The Day the MLB Financial System Died

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December 18, 2008.

That’s the day in which I became extremely cognizant of the financial landscape in major league baseball.  I had denied it for years and finally accepted it on that faithful night.  There’s a depressing feeling that overwhelms your body and spreads like an infection.  Admitting that there is a problem is the first step of the healing process.  My ill-fated dreams of a small-to-mid market team having prolonged, sustainable success disappeared like a fart in the wind (shameless movie reference).  The question now became where would a simple Cleveland Indians fan such as me find serenity?

With regards to the financial landscape of America’s favorite pastime, that day should live in infamy.  On that day the New York Yankees announced the signings of A.J. Burnett and C.C. Sabathia (as he was formerly known) for 5 years, $82.5 million dollars and 7 years, $161 million dollars, respectively.  The substantiated rumor of a Mark Teixeira signing was also in the waters and sure enough five days later the story broke on his 8-year, $180 million dollar contract.  In less than a week the Evil Empire reeled in three of the top four free agents of 2008 at an inconceivable cost of nearly half a billion dollars.  In case you do not have a calculator handy, that’s $423.5 million dollars spent by one franchise in a single month, to be more precise.  Mull that over for a second… seriously, are you kidding me?  I still get jacked up when I think about it.  Upon hearing the news of these signings Mark Attanasio, the Milwaukee Brewers principal owner said, “at the rate the Yankees are going, I’m not sure anyone can compete with them.  Frankly, the sport might need a salary cap.”  Attanasio’s comments were not the bitter ramblings of an owner that offered a player the richest contract in team history (5 years $100M) only to be snubbed.  They were probably the epitome of what 80% of baseball owners were feeling.  Then again, what’s $61 million dollars between friends?

When it comes to baseball I am, in the truest sense of the word, a realist.  I do not expect the Cleveland Indians to spend with the likes of the New York Yankees and the rights fee they receive from YES Network.  I am passionate about baseball and arrogant about my knowledge and understanding within it.  And I do not apologize for this.  It’s like a PhD. mathematician having a conversation with a high school calculus student while they sit on the magic carpet of a kindergarten class before naptime: both individuals are out of their element in one fashion or another.

Being a Cleveland sports fan certainly comes with its own set of bumps and bruises.  Any time a Cleveland team is in a playoff game the 4-letter anti-Christ network reminds us all of Red Right 88, The Drive, The Shot, The Fumble, the expanded strike zone for the 1995 Atlanta Braves pitching staff and of course, Joe Table.  In the present day I do not wave pom-poms for my teams because it makes me a more pleasing fan.  You will not hear me saying “thank you” to the front office of the Cleveland Indians.  You know why?  Because I am their customer, not an employee.  When the Boys of Summer make a move I am deliberate in my assessment, whether it’s Greg Swindell, Robby Alomar, David Dellucci, Matt LaPorta or even Russ Canzler.  I once had the opportunity to meet and converse with the Indians’ higher ups.  I told them that the day I stop being critical is the day I am no longer a fan.  Having said all that, what do I think about the 4-year $56 million dollar signing of Nick Swisher?  Oh, we’ll get there Tribe fans.  (Spoiler alert: if you’re Kelly Kapowski from “Saved by the Bell” then you won’t like what I have to say)

Being a logical, knowledgeable, passionate fan in Cleveland can be as lonely as the pitcher’s mound in the 9th inning of a perfect game.  Think I’m wrong?  Try having a rational conversation with a fanatic or call into a sports talk radio station.  You will be ridiculed for simplicity, laughed off air or simply dropped in mid-sentence.  On a grander scale, being rational does not sell advertising space or create social media chatter.  “The truth” costs high power executives their job, shortens column inches and reduces salary wages while simultaneously burning bridges.  It’s my opinion that truth and objective expression exists solely within individuals from local websites, podcasts, and internet radio.  Those who have nothing to lose are typically the most honest.  Do you think Chris Antonetti will ever freely admit that he traded for damaged goods in Ubaldo Jimenez?  Or Mark Shapiro divulge that Brandon Phillips was jettisoned because of his narcissistic attitude?  Those are rhetorical questions but nonetheless I digress.

The truth of the matter is major league baseball is dying.  The top free agent spenders have the capability to absorb expensive, lengthy contracts.  When one player has a salary that is almost half of the total payroll for the lowest teams in the league there is a systemic problem.  I would bet a buffalo nickel that the Steinbrenner family is regretting Alex Rodriguez’s contract.

In 2012 the top 9 teams had an average payroll of $144,306,741.  The bottom 9 teams were at $65,292,615.  Evaluating the league at groups near 1/3 aids in lessening the effects of the extremes, particularly the Yankees on one end and Rays or Marlins on the other.  Over the last ten years the disparity between payroll of the top and bottom teams saw only one true outlier: 2009.  Even the Indians had an elevated payroll that year ranking 15th in baseball at $81,625,567.  The stock market crash in December 2008 and ensuing Great Recession clearly played a role in allowing small market teams to take on more lucrative yet economical, short-term contracts.  Conversely, the top spenders were more focused on slashing payroll.  We have seen the average salary increase over those ten years more than $840,000, obviously at a higher rate than commensurate with inflation.  The MLBPA is making money hand-over-fist so they don’t care.  The owners are unaffected until attendance drops below their revenue generated from rights fee.  And the fans are the ones footing the bill.  See the problem?

There was a time in 2009 when overall payroll was down and idealists thought that this might be the turning point for the sport to right itself.  Three years later and a ten-year contract to Albert Pujols, we’re right back in the same mess up a creek without a financial paddle.  Pujols’ contract carries a total of $240M for ten years and maxes out at $31M in 2021 when he will be 41 years old.  Mike Ilitch is clinging to life and willing to spend it all for one more winner in Detroit so he gave Prince Fielder a 9-year $214M contract but (God eventually rest his soul) he will not be alive to see it to fruition.

Am I supposed to be happy that the Indians signed Nick Swisher to a 4-year $56M contract with a 5th year option that has been described as “easily vesting,” leading to a max contract of 5 years, $70M for a 32 year old?  Hell no.

But the reality is sometimes Cleveland has to overpay for a product that no one else is bidding on simply to acquire its services.  We are our own worst enemy, but nonetheless, I digress.

Marcus is a friend of More Than a Fan and one of the good guys among Cleveland sports fans. He went to a real school for something important, but has earned a degree is Indians Fandom from a school far more emotionally expensive than any university around; The Dolan Family Ownership School of Mid-Market Teams.

If you liked Marcus’ post, be sure to leave him a comment or follow him on twitter @Seel_Deal and let him know that you liked his work on @MTAFSports!

 

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11 comments
Steve De Sha
Steve De Sha

Marcus, good stuff here! I would say more, but methinks JN has the web host's database server maxed out with his responses. That said, the points your made here have been the bane of my baseball fandom for years. Specifically, the point regarding the Yankees and their FA spending spree still raises my blood pressure when you consider that in addition to all that spending on 3 players in a handful of days, they also went back to the state of NY for $350 million in public funds for the construction of the new Yankee Stadium. Really?!

Marcus Seeley
Marcus Seeley

In general, one of the most mentioned comments I got on twitter from the readers was how could 2009 be a financial "outlier" if the Yankees spent $423.5M on three players alone in December of 2008? It's a great question and one I should have addressed in the article, so mia culpa on that one. The reason that the Yankees spending did not aggressively affect the overall payroll structure hinges on the contracts that they had coming off the books that year. In total, the Yankees had roughly $88.5 million dollars in "expiring" contracts after the 2008 season. The most notable players that factor into that $88.5M are Jason Giambi, Mike Mussina, Bobby Abreu, and Carl Pavano. Essentially, they replaced the outgoing contracts to a near-net zero affect. When the 2008 season began everyone knew that New York was going to be a big player in free agency upon year's end. But no one could have imagined nearly half a billion dollars.

Marcus Seeley
Marcus Seeley

Re: JN I have not read Heylar's book but I shall make it a point to do so. To me, the idea of a salary cap and a salary floor go hand-in-hand. MLB could not and would not have one without the other. Do I think any form of a salary cap is imminent or probable? Absolutely not. The MLBPA might be the most powerful union in all of sports. It trumps the old NFLPA simply because they have guaranteed contracts. However, do not fall into the trap that the $40M in rights fee from Fox to the Indians is a new revenue source. The sale of STO increased the rights fee to the Indians from $33M under STO to $40M under the new Fox deal. The increase is only $7M per year; still not small potatoes for a team that has a payroll near $70M per year. I cannot comprehend the labor negotiations on the same level as you do. That's your own personal expertise so in that conversation I'd be the high school student and you'd be the Ph.D in that scenario. No matter what happens I will continue to operate under my stated rational: the day I stop being critical is the day I am no longer a fan.

Marcus Seeley
Marcus Seeley

Re: Stephanie, Unfortunately, I agree with you on the idea of baseball having to destroy itself (a prolonged strike) before it can right itself. I was disappointed to see them extend their deal, quietly I might add, without adding any substantial monetary changes.

JN in Mentor
JN in Mentor

Marcus: As usual a very well crafted article on the passion for both of us, baseball. One book that I have read, and I would hope you have also read (if not get it) is "Lords of the Realm" written by John Heylar, WSJ sports reporter. The subject is baseball and he writes about it in the profession I make my living, labor relations. So here is my response to you. I agree with your premise that the economics of baseball are truly out of balance, and no need to repost your fabulous stats. What sticks out to me, is that on more than one occasion written about by Heylar, baseball owners HAD the power to establish not only a salary cap, but a SALARY FLOOR. Why is a floor important? First it FORCES teams to spend a minimum on players, and in conjunction with the salary cap, would give a balance, albeit artificial, to the economics on payroll. Unlike the NFL which divides ALL revenue between ALL teams, MLB does not. This then allows for a Stienbrenner, a Rich, a McCort and any other owner to spend whatever they desire, without regard to the other teams. Couple that with other owners who DO NOT put money into the teams, but pocket the excise tax money, can do NOTHING but throw on field competition out of wack. Pittsburgh for more than two decades, did nothing to put a good team on the field, but yet the owners made beaucoup $$'s. Fair? No. Able to be done? Yes! Talk all one wants about high salaries; inflated salaries; unbalanced funding; yada yada yada, the owners have only one person to blame. Not Marvin Miller (RIP), Donald Fhere; or any other their kind. The blame is on the owners! At any time during the multiple labor disputes, the owners never could stand uniformed against the MLBPA and FORCE, through labor negotiations, an economic change to MLB. Yes, you are aware that after 24 yrs, I have decided not to be a season ticket holder for the Indians. For those who read this and do not know this, I have elected NOT to purchase season tickets. This does not mean I have lost faith in the Tribe, or will not follow them passionately as I have in the past. What it means is simply this...I will give you MY dollars when I want to do so, when I walk up to the gates and take in a game. The FO will not have my $$ in advance of the season, and do nothing constructive with the money to improve the team. Yes, when I watch or listen, I am send dollars to the FO indirectly. But it is something THAT I CAN CONTROL! Will it make a difference? Well since STO was sold to FOX for $300M and have a 10-year television deal at $40M/yr, my $1000 is small potatoes, but it is MY small potatoes. Will this stop you and I from battling the value of Nick Swisher's deal, or why was Matt LaPorta on the roster for so many years w/o production? Hell no! We have the passion, BASEBALL is our sport and try as many might, it will not be taken from us. Thanks M! Good post and thanks RailbirdJ for allowing M to give the blogsphere his views.

Stephanie
Stephanie

Good article. Unfortunately for the sport, baseball will never have a salary cap, hard or soft. Though arguably more than a salary cap, revenue and *media sharing* would equalize the money, creating an unstated salary cap. When the Yankees earn more from the YES Network than most teams can afford to spend in total payroll, the media money is the problem. Unfortunately, baseball won't right itself until it has destroyed itself. Old timers who considered it the national pastime are dying out, and the younger generation doesn't consider baseball - even the playoffs - something to care about. And why should they? In any given year, at least 20 teams have no shot of winning the World Series barring a huge surprise.

Marcus Seeley
Marcus Seeley

Steve, Not only did they ask NY for stadium upgrades but they also offered a $10 million dollar contract to Andy Pettitte. But if you find yourself in a conversation with an old Tribe fan they will tell you that George Steinbrenner was an eyelash and a broken promise handshake away from owning the Indians.

JN in Mentor
JN in Mentor

M: I know the $$ dif is $7M. The point is to show the imbalance in TV $$, that contribute to the problem.

Damien Bowman
Damien Bowman

Numbers show that baseball consistently offers a more diverse list of champions than either football or basketball. In the past 17 years, since the 94 strike, baseball has had 11 different winners while football has had 10 and basketball has had 8. The losers of those championships are also more diverse. The perception is that its always the same teams winning, but that just simply is not true.

Eric
Eric

I argue this point very often Damien. @illstr8r

Marcus Seeley
Marcus Seeley

The numbers can be very misleading gentlemen. The high dollar, big market free agency in baseball is a new(er) phenomenon. Evaluating the champions alone can show a vast collection of teams. But the overall theme of playoff appearances, and also playoff exclusions, is a more telling statistic. Additionally, the 17 years of football includes a couple "dynasties" like the Patriots that skew the data.