MLB Contracts, Structured To Kill Teams Like Cubs, Should Learn From the NFL

   By: Derek Crouse

   The players in Major League Baseball are paid some robust contracts. MLB owners frequently tell their fans that prices on tickets, concessions, and the pro shop have to be increased due to payroll and stadium investments. While management is fairly accurate with this argument, the structure of the deals can lead to buyer’s remorse.

   If somebody buys a car, it gains miles and has minor problems throughout the years. Sometimes a guy wants to get rid of the car because it had had too many problems. Every now and then a car comes around that he just can’t pass up. The old car just isn’t once what is was, but there is somebody out there willing to buy it at a reduced price.

   Now what if the owner didn’t have the option to sell his car. Say he had to keep it while it loses value. If the car is costing him more every year, it’s a lose-lose situation. The best option would have been to trade it in or just drop if off at the local car dealership. A number of baseball players are cars losing value every year while still holding the same value even when the miles and problems are adding up.

   Many baseball players lose so much production compared to their contract and it comes back to haunt the team. Even though there isn’t a salary cap in the MLB, many owners are not will to pick up more contracts if star players a taking such a big piece of the pie.

   While teams like the Yankees, Red Sox, Cubs, Phillies, and Mets averaged a team payroll of $158.8 million, the Marlins, Rangers, Athletics, Padres, and Pirates average $51 million. Collectively, the bottom five teams have a total of $235 million in their team payroll, while the Yankees alone sit $43 million above the second highest team at $206.3 million!

   The top tier teams are willing to take a very big hit if the player doesn’t pan out to meet his standards on the field. Many people would look to say that these certain teams are buying a championship while the other teams are earning the title. Every team in every pro sport is trying to buy their way to a championship. That is the business model for most teams; use your assets to invest in talent that will lead to profits by the popularity and success of the team. With no salary cap or floor, the MLB owners can spend as much as they want or as little as they want. Financial philosophies and strategies of each team differ as the statistics show.

   In the NFL, if the production goes down, the player is traded or put on waivers so they can meet the salary cap. If an MLB player is put on waivers, the team that looks to pick him up first has to pay a chunk of the remaining contract. That can be a deterrent to teams not willing to eat some payroll to win games, which gets at fans who invest so much time and money into their team. There is a $171 million discrepancy between the top and bottom payroll. You have to spend money to make money.

   Many star players in the NFL get put on waivers and become free agents. The value of that player could dramatically change if his prior contract was overblown. Just before the season started, TJ Houshmanzadeh was cut from the Seahawks. The Ravens picked up a player who was worth $7 million for $855,000. Also, a player like Ladainian Tomlinson, who was the best back in the league for years was cut without any profit loss for the Chargers.

   Look at the Cubs for instance. They are paying Alfonso Soriano about $20 million, Kosuke Fukudome $14 million, and Carlos Zambrano is “earning” $17 million per year. If the Cubs had an option just to dump their contracts would the players have the same value on the market? These contracts can hold a team down for years. The owners are willing to pay exuberant amounts for players, so management and scouting is at fault when they have to find revenue to pay for whiffing on players.

   It seems that baseball contracts are guaranteed no matter what the player is hitting or if he is throwing great stuff. MLB teams frequently are sitting on players who nobody wants because of their overblown contract in contrast to dwindling numbers. Would a stockbroker buy a stock knowing he couldn’t dump it if was sliding fast? Would you buy a car a dealer told you had a bunch of problems for a price that was the value five years ago?