The ins and outs of baseball salaries

by Sujeet Patel, for Club LT

If you have been following Major League Baseball, you know what a historic free agency season this past year has been, with powerhouses like Bryce Harper and Manny Machado both signing record-setting contracts that left fans slack-jawed when their salaries were announced.

Machado struck first, signing a 10-year, $300 million deal with the San Diego Padres in February, marking the largest free-agent deal in MLB history. Not to be outdone, Harper signed a 13-year, $330 million deal with the Philadelphia Phillies in March, presumably using Machado’s deal with the Padres as leverage to get the money he wanted from the Phils.

And then there’s centerfielder Mike Trout, who chose to stay with the Anaheim Angels instead of testing the market as a free agent, a move that resulted in a record-setting 12-year, $426.5 million contract extension that will have him retiring in an Angels uniform. Both Trout and the Angels were happy with the deal, so it was a win-win for everyone.

But while the press likes to focus on these insane multi-million dollar salaries that baseball’s star players get, the truth of the matter is that the rest of the players on the team are making substantially less, and they faced a hard road making it to the majors in the first place. So how exactly are baseball salaries calculated?

Most baseball players start their careers in the minor leagues, where a first-year salary starts at a paltry $1100/month, plus $25/day for meals. When a player is promoted to the AAA level, they’ll get bumped up to $2,150/month. Some players stay in the minor leagues up to 10 years and never get called up to the majors.

If a player has what it takes to enter the major leagues, they commit to the team that drafted them for 6 years. For the first 3 years, they are paid close to the industry minimum, which is $555,000 for 2019. After 3 years, they enter the salary arbitration process, where the player and team each float a salary proposal and come to an agreement based on their perceived value.

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If the two parties can’t reach an agreement, a third-party arbitrator picks one of the two salaries based on what they feel is the fairer valuation, and that’s what the player is paid. After 6 years in the major leagues, the player can become a free agent and go with whatever team offers him the most money and/or best terms, or opt for a contract extension if they wish to stay with the team they’re current playing for.

Breakout players who have demonstrated considerable value on the field can command huge salaries that come with free agency, with teams fighting to lock down that prized player. And those are the deals we hear about, like Alex Rodriguez’s historic 10-year, $275 million deal with the New York Yankees in 2007. But as you can see in this salary breakdown from USA Today, “regular” players (who are still amazing athletes in their own right) will see much less, with at least half of the players in the league earning less than $1 million per year.

Whether you swing for the fences and buy a line-up of sluggers or play the “Moneyball” game and build your team of under-valued, utility players … major league payrolls still add up.

At the same time, team owners face tough decisions each season on how to divvy up their budget. Do they swing for the fences with big name players like Manny Machado, knowing that he is going to deliver many years of consistent production, and work to build a team around him? Or do you Moneyballit and look for undervalued players that can deliver the goods on the cheap?

Clearly, the latter worked for the 2002 Oakland A’s, who proved to be competitive and made it to the playoffs despite having just $44 million to work with, compared to the Yankees who had $125 million payroll that season, and proving that you can’t just buy your way to the playoffs.

But other teams are employing sabermetrics these days, making that strategy a much harder proposition these days. Personally, I think the Phillies made a good call with Harper, even if he’s been in a bit of a slump lately, and I think people will look back at his signing years from now talking about what a great deal it was.

About Sujeet Patel
Sujeet Patel is the founder of Guys Gab and one of the biggest automotive enthusiast you’ll ever meet. He’s been fortunate enough to turn his passion for cars into a full-time job. Like they say, “If you love what you do, you’ll never work a day in your life.”

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