MLB’s pay-for-WAR proposal can’t work without revenue-scaling

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There are a lot of reasons to be skeptical of MLB’s most recent economic proposal to the Players Association, one that includes replacing arbitration with an algorithm based on some kind of wins above replacement-esque figure. The Athletic’s Evan Drellich and Ken Rosenthal had the initial report on this story on Thursday, and ESPN’s Jeff Passan followed up with some additional details on Friday.

You should read both of those pieces, to get an understanding of just what it is that Major League Baseball is proposing — if you’ve been following along with me for, well, years now, I guess, you know that I’m generally opposed to replacing the arbitration system, as it’s basically the only remaining economic lever where MLB does not have full control. It needs some updating and modernizing, for sure, but the chances of it being outright replaced by a better system are slim, because MLB wants to get rid of arbitration primarily because it works. Do you think they’re going to replace a working system with one that will work against them even more? Certainly not intentionally, no: something would have to be snuck in the back door, a loophole they don’t see, like… [checks notes] arbitration was.

Here’s Passan, just so you can see the kind of figures being discussed here:

Here’s how it would work, per sources: Players with less than six years of service would be paid based on a formula agreed upon by both sides. For purposes of the presentation, the league chose wins above replacement as calculated by FanGraphs. A player with more than three years would multiply his career fWAR by $580,000, and the resulting number would be his salary that season. The multiplier for a second-time eligible player would be $770,000, and a third-time player would receive $910,000 for each fWAR gathered in all his big league time. There would be slight adjustments to salaries based on how the player fared in the previous season, but generally the system would pay players based on the fWAR formula.

Beyond that, the minimum salaries would jump to $600,000 for first-year players, $700,000 in their second seasons and $825,000 for their third. Gone would be Super 2 players — those with the most service time in any given class who receive an extra year in the arbitration system — replaced with an “Elite 2” plan, in which players who earned All-MLB honors would get a third-year salary bump from $825,000 to $2.5 million.

Let’s talk about a specific problem I have with this new proposal, and it’s one that would remain a problem regardless of what kind of statistic ended up being at its base. The issue, as the headline gives away, is that there is no mention of revenue-scaling even in the detailed piece by Passan. There are set figures in the proposal, and yes, they could be negotiated over, certainly, and would be if the proposal was going to be entertained by the PA, but hard figures are the problem itself. The salaries that are multiplied by fWAR or what have you need to scale with MLB’s revenue in order to work. Because of the nature of MLB’s revenues, and their insistence on hiding what’s in the books from the union to the point that they put the 2020 season in jeopardy —not over the dangers of playing during a pandemic in a pre-vaccination world, but because they were asked to open the books to prove they were actually going to lose money paying prorated salaries  — tells me that’s just not going to happen.

Why the need for revenue-scaling? Consider, for a moment, how the league-minimum salary works. MLB and the PA negotiate those figures, too, each time there is collective bargaining, and these negotiated league-minimum figures in no way run parallel to the revenues MLB pulls in during each CBA. As I wrote back in 2019 when discussing MLB’s broken economics for Deadspin:

MLB owners are not going to agree to raise the minimum to a point where it mirrors a healthy arbitration raise, but the minimum salary should, at the least, grow alongside MLB’s own revenues. The minimum as it stands follows an agreed-upon increase system each season, just as the luxury tax threshold does. This helps players earn an extra $10,000 during their pre-arb seasons even when their team is too cheap to give them a raise otherwise, but that’s about the size of it. If the minimum had instead been tied to revenue growth in the years since the luxury tax was instituted, it would have jumped from $300,000 back then to around $850,000 now, instead of the current $555,000.

The actual vs. tied-to-revenue figure was a difference of just under $300,000 — $300,000 more is well over a 50 percent raise from what was actually paid as a minimum! It’s pretty easy to imagine that an algorithm-based system that controls the three years after the negotiated league-minimum salaries would simply serve to perpetuate this problem further. MLB negotiates what it wants the league minimum to be with the PA, and it slowly scales over time, never quite enough to catch up to where it should be because it’s working off of league-minimum precedent more than it is built off of whatever new revenues went into the league’s pockets in between collective bargaining periods. How do you ensure that doesn’t just happen again, on an even larger, harder-to-escape scale that will encompass an even larger percentage of each players’ career, and of more players’ careers in total? Without revenue-scaling, you don’t.

“What is baseball revenue?” is an issue unto itself, one that will not be solved because, again, it would require the league open up its books to show off all of their revenues sources so they can begin to argue about what kind of revenue should count toward a revenue-scaling, arbitration-replacement system, and which kinds shouldn’t count as baseball revenue because it came from real-estate owned by a baseball team that might also be contained within the same property as the baseball stadium they play in that they didn’t even have to pay for because they convinced a city and/or state to cover those costs.

Basically, if you want an algorithm in lieu of arbitration to work, it needs to be extremely flexible and scaled to revenues, so it simply does not become an extension of a pre-existing problem that also needs solving. So it doesn’t simply become another loophole or loophole-adjacent tool MLB can use to keep the median and mean salaries down, while the stars continue to make bank in a way that gives the surface-level impression that everything is fine, actually.

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