Too Little. Too Late. And for Too Much.

I was recently having a discussion with a friend who is hell bent on imposing a salary cap in baseball. (Even after reading my earlier piece entitled “Baseball’s Balance.”) His contention is that baseball cannot possibly be fair when there are teams spending over 209 million dollars per year on payroll, while other teams may spend as little as 22 million. On its face, his assertion seems perfectly reasonable. Its just not true. It is a ultimately a question of salary vs. value.

To properly respond to his assertion, I must begin by doing a quick analysis of the major difference between how salary structures work in baseball compared to other sports. For sports like football and basketball, there is a draft. During those drafts, these NFL and NBA teams are able to address immediate team needs with ready professionals. These draft picks, especially the early ones, get multi-million dollar contracts right from the start. However, most of these contracts are not guaranteed. Teams can unceremoniously cut players, even when those players are injured, and make an immediate impact on their total payroll, creating cap room as warranted. This allows teams to help insure that there is little to no “wasted money,” on their payroll.

Baseball works completely different. First of all, all baseball contracts are guaranteed. A team cannot just cut an injured or under-performing player. This means that on every roster there is almost certainly money that is being poorly spent.

Next, of all of the sports, baseball is the one where having the best player in the game on your team offers virtually no impact on your team’s chances for post season success. In basketball, having Michael Jordan can get you six titles. In hockey, having Wayne Gretsky can get you a bunch as well. Football, to a lesser extent, but certainly having a top flight quarterback can make or break your team. But in baseball, many of the game’s best players have never won the big one. Barry Bonds has no World Series rings despite seven MVP awards. Alex Rodriguez has never played in a World Series. Ken Griffey Jr. has never played in a World Series. Baseball just doesn’t work like that.

Next, while there is a baseball draft, it purely an amateur draft. None of the players are major league ready and most will never be. These draft picks go into the minor leagues usually at a low level like “A” ball. In most instances, it will be years before these players ever have an opportunity to earn a starting job on the parent club. And, it is the club who will decide when a player gets to make his professional debut.

For those who do eventually get to the majors, the player remains under control by the drafting club for the first six years of their major league career. For the first three years, the player is entitled to no more than the league minimum which is in the neighborhood of $400,000 per year. For each of the player’s next three seasons they are arbitration eligible, which means that while they cannot negotiate with other teams, they can seek a salary commensurate which other similarly performing players. This obviously helps to raise the player’s salary but without competition from other teams, these salaries generally remain reasonable to the point where any team can afford to retain their controlled players.

Only in his seventh season at the major league level can a player become a free agent and truly test the market to see what their potential salary may be. More and more teams are recognizing the value of offering their home grown talent longer contracts early to, in effect, buy their players out of their first year or two of free agency. Clearly, there is a window between a player’s second and fourth season, where the player values long term financial stability over the prospect of topping out dollar-wise in a free agency that is still several years away.

Over the last several years, we have seen loads of players on almost every organization locked in by their clubs in this manner. The best example recently was the Tampa Bay Rays who after only a handful of major league at-bats, locked up third base phenom, Evan Longoria, with a six year deal worth only about 17 million total but with two team option years at a more generous rate. I can’t blame Longoria for accepting, because that’s a lot of money being guaranteed to someone who could struggle or get injured. From the Rays standpoint, they may have just locked up the guy who over the next 7 years may be one of the two or three most productive third basemen in the game. And they did so at a fraction of what his open market salary may have proven to be. Of course, with Longoria going on to win the Rookie of the Year Award and helping to take his team to a World Series, the investment already looks brilliant.

The effect of this type of salary structure is that by the time most of these players actually get to their free agency, their best years are largely behind them and their new team winds up paying a premium based on the players’ past performance. And, because of this unusual salary structure, the salary of a major league ball player often bears little resemblance to the actual value of their performance on the field.

I will demonstrate this point in what I think is a fascinating manner. I looked at the Yankees from 1996 through the present. I chose the Yankees because they seem to be the team that everybody points to when they are arguing in favor of a salary cap. I also chose them because they won the World Series in 1996, 1998, 1999, and 2000 but have not won a title since. But, mostly I chose them to analyze the salaries of four home grown stars that were on each of the World Series winning teams, plus their two most recent World Series loses as well as their 2008 roster. These four players are Derek Jeter, Jorge Posada, Andy Pettitte, and Mariano Rivera. Four great players, each integral to the Yankees success, and each a Yankee farm product.

I started by looking at 1997, the year in between their first title of this run and their record breaking 125 win season and second title in this run. In 1997, each of these four players was within their first three years in the majors and, as such, their combined salaries were $1,848,500. That’s right, a grand total of less than 2 million bucks.

Next, I looked at 2001. This is the year where the Yankees lost the World Series in the ninth inning of game 7 against the Diamondbacks, the night that Buster Olney and many others since have referred to as the last night of the Yankee dynasty. In 2001, because these players moved into either arbitration or long term contracts to stay with the team, these same four players commanded a combined salary of $32,820,000, almost 18 times the amount of money for the same exact players.

Finally, I looked at 2008, last year. In 2008, these same four players suited up for the Yankees although by all measures were each beyond their peak, although by some measures still performing well, particularly Rivera. These four players earned a combined total of $65,700,000. That is not a typo. That is more than double what they made in 2001 and more than 35 times what they earned when they were in between two championship seasons.

These players did not change significantly in any of these years and if they did it was a decrease in skills not an increase. In Jeter’s best season 1999, he earned $5,000,000. In his worst, 2003, he earned $15,600,000. In Pettitte’s best season, 1996, he earned $150,000. In his worst season, 1999, he earned $5,950,000. Posada earned $8,000,000 in his best season, 2003. But he made $13,100,000 in his worst season, 2008. Rivera earned the exact same amount, $10,500,000 in both his best season, 2005, and his worst season, 2007.

This off-season, when the Yankees signed Sabathia and Teixeira for significantly more than they were earning last year, did these players magically improve? Of course not, they simply moved into a phase of their career where the system is designed to overpay them for their performance.

To further demonstrate the point, one needs to look no further than a few of the recent post season award winners. Last year, Dustin Pedroia won the AL MVP, his salary; $457,000. Last year, Tim Lincecum won the NL Cy Young, his salary; $405,000. In 2006, when Ryan Howard won his MVP, he earned $355,000. And, when Justin Morneau won his MVP in that same year, he earned $385,000.

In fact, since the dawn of free agency, it is very difficult to find superstars who provided value commensurate with their free agent salaries especially in instances where the player switched teams. There are a few notable exceptions, including Greg Maddux’s first contract with the Braves, Barry Bonds’ first contract with San Francisco, and Reggie Jackson’s first contract with the Yankees. But, by and large, the majority have been busts. Pick your favorite bust. Is it Barry Zito? Or Kevin Brown? Maybe Kevin Millwood? J.D. Drew, Richie Sexson, Adrian Beltre, Chan Ho Park, I could go on for pages.

Okay, so does this mean that having a lot more money to spend is irrelevant? Of course not, there are a host of advantages to having more money to play with. You can absorb bad contracts, take more risks, or replace an injured player quickly. But what it doesn’t do is guarantee any greater overall success. Having more money can best be described as a positive attribute. Just like having a great scouting staff is a positive attribute. The ability to scout internationally is a positive attribute. Great coaching and training is a positive attribute.

Here’s where having more money would make the difference: If every year, every player was available as a free agent, then obviously it would be unfair for one team to have more money than another team. But, the reality is that each year there is a very limited number of special players available. And, you can have all of the money in the world, but if the store is practically empty, all you get to do is overbid for what is left on the shelves.