Is Distribution of Wealth a Problem for MLBPA?

On Monday, Dan Rosenheck of The Economist responded to the “predictably hagiographic” coverage of Marvin Miller’s death by outlining  what he calls the “mixed legacy” of the founder and longtime leader of the MLBPA. No doubt several of Rosenheck’s points are imminently debatable, as should be expected. His is, after all, a contrarian position. During the early stages of Miller’s tenure he was up against the only federally-sanctioned monopoly in American history. It was difficult to perfect MLB’s compensatory system when the compensators had grown accustomed to having no system at all. In the latter stages Miller chose to prioritize relevant privacy issues over the long term maximization of revenue, as Rosenheck would’ve preferred. Union negotiators are frequently tasked with a precarious balancing act. Certainly, Miller, like any man in his position, made some difficult rationalizations and, inevitably, evaluators of Miller’s legacy from both camps will be victims of their own hindsight biases.

That said, the centerpiece of Rosenheck’s argument is extremely compelling. The system of free agency which is “often cited as Mr. Miller’s crowning achievement,” though it “maximised total wages…also created a grossly unfair dichotomy among the players between the haves and the have-nots.” The majority of professional baseball players, youngsters toiling in the minor leagues, “are effectively still bound by the old reserve clause” which Curt Flood famously described as means of re-legalizing slavery. Many are quick to dismiss the economic challenges facing professional athletes. The “well-paid slave” is obviously an oxymoron. But underlying Rosenheck’s argument is evidence that the baseball player’s plight may be more familiar to many Americans than they suspect. In the wake of the Occupy movement and the Obama-Romney election most IIATMS readers are probably accustomed to seeing graphs like this one:

What follows is an analogous chart for professional baseball:

(Click “view full post” to read more)

As you can see, approximately two thirds of all salaries dispersed last season went to only 226 players (that is, less than one third of the active MLB rosters), while nearly 3000 minor-leaguers competed for just slightly more than the total worth of A-Rod’s most recent contract.

Obviously, income disparity is a systemic problem for which no single individual or institution can be held accountable. However, while all the American citizens from the first graph are at least theoretically equally represented by our Union, there is no body responsible for the interests of the bottom 80% of baseball players employed in the U.S. In fact, the organization which represents the top 20% is routinely entitled by law to sacrifice the 80% in favor of marginal benefits for their minority constituency. As Rosenheck puts it, “The MLBPA has exclusive control over a crucial issue affecting non-members: the amateur draft, which binds players to the team that selects them and sharply reduces their signing bonuses. Drafted players cannot sue the owner for collusion to hold down their bonuses, because the draft was collectively bargained for by MLBPA. The union should thus be obligated to represent those players’ interests. Instead, it has systematically sacrificed their interests in favor of those of its members.” While other American unions have traditionally glorified the “rank and file” worker, the MLBPA treats him with equal, if not greater disdain than his employer.

The problems represented by the above chart are multifold, but they all come back to a central truth: when disparities such as these exist, it is not evidence of a rational or efficient marketplace, and in the long run it portends volatility. MLB aspires to meritocracy, but some replacement-level players make $25 Million (here’s to you, Vernon Wells) while others make $35,000. Of course, there will always be outliers, but with greater income disparity comes greater market inefficiency, and the prevalence of baseball analytics make that inefficiency especially glaring. While it may be difficult to estimate how overpaid a corporate CEO is compared to the average employee, it is very easy to see that neither Alfonso Soriano nor Barry Zito will ever provide as much value as 42 randomly-selected rookies. In the long run, a broken compensation structure works to the disadvantage of labor, management, and the consumer (just ask GM).

Note: The above chart is compiled from a variety of sources, foremost Cot’s Contracts. Because of the scarcity of public records regarding minor-league salaries and service times, some approximations were necessary. However, in every case I attempted to err on the side of overestimating minor-leaguer compensation; for example, including all 2011 signing bonuses. The chart does not included Rookie League rosters because of high turnover rates and the scarcity of guaranteed contracts. Same goes for Mexican, Dominican, and Venezuelan Leagues. Feel free to ask questions about methodology in the comments.  

Matt teaches at The University of Alabama. Roll Tide. He specializes in American Literature and Rhetorical Economics. Fate chose for him the peculiar perdition of rooting for the Chicago Cubs and the Los Angeles Clippers.

22 thoughts on “Is Distribution of Wealth a Problem for MLBPA?

  1. friend

    Now maybe you can begin to understand that Miller's accomplishments are far from laudable when viewed objectively. When you view the Millers of this world through the rose-colored lenses of a crippling pro-labor bias, you overvalue intentions to the detriment of results. Failure is not an accomplishment, no matter how good the intention.

    • BrienJackson

      If only he had done more to synergize dynamic new incentives!

      • friend

        My bad, I guess you can't understand.

  2. RandyH

    "when disparities such as these exist, it is not evidence of a rational or efficient marketplace".

    Actually, that's exactly what it's evidence of. The market is extremely rational at valuing free agents, a 5 WAR player is worth far more than 5 times as much as a 1 WAR player due to the limits of roster size.

    • BrienJackson

      That seems about right to me. Especially when you factor in the reserved players who aren't eligible for free agency yet, I would totally expect dollars to be allocated more densely at the upper bounds of talent, for exactly this reason. 1-2 win players are just much easier to find at the big league level than 5+ win players, and while there's no salary cap, there is an employment cap.

    • Hippeaux

      Reducing this argument to WAR misses the point in many ways and, if you read Rosenheck's piece, he discusses the extent to which Miller willfully created an irrational marketplace for free agents by limiting the supply, the same way J.D. Rockefeller controlled the price of oil. Your point also presumes that the top 1-5% of players consistently and dramatically outperform their colleagues, which simply isn't the case. Only 20% of the top 1% of earners in MLB topped 5 WAR in 2012. Their average WAR was 3.01. The average WAR created by a major-league roster spot was 1.51. The average salary of the top 1% is above $20 Million, which is 500% of the average major-leaguer and about 4000% of the replacement level player, who. If you consider a rational market to be one that, at a macro level, accurately measures and rewards performance, this can hardly be it.

      • BrienJackson

        Comparing these averages is pretty much meaningless without adjusting for pre-free agency players, however. As for "restricted the supply of free agents," that seems to border on willful misunderstanding of Miller's position, which was that the owners wising up and making everyone a free agent every year (i.e., never giving anyone a multi-year contract) would depress salaries across the board by creating a perpetual surplus of talent. I'm sure that if you presented some hypothetical world in which players were eligible for free agency as soon as they joined MLB but teams still handed out multi-year deals he would have taken that and lighted up the biggest Cuban you've ever seen, but there's no way that would ever be agreed to by ownership so, again, it's absolutely meaningless.

        • RandyH

          I've never understood Miller's position against making every player an "annual" free agent, which I believe was proposed by Charlie Finley. It's a competitive industry, we can see that clearly from the history of free agent signings, which roughly as many turn out as poorly as turn out well. Nothing will stop the Yankees from spending $180M a year to field the best possible team in annual free agent bidding wars, in fact they can bid more given the contract risks are lower on a 1 year than a 7 year basis.

          Only if you believe the benefit of having players attached to teams for longer periods outweighs the benefits of better matching pay to performance can you believe annual 1 year contracts are bad, and that's a huge stretch to me.

          • BrienJackson

            Well no, it's a basic supply and demand issue. If all contracts were one year contrats (and note, for example, that basically every free agent in a position to get one wants a multi-year deal, which ought to tell you something), then between that flooding of the market and incoming minor leaguers there would always be a surplus of available talent to positions of employment, which would mean lower across the board salaries and little competition for free agents.

          • RandyH

            I don't see the "surplus", it's actually the exact same number of players available with the exact same skills. The problem is once the most valuable half of the market in any position, third, centerfield, short stop, signs, any teams who haven't signed a player is destined to be stuck with a below average performance expectation for that position. So the pressure is on from the beginning, esp. for teams like the Yankees that absolutely must sign a good number of well above average players to meet their fans and owners performance expectations. They will overbid in a single season system just like they overbid in a multiple season free agency system.

          • I guess that’s possible, but remember that Miller said this in the 1970’s, not any time recently.

      • RandyH

        WAR is the mental framework used by all GMs to value players. Whether they use fWAR, bWAR, or something they made up in their minds, the question when signing a player is how many wins will this add to my team?

        And there is nothing irrational about any marketplace, that's a term only applied by those who don't have the ability to understand it. My point never presumes "the top 1-5% of players consistently and dramatically outperform their colleagues", my point is they are expected to out perform their colleagues. Some won't, but most will, and that is why they are given large contracts. Poor GMs still often give big contracts to players who clearly are huge risks to continue to perform, or even trade for them (Vernon Wells, anyone?). But that doesn't mean they pay out large contracts without any expectation of large performance.

        The average WAR of the top 1% is likely to be highly volatile since you are talking about roughly 4 players, given only at most 14 starting positions on 30 teams, including starting pitchers. The average WAR is then very highly dependent upon whether A-Rod was healthy this year or not.

        So if you take the right mis-measurements, you can confuse yourself regardless of how rational the market is. I would never have given A-Rod that contract, but at the time reasonably smart baseball people gave reasonable justifications for it. Certainly it was never given with the idea that A-Rod's median performance would be what we've seen, the Yankees clearly expected more.

        In fact, 2 of the top 5 highest paid players are Yankees, and you should also ask yourself if the Yankees value wins at only $5M each. If the Yankees value wins at $10M each, do their signings of A-Rod and Texiera still look as poor? A rational market can consist of market participants who perceive different levels of value for the same "commodity", because players aren't commodities and team needs are uniform.

        • RandyH

          Oops, should say team needs "aren't" uniform.

          • Hippeaux

            I'm not going to descend into a flame war about who "has the ability to understand" economic terminology, what is or isn't "meaningless," or who does or doesn't use WAR (although several GMs have openly refuted its usefulness), but I will offer a couple clarifications. The top 1% of earners is more than 40 players, not 4, so although there is still likely some volatility from year to year (would need to collect more evidence to confirm that), it isn't entirely dependent upon how much time A-Rod spends on the DL. Also, you can claim that "most" outperform their colleagues, but you might be surprised by what the data, including WAR, has to say about that.

            Now, in response to Joe. Certainly, a perfect meritocracy isn't realistic, although something more like that is worth aspiring to, right? The current system does put an incredible weight on past performance. Does it have to be that way? I certainly don't believe that the only two options are current system or anarchy of one-year contracts.

          • RandyH

            Any GM who has "refuted" the usefulness of WAR isn't refuting the usefulness of thinking about players in the Wins they provide, you are confusing the strict mathematical definitions of various WAR calculations with the concept that players value can be measured in wins.

            40 is 1% of 4,000, are you now telling me there are 4,000 active players playing in the MLB every year? Each team is rolling out squads of over 100 players each? I would guess that's not what you meant, so you must be measuring the pay of the top 1% of professional players, including minor leaguers in the group. That doesn't make sense to me, as the measure of the market can only be what GMs can actually buy, Free Agents.

            And your point about how the top 1% "only" generate 3 WAR isn't as pertinant as you think. Again, GMs pay based on expectations, not performance, they aren't prescient and it's reasonable to think actual performance will differ from expectation, sometimes wildly each year. But more importantly, they often buy for short term performance at fair prices at the expense of long term performance costs. IE, GMs don't care about year 7 of the contract, since few GMs expect to still be GM 7 years later, they are trying to make it 2-3 years to another contract extension for themsleves. That's why the highest paid player lists also include many older players in the tail end of their contracts and deep into their decline phase. You missed out on their early years when they were putting out 5-7 WAR seasons.

  3. BrienJackson

    Not that I haven't adovcated for better pay for minor leaguers and amateurs (signing bonuses), but equating them with major leaguers in order to kvetch about the legacy of Miller is just, well…yeah.

  4. Joe Gualtieri

    This article is weird. On the one hand, I am shocked that income distribution among MLB players so closely mirrors the US as a wholeand that doesn't seem quite right. On the other, the notion that baseball's payscale isn't a meritocracy and using present performance as proof of that thesis is silly. Players are paid based on past performance. It's not a perfect meritocracy, but that would require ever contact to have a minimum baseball salary and then incentivize every stat; that obviously is never going to happen

  5. BrienJackson

    Anyway, I'll likely get around to addressing the original Economist post sometime tomorrow. Suffice it to say, I will not have very many nice things to say about it, beyond perhaps nominating it for the Concern Trolling Hall of Fame.

  6. aaron

    I think it would be interesting to see how much value an average player provides over the course of his career. arod for example, was underpaid when he was with the mariners, and overpaid afterward. mike trout was terribly underpaid this year, but will likely be overpaid later in life. thats how the system is built. it would be interesting to see if it comes close to balancing out.

    • BrienJackson

      Off hand I would assume it comes about as close as you could without the benefit of hindsight.

      • BrienJackson

        Or foresight, I guess.

  7. Joe Ely

    Very solid article, Mr. S. Appreciate your writing…we're a long way from FOP field, eh??

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