All the reasons why baseball players earn so much money

Time for a guessing game. Out of the 20 highest paid sports contracts in terms of contract value, where does baseball players salary rank? What do you think? Maybe 15%? I mean football players also earn a lot of money. And let’s not forget basketball. LeBron signed a $153 million deal with the LA Lakers in 2018. That is a hefty sum. Then there is also stuff like Formula 1 or boxing.

So last chance to take a guess. 3…2…1…

Out of the 20 largest sports contracts in terms of contract value, 20% are NOT in baseball. Yeah you read that right. 80% of the largest sport contracts are signed in baseball. Three in basketball and one in boxing. (Source )

I have to admit, if you consider the average yearly baseball players salary, the numbers look different and suddenly the number drops to 7 out of 20 or 35%. Quite a drop, but still crazy if you consider how many kinds of sports there are.

Interesting fact: The first American football player ranking on this list is Andrew Luck from the Indianapolis Colts at place 47…. His contract value is $139 million  over six years, which means roughly $23.2 million every year. Compare this to Giancarlo Stanton from the New York Yankees with his contract valued at $325 million over 13 years. This equals a yearly paycheck of $25 million. Even crazier is the recent contract that Mike Trout signed. $426.5 million for 12 years. Not only are they making more per year than Andrew Luck, but they also have a 12/13 year contract compared to a six year one.

So how comes baseball players salary is so high? There are several reasons, which I will explain in detail below.

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No salary cap but a luxury tax

Unlike the NFL or the NBA, the MLB does not have a salary cap. While the NFL teams have 53 people on their roster and have a salary cap of $190 million for all their players combined, the MLB teams are free to spend as much money on salaries as they like. You have a rich sponsor in the background who is willing to give you $1 billion  each year just for salaries? Feel free to spend it. Not a problem.

The only thing that will happen is that the luxury tax will be applied. Technically called “Competitive Balance Tax”, the luxury tax is meant to punish teams for spending too much money on salaries. In 2019 too much money means more than $206 million. Do you see how this is still $16 million  more than an NFL team, for 25 people instead of 53 as in the NFL? Crazy stuff. With the luxury tax, every dollar spent more than allowed is being taxed. And this is the part that sucks, if you have this imaginary rich sponsor in the background.

Tax rate

First time: 22.5%

Second time in a row: 30%

Third time in a row : 40%

Fourth time in a row (or more): 50%

So let’s imagine you surpass the threshold in 2019 for the first time. You have spent 794 million too much for salaries. This means you owe the MLB $17.865 millions.

If it was the fourth time in a row, you would owe them $397 million. By the way, in case you drop below the threshold for one season, you tax rate is being reset and you start at first base (pun intended).

Of course these numbers are absurd, but I hope you can see how the luxury tax works.

What happens with the money you ask? The first $13 million are used to defray clubs’ funding obligations under the MLB Players Benefits Agreement. The rest is spent 50/50 on funding player compensation and distributed to clubs that did not exceed the threshold.

Revenue sharing

The modified MLB’s revenue sharing program was introduced in 2002 and makes every club pays 31% of its net local revenue into a fund.

Net local revenue describes the Club’s revenue less the actual stadium expenses.

These 31% are paid by every franchise into a pool, which is the equally divided and shared between all clubs. This leads to even the smaller clubs making a lot of money.

Exploding revenue from media rights

Apart from the MLB’s internal revenue sharing program, there is also a lot of money coming in from media rights. Alone the television rights agreement announced in 2018 between the MLB and FOX Sports is said to be worth more than $5 billion. And let’s not forget the current deal which is worth $4.2 billion. The MLB also has contracts with many more sports channels, so you see where I am going with this.

Apart from this, all clubs have their own agreements with local TV channels. In 2015 the Arizona Diamondbacks signed a deal said to be worth $ 1.5 billion. Quite some nice pocket money.

Why do television networks pay that much money to the clubs? Pretty simple. 162. That is the magic number. There are 162 games a season, which is a lot compared to other sports. That means that there is a lot of content for the TV networks to make money with, so they are willing to pay a lot for it.

Strong union

A union is a nice thing. The MLBPA (Major League Baseball Players Association) is an even nicer thing. Famous director Marvin Miller managed to increase the minimum salaries from $19,000 to a whopping $326,000. $326,000 does not sound like much compared to the $25,000,000 that Giancarlo Stanton makes currently, but consider the increase here. During 16 years (1966 – 1982) Marvin Miller managed to increase the minimum salary by 1715%. Take your own salary and multiply it with 17 to get a better feel of it. In 2019 the minimum salary is at $555,000 according to statista.com

Apart from this, MLB contracts are guaranteed. That means that teams who sign a player really commit to the agreement and have to pay the salary, even if a player is cut from the roster before his contract ends.

Baseball is a numbers game

This is actually a really interesting reason now. I guess you know that there are lots of stats involved in baseball. It feels like there is a number for everything. Everything is quantifiable and numbers never lie. You have a built in safety net into the sport. But to be honest with you, this argument only works combined with the next one.

Baseball is a one person team sport

“But in basketball or football there are also many stats. Why is there a difference then?” Good question. Consider how football or basketball are played. It is much more of a team sport than baseball. You can never really know if LeBron will score as many points as he does currently, if you switch half the LA Lakers roster. Same goes for football, as in these sports there is a lot more inter-team dependency going on.

If you look closely at baseball you will see that it is mainly a “fight” between the pitcher and the batter. Basically like a one person sport like tennis. You can change the complete roster except for the pitcher, but the pitcher will likely keep his stats as he is not dependent on his teammates for throwing a pitch. It is in his control.

This is why numbers in baseball have more power than in other sports and why this also equals a higher pay. You can just predict things in baseball with a higher accuracy, which decreases risk.

Take it with a grain of salt: salary gap is huge in baseball

One more reason why baseball player earn so much money is, that their teammates are cheap.

In order to understand this, you have to take a look at how baseball players are paid. There are basically three types of players: pre-arbitration players, player eligible for arbitration and free agents. These levels are based on how long a player has been active in the MLB. You advance a level after three years of service. This means after three years you become eligible for arbitration and again after three years you become a free agent.

The first six years/ the first two categories a player belong to one team, as they have contractual rights to him.

The first three years of that agreement it is basically a take-it or leave-it deal for the player, which is why most players make around the minimum salary in their first three years, which is at $550,000.

After three years of service the player becomes eligible for arbitration. That means that the player and the club will both make an offer for the salary of the upcoming season.

This is the moment players’ salaries explode.

More often than not, the offers are not in the same range, so there is an opportunity to negotiate for both parties. If they do not come to an agreement, there will be a hearing in front of the arbitration panel.

During this hearing the club and the player will have to present reasons for why their offer should be accepted. As the name already suggests, the panel can only decide between the two offers. There is no middle ground.

Generally the salary for arbitration eligible players is around the same number as salaries for comparable players. It is only allowed to compare the respective offers of the club or the player to players who are not more than one annual service group above the player whose salary is being decided upon.

After three years of being eligible for arbitration players reach the last level and become free agents. They are now free to choose any club they would like to play for and negotiate the baseball players salary without being compared to other players. This means that players who perform really well during their first six years will most likely make a lot of money as free agents, as a lot of clubs will be interested in them.

Given that you have all kinds of players on a roster, it is possible that the free agents on the team make millions, while the newbie barely make the minimum salary. This system of three different categories cuts down the cost for the clubs and enables high salaries for free agents.

And this is just the salary gap in the MLB. If you read about the baseball players salary in the minor leagues , you will see that baseball has a few high earning players, while the majority is not that lucky.

In the end all these reasons work together and allow for extremely high salaries in baseball. There is a lot of money in the MLB, but it is definitely not spent evenly. Nevertheless with enough patience and time every player eventually becomes a free agent and is allowed to earn as much money as he likes. And let’s be real. Even the minimum baseball players salary of $550,000 for doing what you love is not too shabby.

Do baseball players earn more than football players?

This question sounds easy, but it is hard to answer. It totally depends on which kind of salary you take a look at.

If you check the average MLB baseball players salary you will find, that MLB players make $4.36 million. NFL players make $2.7 million on average. So if you check this number, MLB players make far more money than NFL players.

If you check the median salaries though, the numbers look much different. The median salary is the salary where an equal amount of players earn more and less than the median salary. The median salary for the MLB is at $1.4 million, while the median salary for the NFL is at $860,000.

Looking at the highest paid athlethe for a single season you find Eli Manning taking the top position for the NFL. Manning earned $37 million in 2015. The highest paid player in the MLB during the 2019 season was Stephen Strasburg, earning $38.7 million. The difference between these two athlete’s salary is minor.

You can of course also check the contract value to measure the salary. The highest paid contract in the MLB currently belongs to Mike Trout with a value of $426.5 million. The highest paid contract in the NFL is currently valued at $150 million. Sounds like a massive difference, doesn’t it? Don’t forget to check the life-time of these contracts. The NFL contract has a life-time of 5 years, while Mike Trout signed a deal for 12 years. This means that their yearly earning are actually not that different.

As you can see, the question is hard to answer. You can think of many more ways to compare NFL and MLB salaries, but in the end there will always be a discussion about if MLB players earn more than football players.

Get home safe,
Jan