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Friday, March 31, 2017

Why the MLB is flooded with huge contracts - CNN.com

But forecasting baseball players’ productivity based on past performance is tricky, says Berri, who co-authored “Stumbling on Wins: Two Economists Expose the Pitfalls on the Road to Victory in Professional Sports.”

“Salary is a function of what (a player) did in the past,” says Berri, who notes that MLB general managers often overlook the obvious when considering the future—including the downfall of an aging superstar like 37-year-old Albert Pujols.

The three-time MVP’s batting efficiency has declined since signing with the Los Angeles Angels in 2012, yet has five years and $140 million remaining on his contract.

“I’ve spoken to a lot of different people in sports; I never get the impression that they know what they’re talking about,” says Berri.

“There is a sense you get that they would know who’s good and whose bad, and they would figure this stuff out.”

Jim Furtado Posted: March 31, 2017 at 11:05 AM | 33 comment(s) Login to Bookmark
  Tags: economics

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   1. Jose is an Absurd Time Cube Posted: March 31, 2017 at 11:13 AM (#5426651)
Because MLB is making money hand over fist.

Do I need to read the article or do I have it?
   2. RoyalsRetro (AG#1F) Posted: March 31, 2017 at 11:24 AM (#5426664)
"the MLB"
   3. Crispix Attacksel Rios Posted: March 31, 2017 at 12:10 PM (#5426729)
Because MLB is making money hand over fist.

Do I need to read the article or do I have it?


No, there is a lot more to it than that. Unique among sports, salaries are kept extremely low for MLB players in their first few years and salaries are extremely high for the few players who manage to finally make it to free agency without entering terminal decline or getting a serious injury. It's a strange structure.
   4. McCoy Posted: March 31, 2017 at 12:20 PM (#5426738)
Perhaps I need to read the article but virtually all sports keep salaries extremely low for the first few years and then salaries skyrocket for those good enough to get to that point. The NBA and NFL have changed somewhat in that your top tier talent are getting much bigger draft bonuses and contracts but the vast majority of young players in all team sports get paid way less than the vast majority of veterans.
   5. Bhaakon Posted: March 31, 2017 at 12:30 PM (#5426741)
True, but the difference is the definition of "few years" and "low salary". Relative to the few of the NBA and NFL, the few of baseball isn't few at all, and the relative low is far lower.
   6. McCoy Posted: March 31, 2017 at 12:44 PM (#5426744)
Well, how long does the average NBA and NFL career last? From what I recall they didn't last as long as MLB players.
   7. Benji Gil Gamesh VII - The Opt-Out Awakens Posted: March 31, 2017 at 12:50 PM (#5426747)
"the MLB"
Also "batting efficiency."
"The league is a huge revenue producer," says David Berri, professor of economics at Southern Utah University. "And in baseball, you can tie the outcome of games to individual players. It's clear that individual players matter."
Ehhh?
   8. Shibal Posted: March 31, 2017 at 12:54 PM (#5426749)
Do I need to read the article or do I have it?


You can safely ignore any article that features Dave Berri.
   9. JJ1986 Posted: March 31, 2017 at 01:02 PM (#5426752)
The whole beginning of the article is ridiculous. You can't compare the total value of contracts across leagues. It only maybe makes sense to compare the annual value. NBA contracts are limited to 5 years (and LeBron is further limited because of age rules). NFL contracts are very rarely longer than 8 years.
   10. Crispix Attacksel Rios Posted: March 31, 2017 at 01:10 PM (#5426756)
NBA rookies are only under team control for 3 years I believe, and that starts right away, not after an unspecified number of years in the minors. This is why the 76ers plan to emulate the Houston Astros was doomed to fail from the beginning. They already had to dump Nerlens Noel because he's about to become expensive. And like stated above, there are maximum lengths to the contracts in the NBA now, there are maximum salaries, etc.

We know that 95% of NFL players have no job security unless they get injured - there is also extreme inequality between the stars and the rest in the NFL, but it's not so weirdly distributed between overpaid old players and underpaid young players like it is in baseball. And regarding this article the NFL isn't flooded with "huge contracts" because the teams can void the contracts whenever they want.

I have no idea about hockey.
   11. Rally Posted: March 31, 2017 at 01:26 PM (#5426759)
NBA rookies are under team control longer than that, but not really cheap. They first get to restricted free agency, where their team can match any offer made. The max contract for a player with 4 years of service is also less than a full veteran max contract.
   12. 6 - 4 - 3 Posted: March 31, 2017 at 01:27 PM (#5426761)
This was a truly terrible article.
   13. JJ1986 Posted: March 31, 2017 at 01:31 PM (#5426764)
NBA rookies are under team control longer than that, but not really cheap. They first get to restricted free agency, where their team can match any offer made. The max contract for a player with 4 years of service is also less than a full veteran max contract.
First round picks can get out after 5 years if they sign their qualifying offer sheet after 4. I think Greg Monroe is the only player who has done it recently.
   14. Rally Posted: March 31, 2017 at 01:35 PM (#5426767)
I have no idea about hockey.


I know very little, but here it is:

The star players make similar money to what baseball superstars made in the late 1990s. For example, Alex Ovechkin is the highest paid Capital at 10 million. The minimum salary is higher than baseball though, the lowest paid Cap is at 775K.

Baseball stars make more than Hockey because the sport has a lot more revenue. They get longer term deals than the NBA because the NBA has caps on both the length and annual dollars allowed in contracts. There are no Pujols-like deals in the NFL because the NFL can always cut a contract.

With a free market my guess is that if Lebron James wanted to play for the highest bidder without any concern for the quality of teammates they could give him, at some point he would have signed a billion dollar contract. Something like 12 years, 80+ million per season.
   15. Moses Taylor, aka Hambone Fakenameington Posted: March 31, 2017 at 02:00 PM (#5426782)
"The league is a huge revenue producer," says David Berri, professor of economics at Southern Utah University. "And in baseball, you can tie the outcome of games to individual players. It's clear that individual players matter."

Oh, boy. Stick to your absolute terrible "analysis" of the NBA so it's easier to ignore you please.
   16. A triple short of the cycle Posted: March 31, 2017 at 02:37 PM (#5426802)
According to this article, "players' salaries are not capped" and "MLB is mostly beholden to market forces."
   17. TDF, trained monkey Posted: March 31, 2017 at 03:16 PM (#5426817)
The NBA and NFL have changed somewhat in that your top tier talent are getting much bigger draft bonuses and contracts
The NFL, in fact, has moved in the opposite direction starting with the new CBA in 2011:
These changes largely favor the NFL clubs, as one of the big factors during negotiation of the new CBA, was suppressing rookie salaries.


Sam Bradford, the #1 overall pick in '10, signed for 6/$78 with $50M guaranteed; Cam Newton, #1 overall the next year, got just 4/$22. Jared Goff, this year's #1 overall, still got only 4/$27.9M.
   18. Pirate Joe Posted: March 31, 2017 at 08:36 PM (#5426991)
The minimum salary is higher than baseball though, the lowest paid Cap is at 775K.


The NHL minimum this year is $575,000.

The NHL also has salary maxes based on the total salary cap. No player is allowed to make more than 20% of the salary cap. This season's cap is $73 million per team, which means that the maximum salary for any NHL player would be $14.6 million. The highest paid current player is Anze Kopitar of the Kings at $14 million.

   19. DJS Thinks Apples and Oranges are Similar Posted: March 31, 2017 at 09:33 PM (#5427000)
The article feels a bit like the writer only really had a passing familiarity with baseball. I'm not sure why articles like this exist in 2017, it's a bit like something you'd read about 25 years ago.
   20. Jose is an Absurd Time Cube Posted: March 31, 2017 at 10:15 PM (#5427010)
I miss the old Sport magazine Top 100 earners list. It was always fun to see how many people on the list earned a million dollars a year.
   21. Scott Ross Posted: April 01, 2017 at 05:06 AM (#5427037)
I can't believe that after reading all of your comments, I still went ahead and read the farking article.

   22. It's regretful that PASTE was able to get out Posted: April 01, 2017 at 11:24 AM (#5427073)
We need our failed government to get off their asses and finally pass the long overdue Constitutional amendment mandating the summary execution of anyone who writes or says "the MLB".
   23. This is going to be state of the art wall Posted: April 01, 2017 at 11:33 AM (#5427075)
As moses said,it's Berri.
   24. cardsfanboy Posted: April 01, 2017 at 12:35 PM (#5427097)
Following 21. lead I read the article, and early on it is annoying.

Prior to that, Alex Rodriguez received a whopping $527 million over two record-breaking contracts with the New York Yankees and Texas Rangers.

Not really accurate or at least it's a bit misleading.


of course the basic answer of why baseball has huge contracts is it makes nearly as much money as the NFL, has half the players per team and only which about 15 of them actually matter. And as both the article and people on here have pointed out, the other leagues have rules that discourage spending long term on players and doesn't have a limited free agency.

And this quote(quoted in excerpt) is the ultimate guy home in the baseball calling talk radio quote.
"I've spoken to a lot of different people in sports; I never get the impression that they know what they're talking about," says Berri.
"There is a sense you get that they would know who's good and whose bad, and they would figure this stuff out."


I mean we are arrogant around here, and I doubt anyone other than MGL would be so full of themselves to make a comment like that, sure there are individuals within the sport who we might make that comment about, but a broad statement like that, in todays game, would show a complete lack of knowledge of baseball's front offices.
   25. Rally Posted: April 01, 2017 at 12:39 PM (#5427101)
Not really accurate or at least it's a bit misleading.


Not accurate at all. It would have been if A-Rod had completed the 252 million deal and then signed for 275, but in reality he opted out of his last 3 years on the first deal, so 527 is about 90 million too high.
   26. Random Transaction Generator Posted: April 01, 2017 at 12:41 PM (#5427103)
The highest paid current player is Anze Kopitar of the Kings at $14 million.


That boggles my mind. He's never led the league in any meaningful statistic, the two awards (from last year) were for best defensive player and most gentlemanly player, and the best he's been is a third-string all-star.

There is no way he should be the highest paid player in the league.
   27. What did Billy Ripken have against ElRoy Face? Posted: April 01, 2017 at 12:45 PM (#5427106)
What, you don't want to reward a guy for being gentlemanly?
   28. It's regretful that PASTE was able to get out Posted: April 01, 2017 at 01:17 PM (#5427114)
RTG: It's just the natural result of having a max salary. The highest paid player is always whichever star most recently signed a contract. Ovechkin could make $30 million a year on an open market, but his salary is capped at a second or third tier star level just like everyone else's, and he signed his last contract a few years ago.
   29. Ziggy is done with Dominican discotheques Posted: April 01, 2017 at 02:36 PM (#5427142)
I'll preface this by saying that I don't know anything about the lesser sports, but here goes:

What does the NFL not having guaranteed contracts actually do? It would seem that all it does is force teams to buy risk from players. That is, since players have to accept more risk than they would with guaranteed contracts, you would expect their salaries to be higher than they would be with guaranteed contracts. You would think that this would be bad news for everybody. Risk averse players won't be able to sign a contract that maximizes their utility, even if there's a cheap team out there that would be happy to give it to them. (Unless the NFL allows workarounds like guaranteed personal service contracts or something, but in that case the whole "no guaranteed contracts" thing actually doesn't do anything at all.)
   30. perros Posted: April 01, 2017 at 02:47 PM (#5427144)
Unique among sports, salaries are kept extremely low for MLB players in their first few years and salaries are extremely high for the few players who manage to finally make it to free agency without entering terminal decline or getting a serious injury. It's a strange structure.


This is largely what the players want, and not really unlike every other field where newbies are underpaid and veterans overpaid.

Or liok at the overall structure of the economy -- those at the top are disproportionally rewarded compared to everybody else.
   31. It's regretful that PASTE was able to get out Posted: April 01, 2017 at 02:58 PM (#5427148)
What does the NFL not having guaranteed contracts actually do? It would seem that all it does is force teams to buy risk from players. That is, since players have to accept more risk than they would with guaranteed contracts, you would expect their salaries to be higher than they would be with guaranteed contracts. You would think that this would be bad news for everybody. Risk averse players won't be able to sign a contract that maximizes their utility, even if there's a cheap team out there that would be happy to give it to them. (Unless the NFL allows workarounds like guaranteed personal service contracts or something, but in that case the whole "no guaranteed contracts" thing actually doesn't do anything at all.)


That's not how it works in practice; NFL players are paid less than players of other sports on average, because of the very low money-per-player salary cap (the NFL has a 53 man roster; compare to the NBA's 15 man roster.)

The effect of non-guaranteed contracts is simple and easy to understand: you can, and teams do, dump a player the instant he can be replaced with a comparable but cheaper player. This applies only to the rank-and-file, though; stars and medium-level free agent signings get signing bonuses that create a de facto guaranteed contract for a certain number of years, because of the NFL's arcane rules for calculating a player's cap number.
   32. Shredder Posted: April 01, 2017 at 03:11 PM (#5427156)
That boggles my mind. He's never led the league in any meaningful statistic, the two awards (from last year) were for best defensive player and most gentlemanly player, and the best he's been is a third-string all-star.
Mostly what PASTE says, but he's also been the best player on his team for over a decade, and was the most important player (sorry, JQ & DD) on two Stanley Cup winning teams. He's been just under a point per game player, while also being arguably the best defensive center in the league for most of his career. His terrible start to the season, and his team's inability to score goals, makes that contract look really putrid, but there wasn't much doubt that he had established himself as one of the most complete players in the league when he signed that deal.
   33. 6 - 4 - 3 Posted: April 01, 2017 at 03:32 PM (#5427164)
What does the NFL not having guaranteed contracts actually do? It would seem that all it does is force teams to buy risk from players. That is, since players have to accept more risk than they would with guaranteed contracts, you would expect their salaries to be higher than they would be with guaranteed contracts. You would think that this would be bad news for everybody. Risk averse players won't be able to sign a contract that maximizes their utility, even if there's a cheap team out there that would be happy to give it to them. (Unless the NFL allows workarounds like guaranteed personal service contracts or something, but in that case the whole "no guaranteed contracts" thing actually doesn't do anything at all.)


In practice, the only thing that really matters for NFL players when it comes to contracts is the relative size of the signing bonus compared to the overall package. In MLB, signing bonuses are kind of an afterthought (we basically just divide the entire guaranteed amount by the number of years and work off of the average annual value [AAV]). In the NFL, the structure of the contract (particularly the signing bonus) is huge.

For example, Colin Kapernick signed a $126M/6yr contract extension in June 2014. It was structured as follows:
- Signing Bonus: $12,328,766
- 2014: $645k base, $100k workout bonus
- 2015: $10.4M base, $2M roster bonus, $400k workout bonus
- 2016: $11.9M base, $2M roster bonus, $400k workout bonus
- 2017: $14.5M base, $2M roster bonus, $400k workout bonus
- 2018: $15.0M base, $2M roster bonus, $400k workout bonus
- 2019: $16.8M base, $2M roster bonus, $400k workout bonus
- 2020: $19.0M base, $2M roster bonus, $400k workout bonus

Looks great right? Well the contract got restructured in October 2016 that basically eliminated 2017-20 and allowed Kaepernick to opt out after the 2016 season (which he did in early March 2017). As of right now, he's still a free agent.

So basically, from the $126M/6yr contract extension, Kaepernick got his signing bonus ($12,328,766) and salaries for 2014 ($745k), 2015 ($12.8M), and 2016 ($14.3M). So a little over $40M total (less than a third of the face value of the contract extension). Obviously he has a chance to make some money in 2017-20 if he can find a team willing to sign him, but he's going to be make considerably less than $86M (he has been outspoken in his support for BLM, which is likely limiting the number of NFL teams interested in signing him--even aside from the political stuff, his skills have diminished considerably from 2014).

This experience is not unique in the NFL. In fact, most people expected when Kaepernick signed his $126M/6yr contract that it would be restructured at some point.

Now imagine if the Red Sox could have jettisoned Pablo Sandoval after the 2015 season and have only paid him a $3M signing bonus plus his $17M salary for 2015.

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