Table 2. Highest and lowest-paying teams, selected years 1980-95

Year Highest-paying Average Lowest-paying Average Percentage

team salary team salary difference
N.Y. Yankees $242,937 Oakland $54,994 42
N.Y. Yankees 411,988 Minnesota 67,335, 512
N.Y. Yankees. 458,544 Cleveland 159,774 188
Atlanta 657,657 Seattle 187,850 250
N.Y. Yankees: 673,000 Texas 215,000 213
Oakland 1,304,119 Houston 395,444 253
Toronto 1,719,694 Cleveland 326,537 427
Toronto 1,765,582 San Diego 378,471 367
N.Y. Yankees 1,827,539 San Diego 477,017 283
N.Y. Yankees: 2,000,271 Montreal | 411,142 387

SOURCE: Major League Baseball Players Association

One way for a sports union to
seek to reduce wage dispersion is to
place greater emphasis on raising
salary minimums through collective
bargaining with owners. Another is
a revenue-sharing system, in which
players are guaranteed a certain
percentage of gross revenues,
combined with a salary scale in
which players are compensated,
according to a predetermined
formula. Salary scales have been
proposed in major league team
sports collective bargaining but have
not yet been adopted. As shown
later, minimum salaries have not
kept up with the average salary rise.

The growing gap between average
and median salaries is also a
symptom of the economic disparity
between teams. This disparity is
often characterized as big-market
versus small-market teams. While
much of the difference in economic
wherewithal is due to geographic
location of clubs, it is not the whole
story. Some clubs in relatively small
market areas have done relatively
well economically and have been
active in signing high-priced free
agents. Examples are the Baltimore
Orioles, Cleveland Indians, Colo-
rado Rockies, and Texas Rangers. It
is not a coincidence that these clubs
recently built new stadiums with
abundant luxury boxes for added
revenues. While their local televi-
sion revenue potential is not as great
as it would be for a team in a big-
market city, enhanced gate receipts
have made up much of the differ-
ence.

Further indicative of economic
disparity between clubs is total
payroll. In 1996, the highest payroll
in baseball (including prorated
signing bonuses and deferred
money) was the New York Yankees,
at $61.5 million. The Yankees are
also in the Nation’s biggest market
and have the richest local television
deal in baseball, so are able to pay
players handsomely. The lowest
1996 payroll in baseball, on the
other hand, was for the Montreal
Expos, at $15.4 million—about one-
fourth that of the Yankees. A team
like the Yankees can afford to pay
generously for top talent. If one of
their key players goes down to
injury, they can readily acquire a
high-quality replacement. Low
payroll clubs usually can’t do this.

One might, therefore, suppose
that big-market teams would
dominate the standings. While
there is a positive correlation
between high salaries and winning
teams, some high-paying teams have
not done that well. The Yankees,
for instance, didn’t even make the
playoffs from 1983 to 1993, despite
having one of the highest payrolls
throughout this period. In contrast,
Montreal, despite its low payroll,
has done surprisingly well in the
standings.

In 1996, however, big-market
teams clearly translated their
economic superiority into success on
the field. The three teams with the
three highest payrolls—the Yankees,
Baltimore Orioles, and Atlanta
Braves—were among the final four

in the playoffs, joined there by the
fifth highest paying team, the St.
Louis Cardinals. This domination
by high-paying teams is one of the
factors leading to the demand for
revenue sharing among clubs, as
well as a payroll (or luxury) tax on
teams paying the highest total team
salaries.

Table 2 shows that the percentage
gap between payrolls of the highest-
and lowest-paying clubs has fluctu-
ated in recent years. In a typical
year, the difference between the
payroll of the highest paying team
and the lowest paying team is about
300 percent, with a recent range of
from about 200 to 500 percent.

What ordinarily happens is that if
a club is successful on the playing
field, the average salary on the team
increases, because next season
players are compensated on the basis
of past performance. With greater
success on the field comes increased
gate receipts, so the club can afford
to pay more. If a team starts losing
consistently, its salaries will moder-
ate, relative to those of other clubs.
A good example of this fluctuation is
the Oakland Athletics. In 1980, the
A’s were the lowest-paying team in
baseball. By 1991, with a winning
ballclub, they were the highest
paying team. But then, as fortunes
on the field declined, salaries
moderated, so that just a few years
later, Oakland was again one of the
lowest-paying teams.

The factors most influencing
individual player salaries are
performance, seniority, and market

Compensation and Working Conditions Fall 1997 6


(starting in 1997), which was
established in the 1996 collective
bargaining agreement.

What this suggests is that salaries
should start to rise again. As shown
in table 1, average salaries have been
almost level since the 1994 season;
and median salaries have dropped
significantly. These trends should be

ACKNOWLEDGMENT: Kudos to Monica
Gabor and Eugene Becker of the Bureau of La-
bor Statistics; John Davidson of Major League
Baseball; and Doyle R. Prylor, Esq. of the Major
League Baseball Players Association for their in-
sights and assistance.

" Bliot Asinof, Eight Men Out (New York:
Holt, Rinehart and Winston, 1963), p. 16.

? Robert W. Creamer, Babe: The Legend
Comes to Life (New York: Simon & Schuster,
1974), p. 351.

> “Scorecard,” Sports Illustrated, February
10, 197, p. 16.

* Donald Honig, Baseball When the Grass

teversed, as the economics of the
game improve and market forces
translate into higher salaries,
especially higher averages. It is
expected, however, that the median
salary as a percentage of the average
will remain low, as owners will
continue to pay very high salaries to
a few exceptionally talented players,

~-Endnotes—

Was Real (New York: Coward, McCann &
Geoghegan, 1975), p. 218.

‘Andrew Zimbalist, Baseball und Billions
(New York: Basic Books, 1992), p. 13.

* Andrew Zimbalist and David Q. Voigt, “Serfs
versus Magnates: A Century of Labor Strife in Ma-
jor League Baseball,” in The Business of Profes-
sional Sports, Paul D. Staudohar and James A.
Mangan, eds. (Urbana, IL: University of Ilinois
Press, 1991), p. 112.

Paul D. Staudohar, “The Baseball Strike of
1994-95,” Monthly Labor Review, Vol. {20, No.
3, March, 1997.

* Michael Siconolfi, “Bear Steams 5 Starters

9 Compensation and Working Conditions Fall 1997

while economizing by paying
marginal players far less. Even
before the strike, television ratings
for baseball were down significantly.
And the strike itself alienated many
fans. One might not expect,
therefore, that salaries for the “Boys
of Summer” will increase as sharply
as they have in the past.

Get $81 million, Beat NBA,” The Wall Street
Journal, September 17, 1996, p. Cl.

» Kim Masters, “Job Hunting With Mike,”
Time, February 24, 1997, p. 50.

© Paul D. Staudohar, Playing for Dollars:
Labor Relations and the Sports Business (Ithaca,
NY: Cornell University Press, 1996), p. 39.

"Tom Verducci, “Trimming the Fat in Base-
ball” Sports Hlustrated, December 4, 1995, p. 106.

” Michael Farber, “Deep Six,” Sports Illus-
trated, December 23, 1996, p. 60.

TM Stefan Fatsis, “Baseball's Pact is Ratified
by Owners,” The Wall Street Journal, November
27, 1996, p. AT.


+

Table 1. Major league baseball salaries, annual averages, 1970-96

Median as
Year Average Percent Median Percent percent
salary change salary change of
ee ne | average
$ 29,303 = $21,750 > 74.2
31,543 7.6 24,750 13.8 78.5
34,092 84 27,000 9.1 79.2
36,566 7.3 28,000 37 76.6
40,839 11.7 30,000 71 73.5
44,676 9.4 34,000 13.3 761
51,501 15.3 40,000 17.6 777
76,066 477 58,000 45.0 76.2
99,876 31.3 68,000 17.4 68.1
113,558 13.7 80,000 17.7 704
143,756 26.6 95,000 18.8 66.1
185,651 29.1 135,000 42.1 72.7
241,497 30.1 170,900 25.9 70.8
289,194 19.8 207,500 20.8 71.8
329,408 14.1 229,750 10.7 69.7
371,157 12.7 265,833 15.7 716
412,520 Wt 275,000 3 66.7
412,454 - 235,000 14.5 57.0
438,729 6.4 235,000 - 53.8
497,254 13.3 280,000 17.0 56.3
597,537 20.2 350, 25.0 58.6
851,492 42.5 412,000 177 48.4
1,028,667 20.8 392,000 49 38.1
1,116,353, 85 371,500 5.2 33.3
1,168,263 ' 44 450,000 21.1 38.5
1,110,766" 4.9 275,000 38.9 248
1,119,981 8 300,000 9.5 26.8

‘Actual salary was less, because of the 1994-95 players’ strike.

SOURCE: Average salary data are from the Major League Baseball Players Association.
MLBPA and for 1983-96 from Major League Baseball

ment), and the owners wound up
having to pay the affected players
about $280 million." The rate of
salary increase also slowed in the
1993-96 period. This moderation
was due, in great part, to the decline
in national television revenues and
other shortfalls associated with the
1994-95 players’ strike.

Median salary refers to the level
at which half the players earned
more, and half earned less than the
median. The data in table 1 show
that player salaries have become
polarized lately, Whereas for many
years, median salaries were roughly
two-thirds as high as average
salaries, in recent years, averages
have been two to four times higher
than the medians. The reason for
this is that clubs are signing a small
number of very high-priced free
agents and, thus, have less left over
to pay the rest of the players. In the
major leagues in 1994 for instance,
12 percent of the players accounted

for 54 percent of the payrolls."’

It has become common in the
1990s for clubs to replace high-
salaried fringe players with younger
players from the farm system. The
number of rookies increased signifi-
cantly during this time. In a typical
club, 20 percent of the players make
80 percent of the money—a kind of
“Hollywoodization” of the work
force, because the same wage
disparity is found in the movie and
television businesses. The stars
make the big bucks. This has always
been true. While exceptionally
talented performers will usually get
the biggest share of the pie, one of
the reasons that unions have arisen
in sports, as well as in traditional
segments of the entertainment
industry, is to bolster the economic
fortunes of the little guy—the marg-
inal players, equipment operators,
stagehands—whose more modest
talents make them vulnerable to
replacement and wage exploitation.

5 Compensation and Working Conditions Fall 1997

Median salary data for 1970-82 from

Despite the success of the.
MLBPA in raising average salaries
in baseball, the growth in recent
years has resulted from a small
portion of the ballplayers becoming
extraordinarily rich, while marginal
players have not shared the gains.

In fact, some “mediocre” players
have been shunted aside to make
room for still lower-paid players, to
offset the disproportionately large
share of the payroll going to the
handful of superstars. The good, but
not spectacular, journeyman player is
getting much less of the pie than in
the past—and may not even be kept
around for this smaller slice. Nor is
the threat to journeymen veterans
confined to baseball, as the same
trend is noticeable in basketball and
hockey. These two sports also
provide huge contracts 10 a few
players, so on a typical club, there
are more players at, or near, the
minimum salary level than in the
past.



Table 3, Highest-paid players in baseball, 1997

Player Team Years Average per year
Chicago White Sox 1997-01 $11,000,000
Seattle 1997-00 8,500,000
Toronto 1997-99 8,250,000
Atlanta 1997-00 7,750,000
Los Angeles 1997-98 7,500,000
San Francisco 1993-98 7,291,667

‘In 1997, Bonds signed a contract extension to the year 2000, with an option to 2001, that will pay him

significantly more atter 1998.

SOURCE: Los Angeles Times, January 1, 1997, p. Cl; and January 23, 1997, p. Cl

Table 4. Minimum baseball salaries, 1967-97

Year Minimum Year Minimum Year Minimum
salary salary salary

1967 $ 6,000 $21,000 $62,500
1968 . 10,000 21,000 68,000
1969 . 10,000 30,000 100,000
1970 . 12,000 32,500 100,000
1971. 12,750 33,500 109,000
1972 . 13,500 35,000 109,000
1973. 15,000 40,000 109,000
1974... 15,000 60,000 109,000
1975 . 16,000 60,000 109,000
1976 .. 19,000 62,500 150,000
1977 .. 19,000

SOURCE: Major League Baseball Players Association

size of team. Performance is the
dominant factor, and those players
making the highest salaries are those
whose achievements are greatest.
However, a high salary based on past
performance will not necessarily
translate into outstanding future
performance. It is not uncommon,
for instance, for a player who has a
career-best year to sign a lucrative
long-term contract but then experi-
ence a decline in performance. It
may be that a guarantee of future
riches dulls incentive to perform.
But if individual performance drops
off, it is more likely the result of a
player’s skills having peaked before
the contract was signed, or perhaps
because an injury impedes his play.
The highest paid players in 1997
are shown in table 3. Each of them
has performed at truly exceptional
levels. A player has to not only
perform brilliantly to reach these
levels of compensation but must also
maintain this brilliance over a

sustained period of time. Until a
player puts in about 2.7 years in the
major leagues, he is not eligible for
salary arbitration and, thus, has little
bargaining leverage with his club.
Eligibility for salary arbitration
helps ensure that compensation will
be more closely correlated with
performance.

Highest salaries are typically
commanded by outstanding players
who are eligible for free agency.
Free agency status means that a 6-
year veteran without a contract can
sign with any club, Even though a
talented free agent may sign another
contract with his old team, the
competitive bidding process among
clubs powers his salary upward.
Data from the MLBPA indicate that
salaries usually peak in the ninth or
tenth year of a long-term player’s
career. Market size is positively
correlated with average salaries,
since teams in big markets can
afford to pay more, because of their

7 Compensation and Working Conditions Fall 1997

greater gate receipts and local
broadcast revenues. As shown in
table 3, only Ken Griffey, Jr. is from
a small-market area.

Another point of interest is
minimum baseball salaries. These
are shown in table 4. Minimum
salaries have been negotiated by the
MLBPA, since the first collective
bargaining agreement in 1968. Data
show a steady increase in minimums
over the years. However, the
minimum as a proportion of average
salary has gone down over the years.
In 1967, for example, the average of
$19,000 was a little over three times
the minimum of $6,000, while in
1981 the average was about six times
greater. In 1995, the average salary
was about 10 times more than the
minimum salary. (See tables | and
4.) This is another indication that
the players on the low end of the pay
scale are receiving a diminished
proportion of total salary revenue.

There was an increase in mini-

|



BY PAUL D. STAUDOHAR

Paul D. Staudohar is a professor of business
administration, California State University, Hay-
ward, CA. The author's views are his own and
do not necessarily reflect those af the Bureau of
Labor Statistics or the U.S. Department of La-
bor.

Baseball’s Changing
Salary Structure

Historically, baseball players generally were not highly paid.
This has changed in more modern times. Some of today’s super-
stars can be compared with idols in the entertainment industry
and tycoons of the business world, in terms of earnings. However,
their enormous paychecks still are the exception, and polarization

of team salaries has occurred.

#9 the phenomenal salaries paid

to baseball stars have become

a source of friction between.
fans and players. It doesn’t seem
fair, argue some fans, that a player
should make, say, 200 times more
than they do. Besides which, sniff
the fans, playing ball for only part of
the year is a lot of fun. All that
dough for playing games—what’s
the world coming to?

The objective of this article is to
put baseball’s salary structure into
perspective by comparing our
Nation’s pastime to other sports, the
entertainment industry, and busi-
ness. Also examined are salary
trends in baseball and their effect on
the sport. Particularly interesting,
in this regard, is the widening gap
between average and median
salaries. (See chart.) Some of the
thoughts here are impressionistic,
while others are based on research.
The analysis indicates that baseball’s
salary structure is undergoing major
changes and suggests that the future
for baseball salaries, while fairly
bright, may not replicate the rapid
escalation of the past.

Some early anecdotes

Salaries have always been a key
issue in baseball, although it is only
recently in the game’s history that
players have enjoyed a strong
bargaining position. Early players
hardly ever made big money—
usually the opposite was truae—and
there were several attempts at
unionization, to overcome the
control owners had over the purse
strings. In fact, some of the early
unions were set up by players who
went on to become members of the
Baseball Hall of Fame. In 1885, for
instance, John Montgomery Ward
established the Brotherhood of Base
Ball Players. The Players Protec-
tive Association was formed in
1900 by several stars, including
Clark Griffith and Hughey Jennings.
It was the low salaries, kept in place
by the reserve clause in player
contracts, that sparked the forma-
tion of these and other unions.
In the face of owner resistance,
however, the unions were all ill-
fated.

An interesting anecdote on the
early importance of salaries is the

Compensation and Working Conditions Fall 1997 2


mum salaries, as a result of the new
collective bargaining agreement
reached in 1996. In June 1994, the
MLBPA had proposed to the owners
that minimum salaries be raised to
$175,000 and eventually to
$200,000. While the union was
unsuccessful in achieving these
levels, the minimum did rise, in
1997, to $150,000.

The new agreement

The long delay in reaching a
collective bargaining agreement in
1996 and the 1994-95 baseball strike
played havoc with the game, costing
owners and players about $1 billion
in lost revenue over a 3-year period.
The old agreement, which expired
after the 1993 season, remained in
effect and governed important salary
issues, such as free agency and
salary arbitration. Among the hard-
line owners who wanted to drasti-
cally alter the agreement in their
favor was Jerry Reinsdorf of the
Chicago White Sox. Ironically, it
was Reinsdorf who finally broke the
log jam.

Also owner of the Chicago Bulls
in the NBA, Reinsdorf was no
stranger to paying high salaries.
Michael Jordan of the Bulls was the
highest paid player in team sports in
1996, making $30 million. It is,
therefore, not surprising that in
November 1996, Reinsdorf agreed to
pay free agent Albert Belle an
unprecedented $55 million over 5
years. This shattered the pay scale
in baseball. The next highest paid
player that year was Ken Griffey, Jr.,
of the Seattle Mariners, who was
paid $2.5 million less per year than
Belle. What is surprising about the
Belle signing is that Reinsdorf was a
staunch advocate of salary restraint
and revenue sharing in baseball, so
all teams would be more competitive.
The signing of Belle to such a
whopping contract belied
Reinsdorf’s rhetorical advocacy of
restraint.

More importantly, the Belle
signing galvanized the owners into
opposition to Reinsdorf. The owners

had voted on November 6, 1996, by
a vote of 18 to 12, to reject the
tentative agreement reached between
the negotiators for baseball and the
union. But as a result of Reinsdorf’s
action, the owners called for another
vote and this time ratified the
agreement 26 to 4, thus ending 4
years of labor strife. The new 5-year
agreement makes several changes to
the salary structure.

The biggest change in the new
agreement is the adoption of a
luxury tax. Teams that spend over a
certain amount in payrolls—$51
million in 1997—are taxed at a rate
of 35 percent on the amount of the
payroll exceeding the cap figure. In
1998, the cap rises to $55 million,
and in 1999, a 34-percent tax will be
paid on payrolls exceeding $58.9
million. The luxury tax will not be
in effect in 2000. Additionally,
players have the option to extend the
contract to 6 years—to 2001. If they
elect to do so, the luxury tax would
not be in effect in 2001 either.

Also, players will be required, under
this agreement, to pay a 2.5-percent
tax on their individual salaries,
which will be contributed to the
revenue-sharing pool. Another
feature is that service credit was
given to players for games lost
during the strike. This resulted in
12 players qualifying for free agency.

The revenue-sharing arrangement
is expected to redirect about $70
million to 13 small-market teams, so
they can more vigorously compete
for high quality players, if they
choose to do so. Part of this money
will be paid from the luxury payroll
tax and the individual player salary
tax, while the remainder will come
from partial sharing of local broad-
cast receipts by high-revenue teams.
This shared revenue should help
small-market teams become more.
profitable, or to lose Jess money than
before. These tearns are not required
to spend the extra shared revenues
on players, although it seems likely
that many will elect to boost their
payrolls, in order to be more
competitive on the field.

The payroll tax is not expected to
be a significant deterrent to big-
spending clubs, like the Yankees and
Braves. Their revenues from other
sources are so substantial that they
can afford the tax. Because only the
five highest-paying clubs are
potentially affected by the tax, high-
paying clubs not in this group will
not be penalized. Also, the deal is
not a bad one for the players, in that
little salary restraint is likely, and
the players were able to avoid a firm
salary cap.

While the new collective bargain-
ing agreement will redirect some
revenue, and may act as a restraint
on salary escalation for some clubs,
the overall effect is not expected to
be great. Consider, for example, that
just after the agreement was reached,
the Florida Marlins committed $89.1
million to sign six free agent players.
This was the biggest spending spree
in baseball history. Other clubs also
spent freely after the agreement was
reached. In December 1996, in one
week, 14 clubs (including the
Marlins) committed a total of $216
million to 28 free agents.”

Future prospects

With the status quo not radically
altered, the overall fortunes of both
owners and players should be
enhanced by the settlement. The
absence of a labor agreement was a
big cloud hanging over baseball, and
many fans who were leery of another
strike directed their attentions
elsewhere. An estimated $500
million in sponsorship deals negoti-
ated by baseball's new marketing
chief, Gregory Murphy, were
awaiting a labor agreement."? The
national television agreements have
been greatly improved. A number of
very attractive stadiums have
recently been built, and more are on
the way. Two new teams begin play
in 1998—the Arizona Diamond-
backs and the Tampa Bay Devil
Rays—raising the number of teams
in the majors to 30. Baseball should
also gain from increased fan interest
as a result of interleague play

Compensation and Working Conditions Fall 1997 8


.

(in percent)

Ratio of median to average salaries, major league baseball, 1970-96

80}

60

50}

40}

30}

| Ne ———-
70 \/ \

1 1 L L

ao

2 i
°1970

1976

n 1
1982 1988

NOTE. In 1994.95 actual salaries were less because of the players’ strike.

SOURCE: Average salary data from Major League Baseball Players Association. Median salary for 1970-82 fromm MLBPA.
and for 1983-96 from Major League Baseball

Black Sox Scandal. In 1919, eight
players on the Chicago White Sox
conspired to lose the World Series to
a clearly inferior Cincinnati Reds
team. Chicago was one of the most
powerful teams of all time. It was
the misfortune of the players,
however, that the club was owned by
Charles Comiskey, a real penny
pincher. One of the conspirators,
pitcher Eddie Cicotte, won 28 games
in 1917, leading the Sox to the world
championship. Two years later, he
won 29 games, yet was paid only
$6,000 by Comiskey.' Shoeless Joe
Jackson, one of the greatest sluggers
to ever swing a bat, never made
more than $6,000 a year. Most of
the other Black Sox were paid less
than half that. As a consequence,
they became easy prey to gamblers
who were out to fix the World Series
and promised a big payoff to the
players who threw the games. (This
is not to excuse the venality of the
Biack Sox, but it makes their action
somewhat easier to understand.)

It wasn’t until Babe Ruth came
along, with his prodigious bitting
exploits, that a player was lavishly
rewarded. In 1930, Ruth signed a

contract for $80,000 for each of 2
years. But “The Bambino” was the
exception. While on the 1927 New
York Yankees (held by most observ-
ers to be the best baseball team ever),
Ruth was paid $70,000. But the
other great players on this “Field of
Dreams” team made far less:

Herb Pennock, next highest after
Ruth, was paid $17,500; Bob Meusel
made $13,000; Joe Dugan and

Waite Hoyt, $12,000; Earle Combs,
$10,000; Lou Gehrig, $8,000;

Tony Lazerri, $8,000; and Mark
Koenig, $7,000.? Ruth’s salary
dwarfed those of the other players
and was a fantastic sum in those
days.

Most fans consider Babe Ruth to
be the greatest ballplayer in the
history of the game. He ranks first
or second in six major offensive
categories: Career home runs, runs
batted in, runs, home run and
slugging percentages, and walks.
What would his $80,000 salary be
worth today? It would be approxi-
mately equal to $750,000 in current
(1996) dollars—about 14 percent of
what Yankee right fielder Raul
O'Neil made in 1996.

3° Compensation and Working Conditions Fall 1997

Despite Ruth’s breakthrough, few
players made much money. Then,
World War II drained the majors of
its stars and further dampened
salaries. By 1946, salaries were so
low that several players jumped from
the majors to the Mexican League.
The multimillionaire Pasquel
brothers bankrolled the deals, luring
players, such as Mickey Owen, Sal
Maglie, Max Lanier, and Danny
Gardella south of the border. Lanier,
a star pitcher making only $10,000
for the St. Louis Cardinals, was paid
a bonus of $25,000 to sign and
$20,000 a year by the Pasquels.‘
Gardella, an outfielder, had been
offered $5,000 to play for the New
York Giants, but instead signed with
the Mexican League for $8,000 plus
a $5,000 bonus.S When the players
jumped the Rio Grande, Commis-
sioner A. B. “Happy” Chandler
retaliated by blacklisting them from
the majors for 5 years for violating
the reserve clause in their contracts.
(Unhappy) player Gardella sued
Happy Chandler and major league
baseball for conspiracy to deny a
player his livelihood. After Gardella
lost the initial court trial in 1948, the



U.S. Court of Appeals ruled in his
favor, finding that baseball was
interstate commerce under the
Sherman Antitrust Act. Chandler
appealed this ruling; but since
baseball was at risk of losing its
antitrust exemption (provided in
1922 by the U.S. Supreme Court),
the commissioner declared amnesty
for the Mexican League “jumpers”
in 1949. Later that year, Gardella
settled the case out of court for
$60,000. 6

Why the rise?

There are several factors explain-
ing the modern rise in baseball
salaries, which apply to other
professional team sports as well.
Perhaps the most crucial is the
players’ union. The Major League
Baseball Players Association
(MLBPA), formed in 1952, got
going strong when Marvin Miller
took over as executive director in
1966. It took a few years for Miller,
a former Steelworkers Union official,
to negotiate key provisions. But
once he nailed down free agency and
salary arbitration, salaries shot up
quickly.

Before free agency, players had no
bargaining leverage with their clubs,
because the team that owned a player
had the exclusive right to re-sign
him. Under free agency, players
with 6 years of major league experi-
ence can sign with other teams.
Teams competing for talented free
agents bid up salaries. Moreover,
once a player serves about 2.7 years
in the majors, he can have his salary
arbitrated, if the club won’t come to
terms. Arbitration results in higher
salaries, because arbitrators award
compensation attuned to a player’s
worth, rather than what his teain
would be willing to pay in a closed
market,

If free agency, combined with
salary arbitration, is the engine for
salary escalation, television provides
the fuel. While revenues from
attendance and luxury boxes are
important, the strongest force behind
salary expansion is money from

network and cable television. When
television money is bountiful, both
owners and players get rich. But if
this revenue falls off, as it did during
the 1993-95 agreements with NBC
and ABC, salaries necessarily
moderate. This decline in television
earnings put a squeeze on clubs,
particularly those with high payrolls,
and was probably the most important
reason why there was a Jong strike in
1994-95.

Because local television revenues
are not shared equally among teams,
as national television revenues are,
clubs in large markets get far more
local television money than those in
small markets. The Yankees, for
example, are paid about $50 million
annually from local contracts, while
small market clubs, like Milwaukee
and Seattle, are lucky to get $2
million. This disparity led to
proposals to share at least some of
the local television revenues. As a
result of the 1996 collective bargain-
ing agreement (discussed later in
this article), local broadcast revenues
are now shared. However, teams in
large markets still retain the lion’s
share of the money paid by broad-
casting companies.

Relative to what?

Comparisons between salaries in
baseball and those in industrial
America are misleading, because
baseball is part of the entertainment
business. And in entertainment, the
same rules do not apply to one-of-a-
kind artists, as with the typical wage
earner. It is not uncommon for top
movie stars to get $10 million to $15
million (and occasionally, as much
as $25 million) per picture. Record-
ing artists have signed contracts for
as much as $80 million for a few
albums. Many ballplayers are also
star performers. Perhaps some are
actually underpaid, considering the
revenue they bring to their teams.

High pay does not, of course,
guarantee success. When a team
pays several million dollars for a free
agent player who proceeds to have a
terrible year, fans groan. Yet, in

1996, movie actor Jim Carrey was
guaranteed $20 million for his
performance in “The Cable Guy,” a
comedy that The New York Times
called “the true disaster film of the
summer.” Twenty million to one
actor—for a box office flop. Heavy-
weight boxer Mike Tyson fought
three fights in 1996 and made $75
million. This was, according to
Forbes Magazine, more money than
any athlete has ever earned in a year.
Yet, the first two of these fights were
stinkers, and Tyson lost the third
fight (and his championship) to
Evander Holyfield.

Besides celebrities, there are
leading corporate executives who
also receive astronomical pay. In
1996, five executives from Wall
Street’s Bear Stearns Co. received
$81.3 million in compensation. This
was easily more than the $58 million
paid that year to the 12-man roster
of the champion Chicago Bulls—the
highest paid team in the National
Basketball Association." A few years
ago, the CEO of Coca Cola was paid
an annual bonus of over $50 million;
and in 1997, Michael Ovitz, let go
by Walt Disney Co. (after only 14
months as its president), walked
away with a contract settlement of
$130 million.’ In this light, paying
$10 million to a major leaguer
doesn’t seem excessive. As celebri-
ties in American culture, ballplayers
are paid well, because they entertain
a large audience. This may not seem
fair, but, in exceptional cases, it is
the way the labor market works.

Salary trends

Average salaries began a sharp
increase in 1976, which corresponds
to the time that the benefits of free
agency became available to players.
(See table 1, which shows average
and median salaries in major league
baseball.) The rate of increase
moderated in 1987 and 1988—a
time of collusion by the owners in
not signing free agents. The
MLBPA filed grievances over this
collusion (which was prohibited by
the collective bargaining agree-

Compensation and Working Conditions Fall 1997 4