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The decreasing qualifying offer is a bigger problem than it seems

It’s a bad indication for the offseason to come.

Wild Card Round - Milwaukee Brewers v Washington Nationals Photo by Rob Carr/Getty Images

One of the best indicators of the economic health of the sport is the qualifying offer, and it isn’t too healthy. As reported by The Athletic’s Jayson Stark, the value of the qualifying offer will decrease for the first time ever— from $17.9 million to $17.8. That might not seem like a huge difference, but it’s a harbinger of substantial economic disparities in the structure of the game.

Qualifying Offer Overview

Before we get into the data and the specifics of why this is such a problem, let’s briefly review what the qualifying offer represents. Any upcoming free agent is eligible to receive a qualifying offer from their former team as long as 1) they remained with that team for the entirety of the 2019 season, and 2) they haven’t ever received a qualifying offer before. Of course, only the best free agents will receive one, given that they should be worth at least a one year, $17.8 million contract.

The player has no say in whether or not the team tenders them a qualifying offer, but it is their decision to accept or reject it. If they decline, they’ll be tied to draft pick compensation. In other words, the team that signs them will have to forfeit draft picks in 2020, in addition to the cost of the player’s contract. This cost two significant free agents— Dallas Keuchel and Craig Kimbrel— two months of the season, as no team wanted to sign them until after the draft in early June.

The dollar value of the qualifying offer is not arbitrary. It’s the average of the 125 highest salaries in baseball for the previous season. Until this year, that amount always went up, which it should given how profitable MLB has been. That being said, the qualifying offer amount pretty much stagnated the last few winters since the last collective bargaining agreement was signed.

Qualifying Offer History

Offseason QO ($ million) Increase ($ million)
Offseason QO ($ million) Increase ($ million)
2012-13 13.3 --
2013-14 14.1 0.8
2014-15 15.3 1.2
2015-16 15.8 0.5
2016-17 17.2 1.4
2017-18 17.4 0.2
2018-19 17.9 0.5
2019-20 17.8 -0.1

Through 2017, the qualifying offer increased by an average of $975,000 per season. Since then, the average increase has been just $200,000— including this year’s $100,000 decrease.

This is a Problem Because...

Obviously, if the qualifying offer is declining, that means the top end of average salaries are declining. One might think this is a twisted, backwards way of decreasing wealth disparity among MLB players, but it isn’t that simple. Not all levels of the top 125 are going in the same direction.

Within those top 125 salaries, we can stratify players into tiers. Using salary data from Spotrac, we can figure out the average of salaries 1-25, 26-50, 51-75, 76-100, and 101-125. These should give us an indication of trends within that top 125.

One note about Spotrac salaries: the data doesn’t completely align with what MLB must use. The average of the top 125 over the past four seasons differed from the qualifying offer amounts. Nevertheless, we should still get a decent idea of salary data.

QO vs. Spotrac

Offseason QO ($ million) Spotrac Top 125 ($ million)
Offseason QO ($ million) Spotrac Top 125 ($ million)
2016-17 17.2 16.3
2017-18 17.4 16.9
2018-19 17.9 17.4
2019-20 17.8 17.4

In part, this is possibly because of some weird structures of recently signed contracts. Manny Machado earned $12 million this season, but will earn $32 million in each of the next nine seasons. Bryce Harper earned $11.5 million in the first year of his 13 year, $330 million deal. On the whole, Spotrac tends to low-ball the top 125 salaries by an average of about $500,000. The overall data trends aren’t that different though, so we can still learn plenty from this data.

Here’s how each tier has progressed since the 2016 season:

The top salaries in baseball— the 1-25 tier— have increased every season, averaging $26.9 million in 2019. That’s exactly what they are supposed to do, but there was a huge $1.8 million bubble from 2017 to 2018. This was bracketed by more modest gains of $133,000 and $223,000.

The 26-50 tier actually lost value this season. After peaking above $20.1 million in 2018, these players dropped back down to $19.9 million. This corresponds with a drop in salaries of at least $20 million. There were 43 of them in 2018 and only 40 this past season.

The 51-75 tier essentially flat-lined. After jumps of $673,000 and $633,000, they gained just $78,000 this season. Given the slowing increases of the top tier and the decrease of the second tier, this starts to give an idea of the overall picture.

The 76-100 tier nearly peaked in 2017. These salaries dropped by $460,000 in 2018, then recovered by $473,000 in 2019. While this would contribute to an overall increase from 2018 to 2019, it’s really indicative of more flat-lining.

The lowest tier, 101-125, is the most troubling of all. After peaking at $11.6 million in 2017, these salaries declined by $517,000 in 2018, then dropped by another $189,000 in 2019. In a healthy salary structure, the middle salaries shouldn’t be declining at all. They especially shouldn’t go down when the top salaries are moving up.

The biggest problem is that this indicates fewer and fewer players are reaching the highest level of salaries. It’s bad enough that the qualifying offer is decreasing as a whole. It’s even worse that the cause of the decrease appears to be the lowest end of the qualifying offer formula.

Worst of all is what this means for players outside of the top 125 salaries. Fewer players are getting big contracts in free agency and arbitration. While individual players might be getting raises, those raises aren’t as significant as they ought to be, based on salaries from a few years ago. The qualifying offer isn’t declining because of Nolan Arenado’s $26 million arbitration settlement. It’s declining because of Mike Moustakas’ one year, $7 million deal, which failed to reach the top 125.

Context

A lot of people roll their eyes at numbers like these. Every single player in the top 125 salaries gets rich, and most of us can’t even fathom that amount of money. If you listen carefully, you can practically hear the sports talk radio callers decrying how much money these athletes make. While it’s true that anyone who receives a qualifying offer will be wealthy by average American standards, it ignores two important contexts.

The first is the extreme profitability of MLB. The sport raked in $10 billion in revenue in 2017, then $10.3 billion in 2018. We must assume 2019 gets them closer to $11 billion. For reference, this is more than the current fiscal year budgets of 13 states. Every MLB franchise was valued at $1 billion or more, with an average increase of 11 percent each year since 2009, and there’s a $5.1 billion TV deal on the horizon. MLB is making absurd amounts of money everywhere they turn around; player compensation shouldn’t be stagnating— much less decreasing— at any level.

The second piece of context is even more inexcusable given the first. When we discuss the qualifying offer, we’re talking about the highest echelon of player salaries. Most players don’t make anywhere near that level. The average salary in 2019 was $4.36 million, which has actually decreased in each of the last two seasons. The median salary is $1.4 million, which indicates how few players actually reach those juicy multi-million dollar contract. The MLB minimum is $550,000, and this is the mode (most commonly occurring) salary in MLB. Of course, the vast majority of players who receive paychecks from MLB franchises are minor leaguers, almost all of whom live below the poverty line.

Another problem with the qualifying offer is that more players are going to be inclined to accept them. Not too many players would sign up for the Keuchel/Kimbrel treatment. Each year, fewer players seem to meet their expectations in free agency. With the threat of draft pick compensation derailing their chances at a lucrative long-term deal, especially if they aren’t superstars, the qualifying offer becomes more attractive by comparison.

It’s important to note that the players are somewhat complicity in their own circumstances. By any measure, the MLBPA agreed to a terrible collective bargaining agreement that empowered owners to share a lower percentage of the pot each season. Still, the majority of the blame has to go to the owners and their excessive greed. They profit heavily off of fans who want to see the best possible product on the field. Too many owners fail to deliver, refusing to spend money to improve their teams while cashing out immense profits.

Lower overall player salaries really mean less competitive baseball. Not as many teams are willing to invest in their on-field product, or at least not to the extent that the fans pay for and deserve. The best evidence can be found in the standings. Eight of the 30 teams either won or lost at least 100 games. That shouldn’t happen in a sport where all 30 are doing so well financially.

The end result is a systematic failure to adequately compensate players at nearly every level. The qualifying offer is just one indicator of a broken compensation system. It also portends yet another excruciatingly slow winter.


Daniel R. Epstein is an elementary special education teacher and president of the Somerset County Education Association. Tweets @depstein1983.