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January 28, 2010

Squawking Baseball

The Age of the Payroll Floor

by Shawn Hoffman

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Welcome to the age of the payroll floor, or at least the mandate to spend some esoteric minimum if you're taking other teams' revenue-sharing dollars.

First, some background: new union boss Michael Weiner has made it one of his top priorities to enforce the following clause in baseball's collective bargaining agreement (Article XXIV (B)(5)(a), if you want to read the whole thing):

(E)ach Club shall use its revenue sharing receipts (from the Base Plan, the Central Fund Component and the Commissioner's Discretionary Fund) in an effort to improve its performance on the field. Each Payee Club, no later than April 1, shall report on the performance-related uses to which it put its revenue sharing receipts in the preceding Revenue Sharing Year. Consistent with his authority under the Major League Constitution, the Commissioner may impose penalties on any Club that violates this obligation.

The Marlins were an obvious first target, since they've really pushed the limit on how little you can spend on player payroll, while presumably being one of the biggest beneficiaries of revenue sharing. And so far so good for Weiner-the Marlins publicly promised to spend more on payroll going forward, in a joint statement with Major League Baseball and the union. Terms of the agreement haven't been announced-and won't be, if MLB has its way-but the Marlins have already signed Josh Johnson to a long-term deal that seemed unlikely during the fall, and seem more willing to keep Dan Uggla, despite the big raise he's gotten through salary arbitration.

The union probably won't stop there. The Pirates are supposedly next, and it's always possible that Weiner will expand the push to include any other team that is spending less than $50 million or $60 million. The short-term goal is pretty clear: if the union can pressure two or three teams to spend an extra $10 million on payroll, that's $20 million or $30 million that's being transferred to the players. But the long-term goal might be even more ambitious: the union could very well be trying to impose a soft payroll minimum, much like the luxury tax serves as a soft maximum.

In a lot of ways, it makes sense: the luxury tax is a real rule with real penalties for teams that spend more than what is deemed socially acceptable by MLB. But there's no similar penalty for teams that spend too little. A tax on payrolls under some very conservative number-much like the luxury tax, which very few non-Yankees teams have reached-seems pretty reasonable, especially if those teams are receiving revenue-sharing dollars and are turning healthy profits.

But there are some huge problems to get around first. One, obviously, is that it effectively creates a soft cap/floor system, which future generations might not be so careful with. I've written enough on this subject already, but it's important to remember just how dangerous a hard cap/floor system is when teams have even slightly disparate revenues-the NHL's system has already put a team through bankruptcy, and even the quasi-socialist NFL voted unanimously to overhaul their program.

An even bigger issue, at least in the short run, is that it could set up a terribly flawed incentive structure for the teams. Note the language in the CBA: "...in an effort to improve its performance on the field." That's a critical precedent: spending on player payroll isn't the only way to improve your on-field product. Teams that aren't going to contend are far better off allocating that money into other areas, including player development, infrastructure, the draft, and international signings, to name a few.

The Pirates are a good example here. During the Kevin McClatchy/Dave Littlefield era, the Pirates consistently brought in unnecessarily expensive big-league veterans to fill out their roster, while never daring to pay above slot in the first round of the draft. Anyone with a calculator could see the inequity-the same team that took Daniel Moskos over Matt Wieters in order to save $4 million in June of '07 traded for an all but comatose Matt Morris a month and a half later, taking on every penny of the $13 million he was still owed on his contract. Morris would make 16 starts for the Pirates, putting up a 7.04 ERA, before being cut by the team's new regime in April of '08.

The current Pirates' front office has completely reversed that policy: in the last two years, they've gone over slot several times in the draft, and invested millions to rebuild a Dominican program that Littlefield had pretty much left for dead. Meanwhile, they've traded away just about every major-league player who wasn't going to be part of their next competitive team, leaving this year's payroll at a now-dangerously low level. They're taking plenty of hits in the press and at the gate, and will continue to for the time being, but at the very least, they now have a process in place that actually makes some sense.

Any new policy in the next CBA has to recognize this dynamic. The current agreement's language is pitifully vague regarding the subject, but it's there for a reason: teams at the bottom end of the success cycle have no reason to spend on major-league payroll, and in fact it can actually be counterproductive. If the clubs are required to spend a certain percentage of their net revenue-sharing dollars to improve their teams, those other categories-the draft, international free agents, et al-need to be counted.

That probably wouldn't be a very satisfying result for some media members who have been particularly vocal about this, since MLB keeps most of the international signing and infrastructure numbers under wraps. But without that stipulation, this simply becomes a tax on small-market teams, which defeats the purpose of having revenue sharing in the first place. Using this as an opportunity to promote amateur and player development spending among small-market teams is a far better approach, and the owners need to keep this in mind when it's time to negotiate the new CBA.

Shawn Hoffman is an author of Baseball Prospectus. 
Click here to see Shawn's other articles. You can contact Shawn by clicking here

Related Content:  Michael Weiner

24 comments have been left for this article. (Click to hide comments)

BP Comment Quick Links

Fresh Hops

I love your stuff, Shawn. This by far the most insightful article on the recent Marlins issue that I've read. Thanks.

Jan 28, 2010 10:10 AM
rating: 1
 
Adam Madison

Agreed. I, too, love Shawn Hoffman's work -- in my opinion he's by far the best author on BP now that Joe Sheehan is gone. And I mean no discredit to the rest of BP's marvelous authors; instead, it's just a tremendous compliment to Shawn. Ecstatic to see more articles from you!

Jan 28, 2010 11:58 AM
rating: 0
 
gaborde

yeah, well done.

Jan 31, 2010 23:29 PM
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ferret

Good stuff. Perhaps a more powerful correlation could be made with low payroll to high "profitability"; if the writer could somehow get sufficient data to determine what clubs like the Marlins really make at the bottom line. Forbes Magazine tries on an annual basis and the Marlins, Pirates, Rays are often near the top of the list of moneymakers.

Jan 28, 2010 11:07 AM
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ajblobaum

Zumsteg plan NOW!!!!!!!

Jan 28, 2010 11:09 AM
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amazin_mess

At the very least, these teams should be forced to present detailed plans on how they will invest the money in scouting and player development, if not on free agent acquisitions.

Jan 28, 2010 11:21 AM
rating: 1
 
David Schwalb

I agree with your point regarding small market teams' allocation of money, but from the players' union perspective, why would they care if the low market teams "get better"? Increasing the pay and benefits of the members of the union is their biggest concern, not improving the long term win/loss record of low market team

Jan 28, 2010 12:07 PM
rating: 0
 
cjrhgarmon

This is why I think the salary floor and the draft slotting/international draft issues will go together in the next CBA negotiations:
Weiner: We want a "poor tax" on the teams that spend below X dollars on their MLB payroll.
Selig: Ok, then give us a hard slotting system and an international draft so teams that want to build for the future don't have to spend so much to do so.

Jan 28, 2010 13:02 PM
rating: 0
 
BP staff member Shawn Hoffman
BP staff

I don't disagree with you, but as an advocate of small market teams, I'd rather see the intl system stay the same (draft slotting I'm pretty neutral on). There are a lot of small market teams that have used the anything-goes system in the DR and Venezuela to their advantages, and that potential competitive edge disappears if there's a worldwide draft.

Jan 28, 2010 13:19 PM
 
patrickc

Shawn, great stuff as usual. I'm wary of this argument against the WWD, however. For one thing, its not immediately clear that a draft makes those markets less exploitable. For another, it sounds a little like building competitive balance on the backs of third world teenagers.

Jan 28, 2010 14:50 PM
rating: 0
 
BP staff member Shawn Hoffman
BP staff

Hey Patrick, here's what I wrote on it a while back:

http://www.baseballprospectus.com/article.php?articleid=8612

I don't think it would be good for the players or the teams. And long-term, it could really hurt baseball's growth in emerging markets -- i.e. China, Brazil, India.

Jan 28, 2010 14:59 PM
 
patrickc

Sure, I remember that article, and I agree with you much of the way. It's hard to debate the relative merits of a worldwide draft as long as it remains so largely undefined, and as long as we have so little information about the Latin markets. At any rate, I don't think "anything goes" is to be desired as a long-term proposition.




Jan 28, 2010 16:25 PM
rating: 0
 
cdmyers

Of course, the goal of the player's union isn't to get small market teams to spend more money on eventually contending. It's to make them spend more money on major league payroll period, whether or not that helps them. It's hard to see why they'd push for language that explicitly allows teams to spend less on major league payroll as long as they were spending more on scouting, the draft, etc.

Jan 28, 2010 12:16 PM
rating: 0
 
BP staff member Shawn Hoffman
BP staff

The union wouldn't. It's the owners that have to, if they want the system to work.

Jan 28, 2010 12:50 PM
 
ofMontreal

So you've got me wondering now. I have read the arguments against spending money on established veterans when your a team that is in no condition to contend, but isn't that expressly against the rules? Like say the Royals signing Meche and Guillen to those contracts. They were the only guys on the team making any real money and without them the Royals were conspicuously under the invisible line. Of course this happened before the big breakdown, but how much influence do we think there was to spend some money? Were the Royals being pressured to get the payroll over 30 mil or whatever? Because that would be a big no no to write about in print. This thinking could go a lot farther but I'd like to start here.

And as a side note, is this the Dayton Moore conundrum? Does he HAVE TO SPEND 40 mil to keep out of the line of fire? And so signing Kyle Farnsworth et al accomplishes that. Yuni Betancourt keeps the union off his ass? That would go a long way for explaining things to me.

Jan 28, 2010 18:25 PM
rating: 0
 
ofMontreal

Oops. So I read this before I read Jeff's thing. So maybe that doesn't answer the Royals behavioral questions.

Jan 28, 2010 19:02 PM
rating: 0
 
BP staff member Shawn Hoffman
BP staff

You're giving Dayton too much credit.

Sheets and Garland both hit me as deals that could have been partially due to some pressure. But those are two smart GMs, so who knows.

Jan 28, 2010 19:28 PM
 
ofMontreal

Is Oakland that low? I wonder what the performance record is on these mercenary type deals? I think Garland's deal is something else though. I think it just makes SD better.

Not to be too disagreeable, but I highly doubt Dayton Moore is an idiot. There's method there. I just don't see where the edges are. Draft position? I'm not a KC fan in the least, but I think they are the most fascinating case study in MLB.

Also, obviously, I really enjoyed this article Shawn ;-) .

Jan 28, 2010 20:20 PM
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bcmurph07

I am personally against slotting in MLB or capping the amount of money a team can spend on the draft as it will be unfair to the smaller market teams that typically invest a lot of money in the draft. I also see the problem with making a salary cap floor in the pro's as it eats up money taht can be allocated.

To me the solution is simple, the Salary Cap floor and ceiling(i prefer soft cap w/ luxury tax - NBA to hard cap - NFL) but allow for draft bonuses given in a year to be included. So if the salary cap floor is $50 million and the Pirates Spend $40 million on their MLB roster and $10 million on signing bonuses in the draft, they wouldn't be penalized. On the same token a team like the yankees who is already in the luxury tax threshold for their MLB salary would also have to pay a luxury tax on the amount they spend on signing bonuses.

Jan 29, 2010 09:31 AM
rating: 1
 
rogero

I agree with your point about combining several elements of rebuilding and focusing solely on payrolls of weaker teams. But you go to far when you say teams at the bottom have no reason to spend on major league payroll.

Oakland is a good example. Beane knew he wasn't going to compete last year when he got Holliday. Likewise this year when he bought Sheets (though maybe they're getting closier). These guys are major assets that can be traded for core talent not otherwise available.

It doesn't have to be just major stars. Signing underpriced FAs can be worth it because they may later bring full value in a trade. There are many ways to expand a talent base.

Not to mention the fact that winning a few more games likely will generate more revenue, or at least stifle further attendance declines. Your analysis of the Pirates was on target, but that's the problem they face in rebuilding in the midst of a 17 year losing streak--a dangerously shrinking fan base.

Jan 29, 2010 09:46 AM
rating: 0
 
Evan
(47)

Couldn't the Marlins argue (I recognise that they didn't, but they could) that they're stockpiling funds to spend on players in the future? There's no requirement that teams operate on a one-year financial cycle.

Jan 29, 2010 10:38 AM
rating: 1
 
saigonsam

I am not clear on why the Marlins were the first team questioned. If the criteria is "performance on the field" the MLBPA can hardly point to the Marlins as performing poorly. Only 5 other teams have won a World Series more recently, and last year wasn't like they were fighting with the Nationals for the worst record.

Jan 31, 2010 00:46 AM
rating: 0
 
ofMontreal

MLB could do something like putting the funds in escrow. With the specific uses of the cash clearly defined and the releasing of amounts only for qualifying expenditures. For those of you looking for that kind of oversight.

Jan 31, 2010 06:46 AM
rating: 0
 
paulproia

As a fan of the Marlins, the fact is that the ownership group has not been cash rich - these were the same guys who owned Montreal. They begged and clamored for a new stadium, which finally got approved by Miami-Dade and the State of Florida, but to do that they needed some money to cover whatever the taxpayers weren't paying for and their own obligations. So, the ownership group lined their pockets for the last half dozen years by underspending on the team.

Now, the Marlins HAVE been productive on the field. Better than the Mets, who spend four to eight times more money each season - right? So that has covered for the lack of spending (heck, nearly justifies it) - and Larry Beinfest is to be given credit for pulling this off. Maybe they DO spend more on scouting and player development.

But what makes this interesting is that guys like John Henry have gone on record by stating that the penalty part of revenue sharing is unfair - and I get his sentiment. The Yankees and others have paid into a system that allowed failing teams like Pittsburgh and Florida get new ballparks. And that isn't what that money was meant to do. If the money was meant to even the salary playing field, that's one thing. But using it to buy a stadium was probably not what those owners had in mind.

Jan 31, 2010 18:31 PM
rating: 1
 
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