Thursday, August 19, 2021

Joe Sheehan Newsletter, August 19, 2021 -- "One Bad Offer"

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The Joe Sheehan Newsletter
Vol. 13, No. 74
August 19, 2021

We have to get to some serious stuff today, but before we do, I want to take a second to acknowledge what happened in Detroit last night. A guy hit his 40th home run of the season...and struck out his 120th batter of the season.

The Shohei Ohtani comp has always been Babe Ruth, but even Ruth never did those things in the same season. As I wrote back in June, Ruth was a true two-way player for a bit more than a year, stretching over parts of 1918 and 1919. That 1919 season is the closest comp in history for what Ohtani is doing. Ruth led the AL in home runs, total bases, and slugging percentage, just as Ohtani is doing. He threw 133 innings with a 2.97 ERA and a 3.58 FIP, Ohtani is at 100 innings with a 2.79 ERA and a 3.19 FIP.

I never believed I would see a player who could be both a great hitter and a great pitcher in the major leagues at the same time. The game has evolved so far in the century since Ruth peaked that it seemed impossible. Ohtani’s first three years in the majors, in which he was a decent hitter and an injured pitcher, only reinforced that belief. Even in April, when Ohtani was walking or hitting a quarter of the batters he faced, I didn’t think he could do this. Since a May 5 start in which he walked six men, however, Ohtani has a 90/20 K/BB and a 6% walk rate.

I don’t know what next week or next month or next year holds. I just know that I’m watching a baseball player be both the top slugger in his league, with good speed, and start once a week with excellent control and above-average results. Even writing that sentence sends a little jolt up my spine. Shohei Ohtani is having one of the best years of any athlete we’ve ever seen.


We’re going to have time to talk about the negotiations over a new Collective Bargaining Agreement, what it should look like, what it will look like, once the season ends. I’ve written about some of what I think the MLBPA should emphasize, what I think they got wrong in 2016, and we’ll be able to circle back to all of that this winter.

Today, I just want to focus on the offer that was leaked yesterday. If you’ve read about it, you’ve almost certainly seen it presented as “owners propose salary floor,” which is why it was leaked in the first place. The league is trying to position itself as addressing the issue of tanking by saying it will force the league’s payroll laggards to spend more on players, $100 million per team, to be exact.

While a payroll floor is in the offer, though, that’s a tiny, secondary piece of the proposal. The key to the proposal is a significant lowering of the luxury-tax threshold, from its current $210 million to $180 million, with a 25% tax on the overage. The tax threshold, which hasn’t kept pace with league revenues, was last that low from 2011 through 2013 ($178 million), and the penalties for exceeding it have become more severe over time.

That’s the bold type in this offer, not the salary floor. MLB is proposing to further hamstring the market for free agents, for the top players in baseball, by making it that much more expensive for teams to carry high payrolls. How much effect will this have? Well, we know teams treat the tax threshold as a soft cap. Whatever you think about that behavior, the fact is that just eight franchises have exceeded the threshold in the last 20 years. Just five have done so more than twice. Under the current rules, just one to three teams exceed it every year, and the threshold is a constant topic of conversation for teams approaching it.

Given that behavior, we can expect more of the same in the future. The $180 million figure would be one teams look to stay under. Per Cot’s, there are nine teams with payrolls, for tax purposes, of at least $180 million, with a total overage of $259 million. It might not happen overnight, just as it didn’t happen overnight after the 2016 CBA, but over time the $180 million figure would become a de facto cap for most teams, taking $259 million off the league payroll.

Would that be made up at the low end? Again per Cot's, there are seven teams with a payroll under $100 million, a total of $146 million under that threshold. Bringing all these teams up to $100 million -- which I assure you would become a maximum payroll for some of them as much as a minimum one -- would add $146 million to the league payroll.

Put those two calculations together -- the reduced tax threshold cutting $259 million and the salary floor generating $146 million -- and on its face this offer is designed to lop at least $100 million, about 2.3%, off what the league pays the players. Its actual effects would be greater than that, though. We know that free agency, and in fact the top end of free agency, is what drives all players' salaries. It’s why collusion was so profitable for the league in the 1980s and 2000s -- tamp down the top end of the salary scale and it lowers what everyone else can ask for in the market, in long-term deals, in arbitration.

The stated reason for the lowered tax threshold is that the revenues raised by the tax would be transferred to teams to subsidize the new payroll floor. This codifies the lie that teams with payrolls below $100 million have them that low because they can’t afford higher ones. That’s plainly false; of the seven teams currently under $100 million, all have carried payrolls of at least $100 million in the past. The Tigers paid the luxury tax in 2008, 2016, and 2017. The Indians were above $100 million from 2013 to 2019 and would have been above it last year. The Pirates, Orioles, Mariners, and Marlins all had $100 million payrolls throughout the middle of the last decade. The flippin’ Rays have had a $100 million payroll twice.

What you notice when you look at these figures is the pattern we’ve talked about ad infinitum: Teams don’t have to spend money to make money any more, not with the growth of equally shared revenues, not with the increase in local revenue sharing. The deleterious effects of the 2017 Collective Bargaining Agreement are evident in the pay patterns of these seven teams. They once tried to win and had payrolls that reflected that intent, and now they can be content to rebuild with a tiny payroll knowing their profits are assured. Their low payrolls are a choice.

Even as designed, the offer is not going to work. If no high-payroll team moved an inch, this proposal would generate tax revenue of about $62 million, enough to subsidize 40% of the rise in low-end payrolls. As we know, though, teams are going to treat the threshold as a soft cap and work to stay under it. Right now, the league is over the current tax threshold by $52 million, all from the Dodgers. That would generate $13 million in subsidies, or less than 10% of the gap between current payrolls and the proposed floor.

The subsidies are a lie, too. They’re unnecessary because every team can afford a $100 million payroll, and they’re never going to be significant because teams treat the tax threshold as a soft cap.

This isn’t a serious offer, and that it’s being treated seriously (salary floor!) is an indictment of the coverage. It would be a huge win for the league, crushing the top of the pay scale and limiting competition for the top free agents who drive everyone’s pay. It’s predicated on the myth that teams with low payrolls would choose to have higher ones if only they had more money. Its framework -- lower tax thresholds, more revenue sharing, more rules -- is the exact opposite of what the game needs.

I reacted badly to this news, and I’ve been thinking about why. Baseball has real problems, and it has been my hope that the league, the owners, would come to the table with a plan to address those problems. The game’s competitiveness issues have been driven not by a lack of money, but by an excess of it, by the disconnect between how a team plays and how much money its owners make.

The framework of this deal is all wrong, and it shows that the owners aren’t looking to address the gap between competitiveness and profitability, aren’t looking to make the sport better, but rather to further press the advantage  over the players they have gained in the last 15 years, further lock in guaranteed profits, further lessen competition. There’s nothing in this offer that’s true. The low-payroll teams don’t need subsidies. The game doesn’t need more restrictions on the market.

If I walk up to you and offer that you pay me $100 to punch you in the face, the counter to that isn’t “$80 and my stomach?” It’s to walk away. This offer is insulting, and leaves the players little choice but to ignore it. It’s not the starting point of a negotiation; it’s the first shot of a war.