, MLB commissioner Rob Manfred made a controversial claim. “We have been at a very stable — approximately 50 percent of revenue going to player salaries — for five, six, seven years,” Manfred said. “The math of that means that salaries are growing in line with revenues.”

Coming in the midst of what was, through January, the slowest offseason of the free-agent era — a winter in which deeply reported pieces have proposed that baseball’s economic system could be broken; players and agents have speculated about collusion and raised the specter of a strike; and unsigned free agents have formed their own training camp for the first time since 1995 — Manfred’s words provoked responses ranging from skepticism to explicit accusations of deceit. Given baseball’s history of ownership chicanery, from the reserve clause to collusion to public ballpark funding, some skepticism is warranted. In this case, though, Manfred seems to be telling the truth. And while it’s possible that the players have a relatively lean period ahead of them, the union’s plight probably isn’t as dire as it’s recently been portrayed.

Baseball’s economics are murky because its clubs’ books are closed and official financial figures are difficult to come by. In the absence of detailed data — the kind that the sport supplies in such abundance when it comes to player performance — media members make use of the best available estimates. Responses contradicting Manfred’s statement have relied on research published by FanGraphs in 2015 and updated by Deadspin last month, which indicates that the players’ share of revenue has fallen to 40 percent or below. FanGraphs’ calculations were based on player-payroll data from Cot’s Contracts and USA Today and MLB revenue estimates from the now-defunct site The Biz of Baseball, while Deadspin pulled its payroll and revenue numbers from Cot’s Contracts and Forbes.

The revenue breakdown between owners and players is a fundamental data point: It’s difficult to decide what, if anything, needs to be done about baseball’s market without first coming to a consensus about where the market currently stands. While MLB players have resisted a salary cap that might make it simpler to establish what the players’ share “should” be, a 50–50 split sounds fairer — and much more sympathy-inducing, from a PR perspective — than a 60–40 split. An even distribution would also bring baseball in line with the salary-capped NFL, NBA, and NHL, all of which allocate close to 50 percent of revenue to their players.

In December 2015, MLBPA executive director Tony Clark told the L.A. Times that the players’ share of revenue was “as close to 50 percent as it has been in a long time.” A year later, upon negotiating a new collective bargaining agreement that took effect in 2017, Clark said his expectation was that the split would “stay right in that general area,” remarking that the union “wouldn’t have agreed to the deal otherwise.” A 50–50 split seems to be the target that the Players Association has set for itself.

Financial information from the first full year covered by the CBA suggests that the union hasn’t yet missed that target. In response to an inquiry about Manfred’s statement, an MLB spokesman provided the following data, which support the commissioner’s contention.

MJ = Major League Player Compensation + Benefit Plan Costs + Postseason Share Payments

MJ+MN = Major League Player Compensation + Benefit Plan Costs + Postseason Share Payments + Minor League Signing Bonuses (not including associated tax) + Minor League Salaries & Benefits

Total Revenue = Total Club Local Revenue + MLBAM Net Income + MLB Network Net Income + MLBP Distributions

MLB Revenue Breakdown by Year

Year MJ MJ+MN Total Rev MJ (%) MJ+MN(%)
Year MJ MJ+MN Total Rev MJ (%) MJ+MN(%)
2010 3.12 3.45 6.12 51.10% 56.40%
2011 3.22 3.6 6.29 51.20% 57.20%
2012 3.38 3.75 6.98 48.50% 53.70%
2013 3.59 4.01 7.16 50.20% 56.00%
2014 3.87 4.28 7.79 49.60% 55.00%
2015 4.14 4.68 8.18 50.60% 57.30%
2016 4.32 4.88 8.62 50.10% 56.60%
2017 4.5 5.06 9 50.10% 56.30%

According to MLB’s data, the players’ percentage of revenue has hovered within 1.5 percentage points of the 50 percent mark for at least the last eight seasons. The discrepancy between these numbers and the figures from FanGraphs and Deadspin is attributable largely to the table’s inclusion of player benefits (which in 2018 will amount to $14,044,600 per team, or $421.34 million leaguewide) and postseason shares, which totaled $84.5 million last season. Add in the earnings of baseball’s chronically underpaid, nonunionized minor leaguers — the sport’s only true paupers — and the players’ share of revenue rises to more than 56 percent.

“You can’t get to the right numerator just by adding up Cot’s salary estimates,” author and Smith College economics professor Andrew Zimbalist (who has consulted for both MLB and the MLBPA in the past) says via email. Stephen Walters, a professor of economics at Loyola University Maryland who consults on player evaluation for the Orioles, elaborates via email: “Clubs sign a lot of guys to deals that involve [minor league] bonuses, a lot of teams (especially big-market ones) pay well to store players in [minor league] inventory as insurance, and clubs also spend a good amount insuring contracts (which can push seven figures on eight-figure contracts, though it’s not clear that’s accounted for here in ‘benefit costs’). Those issues can reconcile the ‘estimates’ from outsiders like Forbes/Cot’s with MLB’s accounting.” Insurance, of course, is a cost to teams but not a boon to players’ bank accounts.

There’s no way to fact-check MLB’s figures from afar, but the Players Association has access to the same financial information that the league does. While the union’s beleaguered leadership has some incentive to sugarcoat the players’ position, one would think that if MLB were grossly distorting the present state of the market, Clark and Co. would dispute Manfred’s declaration, and the data above, rather than leave the rebuttals to writers. Instead, the MLBPA has allowed the commissioner’s “50 percent” assertion to stand.

Asked to comment on the MLB data above, an MLBPA spokesman — after running the numbers by the union’s economists — confirmed that they’re “basically accurate.” Zimbalist adds, “The PA does have slightly different numbers because of things like the interest rate they use to find the present value of deferred compensation. It shouldn’t be more than a point different overall.” It’s not out of the question that some clubs could “hide” local revenue from the MLBPA by shifting it to the ledgers of team-owned regional sports networks — as Walters says, “the expansion of [RSNs] increases trust issues” — but Zimbalist notes that MLB’s revenue-sharing system incentivizes teams to ensure that other teams aren’t underreporting their income.

Both MLB and the MLBPA declined to break down the above figures in further detail — which would allow us to distinguish between local revenue generated by clubs and national revenue derived from MLB Advanced Media and other ventures — or provide information from earlier years. However, an Associated Press report from March 2016, which was also based on MLB data, noted that the percentage of revenue spent on major league players had stayed in a similar range — between 48.5 percent and 51.7 percent — in each year since 2006. That extends the streak of years without a significant decrease in the players’ share of revenue to at least 12.

Admittedly, the MLBPA has lived larger, proportionally speaking, in the more distant past. “The big difference isn’t comparing this season to the past few seasons, but the comparison of the past few seasons to [the] share around the turn of the century,” Kennesaw State University economics professor J.C. Bradbury, the author of The Baseball Economist and Hot Stove Economics, says via email. “Based on the publicly available data, the players’ share has definitely declined from what it was 15 years ago.” Just before the strike started in 1994, major leaguers were raking in 58 percent of revenue. Figures from MLB’s 2000 Blue Ribbon Panel Report, which Stanford professor emeritus of economics Roger Noll says via email “does not include … some benefits,” show the annual shares ranging from 51.3 percent to 54.0 percent from 1996 to 1999. Tables published in a 2003 paper by Noll, which drew on 2001 MLB financial data disclosed in a congressional hearing, suggests that the share that year (including benefits) was 60.4 percent. And a 2008 SportsBusiness Journal article reported that the players’ share peaked in 2003 at 63 percent.

“Total player costs were in the range of 60 percent of revenues in the late 1990s and early 2000s, but fell gradually to the 56–57 percent range by 2010, where they have remained,” Noll says. “Most likely tougher luxury-tax rules and more extensive revenue sharing that were instituted in the 2002 and 2006 collective bargaining agreements reduced the share of revenues going to players, but that had been completed by 2010.” Zimbalist says he doesn’t disagree with Noll’s analysis.

Compared with their predecessors from the Players Association’s early-2000s share-of-revenue heyday, then, today’s players may have cause to be bitter, even if they have only their own negotiators to blame. But the current players’ actual piece of the pie is nowhere near as small as 40 percent. And in light of the market’s stability over the past dozen years — a period of financial prosperity and little labor unrest — the only hard evidence that the players (and by extension, the sport) are facing an existential crisis that could cause a work stoppage as the CBA approaches its 2021 expiration date is one odd offseason in which several free-agent courtships have stretched into spring training.

This unusual winter could be a prelude to continued trouble ahead, reflecting the obsolescence of a free-agency- and arbitration-based system in an era of younger, smarter teams that won’t pay for past-their-prime players, exacerbated by an increased acceptance of tanking and concessions the union has made on both the luxury tax and amateur and international spending restrictions. As MLB owners enjoy a one-time windfall from Disney’s 2017 deal to acquire a controlling stake in BAMTech, the players’ share of revenue could have a hard time keeping pace. But extrapolating from an outlier offseason is risky. In retrospect, this slow-moving market might look at least partly like a confluence of a weak free-agent class led by clients of Scott Boras; a stronger class coming next year; a Shohei Ohtani delay; and a cyclical gap between baseball’s best teams and their closest contenders.

“The owners would be glad to see [the players’ share of revenue] resume its decline, and the unwillingness to sign free agents plausibly could cause that to come about, but we have to wait a couple of months to know for sure if that is happening,” Noll says. Noll and Walter agree that the risk of a strike is still low. “I doubt that the players will strike — the more likely tactic is to sue [the owners] for collusion, as they did in the past,” says Noll. “If a work stoppage occurs, it more likely will be a lockout by the owners as part of a strategy to adopt a hard salary cap or further toughen the luxury tax.”

The February free-agent signings of Yu Darvish, Eric Hosmer, and J.D. Martinez to nine-figure deals — all of which met or exceeded crowdsourced estimates from last fall, even before accounting for the extra value of the opt-out clauses in their contracts — have at least temporarily quieted collusion talk. And this week, a compromise on pace-of-play measures helped baseball bypass the tension that could have been caused by MLB unilaterally imposing its own plan. Maybe the brink wasn’t quite as close as it seemed.

After visiting every major league team in the spring of 2015, Clark told a reporter that he hadn’t been asked even once about a decline in the players’ share of revenue. “We haven’t had much discussion about it,” Pirates player rep Neil Walker said at the time, “and frankly at this point, we don’t see it as much of a concern.” If Clark makes the rounds this spring, he might field questions on that topic 30 times. “Labor strife is hard to predict,” Bradbury says, an observation borne out by how quickly baseball’s perceived labor outlook went from hunky-dory to desperate. There’s still time for that perception to swing back the other way.

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