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Friday, April 11, 2014

Seduction of ‘donut contracts’ has MLB players leaving millions on table

Baseball players are underpaid.

In a vacuum, the issue gets a big, fat #richpeopleproblems hashtag. If the MLBPA’s biggest problems revolve around a guy not getting enough millions, whooptie damn do. At the same time, that ignores an important principle, and one the union is stressing as long-term deals swing more and more in favor of teams: Baseball is a $9 billion industry, and every dollar that doesn’t go to the players who make the game what it is funnels straight into the suit pockets of owners who are getting even more stinking rich with every successful long-term deal.

eddieot Posted: April 11, 2014 at 12:03 PM | 42 comment(s) Login to Bookmark
  Tags: mlb, mlbpa, salaries

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   1. JRVJ Posted: April 11, 2014 at 01:43 PM (#4684535)
I absolutely don't like the general point of this article.

Ultimately, players have the right to be financially secure, and if they are willing to take less on the back end in exchange for guaranteed money on the front end, all.the.more.power.to.them.

Passan's article (and presumably, that of MLBPA and/or the Boras' of the world) is that players should be getting a bigger share of the MLB revenue pie. That's a goal which one can agree or disagree with, but what I think is missed is that what may be good for the collectivity of players is not necessarily good for individual players.

If an individual player chooses to ensure his being financially secure in the early part of his career, that's his choice, even if he won't be in position to have a mansion, a condo in NY, a beach house a yacht and private plane.
   2. Nasty Nate Posted: April 11, 2014 at 01:47 PM (#4684538)
Baseball is a $9 billion industry, and every dollar that doesn’t go to the players who make the game what it is funnels straight into the suit pockets of owners who are getting even more stinking rich with every successful long-term deal.


I forgot the business of baseball had zero overhead costs except for player salaries....

I read most of the article and I don't understand how early contract extensions supposedly reduce the percentage of revenue that goes to player salaries. Would Tampa be spending more than $77m if they hadn't signed Longoria to that deal? If Longoria would have been in his last arb year w/o the extension and had a higher salary than the $7.5m he has now, wouldn't the Rays have probably still spend $77m, just with more going to Longoria and none going to Balfour who they wouldn't have signed?
   3. Zach Posted: April 11, 2014 at 01:47 PM (#4684539)
"Never turn your back on your first fortune," said …

1. Chris Archer, the Tampa Bay Rays starter who now is generationally wealthy.


I hate, hate, hate, hate, hate this phrase. It's the most pretentious thing since those "December to Remember" commercials where they tie a big bow around a Lexus. It's like there's this pressing need to draw a line between somebody who's rich and somebody who's become "old money." But the whole point of "old money" snobbery is that you can't cross that line by making a lot of money! Snobbery is like having a complicated knot in your tie -- if you can't do it right, best not to do it at all.

The second thing I hate about the phrase is that it assumes facts not in evidence -- that the player, having now become old money, will of course leave his vast fortune to his heirs. But a huge fraction of players never do anything of the sort -- they go broke as soon as the money stops coming in. So "generations" becomes "twenty years or so" in practice.
   4. Commissioner Bud Black Beltre Hillman Posted: April 11, 2014 at 01:50 PM (#4684540)
It's been interesting following the potential commercialisation of Irish hurling (yeah, I went there; it's at a peak in popularity right now, largely because the team from Dublin is quite good, and Sky is willing to pay to broadcast it as it fits nicely with the summer lull in club soccer for broadcast). The Gaelic Athletic Association is taking a bunch of flak for monetising the game, but they insist that “We will do with the money what we always have done with it. We use our money to develop our game, to support communities around Ireland, to build the facilities that mark the GAA and put it apart from other sports.”

Obviously it'll never happen in MLB, but it'd be a lot easier to complain about player salaries if the alternative was cash going to youth baseball, or new ballparks (rather than publicly funded) instead of owners pockets.
   5. Hank G. Posted: April 11, 2014 at 02:01 PM (#4684548)
I forgot the business of baseball had zero overhead costs except for player salaries....


Yeah, there’s the expense of building and maintaining a stadium, and salaries to the owner and members of his family. Good point.
   6. zenbitz Posted: April 11, 2014 at 02:04 PM (#4684554)
Uh, the overhead is pretty constant... although I guess if your team is so bad no one shows up you don't have to pay peanut vendors?
   7. Best Regards, President of Comfort, Esq. Posted: April 11, 2014 at 02:13 PM (#4684559)
The second thing I hate about the phrase is that it assumes facts not in evidence -- that the player, having now become old money, will of course leave his vast fortune to his heirs.


While of course he will, Old Sport.
   8. Pat Rapper's Delight Posted: April 11, 2014 at 02:26 PM (#4684567)
I guess if your team is so bad no one shows up you don't have to pay peanut vendors?

Woe to Astros peanut vendors if Jim Crane lurks here. That might be one more penny he hasn't pinched.
   9. BDC Posted: April 11, 2014 at 02:46 PM (#4684575)
I read TFA and it's kind of all over the map. Near as I can tell, the thesis is that some guys are (or will be) underpaid, and others are (or will be) overpaid. I reckon there were bloggers in Cincinnati in 1869 pointing out the same thing :)

   10. philphan Posted: April 11, 2014 at 03:21 PM (#4684602)
Mmmm...donuts.
   11. base ball chick Posted: April 11, 2014 at 04:04 PM (#4684645)
unless things have changed a LOT, the peanut/beer vendors are paid a % of their sales and not minimum wage. i would not be surprised if there are no vendors at all in the upper decks at the Box

i've been talking about how the owners are keeping more and more and more of a % of the profits coming in and now they are doing it with the carrot/stick deals with young players and punishing them if they refuse to sign one of those
- see george springer, for example, who is rotting in the minors because he wouldn't sign a really obscenely team friendly deal for like 8 YEARS. no one minds and actually, a whole lot of people LIKE it that the owners are making 30+ mill a year putting fer shtt teams out on the field to lose year after year.

i know marvin miller would have found a way to deal with that, as well as all the negative publicity owners have managed to get media to direct against the players over the past 15 years - greedy pigs.

while the owners charge 25 bucks a pop for cheap seats with nobody bothering to come to the stupid stadium. and pay umpty interns nothing. and get rid of pensions for employees. and pay minor leaguers less than they would get at mcdonalds and not giving them enough food to eat.
   12. Nasty Nate Posted: April 11, 2014 at 04:08 PM (#4684652)

i've been talking about how the owners are keeping more and more and more of a % of the profits coming in and now they are doing it with the carrot/stick deals with young players and punishing them if they refuse to sign one of those


But what's the connection between the owners keeping a bigger % of the revenue and the new trend of early extensions?
   13. cardsfanboy Posted: April 11, 2014 at 04:21 PM (#4684669)
i know marvin miller would have found a way to deal with that, as well as all the negative publicity owners have managed to get media to direct against the players over the past 15 years - greedy pigs.


MLB doesn't hold a candle to making the fans feel the players are too greedy in comparison to the NFL (Of course that is partially because a large portion of NFL "Fans" really aren't fans of the sport or the big picture, just how it affects their fantasy teams)

But what's the connection between the owners keeping a bigger % of the revenue and the new trend of early extensions?


Yep, this part I don't get. The GM works more or less with a fixed salary budget, how he gets to that point doesn't matter, he's not generally going to be allowed to exceed his budget.
   14. The Id of SugarBear Blanks Posted: April 11, 2014 at 04:25 PM (#4684675)
MLB doesn't hold a candle to making the fans feel the players are too greedy in comparison to the NFL (Of course that is partially because a large portion of NFL "Fans" really aren't fans of the sport or the big picture, just how it affects their fantasy teams)

The players are greedy. So are the owners. The players make an absurd amount of money, the owners make an absurd amount of money. Their obsession over the marginal extra dollar, given how much money they already have, is simply obscene -- defensible under no valid ethical principle.

I've never quite understood the need to pick one side or another.

The game is absolutely awash in greed. You can't avoid it even if you want to.
   15. SouthSideRyan Posted: April 11, 2014 at 04:31 PM (#4684680)
If you reverse engineer it and payroll is constant, the donut contracts make those who wait until FA all the more wealthy. Of course budgets don't work that way and if an owner sees a successful team operate on a 100m payroll one year, what's his motivation to up it to 140 the following year just because player X won't agree to a team friendly deal
   16. Nasty Nate Posted: April 11, 2014 at 04:46 PM (#4684693)
If you reverse engineer it and payroll is constant, the donut contracts make those who wait until FA all the more wealthy.


Exactly. E.G., the market for Mujica, Napoli, and Pierzynski was improved by the Sox' having money efficiently spent on Lester, Pedroia, and Buccholz.
   17. bfan Posted: April 11, 2014 at 04:55 PM (#4684701)
"Their obsession over the marginal extra dollar, given how much money they already have, is simply obscene -- defensible under no valid ethical principle."

Owners who are not individuals (Liberty Media?) are doing it for their shareholders, right? They are making sure the people who invest their hard earned money in their stock get a good return on that stock, for their retirement. So, in those cases, isn't it the very young, very talented baseball players against the public employees of the state of California? (or Oregon, or whatever).

   18. Joey B.: posting for the kids of northeast Ohio Posted: April 11, 2014 at 05:14 PM (#4684720)
I absolutely don't like the general point of this article.

He sounds like so many of the dopes who post right here.

I would ask Passan the same exact question I pose to our own dopes: what should the minimum and average MLB salaries be in order for you to stop whining?
   19. thetailor Posted: April 11, 2014 at 05:19 PM (#4684729)
I am not understanding the backlash against the article.

Baseball is awash in money. Individual players, in increasing frequency, are foregoing paydays for security. This means the owners are capturing more and more of the profits.

This means that salaries are going to be distributed more toward FA's than the younger players who could otherwise be earning those larger sums had they not sacrificed for security. It's an observation as much as it is a good or bad thing.

Finally, payroll caps imposed by owners is more collusion than anything else. If baseball is awash in money (and it is) where does it go? Free agent albatrosses (who are themselves villianized as individuals) or to the owners where it can just be hidden.
   20. base ball chick Posted: April 11, 2014 at 05:22 PM (#4684731)
joey

is there anyone here who you do NOT think is beneath contempt?

besides yourself?
   21. Juan Uribe Marching and Chowder Society Posted: April 11, 2014 at 05:22 PM (#4684732)
My opinion on this matter is quite nuanced, but closely resembles that espoused by # 10.
   22. Nasty Nate Posted: April 11, 2014 at 05:24 PM (#4684735)

Baseball is awash in money. Individual players, in increasing frequency, are foregoing paydays for security. This means the owners are capturing more and more of the profits.

This means that salaries are going to be distributed more toward FA's than the younger players who could otherwise be earning those larger sums had they not sacrificed for security. It's an observation as much as it is a good or bad thing.


These two paragraphs contradict each other.
   23. base ball chick Posted: April 11, 2014 at 05:24 PM (#4684737)
CFB,

how on earth are the football players "greedy"? their contracts are not guaranteed and they can be dropped at any time. they have basically no union, no pension worth a ^^^ and no long term health care plans

anyway, i think that the salaries of the major leaguers should be at least half of the gross. it has decreased from 60% to 40% over the past 10 - 15 years. and i think that there should be a LOT more money paid to minor leaguers - even if the team just paid for them to eat good quality food twice a day which they don't at all. and paid their unpaid employees. and did not stop the pensions for their employees.

i would say that every player should be a FA every year, but the players don't want that, so that is their choice. i also think that any major leaguer should be able to have performance clauses in his contract - i mean, get paid more if he IS better.

the budget is given to the GM by the owner, who has already decided how much profit he wants from the team every year. the more he wants, the lower the budge
   24. Juan Uribe Marching and Chowder Society Posted: April 11, 2014 at 05:24 PM (#4684738)
The game is absolutely awash in greed.


The world is awash in greed. Just because there's more money doesn't necessarily mean there's more greed.
   25. KingKaufman Posted: April 11, 2014 at 06:11 PM (#4684776)
i would say that every player should be a FA every year, but the players don't want that, so that is their choice.


I seem to remember reading an interview with Marvin Miller where he talks about Charlie Finley proposing that very thing. Miller was like "Holy crap, I hope all the other owners are too stupid to realize how great that would be for them." He needn't have worried.
   26. Joe Kehoskie Posted: April 11, 2014 at 06:38 PM (#4684788)
These two paragraphs contradict each other.

No, they don't.
   27. tfbg9 Posted: April 11, 2014 at 06:42 PM (#4684790)
@#4: I am loathe to admit it, but when I was a young buck, "Irish Hurling" had a different meaning. Yeah.
   28. Greg K Posted: April 11, 2014 at 06:54 PM (#4684799)
All this talk of the commercialization of hurling and no one has brought up the disaster that happened when the traditional Gaelic-Italian sport of shirling attempted to make commercial inroads in North America?


Fascinating documentary on the subject.
   29. madvillain Posted: April 11, 2014 at 06:59 PM (#4684806)
how on earth are the football players "greedy"? their contracts are not guaranteed and they can be dropped at any time. they have basically no union, no pension worth a ^^^ and no long term health care plans


Kanye should have written that song "FB players are the new slaves". He would have been barking up the right tree.

It's awful how the NFL treats their players and it should remind everyone what happens when you have a weak or non-exsistant Union. Unions aren't an end to themselves so guys can get seniority and then sit around playing bingo all day and get paid -- they are they to protect workers against the sharp edge of Capitalistic greed.
   30. cardsfanboy Posted: April 11, 2014 at 07:04 PM (#4684807)
I am not understanding the backlash against the article.


The backlash is the argument that these contracts is affecting overall payroll and that teams are pocketing the profits instead of spending it on other players. It doesn't matter how the teams make their payroll, they are still spending at roughly the same percentage, when the owners get more money, team payroll goes up. So some kids are signing team friendly contracts, that just means that the team has more money for secondary players.

how on earth are the football players "greedy"? their contracts are not guaranteed and they can be dropped at any time. they have basically no union, no pension worth a ^^^ and no long term health care plans


I never said that football players were greedy, I said that the NFL has done a good job of making it appear as the players are greedy (majority of the people surveyed felt that the players were the greedy ones in the last NFL labor issue...and as you pointed out, the NFL players are the most abused of the four major sports, and they are in the sport that makes the most amount of money, and has least amount of overhead---along with NBA in that second point)
   31. tfbg9 Posted: April 11, 2014 at 07:04 PM (#4684808)
Nah.
   32. DKDC Posted: April 11, 2014 at 07:11 PM (#4684810)
As a general proposition, options are a very difficult to price.

Certainly the players who sign contracts with team options are getting some value in return for the options. They are getting guaranteed buyouts at a minimum and perhaps more money over the life of the contract too.

Is it fair value? I have no idea and I don't think Passan does either.
   33. madvillain Posted: April 11, 2014 at 07:16 PM (#4684814)
Is it fair value? I have no idea and I don't think Passan does either.


For alot of these guys a guarantee of X even if X is half of what they could perhaps eventually get, is a reason to the run to the bank. Chris Sale signed for 30 million or whatever because that's 30 million guaranteed even if his arm falls off or he comes down with cancer or whatever and he felt it was worth it to take less down the road for to have that security net.

As you said, it's hard to price, but Chris Sale isn't going to make 30 million selling cars if he can't pitch anymore, and that's why it was worth it to him.
   34. Nasty Nate Posted: April 11, 2014 at 07:18 PM (#4684816)
These two paragraphs contradict each other.



No, they don't.


I was interpreting the first paragraph as saying that the money saved when those deals are bargains is going to the owners' pockets, while the second paragraph is saying that it is going to other players.
   35. Joey B.: posting for the kids of northeast Ohio Posted: April 11, 2014 at 07:35 PM (#4684824)
i think that the salaries of the major leaguers should be at least half of the gross. it has decreased from 60% to 40% over the past 10 - 15 years.

And this could potentially become problematic if it were to continue going in that direction. But the average salary took a big jump this year, going from about $3.4 million to about $4 million.

Most importantly, the game has had 19 years of labor peace and counting. If the players are happy and the current system is good enough for them, it should be good enough for us dopey fans too.

You RDBs should seriously quit whining and try just enjoying the game. If you're even capable of it.
   36. Gonfalon Bubble Posted: April 11, 2014 at 08:43 PM (#4684848)
You RDBs should seriously quit whining and try just enjoying the game. If you're even capable of it.


This is 12th-level "Romney mocks Obama for having attended Harvard Law School"/"Cher criticizes Miley Cyrus for showing her butt"/"Paul Walker dies in a car crash" irony. Kudos!
   37. Bug Selig Posted: April 11, 2014 at 08:44 PM (#4684849)
I was interpreting the first paragraph as saying that the money saved when those deals are bargains is going to the owners' pockets, while the second paragraph is saying that it is going to other players.


That's only because you can read.
   38. Walt Davis Posted: April 12, 2014 at 01:30 AM (#4684932)
These two paragraphs contradict each other.

Not necessarily.

Say the Pirates save $5 M per year on McCutchen's buyout (probably more but let's stick with that). This year, $3M could be going into the owner's pocket while $2 M was used to bring back Barmes or contributes to Morton's extension or helped them take the risk on Liriano or ...

Folks are under-estimating the interaction here. A GM is given a "set" budget but that budget as a proportion of team revenues seems to have been doing down. As relevantly, that budget is set with the knowledge that they will be able to get bargains on young players ... or at least under such an assumption.

Basically, should the Rays be able to be competitive on a sub-$80 M budget? Or should Longoria (and his other Union members) demand more money, putting the Rays (and other teams) in the position of having to increase spending to stay good.

It is only an assumption that all of the teams are spending only what they can "afford" on player salaries that leads to a conclusion that Trout, McCutchen et al receiving more money would have no impact on total player salaries but would only change the distribution of a fixed budget. There is no basis for us to make that assumption and the apparent decline in salaries as a proportion of revenues suggests it's not true.

That said, sure, on the list of the world's problems, Mike Trout's bank account falls somewhere between whether Martin will ever finish Game of Thrones and what's going to happen on the next episode of Glee. It's just that Arte Moreno's bank account is an even lower priority than the next episode of Glee.

   39. bjhanke Posted: April 12, 2014 at 07:43 AM (#4684964)
Walt is right, of course, but there's another factor. Long-term contracts are, essentially, gambles on health. The team pays the player, over the length of the contract, less than the player would have made if he had taken shorter contracts and benefitted more from inevitable salary creep across the game - assuming that player had stayed healthy. What the player gets in return is the guarantee. Even if he's in a car accident tomorrow and becomes a paraplegic, he's going to get a lot of that contract, guaranteed. When you have only one way to make large amounts of money, that guarantee is worth more than the extra dollars you can squeeze out of a succession of free agencies. - Brock Hanke
   40. cardsfanboy Posted: April 12, 2014 at 12:34 PM (#4685034)
i think that the salaries of the major leaguers should be at least half of the gross. it has decreased from 60% to 40% over the past 10 - 15 years.


I like MLB's pay structure for the most part. I despise many of the changes made with the most recent CBA, especially in regards to compensation picks and Qualifying offer. But MLB is going to pay less relative to other leagues because of them supporting the minor league system.

   41. Nasty Nate Posted: April 12, 2014 at 04:50 PM (#4685118)
Say the Pirates save $5 M per year on McCutchen's buyout (probably more but let's stick with that). This year, $3M could be going into the owner's pocket while $2 M was used to bring back Barmes or contributes to Morton's extension or helped them take the risk on Liriano or ...

---

It is only an assumption that all of the teams are spending only what they can "afford" on player salaries that leads to a conclusion that Trout, McCutchen et al receiving more money would have no impact on total player salaries but would only change the distribution of a fixed budget. There is no basis for us to make that assumption and the apparent decline in salaries as a proportion of revenues suggests it's not true.


Yes it is only an assumption, but there is somewhat of a basis: the way teams behave when they get surplus value from players in other ways (pre-arb salaries, FA deals that turn out to be bargains, etc). If salaries decline as a proportion, and early extensions become more common over the same time span, it might be correlation without causation.

Teams who have bargains with drafted stars, for example, have chosen in the past to maintain a payroll size by spending less efficiently on other players, why should it be different for when they get bargains from extended early players?
   42. valuearbitrageur Posted: April 13, 2014 at 02:43 AM (#4685289)
Trouts donut contract enabled Arte Moreno to cut payroll to $155M this year, from $137M last year. His pockets must be bulging!

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