Wednesday, February 26, 2014

Paying Minor League Players Fairly

Charlie Drysdale at Minor League Ball wrote this excellent article. I posted this in the comments but I thought posting it here would get a different set of eyes on it.

As someone who is obsessed with all things baseball and considering I studied finance, I have a strong interest in how this lawsuit shakes out. I have thought about this a lot and have thought of many scenarios to fix this.
The dangling of the MLB carrot isn’t enough to mistreat people who have chosen this as their profession. The best step MLB could do to cut costs is to cut minor leagues. They could cut down to two minor league levels, carry around 50 players on each roster and reduce costs greatly. IF MLB loses this lawsuit, it could change the minors drastically. In all honesty, I would be in favor of this. I see it as a way of marketing the future of baseball better but that’s a whole different idea.
The cost of paying players in underrated in the comments above. Last year, more than 6400 players played in the minors. A little quick and dirty mate. here. Using $7.25 as minimum wage, working 60 hours a week, with 20 on overtime for 7 months, that is $13,185. Multiply that by the amount of players and we are looking at $85 million. That’s a lot of money. Remember these are the owners that didn’t want to throw $1 million apiece for a few years to start MLBAM which is an enormous cash cow now.
If I was MLB dictator, this is what I think is fair:
MLB minimum is $500k this year. Using this as a basis for players trying to get there and the odds that they do for a base salary works out pretty well actually. Minor leaguers graduate at different levels based on their skills and I think this would just be the skeleton for a larger system to be set in place to label and tier minor league talent. This could also be used by teams to help categorize their talent. I think most of us have a job title, why shouldn’t a minor leaguer.
AAA players are often close to MLB talent and 76.2% of them make it to the majors. Rookie ball players have a strong challenge ahead of them and only make it at a 9.12% rate. Foreign summer leagues are tougher to judge because of the short track record and unique environment but my initial data says about 4% will make it to the majors. Using that method:
Salary Level
$222,250 AAA
$107,333 AA
$62,008 High A
$45,733 Low A
$20,150 Short Season
$15,200 Rookie
$6,667 Foreign Summer
That would have costed MLB $317 million last year. For perspective, the total draft slots for the first 10 rounds of the 2013 draft was about $203 million.
That seems reasonable and I’m aiming high here but if I were to be fair to players, that’s how I’d pay them.
Just to make you think a little, if this were set into place in 1990, basing it on the same number of players in the minors and using MLB minimum salary as the basis, MLB would have paid out 2.82 Billion with a “B” to minor leaguers. Using revenue totals from 1995-2013 from and estimating 1990-1994, this would have been 2.46% of revenue.

These numbers, torn apart, aren't crazy. Using 7 months, a 40 hour work week and estimating 20 hours of overtime weekly, which seems fair, these are what the hourly rates would work out to be.

Level Hourly Rate
AAA $104.79
AA $50.61
High A $29.24
Low A $21.56
Short Season $9.50
Rookie $7.17
Foreign Summer $3.14
Rookie ball wages come out to be very close to federal minimum wage, as you'd expect from a low level employee. Low to High A ball players get what would be a sustainable wage and similar pay to that of another industry in which you use your body to make a living like building construction or masonry. AA level players would get paid requisite of a professional. Someone who is capable of strong decision making and responsibility like a supervisor, manager or hold special skills like a pharmacist or an actuary. AAA level players are paid as top assistants who could step into a position and be capable of handling it without a large downgrade(mlb up and down guy) like an assistant city manager or someone who has elite ability in one specific area (4A slugger) like an anesthesiologist. 

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