Best of BP: An Alternate Baseball Salary System

This article was originally published on September 16.

The Major League Baseball collective bargaining agreement (CBA) expires in December, and negotiations are underway between MLB ownership and the Major League Baseball Players Association (MLBPA). The typical subjects of bargaining are wide-ranging: player compensation, club revenue sharing, player control, free agent compensation, and playoff participation are some of the topics to be covered.

In recent years, these negotiations rarely seem to work out for players. One reason is that both sides are guessing about the revenue effect of the innumerable line items that make up a new CBA. Unintended consequences run rampant, and “victories” at the bargaining table can turn out to be useless. Furthermore, to the extent ownership does come up short, they often can change their behavior to get the money back (e.g., sign fewer free agents) or create new revenue sources not contemplated by the CBA. The MLBPA has hired some of the best negotiators they can find, but it feels like they are playing a game they cannot win. Although this may be fine for those who consider themselves to be “pro-ownership,” it is never a good idea to have your employees feel that they are not being paid fairly.

Players have another, overriding problem: the current system of player compensation is abysmal. For their first two to three years of service time, players receive minimum salaries regardless of whether they are a mop-up reliever or the league MVP. For their next several years, they bargain under a series of restrictions designed to limit their pay. After short-changing players over their first six “years” of service, a time period that teams often stretch longer than that, the current system “rewards” players with free agency. It’s not much of a reward, as few teams participate with vigor. Some free agents get large salaries, but that is not the case for most players. In fact, most players aren’t even around to enjoy major league free agency.

I wonder if the results would be better — both for baseball competition and player satisfaction — if CBA negotiations focused primarily on (1) the creation of a central pool of money to pay regular-season player salaries (2) to which all teams would contribute. For ease of reference, let’s call this a “salary pool.” The negotiations would not be easy, particularly over what constitutes “revenue” and how much of it would go to players. But an agreement to form an MLB-wide salary pool could address a number of baseball’s biggest problems, and simplify the negotiation of other issues.

A salary pool would simplify the remaining negotiations because, if the overall amount of player salary is already decided, ownership could let the MLBPA decide among themselves how to allocate individual salaries (within reason). If players later grow tired of salaries they themselves established, they could vote to change them, instead of being stuck until the next CBA. Likewise, with an agreed, shared salary fund, players no longer need to make decisions about salary caps versus salary floors — they are now one and the same — luxury taxes, or other issues designed to make intra-ownership disputes the players’ problem. Rather, as long as the salary pool is funded each season, the players do not care how much fur flies among the owners. And as with salaries set by the MLBPA, if the owners don’t like last season’s revenue contribution system, they can change it — provided that the agreed amount of salary money still shows up, which by agreement it must. Teams presumably would contribute proportionally to the size of their respective markets, but again, that would be up to the owners.

A salary pool could also improve competition. One of baseball’s biggest problems is the number of teams who make little to no effort to win each season. These teams pocket the revenue shared by successful ball clubs but still often put a poor team on the field, claiming they can’t or that it doesn’t “make sense” to pay for a good team. Now consider a world in which player compensation is centralized, and having more good players no longer costs a team more money. Because a team’s profit would be defined by the revenue they generate beyond their salary pool contribution, the path to more profit means getting more fans interested. Interested fans are more likely to attend games, buy season tickets and merchandise, watch games on TV, and support the team, especially in a smaller market. Top prospects could better serve such a team by selling tickets in the big leagues, not “working on their defense” down on the farm. And if a player wanted to stay with a team for life, they would not face a financial penalty for doing so. There would be no more albatross contracts for small-market teams to fret about.

A salary pool would also incentivize owners and players to make decisions that are good for baseball, which at the moment often does not happen. For example, the universal designated hitter (DH) is viewed by ownership as a change that under the current system would result in more money being paid to players. Thus, ownership opposes it, even though most people agree that bringing the DH to the National League would make for a more watchable, exciting game. Likewise, ownership continues to propose an expanded postseason. Under the current regime, players understandably see this as a mechanism for owners to spend less money on player salaries, and get to the postseason anyway. But with regular-season salaries pre-determined, players might be more open to an expanded postseason if they thought it was actually good for baseball. And if more teams were actually trying to win, it might be.

What might player salaries look like under a centralized salary pool? In theory, it would be up to the players. Ideally though, player compensation would join the 21st century and resemble a system that exists for many white-collar workers: a base salary plus a bonus structure that tries to reward the best performers the most. Even with protections for injury, seniority, and similar edge cases, the system could still focus on paying players for current performance. This would contrast markedly with the existing system, which primarily pays for past performance, and refuses to fairly compensate junior players at all.

What might player compensation look like under such a system? For illustration, let’s assume a salary pool of $4.25 billion. Some would say that is too much, and others too little. But the amount of player salary paid in 2019 according to Baseball Reference was about $4 billion, and players are widely seen as coming up short under the current CBA. This $4.25 billion (which would presume a normal season, substantially unaffected by COVID) would address only salary, and not other benefits and contributions. And again, this is just for illustration.

Starting from that premise, and putting the edge cases to one side for the moment, this compensation system could pay players in two primary ways:

• A base salary of $600,000 for all players, paid proportionally for those who are not on an MLB roster for an entire season.

• A bonus at the end of the season, using a system like Wins Above Replacement Player (WARP), that assigns run values to batting, pitching, baserunning, and fielding contributions. To do this, we could throw out the negative WARP values and bonus solely on the positive values to maintain the minimum salary level.

Let’s put more meat on the bones. Throughout a season, there are 30 teams with 26 players on the active roster at a time and a few more on the Injured List (let’s assume a total of 100, just to pick a number). The 2021 season is mostly in the books, so we will use it to illustrate the effect of WARP on such a bonus pool. Assuming that a $600,000 base salary is paid out to each of these roster slots over 162 games, that would leave about $3.8 billion for bonuses. If we limit ourselves to positive seasonal WARP values, a “win” above replacement would end up being worth approximately $4.36 million. That value is lower than some estimates of what a “win” is worth in free agency, but remember that the latter number is inflated by the money currently confiscated from junior players. Since we would no longer be screwing junior players, the average value of a win for everybody goes down.

The best players would still be well compensated. The difference is that the list of “best players” is now allowed to include players with only a few years or even no years of service time. Here is how the top 10 players, as rated by WARP, would be compensated for their 2021 performance to date under my proposed system as compared to their current salary. The New Total Compensation, which would be the new salary, is the sum of the last two columns:

Current versus Proposed 2021 Regular Season Compensation

Name	Positive WARP	Current Compensation	New Total Compensation	New Base Salary	WARP Bonus
Shohei Ohtani	7.1	$3,000,000	$27,481,422	$600,000	$26,881,422
Vladimir Guerrero Jr.	5.8	$605,400	$22,666,953	$600,000	$22,066,953
Juan Soto	5.8	$8,500,000	$22,628,972	$600,000	$22,028,972
Zack Wheeler	5.5	$22,500,000	$21,628,035	$600,000	$21,028,035
Corbin Burnes	5.2	$608,000	$20,193,267	$600,000	$19,593,267
Marcus Semien	4.8	$18,000,000	$18,982,797	$600,000	$18,382,797
Bryce Harper	4.8	$27,538,462	$18,754,912	$600,000	$18,154,912
Freddie Freeman	4.7	$22,359,375	$18,375,102	$600,000	$17,775,102
Jose Altuve	4.4	$29,200,000	$17,995,292	$600,000	$17,395,292
Fernando Tatis Jr.	4.5	$1,714,286	$17,767,406	$600,000	$17,167,406

Young stars who are grossly underpaid relative to their performance, like Shohei Ohtani and Corbin Burnes, would now earn the same as veterans who perform at a similar level. In the case of Shohei Ohtani, he earns more than everybody else, which he absolutely should, as he both pitches and hits at a high level, and that combination is more valuable than anyone else’s total contribution.

What about existing multi-year contracts between clubs and players? Although subject to negotiation, my view is that those contracts should be honored if either party so elects. If the existing contract is reasonable, the compensation might not be that different. To the extent it does end up being different, that is a risk those parties assumed by entering into a contract that extended beyond the current CBA. Fortunately, the teams with the most money sunk into these contracts are generally the ones most able to afford them. And in any event, the players on the most expensive contracts are often the players from whom the most value was confiscated early on in their careers, and who understandably wish to earn that money back. With all this said, nothing stops both sides from agreeing to some sort of credit system to compensate teams (or players) who are parties to these legacy contracts.

There would still be plenty of other, non-salary issues to negotiate. The first two that come to mind are seniority and injury protections.

Unions traditionally place high value on seniority, in part, I suspect, because they are suspicious of how performance standards would be defined and enforced. But measuring baseball player performance is much more objective than measuring a worker’s attitude on an assembly line. Players rely upon statistics all the time to argue for more money, and under the system I have outlined, the best way for a player to be rewarded for seniority would be to remain productive and be paid accordingly. But if the MLBPA wants to help out backup catchers and other specialists, it would not affect the pool much to give those players small service time milestones as a backstop against poor performance in a WARP-based bonus system.

Injury protection may also feel like an obstacle, but it needn’t be. Although players currently still get paid when they go on the Injured List, an inability to stay healthy often comes home to roost on their next contract. Availability is a key part of a player’s true value to a team and to any sport. But, to protect the true edge case who had a strong previous season and then got injured, the pool could guarantee a minimum portion of the prior year’s salary for players who would otherwise seem to be unfairly derailed by injury.

The most important remaining issue may be player control. Much of the acrimony over team control of players is driven by resentment over compensation, a problem we are trying to solve. Nevertheless, teams are still going to want some period of control over players they develop, and players, in turn, at some point will want to decide for themselves where they will play.

Some period of club control over players could remain, although the time period to free agency could be reduced from 6 years to 5, given that service time management by teams has effectively turned 6 years into 7. The ultimate amount of control to be negotiated, however, should not preclude the establishment or the effectiveness of a salary pool.

What about free agency after the time period for team control expires? In a salary pool system, how does a team gain “control” over a free agent without agreeing to pay them extra money? How do we avoid an “NBA style” market in which players essentially control who goes where, and end up with “too many” good players on the same team?

There are multiple ways to address these issues, to the extent they are “issues” at all. One possibility is that while a free agent gets to choose their team, the team they choose gets a one-year team option for the following year, after which the player is a free agent again. The CBA could also impose limits on the amount of projected free agent value a team is permitted to add each year, using some agreed-upon formula. Teams could also offer to waive their team option as an inducement, or be allowed to offer other (non-monetary) sweeteners. Finally, remember that if players get bonuses under the proposed system only for accumulating counting stats (as would be the case under WARP), players will be incentivized to seek out teams where they can actually get into the lineup, not to be a part-time player on a super-team.

It is possible that neither MLB nor the MLBPA would be interested in the system I have outlined here. Both sides have done business a certain way for a very long time, and, as experienced labor negotiators, they probably have their reasons for doing so. The system I have proposed probably has other downsides I have not yet considered and that would need to be addressed.

But I think it indisputable that baseball’s biggest structural problems — problems that are bad for baseball, problems that cost both sides a lot of money and fan support — arise from the endless proxy wars over the amount of money players might get paid, without ever directly addressing what that amount ought to be. Until we address that core issue, it is unrealistic to expect either ownership or players to make decisions in the true best interest of professional baseball.