The New Revenue in MLB Didn’t Lead to a Big Increase in Payrolls

All off-season there was discussion about the new money that was coming into Major League Baseball. The amounts vary, but most sources had each team getting an additional $20 M in revenues each year, starting in 2014. This led to the idea that teams would be seeing a major increase in payroll starting in 2014. USA Today has released their Opening Day payrolls for the 2014 season, which allows us to compare those payrolls to the 2013 totals. Below is a chart with all of the 2013 and 2014 payrolls, along with the difference for each team, and the average totals per team each year.

TEAM

2014

2013

DIFFERENCE

Angels

$128,046,500

$127,896,250

$150,250

Astros

$44,985,800

$22,568,300

$22,417,500

Athletics

$77,220,900

$69,164,500

$8,056,400

Blue Jays

$129,427,700

$117,527,800

$11,899,900

Braves

$97,855,673

$89,778,192

$8,077,481

Brewers

$102,724,338

$83,466,944

$19,257,394

Cardinals

$108,020,360

$115,222,086

-$7,201,726

Cubs

$74,546,356

$104,304,676

-$29,758,320

Diamondbacks

$111,798,833

$89,100,500

$22,698,333

Dodgers

$241,128,402

$216,597,577

$24,530,825

Giants

$148,239,158

$140,264,334

$7,974,824

Indians

$82,500,800

$78,266,400

$4,234,400

Mariners

$89,539,642

$72,031,143

$17,508,499

Marlins

$41,836,900

$36,341,900

$5,495,000

Mets

$84,281,011

$73,396,649

$10,884,362

Nationals

$134,366,735

$114,056,769

$20,309,966

Orioles

$105,084,121

$90,993,333

$14,090,788

Padres

$89,881,695

$67,143,600

$22,738,095

Phillies

$179,521,056

$165,385,714

$14,135,342

Pirates

$77,845,999

$79,555,000

-$1,709,001

Rangers

$132,491,596

$116,330,100

$16,161,496

Rays

$82,035,490

$57,405,272

$24,630,218

Red Sox

$154,380,395

$150,655,500

$3,724,895

Reds

$112,378,771

$107,491,305

$4,887,466

Rockies

$99,579,071

$71,924,071

$27,655,000

Royals

$90,481,500

$81,491,725

$8,989,775

Tigers

$163,078,526

$148,414,500

$14,664,026

Twins

$84,912,500

$75,802,500

$9,110,000

White Sox

$89,551,982

$119,073,277

-$29,521,295

Yankees

$208,830,659

$228,835,490

-$20,004,831

AVERAGES

$112,219,082.30

$103,682,846.90

$8,536,235.40

On average, teams spent about $8.5 M more this year in payroll on Opening Day. The Pirates are one of the teams below that average when you look at their total team payroll. However, the USA Today figures show the full salaries of players like Wandy Rodriguez and A.J. Burnett, without deducting the money a team is receiving from another team. So the above doesn’t show the out-of-pocket expenses.

The Pirates received $13.5 M from the Yankees and Astros last year for Burnett and Rodriguez. So while their total team payroll was $79.6 M, they were actually spending $66.1 M. By comparison, this year the Pirates are only receiving $5.5 M from the Astros. So while their total payroll is $77.8 M, they are actually paying $72.3 M. In total, the Pirates are spending about $6 M more out-of-pocket on Opening Day in 2014, than they were on Opening Day in 2013. My figures had them at $67 M on Opening Day last year, and $74.7 M this year, although that 2014 number will go down once they trade Vin Mazzaro. After Mazzaro is traded, the total difference would also come to about a $6 M increase in payroll.

You might point out that other teams above could also run into this scenario, where USA Today doesn’t factor in money paid to other teams, or money received from other teams. However, even if USA Today calculated that, the average payroll numbers would be the same.

What this means is that payroll across the league didn’t take a huge spike to the tune of $20 M per team. The actual increase was $8.5 M per team. One other thing to consider is that payroll naturally goes up. From 2012 to 2013, the average payroll in baseball increased by $5.7 M per team. From 2011 to 2012, the average increase was $5.1 M. So the average increase in payroll this year is only about $3 M more than the average increase in payroll from the last two years.

The idea that teams were going to receive $20 M and spend all of that in year one always seemed ridiculous to me. It’s like spending your entire paycheck on Friday, just because you have money to spend. Sure, you’ve got another paycheck coming next week, but this type of “spend it if you’ve got it” approach usually leads to two things:

1. Spending X amount each period, even though some periods don’t warrant X amount to be spent.

2. The inability to save for bigger long-term expenses.

While teams will be receiving a flat rate each year, the more likely scenario is that the spending of this revenue won’t follow a flat line. Most teams will spend varying amounts each year, and over the long run the expenses will continue to trend up. But as we saw with the Opening Day payroll, the increase isn’t going to be massive right away.

Tim Williams

Author: Tim Williams

Tim is the owner and editor in chief of Pirates Prospects. He started the site in January 2009, and turned it into his full time job during the 2011 season. Prior to starting Pirates Prospects, Tim worked with AccuScore.com, providing MLB, NHL, and NFL coverage to various national media outlets, including ESPN Insider, USA Today, Yahoo Sports, and the Wall Street Journal. He also writes the annual Prospect Guide, which is sold through the site. Tim lives in Bradenton, where he provides live coverage all year of Spring Training, mini camp, instructs, the Bradenton Marauders, and the GCL Pirates.

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  • Ryan McCullough

    You’re only looking at the tip of the iceberg when it comes to the revenue stream that teams will be drawing from. If you look at the recent extensions signed by Miggy, Trout, and Kershaw you can clearly see where salaries for players are headed. I think it’s telling that Max Scherzer turned down 24 million a year over 6 years(reportedly). The average players and pre-arb guy will continue to be affordable, but the price of elite talent is skyrocketing, and even above average guys that hit the FA market are getting paid very well.

    The bottom line is this money is just now starting to work it’s way into the system. While it’s foolish to expect the average salary to go up 20 million in one season, this one season is not the whole story.

    • DG Lewis

      I think Tim’s point is that numerous commentators criticized the Pirates for not growing payroll more over the offseason because “they’d be getting $20M more per year,” but the fact is that payrolls grew by only about $8.5M on average, and a $6M increase by the Pirates isn’t unreasonable.

  • leadoff

    I agree that spending just to spend is not necessary.

    • Y2JGQ2

      Spending to spend is a bad idea. Spending because you have garbage players at first base would fall into the “necessary” field. a couple million over 3 years would have gotten us Loney

      • Ron Loreski

        Loney is garbage as well.

  • http://hiddenvigorish.com Twitter@piratesvigorish

    Hardball Times just posted a piece a few days ago that projects salary growth over the next few seasons. They believe ticket revenue is what really fuels payroll growth.

    “The relative importance of ticket revenue compared to other sources of revenue cannot be understated. Above, I estimated ticket revenue is about 68 percent higher than it was in 2002 and my estimate of the change in the dollar per WAR since then is about 72 percent higher. These numbers are obviously very similar, and the reason is that ticket revenue changes are what drive changes in player salaries more than local television contracts and especially more than national television contracts.”

    http://www.hardballtimes.com/predicting-major-league-baseball-salary-growth/

  • S Brooks

    It was never going to be the entire $20M added to payroll, year-in, year-out. Businesses don’t operate that way. Most likely the long-run average ratio of payroll to revenues would be preserved (50-60%), with the remainder applied to debt servicing, facility improvements, taxes, etc. So over the long run we should expect to see rate of growth + $10-$12M, not +$20M. By that metric, the fact that we saw 25-30% of the new money already committed to 2014 payrolls is nothing to sneeze at (~$3M/$10-$12., rough justice).

    Especially when you consider the only places to spend the new money for the current year were (1) free agent contracts (of which there were only a few per team); (2) Tanaka and the Cuban defectors; and (3) signing bonuses for out-year extensions. Everyone else is constrained by long-term contracts previously signed, arbitration comps and each individual team’s 0-3 policy. So there really was a very limited supply of players to spend the new money on.

    In each of the above 3 cases, the spending showed a huge spike. Free agent contracts were of longer duration and significantly higher AAV than in years past. Tanaka, Abreu and a host of Cuban players no one had previously heard of landed 8- and 9-figure contracts, and Tanaka’s and Abreu’s were all well ahead of projections and recent comps. And the rash of extensions for not just top line players (Trout, Cabrera), but mid-level contributors (Morton, Teheran), is telling in and of itself.

  • Andrew

    The idea of teams having $25-20 million more to spend in 2014 was ludicrous,
    because the $25 million was based on comparing the average of the two national television
    deals, the most recent being $750 million more than the previous. These
    deals do not pay the same amount for seven years, teams will get $25-20 million
    more/year over the life of the deal, not from 2013 to 2014.

  • Jg941

    I think that you may have jumped to a less-than-correct conclusion a little too quickly there, Tim, driven by your use of the “net average” change for the 30 teams as a collective.

    In reality, half (!) of the teams in baseball jumped their salaries by over $10 million/year this year.

    13 of those 15 increased payroll by more than $14 million (!!)

    7 of those 13 increased by over $20 million (!!!).

    THAT’S the story. Those are all individual decisions by 15 different teams to grow payroll THAT aggressively (and many of the sub-$10 mil increases are more than 10% increases for those teams, another sign of their comfort level with their new windfall of revenue).

    By letting the two giant Chicago salary-dumps – and the only-8% reduction from the largest payroll in baseball history, i.e. The Yankees’ still-$209 mil payroll, i.e. solely less than the MLB-enforced elimination of ARod’s salary for just this year – by letting those three things go to your bottom line for “averaging” you’ve come up with an actually faulty conclusion as to whether teams are “spending most of their new money”, almost like not seeing all the individual trees for the forest.

    Those last three have virtually nothing to do with any of those team’s decisions or circumstances as they would relate to the revenue increase, but unfortunately lumping them into an average of MLB changes the “average” significantly.

    In reality, the real “average” is more like an $11 mil increase, which is pretty dramatic proof that most teams already see the new money in their pocket, and are letting their hair down immediately to start spending it.

    By netting all 30 decisions to a bottom-line, and ignoring the vast outliers that don’t relate to the issue at hand, what’s ignored is the reality of the 30 individual team decisions, and those teams are indeed already aggressively spending the new money.

    And unfortunately it does also paint the Bucs as an outlier in their thinking based solely on these reductions (along with the Cards oddly enough, although they are reducing off of a payroll base that was already 50% higher than the Bucs. The Pirates reducing of all things off of their already-very-low base remains an industry head-scratcher (not that you spend just to spend, etc., etc.).

    It might be worth another take/deeper look at what each individual team/situation is actually telling us – it would be a very different conclusion.

    • http://www.piratesprospects.com/ Tim Williams

      If you want to do team-by-team analysis, then you can’t just use two years of info. You need more than that to see if there were teams who dropped their salary last year, then increase it again this year. You can’t attribute individual team spending to the new revenue.

    • WTM

      There are teams at the other end of the spectrum that are outliers as well. The Astros and Padres, for example, had huge increases after running very low payrolls last year due to rebuilding programs. A lot of factors besides changes in revenue go into payroll decisions, some pushing the overall payroll one way and some the other. You can’t isolate the impact of one factor simply by throwing out the numbers you don’t like. Eliminating the extremes only at one end is just cherry-picking.

  • Jg941

    And, BTW, none of that includes any of the recent wave of early extensions, to another poster’s very significant point – that is yet ANOTHER indicator outside of 2014-only payrolls that tell where the vast majority of teams’ heads are in relation to the influx of new TV revenue.

    • WTM

      I don’t think the long term impact of the TV revenue is the point Tim is addressing.

  • MaineBucs

    In looking at the above table it is amazing that a team with the resources of the Cubs is essentially spending the same amount as the Pirates to put a team on the field this year.
    And with some of the mega deals that have been entered lately, I believe it may take a year or two for the complete impact of such to show up through the arbitration process and the amount of overall monies paid to players.

    • http://twitter.com/TCPersinger TCPersinger

      It is amazing about the Cubbies. But they made a commitment to build from within and not plug positions with 2yr stop gaps but allow their young ones to start early.

      It is something that Dave Littlefield would NOT approve of. Lol. That farm system was left an absolute mess before Theo and company arrived…