MLB is a sport divided by historic payroll disparity — so what’s next?

MLB

This year in Major League Baseball, almost all the attention has been paid to on-field trends, as a slew of historic rule changes impacted almost every aspect of the game. Now, MLB is turning some of its attention back to the economics of the sport.

It was only 14 months ago that a brutal labor battle between the league and the MLB Players Association ended with a five-year collective bargaining agreement. Once again, the players were able to secure a system without a hard salary cap, and MLB remains the only one of the four major professional North American sports without some form of hard payroll floor or ceiling. It has led to some dramatic differences in team payrolls and some dramatic effects on the standings as well.

And this year, a record amount of spending in free agency pushed the difference in payrolls between the top and bottom teams to new extremes. During the 2022 season, approximately $226 million separated the payrolls of the Los Angeles Dodgers and Baltimore Orioles, the largest gap in the history of the sport — at the time. This season, it’s even larger, with a gap of nearly $299 million between the New York Mets and Oakland Athletics. But they’re not the only outliers: The A’s are one of three teams with an Opening Day payroll under $100 million; the Mets are one of 14 teams with payrolls of more than $200 million (only Steve Cohen’s team crosses the $300 million threshold).

Those differences could be tied to new extremes on the field, too. In 2022, there were a record-tying four 100-win teams, and another with 99 victories. Meanwhile, there were four 100-loss teams — also a record — and another one with 97 defeats. Those 100-win teams averaged nearly $226 million in payroll, while the 100-loss squads averaged just under $87 million.

Last year, the league created an “economic reform committee,” made up of a select group of owners who assess and advise the commissioner on economic issues such as payroll disparity and the regional sports network collapse. MLB has often expressed concerns with the growing chasm in revenues and point to teams like this year’s A’s, who have the lowest payroll and are on pace for one of the worst seasons in baseball history (look out, fans of the 1899 Cleveland Spiders).

But it’s not an exact science: This year, the standings aren’t so clearly tied. If the playoffs were to begin today, three of the top four payrolls would be out, while three of the bottom four would still be playing.

The league still insists it’s worthy of attention.

“Ever since I started in the game, we have struggled with the related concepts of revenue disparity and payroll disparity and competitive balance,” commissioner Rob Manfred told ESPN. “The reason for that isn’t about making money. It’s the fact that what we sell in our game is competition and we need to make sure that we have a system in place that fans in all markets believe they have a chance.”


Payroll vs. parity on the field?

In 2000, the league commissioned an economic study and Blue Ribbon report — authored by former U.S. Sen. George Mitchell and others — which essentially concluded that baseball was headed toward financial ruin, in part because the gap between the top spender and the bottom one was growing. The difference then was $77 million.

“We believe that current trends cannot continue if the game is to remain an accessible, affordable, competitive national pastime,” the report read.

So claims of competitive imbalance are nothing new — and at various points in the 23 years since the Blue Ribbon report, there have been mixed indications of what growing payroll disparity has meant for the game.

In terms of win totals, the correlation of salary and success seems clear. The top six teams in payroll over the past five years have averaged 91 wins, up from 86 by the top salaried teams in the previous five years. And despite the relative success of small-market, lower-revenue-generating teams like the Tampa Bay Rays, the Kansas City Royals are the only team since 2010 to win the World Series with a payroll in the bottom half of the league.

“You’ve seen teams with low payrolls win, and teams with high payrolls lose, but those big markets have an advantage,” Chicago White Sox left fielder Andrew Benintendi said. “Smaller markets can’t afford some of those players. That divide is growing.”

That said, there’s no monopoly. The Houston Astros and Boston Red Sox are the only big-market teams to win more than one title since the Blue Ribbon report was released in 2000. Since 2015, 28 of the 30 MLB teams have made the playoffs. Since 2010, it’s 30 of 30.

In 2019, Manfred lauded the system, which, that year, produced equal playoff teams from both big and small markets.

“I think we have an economic system that has produced a remarkable level of competitive balance over time,” he said then.

He said something similar just last week, in another season in which so far we see parity working. If the season ended today, only the Atlanta Braves would repeat as division winners.

“Baseball is doing just great,” Manfred said at a recent hearing regarding the regional sports network (RSN) situation. “We’ve had one of the best starts to a season in decades.”

That’s thanks in large part to several surprise teams in the mix this year, but sustaining long windows of contention hasn’t always been easy for a lot of them. For many smaller-market clubs, cycles of rebuilding have become the norm, and those down years lower payrolls for players while widening the disparity between the top and bottom teams. Teams have always gone through rebuilding stages, but it has become more pronounced and strategic over the past decade or longer.

“It’s becoming a little more prevalent,” said Atlanta Braves first baseman Matt Olson, who spent six years with the small-market A’s before a 2022 trade. “It is sad when coming up with an organization you think you’ll undo the cycle, playing good baseball. Hitting the reset button seems to be happening on a decent amount of clubs. It’s OK if you’re not winning and trying to rebuild a little, but when you get to the point of having a good team and recognizing it, it’s a little deflating if you don’t spend.”

Forcing teams to spend even during a rebuild is a hard case to make, though, even for the union. The concept of a salary floor was raised during the most recent labor negotiations, but it was summarily dismissed: Any discussion of increased small-market payrolls would mean implementing a system they believed would curtail big spending on top free agents.

“If you get a floor, you get a cap,” Mets pitcher and former MLBPA executive subcommittee rep Max Scherzer said. “There was a proposal exchanged on that.”

In a perfect world, teams would spend on their own with hopes of fielding a winning team. That’s not always happening — and there’s no easy solution.

“All clubs have demonstrated the ability to compete,” MLBPA executive director Tony Clark told ESPN. “The question is whether they are willing to do so.”

The Orioles, in second place in the AL East, are a prime example of what successful drafting and rebuilding looks like — but the team suffered through years of losing and low payrolls to get to their current competitive level.

“Since I’ve been here, our payroll is what it is,” O’s manager Brandon Hyde said. “I can only control what I can control. Those decisions aren’t up to me. We do the best we can do with the group that we have.

“I’m sure as we get better, our payroll is going to increase. Our players are going to make more, too, as they get to their fourth, fifth and sixth year. I can see it going up.”

Baltimore has surprised fans and pundits alike with its success this year, but the Orioles are the exception, not the rule.

“I hate that in a lot of years, half or at least a third of the league might be out of contention on Day 1,” one executive of a big-market team said. “I like when a team comes out of nowhere and surprises the league. We see less of that now.”


Should the concern be higher this time?

The trends have become more and more pronounced as big-market teams continue to realize revenue streams in and outside of ballparks. VIP seating, team-owned television networks and even bars surrounding stadiums, along with new gambling facilities, have all added to revenues. And while those markets have always spent more on payroll, they’ve also caught up to the smaller markets in other ways, spending more on team infrastructure.

“There was a real shift when the Yankees, Dodgers and Red Sox started spending as much attention to scouting and player development and analytics as the small-market teams were,” one small-market AL executive said. “There was a time when payroll disparity was mitigated, somewhat, by systems and internal processes that were better than those teams. There was a time when we were considered farm systems for those bigger market teams. Now, they’re spending 2.5 times on their payroll and their infrastructure.”

In other words, small-market teams previously stood out by drafting and developing players at a highly successful rate. Now, those bigger markets are doing it as well.

“Call it the Andrew Friedman effect,” another executive said, referring to the Dodgers president who took his small-market mentality from Tampa Bay to Los Angeles.

“The Yankees will eventually employ a coach for every player, if that’s what it takes,” another one quipped.

With new revenue streams and more time and money spent on team infrastructure, smaller markets maintain that the imbalance is approaching “unsustainable levels,” according to one executive.

“You’re seeing the commissioner’s office spend a little bit more thoughtfulness on not only the big picture of payroll but also on teams spending a ton of money on other spaces,” Minnesota Twins president Thad Levine said. “Are there ways to regulate some of those things?”

That’s partly what the economic reform committee will be looking into. But there is no clear statistic that proves the system can’t work as is, and the players association is loath to suggest anything that could lead to a full economic restructuring. The players have been clear about wanting to avoid a hard salary cap, while rebuilding teams are always hopeful their organizations will spend when the time comes. Many have — to a point.

Again, Baltimore’s 2023 success stands out. But will a team such as the Orioles be able to sustain a window of winning in the same way the Dodgers, Astros or Yankees have? Or will they go the route of the Rays, in which trading players before they make too much money through arbitration is the norm?

“Sometimes the question comes down to ownership,” more than one executive said.

Motivated ones, such as the Padres’ Peter Seidler, seemingly don’t care about market size or perhaps, in extreme cases, even the bottom line. Over the past five years, 11 players signed deals for $300 million or more, but just three were with a bottom-15 market team. All three were with San Diego.

But even as the Padres help muddy the waters as a small-market team with a massive payroll, they also continue to highlight the disparity among the league. (Their on-field struggles complicate matters, as well.)

Just 18 months ago, the league locked out the players when the two sides stood far apart on topics such as competitive balance and payroll — and the next negotiations are coming up faster than they seem. The MLBPA already suspects the economic reform committee is just another avenue for the league to attempt to suppress player salaries in the next negotiation.

Which way these issues continue to trend will say a lot about how those talks go this time. Like MLB was 23 years ago, the commissioner is concerned.

“We increased in terms of disparity this offseason,” Manfred said. “It’s something we’re going to have to keep an eye on.”

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