Looking back, it can probably be argued this all started in February 2019, when the San Diego Padres signed free agent Manny Machado to a 10-year, $300 million deal.
The “small-market” Padres—25th in Revenue Sharing Market Score according to the Collective Bargaining Agreement in place at the time—had the gall to sign one of, if not the premiere free agent on the market at the time.
In just the third season after blowing up an ill-fated attempt at contention with big name players (and contracts)—Matt Kemp, James Shields, B.J. Upton—the team, instead of undergoing a years long rebuild, had the audacity to pick themselves up and try again, acquiring the best players available to try and help the team compete.
Flash forward over a year later, and the sale of the New York Mets to hedge fund manager Steve Cohen is completed in November 2020, ending an acrimonious rein of the Wilpon family. After spending much of the 2010s languishing in the middle of the payroll rankings—despite their big-market, high revenue standing—Cohen immediately started spending. He rocketed the team up to third after 2021 and first after 2022, while projecting to reach new heights in 2023—the first ever $300 million payroll (even though it’s much closer to $400 million than it is to $300 million).
It didn’t take long to get people talking.
“I’ve heard what everyone else has heard: that they’re not happy with me,” Cohen told ESPN’s Jeff Passan back in February.
Of course, when it’s speculated this all started in 2019, what’s really meant is this current iteration of the discussion, as “over-spending” on players has been a concern for owners basically since free agency started back in 1976, if not further back.
“The economic reform committee is not a new idea,” said Tony Clark—executive director for the MLB Players Association—recently after the announcement of the newly formed and aforementioned “economic reform committee”, whose focus, Clark believes, is “how best to depress player salaries”.
This committee is at the heart of the issues currently facing baseball—at least depending on who you ask.
According to MLB Commissioner Rob Manfred, the committee’s focus is two-fold:
“It came out of a recognition of a couple of issues — one new, one old — that were particularly acute for us. The new one’s the local media situation. I think that people see it as an opportunity to rethink the revenue side of the house a little bit, which has been hard in our sport. People entrenched in their local (media dynamics).”
For anyone following along with the news of the past month or two, the talk of the “local media situation”, as Manfred puts it, isn’t surprising. In short, Diamond Sports and AT&T SportsNet are both facing bankruptcy and plan on either restructuring their regional sports networks or getting out of their deals all together, leaving over half the league questioning what will replace one of their biggest revenue streams—the “guaranteed” television deal.
The second one, of course, is a much longer held frustration among team owners:
“We have businesses that are literally not similar in terms of the overall revenue that they’re generating.”
Of course, in a world where MLB teams do not open their books, where team valuations are skyrocketing with subsequent sale prices to back them up, and with record revenues, it’s at least fair to question these claims — especially as owners continue to approve and stick around in a system they apparently so ardently despise.
Pittsburgh Pirates owner Bob Nutting recently spoke to this idea with Jason Mackey of the Pittsburgh Post-Gazette:
“There’s no question the CBA contained several things that were not good for the Pirates and very few things that were excellent for us,” said Nutting”. You also have to remember there was no baseball going on. We had a real risk of losing the season.
“I felt a significant sense of urgency to get on the field. Could have had a protest vote. That’s not really who I am. I’m not sure it would be good for the team, and I don’t think it would be good for baseball.”
Nutting apparently felt the pull of getting back to baseball as more important than really trying to fix “the single biggest issue facing the Pittsburgh Pirates….Competitive disparity, revenue disparity and payroll disparity.”
It seems that at least one other owner—John Henry of the Boston Red Sox—feels the same:
“I believe the vast majority of players, agents, and clubs dislike baseball’s economic system,” Henry told the Boston Sports Journal in a recent email interview. Of course, much like with the pleas for greater financial equality, Henry has little proof, at least publicly, that this is a factual statement, as this is a sentiment that agents and players do not support.
Henry finds himself on this committee, along with Mark Walter of the Los Angeles Dodgers, Chris Ilitch of the Detroit Tigers, and Dick Monfort of the Colorado Rockies.
Missing is Cohen, who does not believe the committee is out for him or his spending habits:
“Absolutely not,” Cohen said.
However, it seems convenient that Henry—who recently “expressed dismay at [the] rising salary scale in the industry”, claimed “the answer [was] no” if being asked “are we going to now move to $300 million payrolls”, and peddled the inaccurate economic theory that “high ticket prices are necessary in order to field a top payroll”—finds himself on the committee with the notoriously anti-labor Monfort. This, while the likes of Cohen and San Diego Padres Chairman Peter Seidler sit on the sidelines.
Seidler is part of all this as well, as he has taken his team from 29th in payroll after 2017 to 7th after 2021 and 5th after 2022, moving the team from revenue sharing payor to payee.
For the uninitiated, this means the Padres have grown local revenue so much that they are now paying in more to the Revenue Sharing system than they are receiving back, all by signing and acquiring the best players available, doing the best they can to win games, and getting their fans excited in the process:
“I don’t spend too much time, if any, thinking about what other people are thinking,” Seidler recently said at the onset of the team’s spring training workouts. “We have a great chance to go after that trophy and to deliver to San Diego its first parade, and with a great deal of seriousness and humility. But the overall theme is we’re here to win a title. That’s what I expect.
“When we talk about risk, there’s a risk to doing nothing. And we’ve chosen to really focus on the players, and what spawned out of that is this amazing relationship between our players and our fans. The players respond to the fans, and as we’ve seen, the fans go nuts when they get to watch our players perform.”
If revenue growth is the true purpose of this committee, why isn’t Seidler a part of it—at least reportedly? It seems he has all but mastered that part of the equation.
Of course, the cynic would claim, as Clark did, that the committee has little to nothing to do with revenue; rather, their main goal is truly the expense side of the ledger.
An industry source seems to agree, telling Evan Drellich of The Athletic that “[t]he whole idea is to basically come up with a system that gets to a salary cap”.
This, of course, is a contentious topic when it comes to Major League Baseball.
The only major sport without a salary cap, the players union has held-fast to the idea of a free-market when it comes to salaries:
“We’re never going to agree to a cap. Let me start there,” said Clark. “A salary cap is the ultimate restriction on player value and player salary. We believe in a market system. The market system has served our players, our teams and our game very well.”
Of course, the owners disagree and have been trying for some kind of cap system, fighting hard during the 1994-95 strike, ultimately failing in their goal and being more bark than bite ever since.
Unfortunately, it’s not entirely clear what the league means when they talk about the idea of a salary cap:
“I don’t see it that way,” Manfred said when asked about Cohen’s spending. “I mean, look — whether we should have, or shouldn’t have, right, we bought in again to a system that lacked absolute upward limitation on what people can spend. And I mean, I said this at the owners’ meeting: I think our owners understand, that’s what we agreed to. And he can do what he wants to do within the context of that system.
“At various times, we have talked and proposed, including in the last round, about direct payroll regulation, in addition to that, having a minimum payroll.
“The reality is you got to solve your revenue disparity problem before you can even think about a cap,” Manfred said. “We’re so disparate right now, that it’s almost hard to make — and I mean, literally — the math of a salary cap work. You got to be at a certain level to get an agreement with the players. You start thinking about minimums and maximums, you know all of a sudden, you’re talking about minimums, we have some clubs where …” Manfred ended without completing the thought.
There are basically two options Manfred could mean when he talks about a cap. The first—and one many assume given its application in the other three major sports, is a system where revenues are pooled, split by percentage between the sides, with the players side divided equally among the teams to create a salary cap.
The second would be one more akin to what the owners proposed early in bargaining talks during the lockout—a system where there would be a payroll floor that in turn came with a lower ceiling, with penalties assessed for ending on the wrong side of either limit and using penalties on over-spenders to help under-spenders reach the floor.
While it would be nice to know what Manfred means for sure, reading between the lines, it seems he’s talking about the latter and not the former. Manfred speaks about what they proposed in the last round, “thinking about minimums and maximums”, and making the math work.
In a salary cap system like the other sports, there is no “thinking about minimums and maximums”—the revenues determine that. That also means there wouldn’t be any need to make the math work, as revenues would just be added together and split among the sides. Of course, he could just mean determining what is or isn’t ultimately determined to be “Baseball Related Income”—something that would likely become very contentious, given that owners would likely want to keep the revenue from team owned television networks, real estate around ballparks, and digital ventures like BAMTech, all revenue streams they currently don’t have to share.
This final point is one of the reasons it would be hard to see all teams agree to that kind of salary cap and why it’s likely Manfred means the soft floor and ceiling model when he talks.
The truth of the matter is the system that was originally proposed was a farce, presented as an olive branch to the players, a way to get what they wanted—more spending from the bottom teams—without mentioning that it would have severely limited the league’s higher spenders. The math showed it cut far, far more spending than it spurred, as a system that called for limited expenses and unlimited revenue would do.
The fact that Manfred continually brings up “revenue disparity” and not “revenue sharing”—something that was never discussed during negotiations either, whether it was dealing with the cap system or in general—speaks again to the idea that he’s talking about a soft floor and ceiling rather than a true-blue salary cap system.
The ultimate goal for this committee is interesting to consider. From the outside it certainly looks like a ploy to work towards a salary cap, but Drellich makes the argument that Manfred could simply be attempting to mollify his bosses, creating a platform for their concerns that ultimately may not end up going anywhere. He points out that Manfred is “practical” and could realize the long, drawn-out fight that it would take to get there may not be worth it, with billions of dollars on the line. If anything, Bob Nutting made this idea very clear when explaining his reasoning for voting for the last agreement like he did.
Another point made by Drellich was that the owners could be laying the groundwork for a “campaign” of sorts, working hard to voice their concerns and attempting to get “fans, agents, or even players” on their side for a need of change with “repeated rhetoric”. Fan sympathy is something that has certainly swayed over the last few decades, as many have grown weary of the plight of billionaires and their arguments for the financially unstable business of baseball.
In the end, teams weren’t concerned enough about revenue to stop from spending nearly $4 billion in the free agent market this offseason, despite not being blindsided by the news of the demise of regional sports networks.
Of course, no one exemplifies this more than the Padres, who despite being one of the teams caught up in the Diamond Sports mess, signed Manny Machado to an 11-year, $350 million extension, coming full circle in their attempts to fly in the face of the “small market” plight and worry more about competition than the bottom line.
Recently speaking about the Padres, both Manfred and Monfort astonishingly seemed to question this plan of, well, trying:
“The trick for the smaller markets has always been sustainability,” said Manfred. “The question becomes, ‘How long can you continue to do that? What happens when you have to go through a rebuild?'”
Manfred projected that the Padres would lose money, and questioned what they would do next.
“What the Padres are doing, I don’t 100% agree with,” Manfort said. “Though I know that our fans probably agree with it. We’ll see how it works out.”
While Manfred did talk about “real positives in the Padres story”, it seems odd to even question the idea of a team trying their best to field a winning team.
Maybe if that winning mindset was encouraged by the league and was the plan for more teams, there would be no need for an economic reform committee.
Offseason Calendar Update
—I forgot to mention this last week, but according to the rules, Rule 5 picks must get a 15-day trial period during spring training before they are able to be let go. For the Pirates, counting the first day of pitchers and catchers—February 15th—15 days was March 1st, meaning the team could drop Jose Hernandez at this point if they wanted.
I’m not suggesting they want to or should—I’m just pointing out an interesting rule that many probably aren’t aware of.
Pirates Payroll Updates
— No updates here as of this week
—For 2023, the payroll estimate stands at $73,202,372 for the Labor Relations Department, while it’s $89,619,039 for CBT purposes.
A longtime Pirates Prospects reader, Ethan has been covering payroll, transactions, and rules in-depth since 2018 and dabbling in these topics for as long as he can remember. He started writing about the Pirates at The Point of Pittsburgh before moving over to Pirates Prospects at the start of the 2019 season.
Always a lover of numbers and finding an answer, Ethan much prefers diving into these topics over what’s actually happening on the field. These under and often incorrectly covered topics are truly his passion, and he does his best to educate fans on subjects they may not always understand, but are important nonetheless.
When he’s not updating his beloved spreadsheets, Ethan works full-time as an accountant, while being a dad to two young daughters and watching too many movies and TV shows at night.
It is not like the owners or players are ever going to do what’s right by the sport.
This is why I don’t go to MBL games anymore. My money is much better spent in Altoona.
I love the reportage, but I will tell you this: Baseball will never be fixed in my lifetime. And I hope that’s a long time. But there is just no way.
MAYBE a senator gets a select committee to study “the game” and baseball’s anti-trust exception (leverage). Maybe, because it is a public good, such a committee would open the books of MLB once and for all and all the owners so we actually know what’s behind the curtain.
THEN, and only then, is there a shot at making the gravy train work for the fans.
I ain’t holdin’ my breath.
And this goes for the labor union too. NOBODY has the good of the game at heart. Maybe if a few clubs lose their teevee money and wind up on the hook for top players’ salaries… I don’t know,..,
Seems to me the end game is that the Pirates wind up in Las Vegas, etc. etc. etc.
It seems this new committee, without small market representation, may advocate a system encouraging small market teams to commit eventual financial hari-kari (i.e., Padres), or sell to a multi-billionaire willing to lose money (i.e., Mets). The first of these strategies could result in team bankruptcies, while the second is doomed to failure because not many rich people are willing to spend their money with no profit motive. In any event, it doesn’t matter. Without a cap, the large markets will simply offer the best players more money and overwhelm the market. Any attempted solution that doesn’t contain a cap will ultimately maintain the status quo, or worse result in team failures.
Great stuff Ethan. Keep em coming.
I get really tired of hearing how San Diego, or other markets are similar to us. It’s nonsense. Fan passion aside, Pittsburgh is a fairly lousy market compared to San Diego, and most other markets in MLB. Pittsburgh has a million less people in our metro area. San Diego also has a much higher media household income, which means they can support ticket prices far higher than ours. In addition, you have the fabulously wealthy enclaves of La Jolla/Del Mar, etc. Their market benefits from coastal wealth concentration, as we simply don’t have that kind of wealth in this market.
…And an uncontested market south of the border. Add in RSN ownership AND being one of only a couple teams that own partial interest in their stadium, they are in a much more favorable economic situation.
I don’t believe anyone is suggesting that SD and Pittsburgh are the same. The median income in SD is certainly higher but so is the cost of living (nearly 50% higher by some estimates). There are also many areas in and around SD that are not ultra wealthy or wealthy at all for that matter. A lot of those people are the ones going to Padre games while the LaJolla crowd golf’s at their country club or is out sailing their yacht.
The message that needs to be heard is that the Padres were losing and getting money from revenue sharing and by spending more on players are now winning more games and making significantly more profit by doing so. The Pirates might not be able or willing to duplicate what the Padres are doing, but they certainly can do much better than they have been while continuing to make as much or even more profit. This business of claiming that the Pirates just can’t afford to spend more to compete is what’s nonsense.
I hear a lot of people claiming that the San Diego and Pittsburgh markets are equal, which was the basis for my comment.
No doubt the Pirates should spend more. But spending more doesn’t solve the market issues. You can skirt around the higher cost of living, but higher incomes support higher ticket prices. More people=more people willing to pay those higher ticket prices. It’s a basic question of demand. As for the La Jolla crowd, those are the people buying the $130 box seats packages for 81 games, then writing them off as a business expense. Or luxury boxes.
So back to the first sentence of the last paragraph: they should spend more. Of course. But what does that look like? It’s nowhere near enough money to make the team consistently competitive. This market just doesn’t have the wealth or the population to make it work. And if you don’t believe me, look at similar markets to ours (ie not San Diego). Whether it be the Brewers, Reds, A’s, Rays, etc, all those teams go through rebuilding periods, with lower payrolls and trade talent at their peak. The Pirates are far from the only team that operates this way, suggesting it’s a systematic issue.
You say you want to address revenue disparities, so you exclude all the small markets from the committee. Yeah, suuurrrrrre.
It’s disingenuous to bring up SD based on size alone. Their demographics are much different than most small market cities also being much older and lower income. Additionally, San Diego has a pretty decent base in Riverside and Orange Counties that attend even though not necessarily in that “market.”. Due to traffic, it’s easier to see a Padres game if you’re in South OC or Riverside. It’s just not the same as comparing KC, PGH and Milwauke. I think the the issue with the RSN is actually a golden opportunity for the owners.
Thank you. People assume that income, age, and population distributions are equal across all markets. They aren’t.