How MLB’s Economics Set The Owners And Players On A Collision Course

With MLB in a lockout, baseball is confronting its biggest labor crisis since the 1994-95 seasons. And while games haven’t been lost — yet — this move is just another milestone in what has become an increasingly ugly relationship between team owners and the players association. After several hot-stove freeze-outs and some extremely contentious negotiations over how to restart the pandemic-shortened 2020 season, it was practically inevitable that the back-and-forth around a new collective bargaining agreement would bring MLB’s labor battle to a head this offseason.

Why are things so strained between the two sides right now? While there are plenty of issues driving the gap between the players and owners, maybe the two biggest ones involve the structure of salaries in MLB and the willingness of teams to spend in order to be competitive.

MLB’s current financial setup generally involves players being under “team control” for their first six years of major league service time, including three years of being paid at (or very near) the league’s minimum salary and three years of salary arbitration — in which the team and player each propose salary figures and a panel decides which is fairer. Only after six years of service do players hit free agency … and even then, there are wrinkles (such as the qualifying offer) designed to restrict player movement.

This system makes younger players, as a group, inordinately valuable in terms of net productivity. In 2021, players in their age-29 season or younger generated 63 percent of leaguewide wins above replacement¹ but were paid just 38 percent of MLB’s total salaries. That, of course, means the inverse — older players being paid more than we would expect from their production — is also true: Players age 30 and older made 62 percent of total salaries while generating just 37 percent of WAR.

This discrepancy has existed in some form throughout MLB’s free-agency era, and several years ago it was actually even worse than it is now. (In 2015, players under 30 produced a whopping 73 percent of total WAR despite being paid only 38 percent of salaries.) Because players are generally most productive before the years in which they have their greatest bargaining power, MLB’s system effectively guarantees that young players will be the game’s biggest bargains.

Knowing this, young players used to wait for their payday in free agency, where they would often be paid with consideration to what they had done in the past rather than what they were going to do in the future. But as teams have become more savvy about how they spend their money -- aided by the influx of analytics in baseball’s post-Moneyball era -- the market for older free agents has gotten rougher, coupled with changes to the aging curve after MLB took steps to discourage the use of performance-enhancing drugs. Modern front offices have also manipulated players’ service time by artificially delaying top prospects’ debuts, giving the team an extra year in which they can pay those players less than full market value.

Understandably, all of these factors have become major sticking points from the union’s side of the CBA negotiations. The players would like to get paid more earlier in their careers, which would reduce the discrepancy between who generates the most value and who takes home the most dollars, and maybe even help salaries catch up with leaguewide revenues. The owners, of course, prefer the current system -- one in which they get to systematically underpay young players in their best seasons, then turn around and ask veterans “what will you do for me going forward?” when they finally hit free agency.

Another huge point of conflict between the owners and the union involves teams’ willingness to spend enough to field a minimally acceptable on-field product. In 2021, five teams spent less than half the median MLB payroll -- the most in a single season since at least 1985² -- and nine teams spent less than two-thirds of the median payroll (also a record). Those teams combined to win just 43.8 percent of their games, and only two (the Tampa Bay Rays and Seattle Mariners) were above .500, so roughly a quarter of the league did not even try to compete ... and successfully accomplished that noncompetitive mission.

That’s bad for players because, when teams are not actively trying to win, they’re much less inclined to bid up salaries for free-agent talent. After all, why spend more on a veteran if, to paraphrase legendary general manager Branch Rickey, a team could finish last just as well without them (and using a cheap replacement instead)?

The issue of competitive balance is not without its complications on either side of the labor squabble. The union reportedly would like to reduce the effect of the luxury tax, which penalizes big spenders -- particularly those who splurge multiple years in a row. But it’s very likely that allowing top-tier teams to spend more would result in them winning more through sheer financial brute force. And the league’s proposed playoff expansion (from 10 to 14 teams) would probably give only the illusion of increased competitive balance by introducing even more randomness into the crapshoot that is the postseason.

The players also have rejected calls for a salary floor -- a minimum amount of spending each team must do each season, something other leagues have³ -- because they (probably rightly) view it as a step toward a salary-capped system, a red line the union will not cross. But in a vacuum, a salary floor would discourage teams from tanking by forcing them to spend up to a certain level on their MLB rosters. And as Sheryl Ring pointed out several years ago, the NBA’s salary floor coincided with its average player making a lot more money. (Granted, the NBA is nobody’s ideal when it comes to competitive balance, but that’s yet another aspect of the debate.)

As we look ahead to the start of next season (whenever that may be), MLB players and owners have a wide gap to bridge between them. The charts above show just a few of the ways in which the league’s financial rules have become weaponized against the players over the years. The big questions now are how much of that will change as the two sides negotiate the next CBA,  how long it will take to hammer out those changes, and what damage will be done to the game and its fans along the way.