Baseball's Compensation System is Broken and Needs to be Fixed

Much has been made of the glacial pace of baseball’s free agent market the last two offseasons. However, three of the five biggest contracts in MLB history were signed in just the past week:

Bryce Harper - 13 years, $330 million
Manny Machado - 10 years, $300 million
Nolan Arenado - 8 years, $260 million.

Clearly, the game’s biggest stars are still getting paid quite well. However, the star players are getting a disproportionately large slice of the pie. The rank-and-file players aren’t getting their fair share.

The Major League minimum salary in 2018 was $545,000 and will increase to $555,000 this season.

The average Major League salary in 2018 was $4.095 million, down from $4.097 million in 2017. It was the first decline since 2004 and only the fourth since record-keeping started 50 years ago, according to the players' association.

The average career of a Major League Baseball player is 5.6 years, according to a 2007 study by the University of Colorado at Boulder. The study also revealed that one in five position players will have only a single-year career.

In other words, these young men have a very small window in which to maximize their earning potential.

Expect the players' association to fight for a higher minimum salary and for players to reach free agency in four or five years, rather than six. The players will also fight to prevent teams from holding premiere players in the minors at the start of the season in order to extend their control of those players.

For example, Vladimir Guerrero Jr. is widely viewed as the top prospect in baseball. If the Blue Jays wait until April 12 to purchase his contract, Guerrero will not become a free agent until after the 2025 season. That would effectively give Toronto control of Guerrero for seven seasons, rather than six.

Why?

A year of service takes 172 days in the major leagues. Teams control a player's rights for six full years. All a team needs to do is keep a player in the minor leagues for 15 days and it can get almost an entire extra year of the player's service without exposing him to free agency.

The current Collective Bargaining Agreement (CBA) incentivizes teams to keep major-league-ready players in the minors, rather than letting them break camp with the big league club. This will surely be revisited by the Players Association in the next collective bargaining negotiations.

However, the current CBA runs through the end of the 2021 season, so the players — who are said to be quite angry about the current state of free agency — will have to live with it for another three years.

What’s obvious is that baseball's compensation system is completely out of whack. It takes 4-6 years for a minor league player to make it to the majors, according to Business Insider.

The average age of a major league player was 28.91 years on opening day last year, and that was down from 29.13 at the start of the previous season.

If a player is drafted out of high school at age 18 and takes six years to reach the majors, he arrives at age 24. If a college player is drafted at age 22 and takes just two years to break in, he also gets there at age 24. Either way, the team controls that player for at least six years, which takes him through age 29.

As more than 100 years of historical evidence shows, the weighted-average OPS of a major league player peaks at age 29 and begins to plummet by age 32. This is why the free agent market for hitters has been so weak the last two offseasons and why it will likely remain so into the future. For the most part, 30-year-olds will no longer get seven or eight-year deals, much less decade-long pacts.



This presents a problem for the players; their earnings are lowest when they are at their youngest and in their prime. Then, when they reach free agency, they’re asking teams to pay them based on past performance, though they are generally entering their decline phase. The owners have become too smart to continue what amounted to an unwise business practice.

The current system clearly benefits the owners. Players should be paid based on merit from Year One. On the other hand, aging, underperforming players shouldn’t be getting paid massive salaries (i.e., Albert Pujols, Jacoby Ellsbury, Miguel Cabrera, Robinson Cano, Jason Heyward, etc.).

The system is broken and it needs to be fixed. The next Collective Bargaining negotiations will present an opportunity to correct the problem and finally make it right.

Red Sox Facing Payroll Constraints This Season and Beyond

The Red Sox' payroll is again projected to be the highest in MLB this season. Roster Resource projects Boston’s current luxury tax payroll to be a hefty $239.7 million. The Competitive Balance Tax (CBT) threshold -- aka, the "luxury tax" -- is $206 million for the 2019 season.

That's kept Boston from going after the upper-tier relievers on the free agent market this offseason. David Robertson, Zack Britton, Adam Ottavino, Kelvin Herrera and Andrew Miller (among others) all signed free agent deals, while the Red Sox sat on their hands without bidding.

It will be interesting to see how payroll constraints play out next offseason, when the team will have a number of important contract decisions to make.

Chris Sale, Xander Bogaerts and Rick Porcello are eligible for free agency after the 2019 season. Additionally, J.D. Martinez can opt-out of his current contract.

Mookie Betts and Jackie Bradley Jr. can become free agents after 2020, and J.D. Martinez can once again opt-out.

Sale, Bogaerts and Betts are all in line for rather large paydays, which could complicate the team’s payroll. How many $25 million-per-year players can the Red Sox afford?

The Competitive Balance Tax threshold will rise to $208 million in 2020 and $210 million in 2021. Yet, it will still cause constraints for the team.

The CBT is calculated by the Average Annual Value (AAV) of player salaries and bonuses earned by players on the club's 40-man roster, plus players who have been released or outrighted to the minors, or who are being paid a deferred salary after becoming a free-agent.

Pablo Sandoval's contract lingers as a significant chunk of dead money on the team's payroll. Sandoval is on the books for $18.455 million in 2019 -- plus another $5 million in 2020 because of the buyout.

The Red Sox surely would like a do-over on Rusney Castillo's seven-year, $72.5 million contract. The Cuban outfielder will be paid $11 million to play at Pawtucket this season and another $13.5 million in 2020 -- unless he opts out, which will never happen. His salary still counts against the CBT.

Though it's been more than a decade since Manny Ramirez last played for the Red Sox, he's still getting checks from the club. After the Red Sox traded Ramirez in 2008, they still owed him $32 million, which is getting paid out in installments of roughly $2 million. The annual payments will continue until 2026.

In total, that’s $31.5 million for three players who won’t be on the 40-man roster this season, but still count against the CBT. In 2020, that number will drop to $20.5 million.

In other words, those three players are affecting the Red Sox' spending this offseason and they will again next offseason as well.

The club already has some rather sizable contracts on the books for the next couple of years. Here’s a look:

● David Price will make $32 million annually from 2020-2022

● JD Martinez is slated to make $23.75 million in 2019 and 2020, and $19.375 million in 2021 and 2022. He can opt out after the 2019 and 2020 seasons, if he thinks he can earn more from the Red Sox or another club.

● Mookie Betts got $20 million for this season, his second-to-last year of arbitration eligibility. He will get a raise next year and will likely be seeking a contract of roughly $30 million annually following the 2020 season.

● Nathan Eovaldi will make $17 million annually through the 2022 season.

● Though Dustin Pedroia will make $15 million this season, his pay will fall to $13 million in 2020 and $12 million in 2021. It's unknown how well he can play, if at all, going forward.

Chris Sale, 30 in March, will make $15 million this season, meaning that he will be significantly underpaid for a pitcher of his caliber. He will likely be seeking a contract the magnitude of Price’s seven-year, $217 million deal. He’s at least as deserving, in as much as anyone can “deserve” that kind of money for throwing a baseball.

Xander Bogaerts, age 26, will make $12.5 million this season and will likely seek about $20 million per season on a contract of at least seven years in length.

Jackie Bradley, age 28, will make $8.55 million this season. Though he is not an exceptional hitter, he is an all-world center fielder who will likely command a contract of at least $10 million per season going forward.

If Martinez doesn’t opt out after this season and the club is able to retain Sale and Bogaerts, they would then have five players (including Price and Betts) making at least $20 million annually. That’s over $100 million for just five players, which is more than the 2018 payrolls of the Reds, Marlins, Pirates, Athletics, White Sox and Rays.

Let that sink in.

The Red Sox’ hefty payroll has already left the defending World Champions in the awkward position of heading into the 2019 season with Matt Barnes or Ryan Brasier as their closer. They will face even more difficult decisions over the next two off-seasons. There’s a strong chance the Sox won't be able to keep the entirety of their young core intact.

This is evidence that even big-market, high-payroll teams have financial constraints, just as the CBT intended.