When does baseball run out of money for salary increases?

The Phillies are in an enviable position in baseball right now - they have almost no #YUGE ugly contracts left. They have a bunch of unknown quantities in the minors who seem likely to develop into at least a reasonable number of good players and maybe some special ones. The "Comcast Money" is coming on-line this year which is more complicated than just "money for broadcasting rights" but which still represents lots of straight cash. Even with attendance having cratered, the owners and the team will not be going hungry or begging in the streets.

Other teams at different points in the cycle are spending money on players. This is money that, honestly, boggles my mind. It is an enormous amount of money. A million dollars per projected-if-healthy-start? Yeah -- $35 million a year for...one player. A pitcher. Through age 37.  Are you kidding me?

I have no objection to billionaires paying millionaires to play baseball. Lots of the players should, at some point, honestly get more money sooner - in the minors, in major league minimums, arbitration, etc.  The system seems top-heavy to me, but that is a matter for the league, the owners, and the players and their union. I just watch the games, yo.

The rate of increase of baseball salaries has outstripped most other aspects of growth in our society for a considerable period. When that happens, there needs to be a fundamental, underlying economic justification for it, or it is an unsustainable bubble. During a bubble, very few people realize there is a bubble because they rationalize away things with terms like "new normal". If everyone thinks it is a bubble, then usually it isn't a bubble, whether it is tech stocks, real estate, law schools and higher education generally, tulips, or South Sea investments.

Where are we with baseball?

The players and owners split revenues. That is essentially the core win in the collective bargaining process that Marvin Miller (who deserves to be in the Baseball Hall of Fame more than anyone, including Rose, Bonds, and Clemens) extracted from the the owners during the 60's, 70's and 80's. Free agency was the vehicle for that, but the idea that players were entitled to a percentage of revenue was the truly revolutionary idea, in my opinion.

Right now, teams all around MLB are doing TV deals. It is a process that has been going on for years, and is pretty much always going on somewhere as a result of the number of teams and the number of deals. As mentioned in the Gelb piece about the Phillies' deal (linked above), agents are keenly aware of the deals, they try to value them, and there is apparently gamesmanship in how the deals can be structured by teams to take money out of the pool that must be split with players. Here is some recent discussion of the topic, mentioning a theoretical 50-50 split (though some contend that is rigged) of about $9,000,000,000.00 of MLB revenue. Maybe more, maybe less.

There is income inequality in the world. There is wealth inequality in the world. There always will be. There is a segment of the public, including fans, who don't subscribe generally to my "millionaires getting paid by billionaires, so who cares?" theory. I am not concerned about whether owners or players are more likely to get through the eyes of needles as compared to camels.

The question I have is: when will the music stop? Domestic entertainment dollars have to pay for this stuff, mostly. International revenues have to pay for some of this. Some owners may be fans and willing to spend their own money, but cable companies are not, and they (mostly) have stockholders to answer to, so TV deals have limits, even as loss leaders.

Nathan Grow of Fangraphs covered some player/owner revenue splits early last year here. He concluded that the $3.5 billion was paid to roughly 1,200 Major League Baseball players (I wonder if he counted Bobby Bonilla?). As reported here, the average MLB player salary was about $4 million (no, the two sets of numbers don't jive, in case you were wondering). The percentage of revenue going to players appears to be *declining* even though salaries are increasing. So right now, there is a "growing pie" and players are getting a smaller slice of that pie, but their pieces are still getting bigger. If you believe any of these numbers are actually true.

This doesn't tell us much about the future, or if it is bubblicious. Can this continue? Aside from "Can it?" is the more important question of "Will it continue?"

People have not stopped going to movies because some actors make lots of money. They won't stop watching baseball because some magical threshold of "a million dollars a start" is reached. Some people will grouse -- they always will. I'm kind of grousing right now.

All we can really do at our end is to monitor reports of revenue sharing and overall revenue growth. When conditions change (and they will), there will come a time when the stadia are as fancy as they can be. The TV rights will be maximized. The world will be saturated with MLB fans in increasingly developed countries worldwide with a more or less fixed amount of discretionary income that will grow at around GDP levels.  That point, I think, is still a long way off.

In the meantime, and this is an interesting exercise, imagine if players were still receiving 50% of the pie. If revenues actually are $10 billion (not $9 billion) and players got 50% instead of 43%, what would the premium, "shiny new thing" free agent pitcher deal be? Instead of $3.5 billion going to players (per one estimate above) it would be $5 billion, and that marginal money will go to free agents, most likely, rather than arbitration-controlled players.

Throw $1.5 billion more at the very top of the market -- maybe 10 - 15 players a year over a rolling period to normalize things -- maybe 5 years.

Are you ready for a $55,000,000.00 per year pitcher?

The money is there for that right now. If revenues continue to grow even at just the GDP increase rate for the US, there will be more. This does not account for any shifting of discretionary income away from (or toward) the product. If baseball revenues are sound, player salaries are not bubbled. In fact, they might well be suppressed by a change in strategies from owners and GMs (and the Grow/Fangraphs piece, above, discusses this) that focuses more on younger players and less on old free agents.

If player salaries are a "bubble" then is it because they may well be one that is not growing nearly as fast as it should be? Isn't that the definition of "not a bubble?"

I feel pretty comfortable concluding that player salaries right now are not at a point where I think they are realistically a threat to the game.

There are other possible threats. Ownership group loans need to be monitored to avoid a "Rangers" scenario, but that isn't a baseball issue - that is a business capitalization one. Revenues depend on disposable income from fans, either to go to the park or to make advertising on TV and in other media a rational choice for sponsors. The owners must keep a reasonable competitive balance in effect to a degree that franchises and fanbases are not hopelessly outgunned, though salary and winning may recently be decoupled per some evaluations.

Is all of this reasonable? Moral? I really don't care, and it represents a very small fraction of the US economy as a whole. These people mostly pay taxes at the maximum US federal rate (yes, Canada and all that), so the public policy end (aside from stadium financing) is like a snake eating its own tail, to some extent.  There may be moralists and people offended by talented people making tons of money, but I'm not one of them. I will occasionally gasp and shake my old man cane at the clouds, but the rational part of me will soon return and bring me back to my senses.

My original question was: When does baseball run out of money for salary increases?

Again, I think, after this quick survey, that the answer is "Not any time soon."

In the meantime we can all continue to watch new deals come through, whistle at the terms, and curse the gods who made us mere dorky baseball nerds instead of the immortals who can get one lefty out in the 7th inning every fifth game for a 4th place team.