Inflation in Baseball

In general baseball lives in a world of it’s own. We ignore the insanity of an adult playing a game making millions of dollars and justify things by saying how much one win over a replacement player is worth. Athletes salaries left the universe of regular human salaries a long time ago, but some time, it is necessary to step back and look at the big picture.

The chart above shows (in blue) the value of the highest contract in the league, starting with Mike Schmidt’s big deal in 1982 and running through Alex Rodriguez in 2013. The green line on the bottom is based of Schmidt’s $1.5M salary in 1982; assuming that it is the true value for the best player in the league. Obviously there has been some inflation in the United States since then, so a $1.5M deal in 1982 would actually be worth $3.63M in 2013. Of course, the actual difference is a little more significant. Alex Rodriguez made $28M, down from his career high of $33M in 2009 and 2010. While Rodriguez has been a superior player to Schmidt over his career (although not last season), he hasn’t been five times better.

The problem with inflation is that it doesn’t affect every one equally. If it did, it would just be a matter of numbers getting higher. The poor and those in long term deals are most impacted. The funny thing here is that a player like Miguel Cabrera is actually making far less than he should be because he signed a long term deal. Deals like that are supposed to be for stability, but if he had signed a five year deal instead of ten back in 2008, he would be slated to make more than $30M next season instead of $19. In 2014 dollars, Scott Kazmir will earn $11M based off his 2013 season, when he was the 85th best pitcher in baseball based on WAR. If the 85th best pitcher is worth that much after just one decent season, how much is the number one hitter worth, a player who actually plays every day on both offense and defense.

The extreme inflation is caused by a few things. First, there is the unfairness of the owners pocketing money that has been earned by the players. As time goes on, the players union continues to become stronger and keeps forcing a bigger piece of the profits to be given to the players. This generally explains most of the difference between the 1980’s and early 1990’s salaries and those of the 2000’s. Secondly, Major League Baseball has found that millions of people watching at home are worth more than thousands of people in the stadium. TV rights for all sports increase every year and provide lucrative amounts of money for the teams to throw back into player salaries. The national TV money, which is shared throughout the league, is likely a big reason the Athletics could afford Kazmir when they are generally a small market club.

The other side of the this inflation is the league minimum. The chart above shows the same as the earlier one, although now with the minimum listed and the inflation based on the 1982 minimum of $30,000. While actual inflation has increased by about 242% since 1982, the maximum salary has increased by 18.67 times while the league minimum has jumped by 16.33. This seems a fair amount at the current time (compared to the maximum and average salaries), but it is interesting to note that it was barely over the basic inflation number until 2000 when the maximum salaries started to jump a decade earlier. Now, the minimum salary is adjusted every season and is more than fair, but for a long time, the players that needed the most help from the union were being ignored.

This salary escalation has quickly left many teams in the dust, only able to build there rosters around those major league minimum players. Of the top 25 highest paid players in 2013, four signed their contracts with the Phillies while three each signed with the Giants, Angels, Tigers and Yankees. Nine other teams signed one player, meaning that the 25 best players in the league play on 14 different teams. Of the nine, all but two (Johan Santana with the Mets and Adrian Gonzalez with the Red Sox) signed with the team that brought them up. Overall, 13 of the 25 went to the highest bidder, which was generally the Yankees if they wanted them and the Angels if they didn’t. At the bottom of the pile, teams like the Indians, Royals and Twins have to just sit around and wait for the unwanted players to reach their level. Sometimes, like with Kazmir, these players can outperform their expectations, but as shown this off-season, they will quickly be snatched up by a team with bigger pockets.

Inflation doesn’t effect the Yankees, Angels or Giants. Those teams create the inflation by over spending with money that never seems to run out. While it is great for them that they can waste millions of dollars, it effects everyone else when they do so. While this kind of capitalism has made baseball great in the past, now it makes it impossible for teams to keep their superstars and if they do, it often makes them unable to sign anyone else (like the Mariners with Felix Hernandez and the Twins with Joe Mauer). Those teams now have to choose between keeping a fan favorite who has been loyal for years and deserves to be paid and building a winning team. The Yankees can keep spending millions on luxury items, like an all-star catcher for a non play-off team for now, but if the distance between the haves and the have-nots continues to increase like this, they will force baseball into a hard salary cap, which is something they really don’t want.