Baseball has a Financial Problem, but Not the One You Think

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“To all the great athletes out there: Play baseball.”

This is the reaction ESPN baseball writer Jeff Passan had to a record-shattering contract given to San Diego Padres shortstop Fernando Tatis Jr.

After just two partial seasons at the big-league level, the 22-year-old Tatis Jr. signed a 14-year, $340 million deal, both records for a player that has been in the league than three seasons. The next closest contract in terms of length for a pre-arbitration player is eight years. The next closest dollar figure? $159 million given to Buster Posey for eight years.

Opening Day at Miller Park the last time fans were allowed at Opening Day March 28, 2019. Photo Credit Luke Zembrowski.

This deal comes only several weeks after another contract given to a player by a Southern California team: The Dodgers. Los Angeles saw fit to give reigning Cy Young Award winner Trevor Bauer a three-year, $105 million deal. Why this deal is absurd is that the bulk of the contract is made in the first two seasons to the tune of $85 million, and he can opt to return to free agency after both seasons.

So, honestly this is a two-year deal worth $85 million.

Trevor Bauer is getting paid nearly the same amount in 2021 as the entire Cleveland Indians team, according to Spotrac.

This contract is by any standard absurd.

Why does it matter?

Does anyone genuinely think the Indians or Brewers can match that deal? That is the problem because the answer is a complex and surprising maybe.

Baseball has a problem that no other major sport in America has salary discrepancy. When researching this piece, the value difference between the top spending teams in baseball and everyone else is unmatched by other major leagues.

So, what do the other leagues have that baseball does not? A salary cap and a salary floor. 

The other leagues levy a steep luxury tax on money teams that spend above a league-wide allotted amount.

Baseball does not. Baseball instead has a soft salary cap at $200 million, but annually only four teams ever come close. Without even looking at the list of teams most casual baseball fans would almost certainly be able to guess which ones. Each of the teams are big market teams that can spend however much they want.

Can small-market teams do the same?

They probably can.

As baseball fans we constantly hear from small market teams that they are just scraping by and they could not possibly afford such contracts.

We do not hear that from players or league officials, though. We hear that from the teams’ financial guys.

They people vested in making sure that the small market teams turn as much a profit as possible.

Initially in coming to this story I was going to draw the conclusion that the Brewers simply cannot compete with the terms that the Dodgers and Padres give to their stars. In researching for several days, you find out that assumption simply is not true.

It appears small-market teams have gotten ideas on how to make money from Mel Brooks, “We could make more money with a flop than we could with a hit!”

Baseball has a competitive imbalance not seen in other sports, and it is because there is no system put in place to disincentives teams from spending as little as possible. A situation that just does not happen in other sports.

Yet of the major American sports baseball is second in average salary for its players behind only the NBA, according Statista.

Baseball does have comprehensive revenue sharing between teams, but some teams still lag despite having over $100 million made available through revenue sharing, according to Baseball Reference.

For example, from the numbers held by Spotrac, the Milwaukee Brewers could pay the salary of Trevor Bauer in 2021, on top of their existing team salary situation, and still not reach the amount each team receives through revenue sharing.

The Brewers cannot match the amenities of Southern California with Southern Wisconsin, but they have the funds available to do it.

With baseball’s profit-sharing system a team that could benefit from spending next-to-nothing on players and coaches, pocket the extra from profit sharing, TV deals, and ticket sales, the team can just pocket the extra money until a player comes through their system that turns them into a winner.

Baseball does nothing to steer teams away from losing, however, and with the present commissioner in charge there is no sign that the situation while change. How would they find the time to fix competitive imbalance when pace-of-play is clearly the bigger issue?

There is no clear solution for the problems facing baseball in this regard. Could baseball do a better job marketing its superstars like Tatis Jr.? Yes, absolutely it could. Could it institute a salary cap to distribute power more evenly across the league? Probably not without a player strike, but few teams come close to the soft luxury tax cap that presently exists.

How do we fix baseball then?

Fix the system put in place that allows for a team getting over $100 million in profit sharing to spend one third of that with no consequence. Baseball has no issues with tanking if the team plays 162 games.

It might be time for a lottery draft pick system like that of the NBA, or at least a system that punishes a team for spending such a laughable amount on its players that one player makes more than an entire team.

Might be time not for a salary cap, but maybe a salary floor.

With over $100 million coming in annually from the league to each team we know that every team in baseball can afford to put a competitive team on the field.

One thing remains clear: if you have athletic talent and want to make money, then play baseball.