Even before colleague Phil Miller distilled some of the noise about the Twins’ 2019 payroll into a thoughtful, balanced and nuanced story this weekend, I kept having thoughts about the economics of baseball and the Twins.
And now, with Miller’s story as a backdrop, let’s take a little closer look at some of the issues at hand:
A BASEBALL PROBLEM, NOT A TWINS PROBLEM
With no salary cap in Major League Baseball — and more importantly no salary floor, or minimum a team must spend — there is a wide variance in spending whereby teams can spend as much or as little as they want. It might hurt attendance, but they will be cushioned by other increasing revenue streams from massive national TV contracts, MLB Advanced Media and other sources. Even the lowest-revenue team, the Oakland A’s, took in $210 million in revenue according to Forbes and operated at a profit.
In the NBA, by contrast, there is a salary cap AND a minimum of basketball related-revenue that teams must spend on player salaries — set between 49 and 51 percent a year, per the most recent collective bargaining agreement.
Twins officials have long said that their aim is right in that range: 50 percent of revenue going toward payroll. In reality, though, it has often fallen short — as Aaron Gleeman noted in a tweet that started a lot of this conversation.
Looking at previous year’s revenue and the next year’s payroll (which seems like a good way to do it), Gleeman — using Forbes revenue calculations and opening day payrolls — found that in each of the last seven years the Twins have fallen short of 50 percent. Their collective revenue was $1.621 billion in that span, while their payroll was $723 million — a shortage in spending, he notes, of $87.5 million over seven years, or about $12.5 million a year.
But here’s the thing: That doesn’t make the Twins unique. In fact, it makes them average. Expressed as a percentage, the Twins have spent 44.6 percent of previous year’s revenue on next year’s payroll in that span.
Looking at MLB as a whole, total revenues in 2017 (per Forbes) were $9.46 billion if you simply add up revenues from all 30 teams. And total payroll in 2018, per Spotrac, was $4.18 billion. As a percentage, MLB teams spent … 44.2 percent of revenue on payroll.
That’s not to say it’s right, or that if everyone is doing it the Twins should, too. But it does suggest the problem is more systemic than specific to one team.
The disincentive to spend, combined with a salary structure that underpays players early in their careers, combined with a system that doesn’t enforce a spending minimum as a percentage of revenue, is set up in favor of the owners not the players. It figures to be a major point of contention when the collective bargaining agreement expires after the 2021 season.
BUT THE TWINS ARE REALLY CHEAP THIS YEAR
The major point of contention this year is that the Twins aren’t just poised to miss the 50 percent mark by a little … they’re going to miss it by a lot. Even if revenue was flat and the Twins took in $261 million in 2018 (same as 2017, the last year for which figures are available), they’re on pace this year to have a payroll of about $100 million unless they do some more free agent shopping. That would be just 38 percent of revenue, and that’s assuming flat revenue.
That certainly reflects a business/philosophical decision — one that can be justified (more on that in a minute) but one that also has some fans justifiably irked. Miller got to the heart of it in an excellent story over the weekend with the perfect intro: Twins critics who grumbled for years about Joe Mauer’s $23 million annual salary aren’t going to be happy about who will cash those big checks in 2019, either: Jim Pohlad.
Quotes from within that story shed light on the Twins’ outlook for 2019 and beyond. Said Chief Baseball Officer Derek Falvey: “For teams that are outside the top few teams in payroll, when you look at it year to year, there’s a lot of variation in those clubs, in terms of performance. A lot of it has to come from your young players. Buying wins just through free agency is a little bit of fool’s gold. You need to invest in the group that you have, and I feel really good about ours.”
Added General Manager Thad Levine: “The best moves are made not when you’re trying to open the window to contend, but when the window is wide open. We’re very eagerly waiting for this window to be opened, and when it is, we plan on striking.”
Translation: They don’t know how good the Twins are going to be, and they’re using 2019 as a period of evaluation before making long-term commitments. If the team improves, they’ll add more players (and theoretically have even greater revenue if attendance improves along with the team).
This makes a good deal of sense, and it’s not an uncommon strategy — particularly for a team with a lot of young core players. Not only are the Twins waiting to see how the likes of Byron Buxton, Miguel Sano, Eddie Rosario and Jose Berrios develop, but also they’re being mindful of not bogging down future payrolls with expensive free agents on long-term contracts because those core young players will get a lot more expensive as they get older.
Take the Astros, for example. After years of being awful (by their own design mostly), they had a big year in 2015. They won 86 games and made the postseason. Their revenues jumped up to $270 million. But they were still pretty young and had low-cost core players. They were also probably unsure whether their success was a trend or mirage. So their payroll in 2016 was just $103 million — 38 percent of the previous year’s revenue.
By 2018, revenues had continued to climb — but so did their payroll as they added expensive players (like Justin Verlander at the deadline in 2017) and some of their young core players reached arbitration. Their payroll last year was $163 million. It might just keep going up; Jose Altuve, who made $3.7 million in 2016, will start his five-year deal at $29 million per season in 2020. Carlos Correa and Alex Bregman will see their salaries rise with arbitration.
The Twins are essentially budgeting for future spending on core players — or their replacements if they don’t pan out. But for now, a lot of those core players are still cheap.
BUT THEY CAN SPEND WHATEVER THEY WANT
Any payroll limitations are self-imposed in baseball, of course, since there is no salary cap. Even if the Twins set a goal of spending 50 percent of revenue on payroll, they could spend 60 or 70 percent if they wanted.
Here, though, it’s also important to remember that free agency is a two-way street. The Twins might want to make a serious run at Bryce Harper or Manny Machado, but do those players really want to come here? It can be cold at the start and end of the season, and it’s certainly cold in the offseason. There are plenty of nice summer days, but there are also plenty of hot and humid ones. If players are being honest, this is not a top free agency destination.
That said, there are ways around that beyond just drafting and developing players — most notably trading for a big-ticket player on a long-term contract and supplementing with mid-level free agents.
If the Twins start being consistently competitive, revenues should climb. Per Forbes, they took in just $70 million in gate receipts in 2017, compared to $100 million in 2010 when Target Field opened (equivalent to $112 million in 2017 dollars).
I could see seasons when the Twins’ payroll reaches $140-150 million if Buxton and Sano become stars, and I think fans would be justifiably mad if Falvey and Levine didn’t make bolder moves in those seasons.
This year feels like an in-between season and a promise made about the future. How you feel about that in the present is a matter of perspective.