UTK Special 12/11/21

The Floor Is Lava

While the MLB owners and the MLB Players Association have not met recently and will not until at least early January, that’s not to say that nothing is happening. Both sides are either digging in on certain positions and showing a bit of wiggle room on others. We’re seeing which writers are getting leaks from which side and who’s willing to carry more water than others. As always, I highly recommend the work of my friends Maury Brown at Forbes and Joe Sheehan at his newsletter for the finer business/labor details.

However, one of the proposals that’s most interested me since this was just a point in the distance is the so-called salary floor. A minimum salary for each team is something the players have sought for years and that some owners have seen as a solution for what one person in ownership called “the Pittsburgh pocket,” where the Pirates get their revenue sharing and do very little in the way of spending it over the last decade plus and certainly during the Nutting era.

Most other sports have this, but in America, it’s almost always tied to a salary cap. MLB doesn’t want that, largely because those numbers are usually tied to revenue and because baseball isn’t, despite big contracts, teams have paid out a significantly lower percentage of revenue than other sports, and that’s without even getting into so-called “non-baseball revenue” like the sale of MLBAM, property deals, and even investment income.

According to three people I spoke with, two in ownership and one in a front office position where they regularly deal with these issues, the salary floor is one of the least controversial positions among owners, but the implementation is problematic, especially if they keep the ‘luxury tax’ versus instituting a revenue-based salary cap.

In the NHL, the salary floor is 85 percent of the salary cap, or around $69 million. That’s a spread of only $12 million from the floor to the cap, which should, in theory, keep teams on an even playing field. There’s plenty of loopholes, but in general, this floor has done it’s purpose and we don’t see tanking per se in the NHL, at least in a way that saves the team significant dollars to do so.

The NBA’s cap is $117 million, but there’s famously so many exceptions that I won’t even begin to try and explain why team payrolls reach $175 million (Golden State Warriors) or why only ten teams are below the cap. There’s no salary floor, which puts some teams way down, with the current low being the Oklahoma City Thunder, in full Astros mode picking up pick after pick while making it a bit tough to watch in 2021. Even then, the gap between Golden State and Oklahoma City isn’t as big as baseball’s gap!

The NFL has the tightest salary structure, with only an 11 percent gap (88.8% of the salary cap) as the floor. In practice, the gap is slightly bigger going from $205 million (Dallas) down to $171 million (Seattle), or roughly 83% of the top payroll.

The latest MLB “proposal” - not a formal proposal but a ‘discussion for framework’, as described by an ownership source - offers a salary floor of $110 million. There are some exceptions in there and it would not be an instant switch, but a graduated raise, likely to $50m in the first season, $80m in the second season, and then to the $110m mark in the third season and beyond. This is reasonable, giving owners time to get up to the payroll mark rather than having to make big and likely bad moves.

But for the MLB teams that are below even that low first season floor, what would they do? The easiest thing would be to make a few longer-term commitments or even a Wander Franco-type extension for young talent. If you don’t like free agency, make sure your best young players don’t get there by locking them up!

Currently there are three teams below the $50m mark - Pittsburgh, Baltimore, and Cleveland. I don’t think this would surprise anyone, though at $29m in committed salaries, the new Guardians stand to gain the most by doubling their payroll. They have young pre-arbitration players, some established players just heading into arbitration, and the fifth best farm system, according to FanGraphs. The same is relatively true for Baltimore and Pittsburgh, where a load of high picks over the last few years have them rated 1 and 2 in the farm rankings. Starting with those kind of deals for Adley Rutschman, Grayson Rodriguez, or Travis Swaggerty would be smart.

However, and I took a lot of heat for saying this on Twitter this summer, it’s more likely that some of these teams will simply take on bad contracts to inflate their numbers. My example was Eric Hosmer, who is due $20m in ‘22 and $39m over the following three years. Signing him wouldn’t help the Pirates, but he would instantly put them at or near the floor, depending on renewals and arbitration decisions.

The Pirates have the money and getting to the floor this way, at least in the first two years, could work well, especially if Ben Cherington and his team can get some prospects to go along with the salary anchor. The Padres certainly have them and even taking on some upside pitching could be good on the field for both teams.

There is a question about whether a floor would keep a team from taking cash in a deal which would essentially look like they’re above the salary floor while the actual outlay is lower. For instance, if the Padres tossed in half of Hosmer’s salary, would the Pirates then get ‘full credit’ for being above the salary floor, or only the half they have? There’s always going to be salary cap chicanery, or floor in this case.

If you look down the list of the largest active contracts, you don’t have to look too far down to find contracts that would single-handedly get a team over the floor. I doubt the Tigers would trade Miguel Cabrera, but if they did and he immediately retired, would one of the below-floor teams get credit? If the Guardians traded for David Price and a couple Dodger prospects, would that work with his $31m AAV?

Here’s an interesting idea - would the Rays renegotiate the Franco deal, giving it more of a front load and getting them over the cap, while getting Franco more cash now? His contract has a $16.5m AAV, but he’s under $10m until 2026. That could be win-win without much real change in the deal. We’ve seen teams like the Rays and Marlins backload deals, then trade players and that could still be the case with Franco, but it could be even more tradable if there’s not as much on the back end.

Elvis Andrus, Justin Upton, and even Charlie Blackmon are contracts that don’t match up well with production and are big enough to get any of the three sub-floor teams at or near the required level. However, Blackmon’s $21m ‘22 salary brings up an interesting point. If teams aren’t about to win, would they drop down to the salary floor, as tanking teams have? Colorado is at $90m and lopping Blackmon off saves money, doesn’t get them near the floor, and the team is going to be bad regardless of whether Blackmon is there or in Baltimore.

The problem here is that even with the floor moving to the proposed $110m level, it comes with a drop in the salary tax threshold, down to under $200m with some sources quoting $180m. That would be a $30m per team, per season drop, or essentially taking $900m out of the salary pool, staying in the owners pockets with no chance of sharing in the potential growth of baseball, big new streaming contracts, or of increasing their share of the so-called baseball revenue for another decade.

A floor does nothing for the players, though the owners will certainly present it that way. For them, the better move would be to up pre-arbitration salaries, even if they gave up a year of arbitration. If players had a minimum of $1m/$2m/$3m/$4m in their first four seasons, that would be an average gain of $3m per player, given data from the last ten years of minimums and first year arbitration decisions (wins and losses.)

We’ll likely hear more about the floor when talks start back up, but aside from making the Nuttings actually spend some money, as far as players are concerned, the floor should be lava.