Wednesday, August 1, 2012

Squeezing a Squeezed Lemon

The market for amateur baseball players operates as anything but a free market. Instead, the draft creates a tightly controlled and restricted market, as it only allows an amateur player to bargain with a single team. In this way, the draft squeezes the player like a lemon, and the team walks away with sweet lemonade.

The most recent CBA made changes to further squeeze this already squeezed lemon. It placed strict caps on the amount teams can spend on draft picks and instituted harsh penalties--such as the loss of subsequent draft picks--for exceeding these limits.

As I predicted in an earlier post, further restricting an already restricted market had a negative impact on spending. In fact, spending by MLB teams in this year's draft dropped 11% from the previous year.

This 11% drop resulted in teams spending $25.8 million less in 2012 than in 2011. That's an average of $860,000 less per team. Where does all this money go? Well, the CBA fails to directly answer that. But indirectly the answer is found.

The money saved will go to major league salaries, as the new CBA requires MLB minimum salaries to increase dramatically over the next few years. I talked at length in the earlier post about the MLBPA selling out minor league players. I won't bother you again with such talk, but I will make a couple of other points.

Incredibly, the $860,000 average savings per team could nearly double most minor league salaries if it were spent on minor leaguers. A first-year Double-A player makes around $7500 for the entire season. Those in lower levels make even less. While the number of minor leaguers within an organization varies greatly, a reasonable estimate can be made for the amount of players at Double-A and below. For this calculation, we'll say a team retains around 120 players at Double-A and below. While some of these players are at Double-A, most are at lower levels, so we'll assume an average salary of $6,000 per year for these 120 players. What does doubling every one of these 120 salaries require? $720,000.

Most of the minor leaguers would see their salaries doubled, and teams would still be left with an extra $140,000 in their pockets. While not all Triple-A salaries could be doubled with this leftover amount (since more minor league free agents and former major leaguers play in Triple-A), this money could easily be used to double the salaries for the Triple-A players playing under the terms of their original minor league agreements. After all, a first-year Triple-A player makes only a little more than $10,000.

Of course, none of this will happen. Minor league salaries have hardly budged in 35 years. Why would they increase now? Instead, many players will continue to live below the poverty line, and baseball's Robber Barons of the New Gilded Age will continue to profit.

(Thanks to Luke Erickson's post for the Robber Barons analogy.)  


A Possible NCAA/MLB Scholarship Partnership?

I recently wrote an article for Baseball America entitled "Beware MLB, NCAA Joint Venture". Here's a little snippet from it:  

I fear that baseball might be taking steps towards an NFL type of model. While this might be great for college baseball and great for the owners' bottom line, it wouldn't be great for players. It would take away players' freedom of choice, and it would shave away earning years from an athletes' short earning window. And, as stated above, there are better ways to court young athletes, chiefly through the already existing model. 
Again, I'm all for helping athletes get college degrees. But when two cartels start cooperating with one another, I'm immediately wary. Any resulting gift is most likely not what it seems. 

 Indianapolis Star Article on Minor League Unionization

James Oldham of the Indianapolis Star also wrote a very good article recently on the obstacles to unionizing the minor leagues. It's worth the read.

Monday, April 9, 2012

More on "Emancipation of the Minors"

About two months ago, a freelance journalist contacted me. She was interested in some issues affecting minor league players. I happily answered all her preliminary questions. Since she was not the first freelance journalist to contact me about minor league issues, I assumed that, like most of the others, I would never hear from her again.

About two weeks later, the freelancer called me again. She had done some more research, and she had some more questions. And they were good questions. I again happily answered them. To my surprise, she called again a couple weeks later with more questions. I could tell a story was coming into being.

Lily Rothman's article appeared on Slate last week. It was wonderful. Titled "Emancipation of the Minors," it quickly detailed the current labor status of the minor league player, as the introductory paragraph demonstrates:

"In one of America’s most fabled industries, there’s a hidden underclass of workers that has a starting salary of $1,100 a month and gets paid for only half the year. They are subject to territorial monopolies, restrictions on labor movement, and caps on salaries that are illegal in other businesses. Though not members of a union, their lives are influenced by one of the most powerful labor associations in the country, a group whose members—people who work in the same industry for the same organizations and were once in the same position—have a vested interest in keeping them down. They are minor-league baseball players."

The article contains quotes from heavyweights such as Gene Orza and Marvin Miller, and, with one exception, it's magnificent. The one problem with it comes from an unlikely source: Jim Bouton. The author of baseball's original insider memoir offered an uneducated, callous take on minor leaguers:

“[Minor leaguers] bargain for their talent in a free market like everybody else does,” he says. If you’re a believer in laissez-faire capitalism, you can argue there’s no such thing as an unfair salary in baseball. Although Bouton admits that many young players get remarkably low wages, “they don’t have to accept the team that drafted them. They can continue playing amateur baseball; they can go back to college.”

Now, I'm as big of a supporter of the free market as anyone. But you have to be an idiot if you think this is the free market at work. In fact, this is the exact opposite of the free market. This is a monopoly at work.

Baseball strictly controls the market for minor leaguers through the draft. Instead of being able to "bargain for their talent in a free market," they can only bargain with the single team that drafted them. Bouton says "they don't have to accept the team that drafted them," but this is just ridiculous. After all, a minor leaguer is chasing a childhood dream. The only team with bargaining rights to the player might offer a $1000 signing bonus and $5500 per year, and a starry-eyed twenty-one-year-old isn't going to turn it down.

To illustrate the difference between a free market at work and monopolism at work, I'll provide two quick examples. The first is familiar. In January, 2010, Aroldis Chapman reached a deal with the Cincinnati Reds for $30 million. Yes, Chapman can probably throw a baseball through a cinder block, but there was another equally talented young pitcher who signed only six months prior to Chapman. Yet Stephen Strasburg received only $15.1 million.

What was the difference? Certainly not talent. Strasburg not only throws bullets, but he also spins a breaking ball that appears as if it's going to fall off Niagara. The only difference lies in the fact that Chapman, as a Cuban defector, was able to negotiate with all thirty teams. Strasburg, on the other hand, could only bargain with the team who drafted him.

Another example occurred almost twenty years ago. In 1996, Scott Boras and other agents found a loophole in the draft process to secure free agency for four talented amateur players. By bypassing the draft, the four players could bargain on the free market with any team. Two players netted more than $10 million. The highest previous amount secured by a player who had gone through the draft paled in comparison, as the dual sport Josh Booty received only $1.6 million. (See Allan Simpson's excellent article on this and the entire history of the draft here.)

Of course, in the end Bouton's comment is not surprising. He's certainly not alone in feeling this way. I've heard similar--if not harsher--comments from many major leaguers. To all too many of them, the minor leagues are a long forgotten, repressed memory. Better to keep them out of sight, and out of mind.