The Three Interests

Now that Manny Machado ($300M/10) and Bryce Harper ($330M/13) have signed, it’s time to go into a bit more detail about what’s seemed to be the running theme this winter among baseball writers: the inevitable conflict between the players and owners. A lot of the rhetoric has been hyperbolic, especially given the amount of money spent on Machado and Harper (as well as Nolan Arrenado ($260M/8), who signed a contract extension recently), but there is a grain of truth buried among all of that.

First, I want to share my premises and, more importantly, where my interests lie. I do this to help you, the reader, understand where these opinions come from, although I will never disregard a truth even should it be against an interest. I am not an ideologue when it comes to baseball issues, never mind a moralist, but tend to prioritize the interests of a mid-market fan above those of anyone else, because that’s my relationship in this industry. I have always been, and always will see myself as, a fan of the Cleveland Indians. When I earned a check writing about baseball, my interests were aligned with those who visited the site, as they were invariably also fans of Indians.

I specify that I am a fan of a mid-market team because the current financial rules that MLB teams and players abide by make it easier for big-market teams to succeed. Because a larger market means a larger local TV contract, and because local TV money has become a larger percentage of total revenue, big market teams have the means to sustain a larger payroll than teams in smaller markets. (Yes, there are exceptions to the rule – with big-market owners who spend very little and small-market owners who spend like the big boys, but those are exceptions.) The Cleveland Indians’ market size is roughly in the middle of the 30 MLB teams, and as such ranks similarly when it comes to TV revenue. So as a fan of the Indians, I am concerned about competitive balance, particularly among payrolls, because it affects how competitive the Indians will be. Now a large payroll is not a guarantee of success, but it makes things easier. For instance, the 2018 World Champion Red Sox lifted the trophy despite having paid a combined $52.52M in that season to three players (Hanley Ramirez, Rusney Castillo, and Pablo Sandoval) who they had already released. A team from a smaller market would have struggled for years trying to deal with that amount of dead money on a payroll, never mind being able to sign additional free agents to similar deals.

In other aspects, though, I share the same interests with all fans. We want our teams to win, or at least be regularly competitive. We want to be entertained by the game on the field and by our experience at the ballpark, and have access to that game (whether it be in the form of tickets/concessions or TV/video) be affordable and readily available.

There are two other main interests in the sport: the owners, and the players. These three interests (owners, players, fans) will align in some areas, sometimes two will align, and sometimes all three’s interests will diverge. And even individual interests will not be aligned on a subject. For instance, the owners of the Kansas City Royals and New York Yankees are going to completely disagree on where the luxury tax threshold should be placed, and any of the other rules related to it. A journeyman player who has no hopes of ever getting a multi-year deal is going to be at odds with a superstar over what the minimum salary should be. And a fan of the Pittsburgh Pirates is going to be at odds with a Los Angeles Dodgers fan over when a player can become a free agent.

The reason I bring all this up is to counter the standard “players vs. owners” narrative that you see practically everywhere. First of all, to treat this conflict as one between two imbalanced and monolithic entities (with the owners having a power advantage) may be great for clicks or views, but it does not reflect reality. The two sides are, in my estimation, equally powerful, as MLB has one of the most player-friendly CBAs in North America professional sports thanks to well-fought gains over the last four decades. Secondly, there are factions within these broad interests that are just as conflicted with each other as they may be with the other interests. And thirdly, this narrative completely disregards the third interest, that is, of the fan, who may be aligned with one of the other interests, but in total has his or her own unique goals. The fan may not be represented at the negotiating table, but even so has a veto in the form of a closed wallet. If whatever is decided makes the sport (in the fan’s eyes) less competitive, less entertaining, or more expensive, the fan will simply spend less time or money on baseball. That is something neither of the other two interests want, and so they ignore the fan at their peril.

It is important to emphasize that I do not bear the players any ill-will, nor the owners for that matter. I am pro-fan, not anti-owner or anti-player.

The proximate cause, in my estimation, of the current trend in free agent spending, is a change in how teams value players, particularly older ones. New ways to analyze players, first proposed by writers decades ago, have been largely accepted by most teams, who now have positions or even complete departments dedicated to this type of player valuation. Sites like Baseball Prospectus and Fangraphs have long served as farm teams for positions in MLB front offices. So is there any wonder that teams are now acting on these ideas when it comes to making signing decisions? Particularly when it comes to the age of the free agent in question?

This is why I think players that are past their theoretical prime (27-29) have seen fewer lucrative free agent deals over the past several years, and the few players who can become free agents before or during their theoretical prime continue to be handsomely compensated. Manny Machado and Bryce Harper broke into the majors as teenagers, and so were able to become free agents in their mid-20s, with their best years seemingly ahead of them. Both received contracts worth at least $300M. Nolan Arenado was one year away from free agency as a 27-year-old, and received an 8-year contract (buying out 7 years of free agency) in which he will receive an average of $32.5M a year.

But these players are the lucky few who were in a position to demand this kind of compensation. The remainder, who either broke into the majors at a more advanced age or who didn’t have quite the kinds of careers those three had, are seeing their contract offers get less lucrative. Those good but older players no longer get lengthy contracts that keep them locked up into their late 30s. Instead of relying on good but declining players, teams of all payroll sizes are looking to their farm systems to supply the bulk of their talent. It used to be that teams valued known quantities over payroll cost, but now these priorities have shifted to the point where teams are more likely to go with an inexperienced player than a more experienced one.

This trend has resulted in the hollowing out of baseball’s upper middle class. The young superstars are still getting paid at the same rates in free agency, and young up-and-coming players are also getting long-term contracts, but with few exceptions the older players are not getting similar treatment. For many years players accepted that they would be drastically underpaid during their first 4 seasons of major-league play, but it would be made up for by the last few years of arbitration and once they reach free agency. Arbitration is still working as intended, but not free agency for most players. That is why something has to give, as the system is not working for more and more players.

What would addressing this imbalance mean for someone who roots for a mid-market team? Lowering the service time needed to become a free agent would probably be the worst outcome, as it would mean smaller windows of opportunity to all but the best-run of organizations. Changing the luxury tax threshold or lowering the penalties for exceeding it would also be a bad thing, as would increasing the minimum salary. Now these things could be compensated for with increased revenue sharing or other ways to increase competitive balance, so it’s important to look at an entire agreement, not just one individual clause. I think a radical shift in the baseball economic landscape could actually benefit teams from the smaller markets as well as the underpaid players, but that would involve things like centralizing all TV revenue and distributing it equally or instituting a hard salary cap/floor. But I think the other two interests (as long as they are largely controlled by the superstars/agents and large-market teams) are too much entrenched for a sea-change like that to happen absent some catastrophic work stoppage.

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