MLB: New Playoff Format Will Increase Player Salaries

Today, Major League Baseball announced a new playoff format that will include 10 teams, up from the eight that have advanced to October baseball each year since 1995.

This is a great move for baseball. The new format, which will pit two Wild Card teams from each league against each other in a one-game playoff, will force teams to try to win their divisions instead of settling for a Wild Card berth. It will also keep more teams in playoff contention in August and September.

Generally speaking, as the July 31 trade deadline approaches, contenders look to acquire players from teams that are out of playoff races in order to make their final playoff pushes. It follows, then, that under the new format, more teams will be competitive looking to add pieces, and fewer teams will be out of contention and trying to dump salaries in trades.

For example, let’s look at the 2011 Toronto Blue Jays. On July 31, 2011, the American League Wild Card standings were:

New York Yankees 64-42

Los Angeles Angels of Anaheim 59-50

Tampa Bay Rays 56-51

Toronto Blue Jays 55-53

The New York Yankees were the Wild Card leader, 10 games ahead of the Blue Jays.  Under the new format, however, the Los Angeles Angels of Anaheim would also have been in place for the second Wild Card spot at 59-50, just 3.5 games ahead of the Jays.

Clearly, under the old format, the Blue Jays were out of the playoff race by the time the trade deadline hit, but would have been right in the thick of it had the new format been in effect.

Even for teams that are still out of contention, the new playoff format is great news. If there are more teams bidding to trade for fewer available players, the value they are likely to receive will increase greatly.

On the other hand, this is terrible news for contenders, as it will be more difficult and more costly to acquire players in the middle of the season.

Instead of relying on midseason deals, then, teams will become more likely to sign players in free agency during the offseason. If a team thinks it might eventually need an outfielder to be a legitimate contender, it will no longer be able to rely as easily on a trade. The team will be safe to sign an outfielder before the season, rather than paying an extremely high trade price in June and July—or else not obtaining an outfielder at all.

This movement of competitive teams towards free agency will, in turn, increase the salaries of free agents. In addition to competitive teams opting to sign free agents instead of trading for midseason upgrades, more teams will think they can be competitive and sign free agents. Simple supply-and-demand shows that, as more teams look to sign free agents, the price (a.k.a. the salary) of free agents will go up.

So, there is a chain-reaction of the new 10-team playoff format with several consequences.

First, there will be more teams in contention that are looking to add players at the deadline, and fewer teams out of contention trying to trade players.

Because of this, teams out of contention will receive much higher value for their players than before.

And, teams that think they will be contenders will resort to off-season free agency more often than midseason trades because of the high trade costs.

This will raise player salaries.

No wonder the players signed off on the new playoff format.