Economic Inequality in Baseball: Debunking the Fallacy

Baseball is America’s pastime. Nothing is better than playing catch with your dad in the backyard, going to the ballpark in the summer, devouring a hot dog, drinking some beer, and enjoying the smell of freshly cut grass.

The first official baseball game was played in 1846 between the New York Knickerbockers and the New York Nines. Since that day, baseball has become a staple in the everyday lives of millions. Come 2023, baseball is still America’s pastime. However, just like any other organization, a litany of problems plague contemporary Major League Baseball (MLB)–none being bigger than the vastly diverse economic operations of thirty different teams.

The payroll disparities amongst MLB teams have never been larger than they are projected to be in 2023. The New York Mets 2023 payroll sits at $336.14 million, claiming the title of the highest payroll in baseball to this date. The Oakland A’s have the lowest payroll in baseball at $40.93 million. To put this disparity into perspective, two pitchers on the Mets–Max Scherzer and Justin Verlander–will each make more than the Oakland A’s entire payroll this season. Both pitchers are set to earn $43.33 million, tied for the most a player has ever earned in a MLB season.

The New York Mets, along with having the largest payroll, are owned by Steve Cohen who has a net worth of $17.5 billion (Forbes). Cohen earned his money through shrewd trading practices, and is currently a hedge fund manager at Point 72 Asset Management, a company of his own creation. Cohen bought the Mets from the Wilpon Family in the fall of 2020. Excluding the shortened 2020 game season caused by the pandemic, the final full year of the Wilpon ownership in 2019 displayed a Mets payroll of $161.87 million. In the three years of the Cohen ownership, the Mets total payroll has increased exponentially each season. In 2021; $201.19 million, in 2022; $268.30 million, and currently in 2023, it stands at $336.14 million. In comparison, The Oakland A’s 2021-2023 seasons had payrolls of $90.40 million, $48.44 million, and $40.93 million respectively. Cohen’s team payrolls are going to be an outlier as long as he runs the Mets, as his net worth is $6 billion more than the next richest owner, Toronto BlueJays owner, Edward Rogers III (DiGiovanna 2022).

If MLB team payrolls exceed certain thresholds, they are forced to pay a tax. This is known as the luxury tax. Owners who have more money can financially withstand many of these penalties.

The disparity between the A’s and the Mets payrolls underscore baseball’s greatest problem of the 21st century: economic inequality. The question is, how do we solve it? The answer is, of course, complicated. All five of the last five World Series champions have had top ten payrolls. This means that the teams that spend the most, win the most.

The teams that spend the most don’t just win the most because they have largest payrolls. They also win the most because the have the best infrastructure. The Dodgers and the Mets are two of the leagues biggest spenders, but they also have top end coaching staffs and two of the largest analytics departments in the sport. They also have large player support departments, and a vast network of resources to help their players improve. MLB organizations can spend an unlimited amount of money on the non-player parts of the organization, which has direct benefits for the players.

One of the greatest fallacies in modern baseball is that teams based in large media markets can spend more money then teams based in small media markets. Media markets are determined by population and viewership, which has led many to incorrectly assume that teams who play in “sports cities” with larger populations will make substantially more money than teams who play in cities with smaller populations.

San Diego is the 4th smallest market in the MLB heading into the 2023 season, according to SportsMediaWatch, but has the third highest payroll in baseball heading into 2023. At $236.92 million, the Padres payroll only trails the two New York teams.

Padres owner Peter Seidler’s personal net worth is estimated to be around 3.5 billion, being co-founder and managing partner of Seidler Equity, which has an estimated net worth of $3 billion ((DiGiovanna 2022). Only 12 MLB owners have a net worth less than the Padres owner. John Fisher, the owner of the Oakland A’s, has a net worth of $2.6 billion, just shy of Seidler, and his team plays in a larger media market. The Detroit Tigers, Minnesota Twins, and Cleveland Guardians all have bottom half payrolls in the MLB, despite having owners with higher net worths higher than the Padres.

The San Diego Padres currently have five contracts on their books for over $100 million. Manny Machado–11 years/$350 million, Fernando Tatis Jr.--14 years/$340 million, Xander Bogaerts–11 years/$280 million, Yu Darvish–$6 years/$108 million, and Joe Musgrove–$5 years/$100 million.

MLB commissioner Rob Manfred estimated MLB teams lost a combined $3 billion because of the pandemic (Ciccotelli, 2020). We are just three years removed from that significant financial downturn, and despite the massive losses, the Padres have agreed to all five of those contracts within the last two years.

MLB commissioner Rob Manfred questioned the long-term sustainability of the Padres spending (Nightengale 2023). In response, Seidler said, “when we talk about risk, there’s a risk to doing nothing” (Shaikin 2023). The San Diego Chargers were forced to move to Los Angeles in order fianically stay afloat as a franchise. The Chargers now share a stadium in Los Angeles with the Rams, which helps reduce many costs for the organization. Los Angeles is also a popular destination for opposing fans to travel to, which helps increase the ticket sales.

Seidler wants to avoid financially ruining the Padres, and he believes spending money is the best way to do that. The Padres ticket sales, jersey sales, and food sales have never been higher than they will be in 2023. This is largely due to the fact the San Diego Padres are stacked with star players and one of the favorites to win the World Series. The Padres are tremendous shape as franchise, because instead of pocketing the money the Padres make him, Seidler is re-investing that capital into his team, which has resulted in the Padres roster becoming perennial championship contenders. The value of the San Diego Padres has never been higher and their brand recognition has never been stronger.

So why don’t more MLB teams adopt this strategy? If a team like the Padres who play in the 4th smallest MLB media market and have an owner who has a bottom half net worth can produce the third highest payroll in baseball, why doesn’t a team like the Detroit Tigers, who play in the United States 14th largest sports market, with an ownership group worth close to $4 billion, follow the same motto? When the Padres re-signed Tatis Jr., in 2021, Seidler said, “there’s nothing we can’t do” (San Diego Padres 2021). If there is nothing he can’t do, there should be nothing any owner can’t do.

It would be wrong to blame MLB’s economic problems on teams like the New York Mets, New York Yankees, Boston Red Sox, and Los Angeles Dodgers for spending too much money. Those owners are helping to grow the game.

Owners like Cohen can certainly spend a lot of money, but even he cannot spend an unlimited amount. There is no salary cap in baseball, but the tax penalties become very large, very quickly. In the first year MLB clubs exceed the tax level (the tax level is $230 million in 2023) teams are charged a 20 percent tax on all overages. It is 30 percent in two consecutive seasons and 50 percent in three consecutive seasons and beyond. If teams spend over $20 million more than they tax threshold, they also face steep surcharges. Clubs that spend $40 million or more over the tax also have their first draft selection moved down 10 slots.

We should be pointing our fingers at the other owners, who have the money to spend, but choose to pocket it instead of reinvesting capital into their clubs, stunting the growth of the game. Why own a professional baseball team if you aren’t going to do everything you can to help your club win? The MLB also deserves some blame. Why are you limiting spending, but doing nothing about teams who do not spend?

References

Ciccotelli, J. (2020, October 20). Rob Manfred Says MLB Teams Combined for $3 Billion in Losses Amid COVID-19. Bleacher Report. Retrieved March 11, 2023, from https:// bleacherreport.com/articles/2914363-rob-manfred-says-mlb-teams-combined-for-3- billion-in-losses-amid-covid-19

Competitive Balance Tax. (n.d.). MLB.com. Retrieved April 24, 2023, from https://www.mlb.com/glossary/transactions/competitive-balance-tax

DiGiovanna, M. (2022, February 28). Here are the billionaire team owners who rule baseball amid the MLB lockout. LA Times. Retrieved March 11, 2023, from https://www.latimes.com/sports/story/2022-02-28/mlb-billionaire-team-owners-roster-2022-lockout

Major pro sports teams ranked by market size. (n.d.). Sportsmediawatch. https://www.sportsmediawatch.com/nba-market-size-nfl-mlb-nhl-nielsen-ratings/

MLB Team Payroll Tracker. (n.d.). Spotrac. Retrieved March 11, 2023, fromhttps://www.spotrac.com/mlb/payroll/

Nightengale, B. (2023, February 15). Rob Manfred questions whether San Diego Padres can sustain their huge payroll in small market. USA Today. Retrieved March 11, 2023,fromhttps://www.usatoday.com/story/sports/mlb/columnist/bob-nightengale/2023/02/15/rob-manfred-padres-regional-cable-networks-blackout-rules/11267072002/

San Diego Padres Current Contracts. (n.d.). Spotrac. Retrieved March 11, 2023, from https:// www.spotrac.com/mlb/san-diego-padres/contracts/

San Diego Padres owner Peter Seidler on Fernando Tatis Jr. deal: 'There's nothing we can't do'. (n.d.). ABC News. Retrieved March 11, 2023, from https://abcnews.go.com/Sports/san- diego-padres-owner-peter-seidler-fernando-tatis/story?id=76085240

Shaikin, B. (2023, February 21). Column: Padres' Peter Seidler, baseball's risky spender: 'There's a risk to doing nothing'. LA Times. Retrieved March 11, 2023, from https://www.latimes.com/sports/story/2023-02-21/san-diego-padres-owner-peter-seidler-mlb-dodgers