Monday, April 29, 2013

3 comments It Would Be Kind of Nice If the Players Would Let the Owners Make a Few Bucks Too

Remember back in the good old days when baseball players had to take second jobs to support their family, the owners got to pocket more of their team's profits, and everyone got to make money off the players while the players' salaries were held down by a lack of a free market? Yeah, this sort of describes collegiate sports now, but Edward McClelland misses those days in professional sports as well. Whatever happened to the owners just being able to pocket more of a team's profits? The fact these professional athletes are becoming so well-paid really ticks off McClelland and it makes him not enjoy sports at all. The free market sucks. Employees with elite abilities should get paid their fair market value, except for athletes, because that makes McClelland irritated at the idea of the economic inequality of it all.

I enjoy the fact McClelland, who clearly fancies himself quite the economic expert, doesn't see sports revenue seems to be a zero-sum game. If the players get paid less, somebody pockets more money. How are the owners pocketing more money and the players pocketing less money getting rid of the economic inequality in sports? The answer: It isn't.

I’ve been a Tigers fan since I was 11 years old, and I filled scrapbooks with stories about Alan Trammell and Lou Whitaker clipped from the Detroit Free Press. Hanging on my office wall is a framed photo of Kirk Gibson celebrating his second home run in Game 5 of the 1984 World Series.

Those were the days before free agency and the unionization of Major League Baseball players, you know, the good ol---wait, you mean the players unionized and were granted free agency before 1984? So how come McClelland originally started liking sports when there was income inequality and now he is all up in arms over this same income inequality? Perhaps McClelland was too young in 1984 to understand how little money the players deserve and how many profits the owners deserve.

Last fall, after the Giants swept the Tigers in the World Series, I insisted their championship was as illegitimate as George W. Bush’s presidency, because they’d reached the postseason with the help of Melky Cabrera’s PED use.

It's a relevant political comment! It's 2013 and McClelland is still making comments about the 2000 election. Not that he is bitter or goes out of his way to bash low-hanging fruit of course.

You might think I would’ve been happy, then, when the Tigers signed Justin Verlander, the most dominant pitcher of this century, to a contract that will pay him $180 million over seven years. But it turns out there is a point at which my lifelong love of the Tigers, and of Major League Baseball, collides with my equally strong loathing of economic inequality. And that point is $25.7 million a year.

Verlander is perhaps the best pitcher in the major leagues. He has a skill set few other human beings have. This makes him valuable and he gets paid as if he were this valuable.

In 1972, the year I became aware of baseball, its highest-paid player, Hank Aaron, earned $200,000 per season—the equivalent of around $1 million today. Aaron’s salary was 18 times the median household income in the United States.

Hmmm...this seems like an example of quite a large income inequality from before Justin Verlander signed a $180 million contract. Sure, this gap in the median household income and MLB players has gotten wider, but 18 times the median household income is a pretty damn good example of income inequality. Remember, this income inequality comes from 1972, before the MLB players unionized and ruined everything.

"Forget this though," says Edward McClelland, "sure, there was a large income disparity in 1972 but things are worse today and that's all that matters. Stop poking holes in my argument."

This year’s highest-paid player, Alex Rodriguez, stands to earn $29 million, which is 580 times the median income.

BREAKING NEWS: Alex Rodriguez is overpaid and earns more than the average American earns.

What McClelland fails to take into account is that if A-Rod wasn't earning $29 million this money wouldn't be going to his favorite charity or to cancer research. This money would be going in the pockets of Yankees ownership (as long as there is not an intentional decrease in revenues). Don't believe me? Take a look at pretty much any large corporation in the United States. The CEO of many companies are paid outrageously, and if the CEO isn't the owner of the business, the owner of that business is also being compensated handsomely. You know who isn't being paid handsomely? The typical employee of that company. It's a zero-sum game. If there is $50 million in profits to go around, once $10 million is taken from one person then it goes to another person in that company, most likely the owner. Sometimes this money would be reinvested in the company, but in professional sports I think I know where that $10 million would go. So the basic argument McClelland is making is that the MLB owners deserve more money.

Over the past 40 years—the period of rising economic inequality that former Slate columnist Timothy Noah called “The Great Divergence”—Americans’ incomes have not grown at all, in real dollars. But baseball players’ incomes have increased twentyfold in real dollars: the average major-league salary in 2012 was $3,213,479.

"The Great Divergence" really had nothing to do with sports or the income of baseball players, outside of the fact MLB players tend to be very wealthy. So in a roundabout way, Timothy Noah was referring to baseball players, but not exactly in the context of the present discussion about MLB player contracts. Also, if MLB players make less money then those funds go in the pocket of the Tigers owner, thereby increasing this "Great Divergence" even more.

The income gap between ballplayers and their fans closely resembles the rising gap between CEOs and their employees, which grew during the same period from roughly 25-to-1 to 380-to-1.

So wouldn't it be fair to say the increase in MLB players' income isn't a product of the players unionizing or free agency, but is a product of the income of the upper class continuing to pull away from the income of the middle class? It's a systemic issue rather than a sports-related issue.

Now, rooting for any team is like rooting for U.S. Steel. Even the Houston Astros, whose 25 quadruple-A players will earn less money combined than A-Rod in 2013, have a higher payroll, in real dollars, than those Yankees of the 1950s.

Again, it is a zero-sum game. If the Astros chose to dramatically lower ticket prices then this could perhaps change, but as long as revenues are where they are at someone is going to be making money off the Houston Astros, it's just the players now have a bigger piece of the pie.

I’m singling out professional athletes for my class envy because they’re the highest-profile beneficiaries of changes that have enriched those at the top of the economic order while impoverishing those at the bottom.

I think CEO's are pretty high-profile as well and their income has risen in tandem with the income of professional athletes. Sure, the average person doesn't know the CEO of Cisco, but the fact he makes many times more than the median household in the United States doesn't make this fact any less egregious. At least professional athletes provide some entertainment in our lives.

Athletes’ bargaining power was constrained by the reserve clause, which tied a player’s rights to a single team for his entire career.

On its face, this seems patently unfair. I think free agency has not been a step back for professional sports and the fact it has raised the income of athletes and their bargaining power isn't necessarily a bad thing. It can be a frustrating thing for fans of a team to see a guy like A-Rod make $29 million, but if a person is so annoyed at the idea of A-Rod making $29 million then he can simply stop watching sports. The rich aren't going to get any less rich.

The deregulation of the American economy that began in the 1970s has increased the salaries of professional athletes enormously while reducing those of blue-collar workers

Yes, it is the fault of baseball players that wages for blue-collar workers have been stagnating. If only A-Rod didn't make $29 million then that wealth could be spread out to blue-collar workers. That's how it would happen, right? The Yankees would start to pay their vendors more, their front office staff more, their parking attendants more, because all of this $29 million would be redistributed out to them. Fuck you, A-Rod for destroying the American blue-collar worker.

Because the reserve clause was eliminated at the insistence of the Major League Baseball Players Association, the Seitz decision is considered a victory for organized labor. It wasn’t. It was a victory for the laissez-faire marketplace.

I hate it when capitalism wins! How dare someone with a unique skill set experience a sharp increase in wages due to this unique skill set!

Baseball players are entertainers with specialized skills. They didn’t start earning their true market value until they were allowed to negotiate individually with owners—the antithesis of collective bargaining.

Their what? Their "true value?" So how can we argue with baseball contracts increasing at an exponential rate if this exponential increase represents the true value of these players? I think professional athletes get paid too much, but I also think a lot of other people get paid too much money. Athletes aren't the only ones who are underpaid and blue-collar workers aren't the only ones who are underpaid.

Marvin Miller, the former United Steelworkers of America economist who became executive director of the MLBPA, was a talent agent, not a labor boss.

This is a bizarre statement considering Marvin Miller did an excellent impression of a labor boss during his time as the MLB union chief.

In 1981, both the Professional Air Traffic Controllers Organization and the MLBPA went on strike. The air-traffic controllers were fired—a disastrous event for the labor movement, as it signaled that the Reagan administration would not protect the interests of unions. 

So it is Ronald Reagan and A-Rod's fault that professional athletes make too much money? Unions are bad, unless they aren't bad, in which case they are good? Professional athletes have no right to unionize, but blue-collar workers do?

Meanwhile, the players went back to work in 1981, and their salaries continued rising. The MLBPA became one of the nation’s most powerful unions because only 500 people in the world can hit a major-league curveball and only a few hundred can throw one. Unlike air-traffic controllers—or millwrights, or miners, or tool-and-die makers—they can’t be replaced without ruining the product, because they are the product.

This explains very well why once the MLBPA was formed that the salary of MLB players sky-rocketed. They have a unique skill set. I fail to see how A-Rod shouldn't get $29 million of a $2.3 billion business if he IS the product for that business. Yeah, he is overpaid, but $2.3 billion is a lot of money also. If player's salaries were cut, then the only way income inequality could be avoided is if the Yankees forgo potential profits to lower ticket prices and thereby decrease revenues. The middle-class could more easily afford tickets, the baseball players would have a salary cut and the Yankees owners would not get a bigger piece of the pie at the expense of these other two parties. Good luck getting the Yankees to redistribute this wealth and forgo making more money.

A 2002 article by Keith Sill of the Philadelphia Federal Reserve Bank calls this the “skill premium.” Sill explains that since 1970, “the wages paid to the most highly skilled workers—those who have higher levels of education, ability, or job training—have increased dramatically relative to the wages of the least skilled workers.”

Again, this is a systemic issue. This column could just as easily be about CEO's.

Since 1972, the major-league minimum salary has risen from $13,500 to $480,000. But Hank Aaron earned just 15 times as much as the lowest-paid rookie. A-Rod, by contrast, makes 60 times more than the poorest major leaguer.

I know A-Rod is a good example to use with him being the highest-paid player in the majors, but I would guess a guy like Justin Verlander may have 53 times more value than the lowest-paid rookie pitcher. This is factoring in jersey sales, publicity the Tigers get for Verlander being their employee, his value on the field, and any other tangible and intangible value that goes along with the Tigers employing Justin Verlander. I have no proof of this and it is just a guess, but Verlander has a great amount of value to the Tigers team that is worth $643 million. Yes, Verlander is overpaid, but he holds a lot of value to the Tigers.

As baseball players accumulate plutocratic riches (Rodriguez will have earned a third of $1 billion by the time his contract expires), I find myself wondering why I’m supposed to cheer for a guy earning $27.5 million a year—he’s already a winner

Well, considering you are a Tigers fan and Alex Rodriguez plays for the aren't supposed to be cheering for him because he doesn't play for your favorite team. Why do you continue to purchase products from and support companies who have a CEO making $27.5 million? They don't need your support. Why do you write columns for Slate? They are already successful without you and don't need you writing for them.

When I was 11, I hero-worshipped the Tigers’ shortstop because I could imagine growing up to take his place. Obviously, that’s not going to happen now.

When I was 8 I used to think an NBA team would see me playing basketball and offer me a contract. The fact I believed this had more to do with my unrealistic expectations as a child more than it had to do with anything else. When you are 11 years old, how much the Tigers' shortstop makes is almost irrelevant, so your lack of skill at playing shortstop is what prevented this dream from happening, and has nothing to do with how much professional athletes earn.

Edward McClelland wasn't priced-out of being the Tigers shortstop, he didn't have the talent to earn as much money as the Tigers shortstop. It's not a monetary issue, but a skill-set issue.

Since my past two jobs disappeared in the Great Recession, I can’t watch a professional sporting event without thinking, Most of those guys are set for life, while I’ve been buying my own health insurance for 5 1/2 years

It's easy to be bitter about this. Unfortunately, if you lost your job in 1972 then you could have looked at Hank Aaron (who was earning 18 times the median United States household income) and have thought he was set for life and you are buying your own health insurance for 5 1/2 years. This is something McClelland could have been bitter about in 1972 as well. The amount professional athletes earn in salary has become exponentially more large, but the bottom line has stayed much the same over the past few decades...professional athletes earn more than the median household income in the United States.

Paying to see a baseball game feels like paying to see a tax lawyer argue in federal court or a commodities trader work the floor of the Mercantile Exchange. They’re getting rich out there, but how am I profiting from the experience?

How am I profiting from reading this article? How is Edward McClelland profiting from me doing my job? He isn't, so does that mean I am overpaid because Edward McClelland receives no benefit from me performing my job? Of course not.

I know we’re never going back to the days when Willie Mays lived in Harlem and sold cars in the offseason, but the market forces that have overvalued ballplayers’ skills while devaluing mine have made it impossible for me to just enjoy the damn game.

It's okay to be bitter. Just don't make the earnings of professional athletes into any larger problem than it is simply because you are upset that your skills are being devalued. McClelland already stated these players are earning their true value, so why go on a rant about how unions are ruining the sport and professional athletes should earn less money (thereby allowing the owners to make more money)? This sounds like a personal complaint made by McClelland where he needs to decide if his bitterness towards how the skill-set of professional athletes is being compensated, as compared to his own compensation, is worth not watching sports anymore.

I have an offshore wagering account in Costa Rica. In October, I made the homer’s mistake of betting on the Tigers in Game 1 of the World Series, because I thought Verlander was invincible.

Just a bit of personal advice. If you are going to write a column complaining about how you are underpaid for your skill-set and have to pay for your own health insurance, then you should probably not be gambling on sports. An easy way to lose money is to gamble with the small amount of money you claim to have.

Unlike the fictional Davis Birch, Verlander got his price. But do you think he loves Detroit so much he would have signed a contract that made him anything less than the highest-paid pitcher in baseball history?

No, because that's his value as it pertains to his skill-set. The market determines his value and what a team is willing to pay him is how much Verlander is worth. There is a lot of money being thrown around, there's no doubt about that, but Verlander is possibly the best pitcher in the majors and he was compensated as if he were.

This year, I decided to get my price, too—since the players can sign with the club that offers the most financial opportunity, why can’t I become a free agent? And I regret to say that, unlike Verlander, I will not be staying with the Tigers.

Here's where the article gets silly and McClelland shows his natural ignorance about the fact nearly every MLB player should be considered overpaid. So if he doesn't want to cheer for overpaid players, he shouldn't cheer for an MLB team.

I bet the Washington Nationals to win the National League pennant at +350, hoping a healthy Stephen Strasburg will carry them all the way. (In the American League, the Tigers are +380, a bit short for a team with no closer.)

People can do what they want to do with their money, but stop complaining about having to pay your own health insurance if you spend part of your income on gambling. It only harms the point you want to prove.

So for the 2013 season, I’m a Nats fan.

Because that makes sense. The Nationals pay five players more than $10 million and have two players (Stephen Strasburg and Bryce Harper) who will probably earn over $100 million in a long-term contract over the next four or five years, whether it be in a contract extension or in free agency. The Nationals, the team with the 10th highest payroll in the majors, are just a the-little-team-that-could with a bunch of underpaid players.

It says more about Edward McClelland's loyalty to the Tigers than it does about how much Justin Verlander gets paid that he is willing to abandon them to cheer for the Nationals so he can win a bet.

And after the playoffs, I’ll be on the market again, ready to jump ship to whichever franchise offers me the best deal.

How clever of you! Because professional athletes have the audacity to maximize their true value, you are going to maximize the amount of money you can make by gambling through cheering for a different team every year. We all know cheering for a team to win the World Series increases their chances of winning the World Series.

Through all of this whining Edward McClelland never mentions that if he were offered a lucrative contact to write for "Esquire" or another magazine that he would immediately accept it. It's wrong for someone to make a lot of money until a lot of money is offered to you. It's pretty much a zero-sum game. If Verlander makes less money then some of the revenue set aside for salaries would either go to another player or stay with the already wealthy owner of the Tigers.


JJJJShabado said...

Nice write-up.

Baseball players' salaries are fairly well connected with revenues. The arguement to make is that if you want players' salary to match more like everyday corporate world (somebody like Kobe would be the highest paid at like 500K based on longevity and skill) and that tickets should be no more than $5, there's some logic into that. However, revenues are at an all time high, so player salaries reflect that.

Snarf said...

I'm glad that he calls what he's doing class envy because that's absolutely all it is. MLB players making more money doesn't make any given fan less well-off or wealthy. If a Big Mac costs $1, you can get the same number of Big Macs for $20 whether Arod makes $10M a year or $29M a year.

As you mention its tied to revenues and his solution is really just to let owners keep more which doesn't make sense. And it sounds all well and good to say ticket prices should be reduced, but the existence of a healthy secondary market indicates that tickets are actually under-priced relative to market demand. Where his anger should be directed, in my opinion, is at the franchise system of the leagues that prevents teams from sprouting up wherever a market can support them. Not saying that its a good solution, but that seems more of a reason for higher pay (static number of teams, more money to split) than the players.

Bengoodfella said...

JJ, I know and the idea is that the revenue has to go somewhere. So players are overpaid, but if they weren't overpaid the money would go somewhere else. I would love for tickets to be cheaper, but good luck with that happening. So in the world we live in, players will get their share of money. Otherwise it goes to other rich people.

Snarf, I didn't even touch the secondary market, which is a good point on your part.

I don't point the blame at anyone really and it is just the state of sports. How much these players make doesn't affect me as long as ticket prices aren't going to be raised to extremely high levels. There will be a response in the secondary market if ticket prices are too high.