The Weekly Rant: MLB Players' Salaries and the National TV Revenues

Offseason Spending is up this year. While that is not unusual, or particularly incisive, the increase looks like it will be kind of dramatic this winter. Check out Jeff Todd's piece on MLBTR for trends thus far.

Many have attributed the higher prices to the rich national television contracts MLB has signed in the past 18 months. These new TV deals are likely the largest factor in any increased spending.  A host of other issues could be at play, but anytime a sports league receives a new windfall of revenue, some of that will go to the players.

But just how much of this new revenue will find its way to players? 

A closer look is needed at both the new TV contracts as well as the relationship between players' salaries and league revenue.  Maury Brown has a breakdown of the new set of TV deals, and gives his insights on what they mean for spending. Basically, between the deals with ESPN, Fox, and TBS, MLB stands to make $1.5 Billion annually over the next 8 years.  That's an increase of approximately $788 MM per year. 

If you divide that figure amongst the thirty teams, you are left with each ballclub receiving a nice fat check for over $25 MM every season.  It's easy to see that figure and then comment on why Team X should go out and sign Player Y, since Team X obviously has the money for it. 

But this simple math doesn't account for a great deal of issues.  First, the exact breakdown of how this money will be paid out by the networks is unknown.  If the contracts really will pay exactly $1.5 Billion every season, then the deals will decrease in value over the length of the eight years.  In 2021, $1.5 Billion would be worth just $1.175 Billion at 3% inflation (which may be more than actual inflation, but less than "baseball" inflation). 

The contracts could start at a figure lower than $1.5 Billion and rise to a higher amount, that would still result in $12 Billion total. This would mean the total teams receive in 2014 could be substantially lower than $25 MM.  It this is not the case, teams should be hesitant of spending all of their new revenue immediately. Future spending will have decrease, relatively speaking, at least without other other increasing revenue streams (Local TV Contracts could be part of the answer here). 

So besides the effects of inflation, what other factors could limit the ability of teams to spend the average annual value of the contract in 2014? 

The Commissioner's Office could certainly take a chunk of the revenue for different initiatives.  I don't think too sizable a chunk could be taken from the teams in this way, but investments in baseball infrastructure internationally could certainly get expensive.  I'm sure there are many costs associated with running a professional sports league that will increase in future years as well (expanded replay systems).  Overall though, it seems unlikely the Commissioner's office would spend more than a few million of each team's share in any one year.

Individual clubs may also spend a significant portion of the funds on other baseball-related purposes other than player payroll.  Increasing budgets for scouting and development, front office personnel, as well as coaching staffs will all likely take a bite out of the player's share. But non-baseball investments are likely the greatest factors in why each club's payroll will not rise by $25 MM this offseason. These could take the form of stadium renovations or investment in other properties. 

MLB Revenues have increased fivefold since 1995. Players' salaries have increased dramatically as well, but not nearly at the same rate.  While league-wide revenues equate to approximately $7.5 Billion, team payrolls account for closer to $3 Billion. This mean's players account for just just 40% of revenues, a dramatic drop from a couple of decades ago, and ten percentage points less than players' shares in the other Big Four sports. 

While it's plausible players receive more than 40% of the new National TV Revenues, there's no real reason to expect them to share a much greater percentage.  Owners would more readily pocket some of these profits, or reinvest them into improvements to stadiums.  MLB is likely to even proactively educate club personnel on the best ways to spend these new revenues.

In the end, it seems unlikely that teams will spend anywhere close to all of the $25 MM  increase in national TV revenues.  A more conservative guess would be moderate increases of less than $10 MM in 2014.  Local TV deals and other revenues are what might allow some clubs to responsibly spend more than these totals.