I also included a projection of where the average team salary may go through 2012. I don't have a link off the top of my head, but I'm pretty sure payroll has increased by 11% per year since (blank). I'm not sure if that blank is supposed to be the start of free agency in 1976 or something else, but over a long period of time there has been a study increase at about that rate. I used a slightly more convervative and much rounder 10% average increase over that future interval.
For a long time the idea of a 100M payroll seemed completely fantastic. Three teams (Yankees, Red Sox and Dodgers) crossed that threshold in 2001. Last year it looks like 8 teams - more than 25% of the league - spent more than 100M on payroll. So the third column looks at how a flat 100M payroll compares to the league average payroll from 2001 on.
The last three columns look at the percentage of an average payroll that would be taken up by a 10, 15 and 25M player.
|Year||Ave Payroll||100M as %ave||10M as %ave||15M as % ave||25M as % ave|
The average team payroll in 1996 was 32M. It took just five years for the average payroll to double to 65M. Now it's possible that that pace was too quick for the growth in overall MLB revenues. Certainly owners cried poverty again leading up to the CBA negotiations in 2002. That CBA instituted enhanced revenue sharing and helped to usher in a period of stagnant payroll growth. Over the next four years the average payroll just barely nudged up. With another CBA agreement in place and numerous stories of MLB revenues spiking up we've now seen the rate of increase pick back up to the point that the average payroll in 2007 was up over 80M and roughly 3-fold higher than it was during the 1994/95 strike when MLB claimed that the industry was in danger of going under.
On the team level our mental framework of about what a reasonable payroll figure is has shifted dramatically higher. It was only 5, 6 years ago that the Twins and A's were competing for playoff spots at ~30M in total payroll. Last year both teams missed the playoffs with payrolls over 70M. Nothing has changed about their individual markets or revenue potential, but the rising tide was really lifted their boats, if not their on field performances.
When the first teams crossed the 100M team payroll level they were over 50% higher than the average team payroll. Thatís a huge financial advantage. The stagnant period that followed meant that the percentage slowly drifted down for a few years, but it picked up to the point that last year a 100M payroll was only 20% above average. In a couple of years it will be average a few more years after that we may see the financial weak sisters of baseball crying poverty with payrolls of 100M.
And in that same way we have to change our mental framework about team payrolls, we have to shift our framework about individual players. It wasn't that long ago that Julio Lugo's 9M or Mike Lowell's possible 14M salary meant that they were expected to be stars or at least near stars. Now, 9M is the going rate for a decent regular and while it's, of course, disappointing when a 14M player like the future Lowell or the present JD Drew doesn't perform that well, it's hardly crippling or a future albatross contract. And the reason that's the case is because those contracts become an increasingly smaller percentage of payroll as payroll at the team level continues to increase.
Or at least that's what I'm trying to show in those last three columns.
In 1999 a 10M player took up 21% of an average payroll. By 2003 a player needed to make 15M to take up 21% of an average payroll. By 2011 it may be that a 25M players takes up that same payroll percentage. In this sense Ė and I do think itís a relevant one Ė the 25M player of 2011 is no more risky than the 10M player of 1999.
Look at ARodís last deal. In 2001 his 25M AAV was 38% of an average payroll. By 2007 that had dropped to 30% and by 2012 it may be cut in half all the way down to 19%.
Does that help put things in perspective a bit? It does for me.
Oh, and how does this relate to the Sox specifically? Since Epstein took over the Sox have had a payroll that has been 64% greater than the average team (with a low of 41% and a high of 84%). As a result these types of players take up a much smaller percentage of their very large payroll. If they sign Lowell he will probably be 10% of their payroll at ~14M AAV. If the average 2008 payroll does end up at 91M, then obviously a team that commits 10% of their payroll to one player would be paying that player 9.1M.
And actually I think thatís a nice way to look at the Sox payroll advantage. They can spend 5M more on a player Ė and theoretically get a much better player Ė and yet have the same basic risk profile.