MLB Money

The major league average salary rose 4.1 percent to $3.44 million, the steepest hike since 2008. Revenue sharing has spread the wealth, and more teams have rich cable television contracts. Surprisingly, million-dollar salaries dropped slightly, from 453 to 448. Still, that’s nearly 53 percent of the 852 players on Opening Day rosters and disabled lists. The number of $10 million players increased from 82 to 89, and $20 million stars rose from 10 to 14. Sixty-eight players make the $480,000 minimum — boosted from $414,000 under baseball’s new labor contract. The median salary; the point at which an equal number are above and below, declined by $25,000 to $1,075,000, down from a record $1,125,000 in 2009.

The Big Contract Gamble

The San Francisco Giants and the Cincinnati Reds have joined the lunacy

Reds Joey Votto

known as baseball contracts. The Giants signed Matt Cain to a 6 year, $127.5m deal, while the Reds locked up first baseman Joey Votto with a 10 year, $225m contract. Votto is 28, and will be 39 at the end of the deal. If you add this extension to the previous contract, which was signed just last year, Votto’s 10-year, $225 million extension is actually 12 years and $251.15m. Votto also has a club-option year (2024) for another $20m.

At signing, Cain’s contract was the largest-ever for a right-handed pitcher. However, he may not be able to make that claim for too long. Cain’s teammate Tim Lincecum and the Los Angeles Dodgers’ Clayton Kershaw probably will get a big paydays within the next two years. Cain also has a $21m option for 2018, which becomes guaranteed if Cain 1) pitches 200 innings in 2017 or 400 innings in 2016-17 and 2) is not on the disabled list at the end of the 2017 season with injury to right elbow or right shoulder.

In Cain’s case I wonder if the ghost of Barry Zito crossed management’s mind. Zito’s contract was also the largest-ever (7 years/$126m) for a pitcher at signing. In the first 5 years of the contract, Zito has compiled a record of 43-61. So far the Giants have paid Zito $79m, that’s about $1.8m a win. Cain has been with the Giants for 7 years during which he has compiled a record of 69-73. He does have a decent career ERA of 3.35. Call me crazy, but $127m, possibly $148m seems like a lot of money for a pitcher with a losing record.

The New York Yankees and Boston Red Sox no longer have the advantage in the free-agent market as they had in the past. Teams like the Texas Rangers and the Los Angeles Angels of Anaheim now have the resources to compete with the two richest teams in MLB.

The Rangers were able to afford $111 million for Japanese pitching ace Yu Darvish, including the posting fee, in part because of their lucrative TV deal. It’s reported that the deal is for 20 years and $3 billion. That’s a mere $150m dollar a year just from local TV. And the Angels can afford Albert Pujols because they too have a similar local TV contract. Even the San Diego Padres, who play in the 26th largest market in baseball are, pending MLB approval, poised to sign a new deal with Fox Sports that will guarantee them $75 million a year for the next 20 years.

Who is Really Paying for These Huge Contracts?

Some in baseball think contracts like the one for Votto are the game’s version of the Internet boom in the late 1990s, that clubs are overextending themselves with cash guarantees they won’t be able to make good on. Nobody can be sure how long customers will be OK with rising cable bills, especially in a time when the Internet is already cutting into subscriptions, rising ticket prices, concession prices and the products they buy from the companies that pay the ridiculous advertising rates. Who do you pays for the millions a company spends on advertising? I’ll give you a hint, it’s not the companies.

If Cain, Votto and

1. Pujols (signed thru 2021, 10 years/$240M (12-21)),
2. Fielder, (signed thru 2020, 9 years/$214M (12-20) Ryan Braun (5 years/$105M (2016-20), plus 2021 mutual option is added onto an 8 years/$45M (2008-15)),
3. Troy Tulowitzki (signed thru 2020, 7 years/$45M (08-14), 6 years/$118M (15-20) & 21 team option),
4. Carl Crawford (signed thru 2017, 7 years/$142M), $6M signing bonus
5. Jason Werth (signed thru 2017, 7 years/$126M (11-17)
6. Matt Holliday 7 years/$120M (2010-16), plus 2017 option  (.314 BA, 29 HRs, 109 RBI)
7. Yadier Molina 4 years/$15.5M (2008-11), plus 2012 club option 5 years/$75M (2013-17), plus 2018 mutual option (.274 BA, 10 HRs, 67 RBI)
8. Troy Tulowitzki 10 years/$157.75M (2011-20), plus 2021 club option (career .293 BA, 28 HRs, 103 RBI)

all stay healthy during their super-long-term deals, you’ll see a lot more of this. I believe this trend will continue.

Yankees Alex Rodriguez

Remember, this insanity started back in December of 2000 when former Texas Rangers’ owner Tom Hicks signed Alex Rodriguez to a 10 year, $252M (2001-10) contract. Rodriguez opted out after the 2007 season and signed a 10 year, $275M (2008-17) with the Yankees. And at $30m a year, Alex Rodriguez remains baseball’s highest-paid player for the 12th straight season.

According to the Associated Press, the Miami Marlins, Detroit Tigers, Texas Rangers and Los Angeles Angels all had significant increases in payroll during the offseason. The Miami Marlins increased payroll by about $40 million. Texas’ spending went up by about $27 million, about the same as Detroit’s. Even the Tampa Bay Rays and Kansas City Royals increased payroll. On the other hand, teams that are usually the big spenders like the New York Mets, Chicago Cubs and Chicago White Sox showed decreases in spending.

There is not always a correlation between the salary and player success. There are far more examples of negative outcomes than positive ones. For example; the Angels’ Vernon Wells and Torii Hunter. They are making $21m and $18m respectfully. In 2011 Wells hit .218 and only drove in 66 runs. Hunter wasn’t much better with a batting average of .262.

Certainly Rodriguez’s contract looks worse today than when he signed it in 2007, when he was coming off career bests in on-base and slugging percentages. But his injuries increased and his production declined the last three seasons – at ages 33, 34 and 35.

The golden age of regional sports networking

Los Angeles Dodgers logo

It’s all about these local TV contracts. That’s what drove the sale price on the Dodgers. This continues baseball’s healthy growth that really has been going on for the past decade. The owners are gambling that this growth will continue for another decade. The Dodgers’ franchise value has skyrocketed because of their anticipated TV deal. These deals carry huge risks for the teams. Rodriguez, Pujols and Votto will all be past their 40th birthdays when their contracts expire. This is beyond the age when players skills begin to decline.

These huge guaranteed contracts also add pressure to small-market teams to draft and develop their own impact players, whose pay can be controlled until they reach player free agency after six years in the Major Leagues. The Tampa Bay Rays have figured this out. Look at all the quality players that have come from the Montreal Expos and the Florida (Miami) Marlins.

The Rangers, in bankruptcy just 18 months ago, will have a franchise-record payroll of about $125 million this year, thanks to their Fox Sports Southwest deal. Even after spending $51 million for the rights to negotiate with Darvish, and then giving him a six-year, $60 million deal, they still made a run at free-agent first baseman Prince Fielder. The Detroit Tigers instead landed Fielder with a nine-year, $214 million contract, well-aware their current $40-million-a year take from Fox Sports Detroit could triple with a new broadcast deal before 2018.

It doesn’t take effect until 2015, but the Rangers received $160 million cash up front and an equity stake in Fox Sports Southwest.

Yet, there’s a fear the new TV deals could create an even greater separation between large- and small-market clubs. The Yankees had an average of 318,000 households watching their games on the YES network last year, according to the Nielsen ratings, while the Kansas City Royals averaged 32,000 households.

It does have the potential to hurt competitive balance. The big TV deals are basically a function of market-size and competition. There’s no way that Kansas

MLB Salaries Since 1970

City can get a deal comparable to what the Angels did. “ The Dodgers’ local TV rights, which paid $46 million last year, expire after the 2013 season. Estimates have the Dodgers getting a TV contract that could be worth 2.5 times the value of the team. That’s $4 to $5 billion from regional sports networks.

That will pay for several $200m contracts.