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The History of Baseball Salaries in the U.S.

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Baseball players are among the highest paid athletes in the world of professional sports. Throughout the course of the twentieth century, professional sports’ salaries increased astronomically. Every year, it appears that athletes’ salaries increase, regardless of economic crises, unemployment, poverty and overall social inequality. Salary increases have been the direct result of the forces of capitalism and the constant competition between teams over championships. Paradoxically, even though team owners and fans are against inflated salaries, the salaries continue to rise. Baseball fans (and sports fans in general) spend billions a year following their favorite teams. Team owners pursue the most talented players and pay tens of millions of dollars in salaries, because, in the end, revenues will well compensate such inflated costs. History indicates that the salaries of professional baseball players will continue to rise, because talent supply is scarce, the sport’s market structure enables massive spending, fan loyalty continues to remain steadfast, and the established competitive balance tax has been ineffective in decreasing salary spending.

The superstars in professional baseball

The first superstar in professional baseball was Mike “King” Kelly, who played between 1878 and 1893. Kelly revolutionized the world of professional baseball with a then record salary of 5,000 dollars. In 1930, it was George Herman “Babe” Ruth who revolutionized the sport when the New York Yankees signed a deal paying him 80,000 dollars (Sommers, 1993). Since then, salaries have consistently risen. In the 1970s, salaries reached new heights entirely when Reggie Jackson signed a contract giving him 2.9 million dollars a year. Following Reggie Jackson’s case, salaries continued to rise, and at present it is not unlikely to see teams signing players for multiple seasons and agreeing to pay them salaries in excess of 100 million dollars.

There was alarm when Reggie Jackson was given $2.9 million a year in 1976; shock when one-dimensional Jose Canseco became the game's salary king at $4.7 million in 1990; disbelief when pitcher Kevin Brown signed a seven-year, $105 million deal in '98. Observers from Bob Costas to Joe Blow said the sky had fallen, hell had frozen over, pigs had flown, and the grand old game was dead (Sullivan, 2000, p. 144).

Today salaries continue to rise, and this owes primarily to the fact that the real talent is scarce. Teams seek the best talent available, because it is no secret that better players make better teams, and this increases a team’s chances of making more money and winning more championships. This situation has always been a problem for teams, but during the second half of the twentieth century, with the establishment of a free agency, salaries increased unexpectedly. In the past, players were forced to remain in their team’s reserves (unless the team decided to trade the player to another team), but when the free agency came along, any player became free to negotiate with other teams after his sixth season. Being unable to hold their most talented players in reserve, teams forcibly had to increase salaries in order to retain players. At the same time, other teams got the opportunity to pursue the league’s talented and enter the bidding. With the oncoming of the free agency, capitalism unrestrictedly made its way into the sport.

As well, it is important to consider the fact that a player’s professional career is vastly limited (when compared to the professional careers of others). An athlete’s career is shortly lived. Most athletes do not manage to remain for more than ten or fifteen years at professional level and there is always the risk of injury. Athletes sacrifice other job opportunities to pursue a career in sports, so it is only natural that their salaries not only compensate their present efforts, but also the years of labor that they might have been able to spend in another career.

Each year, more than 40,000 people receive Ph.D.’s in the United States, while perhaps 40 rookies make it into the NBA. For the few who do make it into the pros, their expected tenure is short, maybe a few years on average. A teacher, on the other hand, may be able to practice his profession for up to 40 years (Anderson, 2000, p. 19).

Free agency contributed greatly in the monumental increase of professional players’ salaries. Seeing that they had the opportunity of negotiating on their own terms and sell their services to the highest bidder, players started thinking about their future (as well as their family’s future). Professional sports are in demand, and only the best players can manage to withstand the pressures (mental and psychological) that sports inflicts. Recognizing this, top players started demanding higher salaries and other privileges as well.

The reasons of rising players' salaries

Seeing how salary costs have increased for professional baseball teams throughout the years, one would come to expect that such increased costs would drive teams into bankruptcy. This, however, has never occurred, and the truth is that it will ever occur. There are two reasons that help explain the league’s financial solidity. First, it should be noted that “major league baseball is a monopoly with a legal exemption from antitrust laws, and therefore it's not subject to the ordinary laws of supply and demand” (Silver, 2009, p. 75). This legal exemption has prevented the appearance of more teams around the country, and that is precisely why today’s baseball franchises remain so valuable (and profitable) even though its salary costs have steadily and increasingly risen over the course of the years.

In 1908, the last time the Cubs won the World Series, there were sixteen major league baseball clubs for about 89 million American citizens, or one team per 5.6 million potential fans. But now there are thirty clubs for around 300 million Americans, just one to go around per 10 million of us (Silver, 2009, p. 75).

Secondly, team owners have come to realize that despite the increases in player salaries, “talented players improve the chances of winning, and winning leads to more ticket sales, more hot-dog sales, more cap and T-shirt sales, more parking revenue, more TV viewers, more radio listeners, and more advertising” (Sudo, 1992, p. 17). In other words, teams are willing and able to increase their salary costs, because those costs will signify a geometrical increase of their revenues. Over the years, certain teams have managed to secure the services of the best players in the league. This has caused the demands of mid-level players to increase as well, given that once the top teams snatch the top players, the rest must compete to get the next best thing (mid-level players) (Sullivan, 2000, p. 144). In the end, the result is that the average salary for professional players has consistently risen (not just for top-level players but for players in general).

A third reason that explains why salaries have steadily risen in professional baseball is the fans. Fans pour into stadiums to watch their favorite teams play; they purchase all kinds of merchandize. Apart from all of this, they also follow their teams on television, radio, and the Internet. This has not only benefited owners and players. In fact, “plenty of folks in this business have seen their fortunes quadruple-in part because of athletes” (Powell, 1998, p. 8). Fans is what ultimately keeps the sport alive, and even though with the passing of the years, the strain of increased player salaries falls more and more on fans themselves, they continue to stand behind their teams. Despite the fact that fan indignation has grown with the passing of the years (as player salaries appear to rise uncontrollably), the fact remains that “owners and players are becoming increasingly wealthy at the expense of fans, non-fans, and taxpayers” (Bryjak, 1998, p. 67).

Finally, professional baseball has no salary cap. Instead, it has a competitive balance tax. This tax intends to limit the growth of players’ salaries by imposing a “tax” on teams who spend more than a previously established maximum salary limit. This measure has proven quite ineffective, given that teams seem more than willing to pay “taxes” in order to guarantee top players and continue winning games and championships (Staudohar, 1998). Of course, there are teams who have been careful to rationalize their spending and not exceed the maximum limit allowed, but this has made it impossible for them to be championship contenders (Zimbalist, 2010).

It is clear that without a rigid salary cap, powerful teams will continue to increase players’ salaries in order to continue maximizing revenues. Evidently, this dynamic will continue to affect fans and the nature of sports itself (as it becomes more about business and less about sports) (Scherer, 1998). As long as the fans continue nurturing and supporting the sport, the market’s structure continues to be that of a monopoly, it is clear that nothing will change. The baseball salary bubble has endured for more than one hundred years, and even though some teams rationalize players’ salaries, it is the teams that consistently reach the playoffs the ones that keep the bubble growing.

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