The Economic Status of Baseball

Including an Analysis of Joe Musgrove’s Arbitration Eligibility

Fangraphs¹

Overview:

This offseason, organizations will be forced to a crossroads that has been uniquely created by the impact of the shortened season. The challenge lies in balancing the status of their profit margins against the well-being of the relationship with their players.

• One option includes paying salaries that are on par or closely related to the salaries and settlements from the 2019-2020 offseason. These values would be independent of the financial impact that the pandemic has caused and would involve the owners undertaking a burdensome commitment in favor of the players.
• Another option includes a decision to pay discounted salaries in response to lost revenue and uncertainty regarding the upcoming season. Selecting this route would result in a decrease in the overall health of the free agent market and arbitration classes for years to come. This decision would likely increase the already growing tension between the Major League Baseball Players Association (MLBPA) and the owners, but remains the most foreseeable possibility, barring any sudden developments.

Nonetheless, this year’s arbitration proceedings and salary negotiations will be unique for both the players and owners, as each will face new challenges that have been brought by the pandemic. One of the most critical points in this year’s arbitration process will be the amount of emphasis put on the statistics and production output that resulted from the abbreviated season. How teams and players find a balance and common ground will be something to watch as the players begin to agree to terms and the arbitration processes commence.

• It can be expected that owners will seek to minimize payroll this season while also trying to reduce the long-term impact caused by the shortened season and empty stadiums.
• Conversely, the players will want to recover some of their lost wages after they sacrificed pay in order to participate in the abbreviated season.

Status of the Market:

With the current collective bargaining agreement expiring after this upcoming season, the balance of cooperation and reciprocity will be crucial in preserving the relationship between the MLBPA and the owners. Minimizing payroll could result in a surge in the number of free agents on the market, which would ultimately cause a league-wide decrease in free agent salaries. This theory hinges on one of the key principles in economics of supply and demand and contradicts the entire scope of what Marvin Miller was attempting to accomplish in 1968 when he fought to reduce the supply of players on the open market.² The underlying goal in reducing the supply of free agent players was to augment the salaries for the specific players in question.³ Considering that salary arbitration is a balance between team and player interests within the reserve system and free agency, an influx of players into the free agent market would hurt the broader interest of the game.⁴ The connection between a healthy free agent market and the entirety of salary arbitration is one of the key aspects to the economics of baseball that has maintained player salaries in the past.⁵ This offseason, the owners have been tasked with walking a line between maintaining, or infringing on, a market that has been free of the reserve system for over 40 years.⁶ Any type of infringement could result in the minimization of the core benefit that arbitration eligible players receive from a healthy free agent market.⁷

With all of this in mind, consider my analysis of a potential salary settlement for Pittsburgh Pirates starting pitcher, Joe Musgrove.

Player Comparisons:

Joe Musgrove: (Age 27 at time of negotiation and potential arbitration case)
Status: Avoided arbitration and settled for $2,800,000 during the 2019–2020 offseason.

Matthew Boyd: (Age 28 at the time of negotiation)
Status: Avoided arbitration and settled for $5,300,000 during the 2019–2020 offseason.

Zach Davies: (Age 28 at the time of negotiation)
Status: Avoided arbitration and settled for $5,250,000 during the 2019–2020 offseason.

Dylan Bundy: (Age 27 at time of negotiation)
Status: Avoided arbitration and settled for $5,000,000 during the 2019–2020 offseason.

Steven Matz: (Age 28 at time of negotiation)
Status: Avoided arbitration and settled for $5,000,000 during the 2019–2020 offseason.

José Ureña: (Age 28 at the time of negotiation)
Status: Avoided arbitration and settled for $3,750,000 during the 2019–2020 offseason.

Analysis:

Musgrove is now eligible for his 2nd class of arbitration. Besides Musgrove, all of the players I have listed were eligible for their 2nd class of arbitration last offseason. This makes these players ideal candidates for comparison. Under normal circumstances, this case would be different from last season when Musgrove was a 1st year arbitration eligible player. Previously unpersuasive arguments that encompass statistics from a past season might become more persuasive this year due to the shortened season in 2020.

One aspect of the analysis will include drawing a line between adjustments Musgrove made and the success that he obtained from those adjustments. The most obvious adjustment that Musgrove made was increasing his curveball usage to 19.9%, which produced a .050 batting average and 53.2 whiff%. While expected statistics and statcast produced data are not currently admissible in arbitration hearings, this data can be utilized in other negotiations with team representatives prior to official arbitration. Below I have attached a graphic that shows how significantly this pitch improved in 2020.⁸

Baseball Savant⁸

A difficult task would be convincing the organization and/or arbitration panel that Musgrove’s stats through 39.2 innings should be extrapolated to 162 games. An easy starting point would be to use the steamer projection from the beginning of the season (prior to abbreviation) that predicted Musgrove would pitch 182 innings. Through this hypothetical, Musgrove’s short season stats put him on pace for roughly 4.6 wins above replacement. Under normal circumstances without financial loss to owners, Musgrove could settle or be awarded a salary anywhere between $5,000,000 and $5,500,000. However, this would be an unpersuasive argument that is highly unlikely to be considered to its intended extent.

One of the drawbacks that the team will bring to the table is the fact that Musgrove missed time in August with a triceps injury. On top of an already shortened season, this injury was another reason why Musgrove was only able to throw 39.2 innings.

Under the current CBA in Article VI § E (10)(a), “the length and consistency of a players career is admissible in arbitration.”

While more recent injury history is more persuasive, previous injury history from missed time in 2018 for both shoulder and abdominal issues could help form persuasive arguments. In Musgrove’s case, the injury history will be a main element in forming an argument against the shortened seasons statistics being extrapolated to a full 162 game schedule.

Based on the parties’ arguments, the difficulty will be determining and agreeing on where Musgrove fits within a narrow market of similarly situated players irrespective of changed economic affairs inside the industry. Matthew Boyd leads the group in both wins above replacement and innings pitched. At the time of his settlement, Boyd was coming off a strong year where he posted a 3.88 xFIP and saw his K% increase dramatically. Boyd also posted a fantastic SIERA of 3.61 and maintained a swinging-strike% above 14%. Furthermore, Boyd was given the highest salary at $5,300,000. In terms of the pure metrics that are considered independent of sample size, Musgrove compares nicely to Boyd. Under ordinary circumstances without financial implications caused by the shortened season, Musgrove would likely obtain a salary that exceeds $5,000,000.

In attempting to reach common ground, one of the players the team might reference is José Ureña. Last season, Ureña avoided arbitration and settled for $3,750,000 for his 2nd class of arbitration eligibility. Ureña pitched 89.1 innings in 2019 and posted 0.6 wins above replacement. The team’s goal in providing this reference would be to form a connection between the innings pitched and a lower salary. While the number of innings pitched is more similar to Musgrove’s 39.2 innings, the performance and circumstances differ. However, this would likely be an unpersuasive argument because of the fact that Ureña mostly pitched out of the bullpen and starting pitchers are distinctly more value than relievers.

Conclusion:

Under regular circumstances, it would be fair for Musgrove to request anywhere between $4,000,000 and $4,700,000 in response to the metrics that he produced. Even with an injury in 2020, Musgrove posted fantastic numbers and showed he could be a top of the rotation starter with added consistency.

• A salary around $4,700,000 would reflect a decision by the owner to pay the player in accordance with 2019–2020 values despite suffering financial loss throughout the season.
• A salary around $4,000,000 would reflect a value that is influenced by a shortened season and small sample size, but represents a value above what Ureña was given due to more positive metrics. This value would still be considered to be generally on par with 2019–2020 2nd class arbitration eligible players.

Conversely, in response to the impact caused by the pandemic, it is foreseeable that the organization could propose a salary between $3,000,000 and $3,700,000.

• A salary decision closer to $3,700,000 would pave the way for an analysis that dives into the overall impact of revenue losses across 2021 arbitration settlements and salary agreements. As a starting pitcher, Musgrove produced more value than Ureña, so agreeing to terms for less than Ureña’s salary would trigger a variance from 2019–2020 offseason values.
• A salary around $3,000,000 would show a value that is heavily influenced by the pandemic and result in a new wave of salaries that would impact arbitration eligible players for years to come.

My estimation is that the parties in this case should be able to find value that lies somewhere between $3,425,000 and $4,275,000 depending on how the shortened season is balanced and the willingness of all parties to compromise on their best alternative.

Key Takeaways:

The next few months should be telling with regard to how the financial status of the league will impact organizational decisions.

• Will owners sacrifice revenue and pay players in accordance with 2019–2020 offseason values?; or
• Will the owners reference the shortened season and seek to minimize overall payroll for the 2021 season?

After a shortened season last year, an additional stoppage in play would be detrimental to the overall health of the sport.

Sources:

1. Craig Edwards. How Many Games Can MLB Realistically Play in 2020? (2020). Link.
2. Jonathan M. Conti, The Effect of Salary Arbitration on Major League Baseball. 226 (1998).
3. John P. Gillard, Jr., An Analysis of Salary Arbitration in Baseball: Could a Failure to Change the System be Strike Three for Small- Market Franchises. 3 (1996).
4. Conti, supra note 34, at 223.
5. William B. Gould IV, Labor Issues in Professional Sports: Reflections on Baseball, Labor, and Antitrust Law, 15 Stan. L. & Policy Rev. (2004).
6. Flood v. Kuhn, 407 U.S. (1972).
7. Gould, supra note 40, at 71.
8. MLB Advanced Media, LP. (2020, December 28). Pitch Tracking on baseballsvant.mlb.com — Link.