Is MLB's Salary System Fair?

Mike Trout arguably was the most valuable player in baseball in 2012 and only earned $482,500. Since he only has a little bit over one year of major league service time, the Angels are in control of his earnings as he won’t be eligible for arbitration until 2015. Earlier this week, they renewed his contract for $510,000, $20,000 over the league minimum in 2013 and a $28,500 raise from last year. Simply, the Angels are doing what every MLB team does. They’re taking advantage of the pre-arbitration years to extract as much value from their young player while they can.

The pre-arbitration years are somewhat similar to an entry-level job. You get to the major league level, do your job at an entry-level salary, work hard to prove you’re valuable and you’re going to eventually try to land a salary that you believe you're worth, whether it's within the company or somewhere else. These pre-arbitration years provide a sample size large enough to determine whether a player is worth a tendered contract. Mike Trout had a historic year in 2012. Can he continue in 2013? What about 2014? If he does, Trout will have proven that he’s invaluable and will undoubtedly command a massive arbitration figure when he’s eligible in 2015.

As Trout’s agent, Craig Landis argues $510,000 is not a "fair" contract for his client’s performance. But again, the figure is based more on service time than output. So why not raise the minimum for these players in their pre-arbitration years? The new collective bargaining agreement that the MLBPA and Major League Baseball signed in late 2011 increased the minimum salary from $414,000 to $480,000, a 16% increase. The CBA doesn’t expire until 2016. Landis’s gripe should really be with the MLBPA for not fighting for a higher increase in minimum salaries. The minimum will increase to $500,000 in 2014 and then will increase according to the cost of living adjustment, rounded to the nearest $500 in 2015 and 2016. (Article 6A)

What if the minimum contract increased significantly, say to $1,000,000? Dave Cameron explains that this increase would have to come from somewhere, likely a reduction in salaries for veterans who have reached free agency.

If we raised the floor to $1 million and assumed that every player would just accept the minimum — not a true assumption, but let’s just go with it for now — that would transfer $187 million to the lower and lower-middle class players. That money has to come from somewhere, and a raise in the league minimum would almost certainly result in a similarly sized reduction in salaries for veteran players.

As a result, there would be an even greater gap between the lower and higher revenue teams. A pay scale based more on value of performance would unquestionably put larger revenue teams at more of an advantage. Lower payroll teams would spend more money trying to keep their younger players and wouldn’t have the money to add free agents. Their price tags may be lower but a larger share of their already limited budget would have to be devoted to the young, upcoming players. Cameron puts it best:

There’s essentially a fairness trade-off here. If you make the system fairer to the individual players, you make it less fair at the team level. A wide range of player salaries shifts a larger burden of the spending towards higher revenue teams, and forcing high revenue teams to spend their financial advantage on aging, declining players mitigates some of those advantages.

It goes without saying but seasons like Trout’s 2012 are truly rare. Since 1961, there have only been 16 seasons with batters producing 10 rWAR or more. Of those 16, only 2 came from players under the age of 25: Trout and Alex Rodriguez. He isn’t going to be given a fair contract through pre-arbitration in 2013 obviously, and he likely won’t in 2014, barring a multi-year deal that buys out his arbitration years too. Even then, it will likely provide a discount for the Angels during his prime years. It’s remarkable just thinking that Trout's best years could still be ahead of him.

The MLB's salary system usually isn’t fair to productive players during their pre-arbitration years, especially in Trout’s case. Is it fair as a whole though? Could a pre-arbitration year be removed from the process then allowing players to be eligible for arbitration in 2 years? What if players were eligible for arbitration on something other than service time?