This week in LWIB, the declining demand for veteran players and the St. Louis Cardinals ballpark village remains in limbo.
DIMINISHED DEMAND FOR VETERAN PLAYERS
LWIB brought with it the news that the yearly average salary for the players had increased in 2009 by its smallest amount since 2004. Why is that? The most common response is likely that ownership was concerned about the state of the economy during last year’s free agent market. However the MLBPA argues that there has been a pattern of collusion the past two off seasons (preceding the recession) and have expressed similar concerns about the current free agent market. (see the recent Biz of Baseball report, “MLB, MLBPA Continue to Dance Over Collusion“) The PA would likely point out that despite the recession, MLB’s revenues for the just completed season declined only a negligible amount. MLB would likely point out that 22 of 30 franchises reported a decline in attendance over the 2008 season. In a seemingly odd pairing, both Red Sox owner John Henry and player agent Scott Boras have complained publicly that too many “small revenue” franchises are not investing their revenue sharing proceeds in big league payroll. Meanwhile, some pundits and front office personnel are arguing that the declining demand for veteran players is a product of the ubiquitous use of “objective analysis” in assessing the value of players.
The trend of veteran players earning a diminished percentage of MLB revenues is several years long. In May, LWIB reported on the subject. The report included this quote from a March 2008 report from Liz Mullen of The Sports Business Journal:
In the last five years, the percentage of MLB revenue paid to baseball players has dived from a high of 63 percent in 2003 to as low as 51 percent. More generally, league revenue going to players has dropped from a percentage in the high 50s to low 60s in the early 2000s to between 51 percent and 55 percent in the last four years.
Ms. Mullen’s report includes confirmation from Rob Manfred, MLB executive vice president in charge of labour, that the players’ share of industry revenues did peak in 2003.
LWIB, Red Sox owner John Henry expressed his dissatisfaction with the current revenue sharing formula in MLB, arguing that too many “small revenue” franchises are not using the funds to increase the on field competitiveness of their teams. (In this interview, commissioner Selig states that $440 -$450 million will be redistributed this year via revenue sharing) Mr. Henry’s proposal includes a guaranteed percentage of industry revenues for the players and a league wide minimum payroll.
"It’s a very simple approach in which payroll tax dollars replace revenue sharing dollars and go directly to the clubs that need revenues in order to meet minimum payrolls that should be imposed on each club receiving revenue. Further, players would have to be protected with a guaranteed minimum percentage of overall revenues. This would be a very simple and effective method in reducing top payrolls and increasing bottom payrolls with no tax on revenues,"
The executive director of the MLBPA, Michael Weiner, suggested last week that the issue of how revenue sharing payees spend their receipts will be raised during the next round of collective bargaining. (The current CBA expires in December 2011) Rob Biertempfel quoted Mr. Weiner last week:
"The basic agreement requires clubs to use revenue sharing to field a competitive team," Weiner said. "We've had discussions with the commissioner's office (about) various clubs for many years under the revenue-sharing plan. I would imagine that again will be an issue in 2011."
Small revenue franchises argue that the best use of their subsidies is not necessarily investment in big league payroll. They argue that their revenue sharing receipts are better spent on player development (amateur draft, international free agents, etc.) Oakland A’s owner Lewis Wolff, reacted last week to the claims that some small revenue franchises are using their revenue sharing proceeds to fatten operating profits at the expense of fielding competitive teams. From John Shea of the San Francisco Chronicle:
We contacted A's owner Lew Wolff, who declined to directly address Henry's take but said the A's use revenue sharing to invest in baseball operations, including a revamped farm system, the draft and the pursuit of foreign players (Dominican pitcher Michael Ynoa cost $4.25 million), not solely the major-league payroll.
Critics of revenue sharing payees most often point to the Pittsburgh Pirates as the worst offender. In large part, the Pirates have become the focal point of this debate due to the admission of club president Frank Coonelly in this 2008 article that his club was using revenue sharing proceeds to pay down the team debt. Mr. Coonelly defended the clubs decision:
"The revenue-sharing plan says you have to use those proceeds to improve your performance on the field," Coonelly said. "That's written extraordinarily broadly, and we did that on purpose. Paying down debt can help you improve on the field. You can't get any better while you're taking a (huge) interest hit on all the debt you have. You can't be building an academy in the Dominican Republic. You can't be improving Pirate City. You can't be spending on major league payroll."
But is diminishing compensation for veteran players not a temporary trend brought about by the recession, or collusion, or misspent revenue sharing proceeds? Has a more permanent shift occurred in MLB? Has “objective analysis” convinced MLB front office’s that veteran players have been over valued in previous eras? LWIB Rob Neyer wrote for ESPN:
Remember, there are only so many players to go around. If the have-nots all up their payrolls by 20 percent, will they all wind up with better players? Not really, because the haves will up their payrolls, too. When agents like Scott Boras rip the poor clubs for not spending more money, he's not arguing for competitive balance: he's arguing for the poor teams to force the rich teams to spend even more than they're already spending. He knows perfectly well that a rising tide will lift all salaries, which is the only thing that gets Boras really jazzed.
And if you detect a note of desperation in Boras' exclamations lately, you're probably not wrong. There's been a sea change, and he knows this, too. The best baseball players are in the 24-34 age range. Older players can be helpful. Younger players can be helpful. But the younger players generally are a great deal cheaper, and often it makes financial sense to pay a 23-year-old player instead of a 35-year-old player who might be just marginally better.
For a long, long time, most baseball executives did not understand this. Today, most of them do. My guess is that the percentage of revenues that wind up in the players' (and agents') wallets will continue to drop, as teams increasingly move away from expensive old players and toward cheap young players. And I won't be surprised if a salary cap, so long considered a non-starter in labor negotiations, looks a bit more palatable if tied to the players receiving a set percentage of revenues.
LWIB Maury Brown of The Biz of Baseball examined the player salary data for 2009 and amongst his remarks were:
Youth Is King – Out of the 926 players in the league last year, 249 had Major League service time of less than 1 year and 101 players with service time of 1-2 years. There were 17 players with 15 years or more service time.
LWIB Matthew Leach wrote a report for MLB.com on how MLB front offices have changed their approach to evaluating “baseball’s middle class”:
A Minor League free agent, as Ryan Ludwick was when the Cardinals signed him three years ago, is now understood to be similar in value to many more established players.
"There's been a demystification of the separation between the top levels of the Minor Leagues and the Major Leagues," said a National League executive who asked to remain anonymous. "People are much more comfortable understanding how those talent pools relate to each other. You see that in a lot of places."
LWIB Joe Sheehan came to the same conclusion at Baseball Prospectus:
These decisions, taken as a whole, reflect the evolution of a market. Not every team sees it the same way, but by and large, the industry is valuing experience less, valuing common talents less, and recognizing one of the first principles of performance analysis: talent in MLB isn't a bell curve, but the right edge of that curve, with a few tremendous talents, and then a large pool of similar ones. There's nothing special about Randy Winn or Jermaine Dye or Jon Garland, and what separates them from comparable players—experience—isn't something worth paying millions of marginal dollars for. The industry is getting smarter, and it's going to make for better baseball for all of us.
If the MLBPA files a collusion grievance(s) against the owners, can management persuade an arbitrator that it is “objective analysis” that slowed the free agent market? Maury Brown recently filed a detailed report on the MLB arbitration process for The Biz of Baseball and wrote that the arbitrators are not sophisticated baseball observers.
As background on the process, it is the last bastion in MLB where advanced statistics are not used. The reason is simple: a player’s “case” if it goes to hearing is heard by a 3 member arbitration panel from the American Arbitration Association: they are not “baseball people”. While the panel members are familiar with baseball statistics, the “old reliables” are still the focus. No WHIP. No VORP. No WAR. Instead, ERA, AVG, IP, Ks, BBs, etc. are the focus. In plain terms, simple is better in salary arbitration.
Much has changed in the free agent marketplace and it is likely permanent. At the same time, commissioner Selig’s ineffective attempts at enforcing “slots” in the amateur draft are leading him to negotiate “mandatory slotting” in the next CBA. Many veteran players see the diminished demand for their services (fewer years and dollars) and the increasing amounts being paid to drafted amateurs and international free agents and conclude that the current system is unfair. Is the climate right for the introduction of a salary cap/floor tied to a guaranteed percentage of revenues for players? Isn’t that the model of the other “stick and ball” leagues? A model that many NFL owners want to change? (at least publicly) And how ironic would it be if the players side was advancing this agenda after their opposition to a salary cap resulted in the cancellation of the 1994 World Series?
Select Read More to see an update on the Cardinals Ballpark Villiage efforts
CARDS BALLPARK VILLAGE UPDATE
In July, LWIB reported on the stalled “ballpark village” mixed use development in St. Louis. The new Busch stadium (opened in 2006) was to be the centrepiece of the development. The same piece reported on the speculation that the failed (failing?) development was impacting on the Cardinals baseball operations. According to media reports, the Cardinals debt servicing obligations for the new stadium had become a bigger challenge than originally planned due to the absence of revenues that they were to share in from the real estate development. The same debt servicing challenges evidently nixed the Cardinals previously announced plans to purchase the Memphis Redbirds AAA franchise.
Last week, Cardinals president Bill DeWitt III announced that the “ballpark village” remains stalled for the foreseeable future due to the inability of the developers (the Cardinals and Cordish Co.) to negotiate financing. LWIB Robert Kelly reported for the St. Louis Post-Dispatch (HT Ballpark Digest):
Don't expect to see the Ballpark Village site humming with construction next summer. The site, which now has a softball field and parking lot, will almost certainly will look the same during the 2010 baseball season as it did this year, Bill DeWitt III, president of the St. Louis Cardinals, said today.
That's because financing for the $520 million development project, which promises offices and retail stores, remains uncertain, he said.
"We don't have full confidence that this market is ready for it yet," DeWitt said in an interview, after he spoke about the economics of Major League Baseball at Webster University .
DeWitt said he was unsure when the developers of Ballpark Village would ask the Missouri Development Finance Board for final approval of state subsidies for the planned retail, entertainment and office project.
Asked if that might happen in 2010, he said, "I'm done predicting."
Mr. DeWitt’s remarks, along with the previous media reports surrounding his franchise’s debt problems, might be of particular interest to Cardinals fans hopeful that Matt Holliday will be re signed and longer term, that superstar Albert Pujols be retained beyond 2011.
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Pete Toms is an author for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.
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