In this excellent article, Jared Diamond makes several important points but misses the big one. By increasing the cost of pitching, teams like Boston with its NESN income and Arizona with its media deal, make it harder for less wealthy teams to sign equivalent talent. It is the baseball way!
by JARED DIAMOND
The hour has come. The day has dawned. The paperwork has been signed and sealed with crimson wax. Next season, there will likely be at least one pitcher in Major League Baseball who earns $1 million per start.
It might be David Price, who signed a seven-year, $217 million contract with the Boston Red Sox last week. Or maybe it’ll be Zack Greinke, whose six-year, $206.5 million deal with the Arizona Diamondbacks was finalized on Tuesday. “I wish I was one of them,” Houston Astros manager A.J. Hinch said. “It’s a good time to be a really good player in baseball.”
Almost 17 years ago, at the same Opryland hotel here where MLB’s winter meetings came to a close Thursday, the Los Angeles Dodgers made star pitcher Kevin Brown the highest-paid player in history with a seven-year contract worth $105 million. The deal drew fierce criticism from all over the league. San Diego Padres owner John Moores called it a “tragic day for baseball.”
This year, free-agent pitchers with far less impressive résumés and far greater injury prospects are blithely topping that. Jeff Samardzija just got five years and $90 million from the San Francisco Giants—or $18 million per season, which is a full Manhattan three-bedroom apartment better than Brown’s $15 million. This is the same Jeff Samardzija who led the American League last season in hits and home runs allowed.
When viewed in cold, hard economic terms, it’s not surprising pitchers have broken the million-bucks-a-start barrier. Baseball talent is a market like any other and the marketplace is reacting to: 1) the relative scarcity of good pitchers available and: 2) the enormous gobs of television revenue that have been pouring into the sport. Overall, MLB revenue grew to about $9.5 billion this year. “Growth of salary and revenue are moving in lockstep,” said Smith College sports economist Andrew Zimbalist.
But there is one question looming over the sport, even as it indulges in another no-holds-barred cashapalooza. Salaries in baseball have been rising without fail ever since the advent of free agency in 1975. But for the first time, there are real warnings from responsible people that the party may be coming to an end.
The Dodgers, the team that gave ace Clayton Kershaw a $215 million deal last year and possesses the highest payroll in the league, has a 25-year broadcast rights deal with Time Warner Cable that started in 2014. It is worth $8.35 billion. The Diamondbacks recently signed a 20-year, $1.5 billion contract with Fox Sports Arizona, an agreement that gave them the confidence to spend so lavishly on Greinke. Several other teams, including the Red Sox, Baltimore Orioles and New York Mets, own significant percentages of the regional sports networks that broadcast most of their games: a strategy that has helped teams earn many multiples more than whatever they had earned before.
But economists say that the days of ever-increasing contracts are numbered. And the change won’t have anything to do with what happens on the mound. It will depend on the decisions millions of Americans make about something a lot less entertaining: whether or not to continue paying top dollar for cable television.
As more people downgrade their cable service for smaller bundles of channels, or “cut the cord” by disconnecting from cable in favor of online streaming services, or just decline to ever subscribe, the economics of baseball will take a hit. MLB teams will no longer be able to ask cable services to pay a premium for the right to show their games. If they can’t find other sources of revenue to make up for this, it’s hard to imagine salaries to escalate at this rate in perpetuity.
There are signs that this cable cutback is picking up steam. ESPN, the nation’s premier sports cable channel, revealed in a recent Walt Disney Company regulatory filing that it has lost 7 million subscribers in the past two years.
Vince Gennaro, the director of the graduate sports management program at Columbia University, said he wonders if the current deals between teams and cable services are sustainable. “These are major strategic issues that the consumer is going to have a large vote in,” he said, adding that he is not sure that baseball’s regional networks have an accurate view of the threat they’re facing. “Are the networks reading the market right? Are they reading the consumer right?”
Baseball is reacting to the situation by trying to beef up its online streaming capabilities. Starting next season, 15 fan bases will be able to watch their team’s games online in-market and blackout-free.
“The media landscape is changing very, very rapidly,” MLB commissioner Rob Manfred said last month. “It’s important for us to make certain our content is available on as many platforms as possible.”
At this point, this service still requires a television subscription to the channel that pays for the rights to show the games locally. While MLB teams could someday stream them “over the top,” or directly to customers, it’s not clear whether they will be able to make as much money. “There’s going to be some real pressure,” Zimbalist said. “What we don’t know yet is to what degree the streaming market will replace that. My own hunch is it will fall short.”
If it does, it’s fair to say baseball teams are not likely to continue breaking the bank for pitching.
No matter what happens, however, baseball executives say pitchers will continue to drive the market as they have this winter. Even in this era, where offense is down and decent pitching is seemingly easy to find, they say, the market continues to reflect one of baseball’s oldest and oft-repeated adages: Good pitching beats good hitting.
“It goes back as far as the game: pitching wins,” said Mets assistant general manager John Ricco, whose team just reached the World Series on the back of its starting rotation. He joked that Price and Greinke received such mammoth contracts because every other team “looked at how good we were.”
“It is impossible to find guys like Greinke, like Price,” former Mets general manager Jim Duquette said. “When you have a chance to get them, then you save your money and you go get them. They can have such a huge impact.”