Effectively Wild: A FanGraphs Baseball Podcast - Effectively Wild Episode 421: How Much Money Should Players Make?

Episode Date: April 4, 2014

Ben and Sam discuss the impact of extensions on the players’ share of baseball’s record revenues.

You don't have to change yourself for me. But you might want to change yourself for me. I know I'm a strange little widow. So why don't you share a little? So why don't you share a little? So I don't just shout Good morning and welcome to episode 421 of Effectively Wild, the daily podcast from Baseball Prospectus, presented by the BaseballReference.com Play Index. I am Ben Lindberg, joined as always by Sam Miller.

How are you? Good. How are you? Okay. Do you have any observations to make? Nope. No. Okay. So I wanted to talk about an article that Ken Rosenthal wrote yesterday about extensions and what they have done to baseball's salary structure and the distribution of wealth or earnings between owners and players. So he uses the new Chris Archer extension with the Rays to point out that the game is trending younger in terms of earnings and production, which is something that I wrote about recently, that the aging curve, as Jeff Zimmerman of Fangraphs studied and mentioned last year, has sort of changed. Whereas we were seeing lots of guys hang on into their mid-30s, their late 30s, last decade. That hasn't been the case since the institution of testing. Whether you want to draw

that connection or not seems fair to draw that connection. So teams are kind of not calling guys up earlier, but calling guys up when they're ready and they're producing right away as soon as they make the majors. There hasn't really been an adjustment period over the last decade or so that the typical roller coaster aging curve where you go up and then you plateau and then you go down. We haven't really seen that. Guys are debuting at their peaks and then plateauing and then going down. So the effect of that, since you have a lot of young guys producing a lot of the money and a lot of young guys signing extensions, and young guys are the guys who make most money in baseball, is that this split between owners and players in terms of earnings has gone in favor of the owners. And Rosenthal cites a Sports Business Journal report from 2003, which is sort of before this trend. That was kind

of at the time when that strange out-of-character aging curve was in full swing. At that time, the players' percentage of week-wide revenues was 63%, and Rosenthal says that it was at about 50% last season, according to sources with the players and the owners. Which is kind of interesting because I remember reading recently in Jonah Carey's book when he's talking about the 94 strike. And the owners wanted to eliminate salary arbitration. And they wanted free agency to start after four years instead of six years. and they wanted free agency to start after four years instead of six years. And owners would have had the right to keep a four or five year player by matching the best offer he got. And the sop that they threw to the players was that they would guarantee that players receive 50% of league wide revenue.

And at the time it was like 58% in favor of the players. So, you know, that wasn't very appealing to them that the owners guaranteed a 50% floor, but right now it seems like that's where it is. So Rosenthal sort of talks about that, that conflict between wanting to get early security and wanting to maximize dollars and what the players union should do about it because, you know, it's the most powerful union in sports. And he says that it's so powerful in part because they've always pushed for the most money for their players. And they've, you know,

never, never wanted to give a discount to the owners if they could avoid it. Whereas now you have guys signing these, what seem like below market deals or deals that save the team money, but at the same time the players are getting security and if you were a player's union rep, could you really advise them not to sign a deal because it's in the union's best interest not to when it might be in the player's best interest to do that. So I guess my question is whether you think there is a owner-player revenue split that is ideal or that should be the case

year after year? Like, is it too low? Was it too high? Is there a happy percentage? And if there is, then should players be willing to sacrifice their own potential financial security and safety and earnings for the union's greater good? So there's, I mean, theoretically there would be, you know, maybe there would be no kind no imposition on the free market and whatever the figure was would be whatever the market dictated the figure was. If it turned out that that figure was 96% but it was a completely free market, you'd go, okay, well everybody's a consenting adult here. What's the problem? And similarly, if it was 4%, but everybody was happy and there was no arbitrary restriction on what players could make,

that would be fine too. And there's close to that, but of course there's not because for the first six years when many players are extremely good, they can't make anything or they make less than their market value. And certainly when they're 17 and they're also extremely valuable, they can't make anything or they make less than their market value. And certainly when they're 17 and they're also extremely valuable, they have virtually no leverage. And now they have like almost literal restrictions on what they're allowed to even get. But, you know, mostly like you figure there is a lot of free market in baseball salaries. And if the figure is going down, it's not like the figure is going down because some hand of government has pushed it down. It's

gone down for presumably market-based reasons. My alternate theory, or I guess not theory because I have no evidence and have done no research, but my maybe hypothesis for why salaries are going down. And I've kind of tried to express this before in another way and I couldn't. So I'm going to just start talking and it's going to go terribly. So the player's salary, you know, anytime something is being sold, there's the supply side and there's the demand side. And my feeling is kind of that players, while owners will pay as little as they can and as much as they can afford

to pay to compete with other owners, players, while they want to get as much as they possibly can, most of them would play for like 100 of what they get paid. Like virtually every one of these guys would play for $80,000 if that's what being a professional baseball player paid. And I mean we know that because we all do worse jobs for less. Like every single one of us does a worse job than these guys have for less money than these guys get. And so they would all play for less. And so at a certain point, they're competing with each other. And if the pool of players is growing, but the player pool has grown not just because uh you

know uh the player pool from you know even i was just looking at this the other day and i might mention this later but not later today but like next week um but like if you look at how many venezuelan players there are in the majors it's still going up like it's still like it goes up every year it's not like venezuela is every year. It's not like Venezuela is some new market or the Dominican Republic is some new market. And yet, it still goes up every year. It's this strange way that even 40 years or 30 years after we started scouting that area heavily, they're still finding more and more players there than they used to. And certainly with the Asian market and all that, the pool of players is literally growing and the population of Earth is literally growing. And so there's more players, but also just there's, you know,

it seems like there's more talent. And anyway, so there's a lot more players who can provide pretty good talent level or great talent level that exist in the world right now. And yet there are still only 30 teams. And so the scarcity of players, this is just a hypothesis, but the scarcity of players is less than it used to be. Players have somewhat less ability to demand an exorbitant salary for what they do. And no player is going to turn down the opportunity to be a professional baseball player because the money is slightly less than the rate of inflation within the game would suggest it should be. So that's my alternate hypothesis. I don't know if it's true, but, I mean, it seems to make sense. It's been 17 years since expansion,

and I think that the lack of expansion for 17 years, coupled with the growing population of talented baseball players in the world, has all sorts of effects throughout the game that we don't pay that much attention to, but they're there. And I think a lot of trends that we don't pay that much attention to, but they're there. And I think a lot of trends that we sort of vaguely notice are happening would probably be undone if there was suddenly four more teams added to the league. So that's one thing. Now here's the other thing, and here's my question for you.

Do these extensions that young players are signing, pre-arbitration extensions and pre-free agency extensions, but all of them, basically, I think we agree up to now, it might be changing, but up to now, as a general group of contracts, these have been extremely club-friendly. Players have been paid less per win than they would have otherwise been. been paid less per win than they would have otherwise been. And that's the club's reward for taking on the risk, right? Yeah. So do all these extensions that young players are signing help or hurt veteran players'

own contract negotiations? In other words, does Mike Trout signing his contract for below market value help or hurt Miguel Cabrera trying to get a contract that's above market value? Because on the one hand, you could million, $4 million, $12 million, whatever, by signing Chris Archer or Starnum Castor or whoever to this pre-arb bargain contract, do you then take that money and go, well, geez, where else am I going to spend it? There's nowhere else to spend it and just give it to some dumb free agent veteran? spend and just give it to some dumb free agent veteran? Or does it suppress contracts because there's like this sort of feeling among all GMs that the smart money is saving your money until

you can lock up your own players and that there's really no reason to go sign this big dumb veteran free agent because you might have already locked up your own player for the next eight years. So does it help or does it hurt? Should the players' union, if we agree that the players' union's primary desire is to get veterans lots of money, then should they be happy or sad about this? Hmm. I guess I would say it hurts. I mean, it could certainly help in certain cases.

Like if you're, I mean, if you are a team like the Yankees or some team that has a lot of money but either just hasn't invested or just hasn't had any success in drafting and developing its own players, then of course it would seem like you would be more likely to give a giant deal to some mediocre free agent. But I guess there aren't that many teams, there aren't any teams that really fall into that Yankees bucket. So maybe on the whole, even though there are fewer free agents available, there are fewer free agents needed. There are fewer free agents available, there are fewer free agents needed. There are fewer free agents available because there are fewer holes.

Everyone is locked up, right? Yeah, but the number of players and the number of positions are basically unchanged. Whether the extensions are signed or not, you still have 750 roster spots and you still have the 750 best players in baseball, presumably in a perfect world, getting those 750 roster spots. So the question is whether by spending less money on this extension,

players then revise their budgets downward or whether they revise their budgets downward or whether they keep their budgets the same and just feel more freedom to spend that money. I mean you can certainly imagine like I was arguing when the Rays signed the Evan Longoria contract and it was like, whoa look at the Rays spending all this money it's so incredible for the Rays to spend all this money and I was arguing that in fact by locking him up and getting him at a below market

extension, even his second one, it essentially saves them money and frees them up to spend more money. So it is not, in fact, that by signing Evan Longoria, you can sign fewer veterans in the future. It's that you can sign more veterans in the future because you know you've already locked up this guy for less than he's worth. So do you think that when the $175 million payroll team signs its pre-arb ace or shortstop that it lowers its budget? My guess is that it doesn't. My guess is that the budget never goes down. The GMs are constantly fighting to keep their budget and to get their budget raised. I mean, if there is one thing in the sport that is a constant, it is GMs, just as any department head in any industry anywhere ever, it is GMs fighting for more money to spend. Yes, that's true. teams unwilling to spend less efficiently on the free agent market because they're spending

so efficiently. They're getting Evan Longoria for however many dollars per win. And then will they say, OK, but this is a completely different thing. We have Longoria. We have that money banked. So now we can spend it on this guy who will be paying twice as many dollars per win, and that's okay. So I wonder... That is the question.

You're right. Once you've tasted the sweet fruit of Evan Longoria pre-arbed contract, can you ever go back? Yeah. The Rays haven't. No. But maybe the Rays just haven't because they're restricted Yes, right

They're too smart not to Yeah, so I'm trying to think of an example of a team That has Has someone locked up to, you know One of the really enviable extensions And has also gone out And splurged on some veteran Sal Perez

I mean the Royals have a bunch of yeah uh jeremy guthrie and i mean vargas and they yeah vargas they took on they took on urban santana and james shield's money although both of those were trades uh but you know i mean the the royals it seems like the it does seem like at least what the Royals have. And we don't know, we don't know what their, what their, what sort of budget their fundamentals suggest they could carry. But it does seem like the Royals strategy has been to, you know, to, to, to lock up a couple of guys cheap when they can, but to spend every, you know, to spend as much as they can.

I mean, Dayton Moore seems to be fighting for the freedom to sign free agents. And so having Sal Perez hasn't kept him from trying to get his owner to free up money for veteran free agents. But that's one example. one example only do you think that the if the if the free agent talent pool shrinks and contracts go up accordingly for the few free agents who are available do you think that that will make the the pendulum swing back toward players waiting for free agency instead of extending uh do you think that they will look at you know some mediocre player cashing in because he's the best, even though he's not that great. And they'll say, well, I'm going to wait. I'm going to be the guy who cashes in on the free agent market. Or is the lure of the safety and security and stability just too, too strong? Yeah, I mean, it might not, it might not convince every player to do it. But I mean, it might not convince every player to do it, but certainly if the incentives move in one direction, it will pick off some.

Yeah, I think it's clearly a push-pull. I don't think there's anything inherent in these players' situation that demands that they take a below-market extension. And I'm sure some players think harder about it than others. I mean, Evan Longoria didn't seem to think that hard about it. He seemed to be content, but I'm sure other players struggle with the decision and really feel a lot of stress about whether they should do it. And the ones on the far end, yeah, if there's more money waiting for them,

they'll probably take it. I think that we might see some change in the structure of these deals where there are fewer player options. I mean, gosh, Ben, help me out, Hart, John Hart. Yes. John Hart said in the 90s, and I think he said this to you too when you interviewed him lately, that he would never make one of these extensions if he couldn't get options at the end that that was like the the one rule is that he had to get something at the end and so the player option was a or the club option was basically his his profit and i think you might see fewer of these club options and i mean you know there's there's no reason that

team that players can't get some security without giving up all these years. On the other hand, I've argued that I think it's going to go the other direction. They're going to go younger and younger and longer and longer, and you're going to start seeing single-A players signing 12-year extensions. Rosenthal makes an interesting point that I was aware of but hadn't really considered the impact of, era but hadn't really considered the impact of, which is that the incentives for many agents or most agents are to recommend that players sign these deals. Because often, you know, when someone signs one of these deals, like Evan Longoria signs his deal and everyone will say, well, why didn't his agent advise him not to do this?

Or people said it with Craig Landig landis mike trout's agent and if you're a small you know if you're some an agent who works on his own or you're part of a small agency you really want to you're you know just as eager as the player to get that kind of safety and security because as rosenthal says uh client stealing is the scourge of the agent business and many players are quick to change representatives usually for the promise of Rosenthal says client stealing is the scourge of the agent business. And many players are quick to change representatives, usually for the promise of greater riches. And, you know, you get nothing, basically. If you put a, you could put a decade in with a player and be there with him when he's a teenager and he's drafted and he comes up through the minors. And then he leaves because, you know, someone whispers into his ear and says, I can get you more money.

And you get basically nothing. It used to be that you would get some tiny percentage. But there was recently a case with Scott Boris where he was trying to get – he was trying to collect some money for a player he had worked with for a long time who then signed a deal after leaving him, and it was ruled by the arbitrator that he didn't deserve anything. So if you're one of those small agencies that maybe, you know, maybe you only have one big client or a few big clients, and you really need to survive, you need to get a cut of their big deal,

whatever it is. And you never know when you could lose that player, when some other big agency could come along and make him think that you're not doing a great job or that they could get him more money, and then he'll leave, and then you'll get nothing for all of the time that you invested in him. So if you're an agent, then it's in your best interest to advise a player to do it. And Rosenthal says that of the 31 pre-arbitration deals that have been done since 2000 that had multiple club options, 26 were done by smaller or mid-level agencies, which is a higher percentage than I would have guessed. And we always say, oh, it's a Boris client,

so he's not going to sign an extension. And I always thought of it as sort of like a Boris ego thing, like he always wants to get the highest deal for a player that he can then tell other players he got. But that's not really the whole reason. He has enough players, a big enough portfolio that he can accept the risk that any one of them will leave him at any time. And probably there's less of a risk that anyone will leave him because he's a big fancy agency with all the bells and whistles. So that's another thing.

I'm so jealous that I didn't realize that before. It seems really obvious in retrospect. That's such a great, yeah, I mean, that's really smart. That's really interesting to think that this huge shift in the economics of baseball might actually be about, at least somewhat, about the incentives of the agents. That is like, I'm floored. I'm flummoxed. I'm looking at Sal Perez's agent, by the way. I'm looking on the MLB Trade Rumors agency database and the other clients that they

represent, Luis Avilon, Edwin Escobar, Armando Galarraga, Victor Garrett, Jean-Mar Gomez, Gorky Hernandez, Adis Portillo, Mauricio Robles, Miguel Sokolovic, and then Pablo Sandoval. So basically one moneymaker in that group besides Sal Perez. So that's really, really, really, really, really interesting. Yeah, so that's

interesting if Sandoval, I guess that's maybe that increases the odds that he and the Giants will work something out. Because I know it seems like they're still sort of far apart. But he's got the small agency. Yeah, although at this point he's five months from free agency. Yes, right.

Okay. All right, cool. So you've got to go. We'll wrap this up. Please send us emails at podcast at baseballpers baseball perspectives.com. We'll be doing the email show next Wednesday. So please get those in. Please rate and review us on iTunes. Some some ratings and reviews have been trickling in and it's very much appreciated. And please join the Facebook group at facebook.com slash effectivelywild. Now getting close to 1,100 members

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which is $30 for a one-year subscription. And we will be back on Monday. Wait. One last thing, if I may. A couple people have asked about the standings and the scoring for the Reliever League. I'm working on it.

I might get the first update done by Friday, or if not, by the end of the weekend. I'm building the jankiest possible scoring page. It will be absurdly stupid, and I'm doing it all by hand. So you know that's going to take some time. And all of the leagues did finish, right? Because there was that one league of laggards who were a few rounds behind everyone else.

Yeah, they finished like two hours after I told you how far behind they were once the time limits were boosted. Okay, so have a wonderful weekend, everyone. Enjoy baseball. Enjoy Giordano Ventura. And we will be back on

Monday.