22 March 2018

Baseball Booms, Minor Leaguers Still Exploited

In 1938, the United States was climbing slowly out of the great depression.  It was a time where the free wheeling days of robber barons hoarding cash with largely ineffective charities was more fully understood.  The older generation was familiar with how the poor were treated with grueling work schedules, no days off, chained in work rooms and searched upon exit to ensure no stealing, young children pulling twelve hour days instead of going to school, and little liability when it came to product defects.  The younger generation, informed by the Great Depression, know how the rich did everything they could to remain rich while squeezing every drop out of the middle class.  These experiences led most of the country to embracing Franklin Delano Roosevelt's New Deal approach and believed that the federal government could stop how private businesses abused the poor and middle class.

Hugo Black authored the Fair Labor Standards Act of 1938.  It was a compromise.  His vision of the bill granted more rights to the worker and gave an impression of what we would think of as European socialism-infused democracy.  The final bill had a great impact on society.  It is why we think of eight hours as a work day and 40 hours as a work week.  It established overtime rules.  It put limitations and prohibitions on types of child labor.  The act established the federal minimum wage.

Over time, the act was amended and often extended.  For instance, Dwight D. Eisenhower called for the expansion of coverage for work that fell under the minimum wage laws in 1955.  Typically, the act is altered once or twice every decade.  Minimum wage slowly moves upward.  More and more types of work fall under the scope of the act.  And, powerful lobbying groups are sometimes able to nip lawsuits in the bud by having congress pass special exemptions for types of work.  For instance, the 1996 Small Business Protection Act exempted tipped employees from minimum wage.

Over the past few years, Major League Baseball has been lobbying hard to ensure they can exempt minor league players from FLSA.  It would be beneficial for MLB to get this because they want to end the court cases that might force them to pay minimum wage and overtime.  The claim from Major League Baseball is that minor league players are exempt because they are seasonal/recreational employees, which would be akin to carnival workers.  Some arguments on the periphery have included that players in the minors are more or less involved in internships where (1) employee and employer understand what compensation will be delivered, (2) that the work benefits the employee more than the employer, and (3) that the employment is a needed aspect to a final occupation.  The internship argument tends to be more of a garnish than a main argument because internship arguments would often be undermined by exclusivity rules in the contracts the players sign.

Minor league players have argued that the current system exploits players.  I cannot find the current Minor League Baseball agreement, but the numbers communicated to me are these:
Monthly Salary
Dominican Summer League: $300
Rookie League: $950
Short Season A: $1150
Low A: $1300
Hi A: $1500
AA: $1700
AAA: $2400
Players are not paid by the club for spring training or instructional leagues.  Short season payment covers two to three months.  Full season payment covers five months.  This means the yearly expected salary for minor leaguers at various steps would be:
Yearly Salary on Level
DSL: $900
Rookie: $2850
Short A: $3450
Low A: $6500
Hi A: $7500
AA: $8500
AAA: $12000
If a player repeats a level, he is usually entitled to a raise of about $50 a month.  If you are in the minors and score a 40 man roster spot, your pay increases to $88,000.  If your first contract expires (six full seasons after you sign it) and you are a free agent, you can negotiate for a higher salary if a team is willing to hand you one.  As you can see, there is good reason why minor league teams send out pleas for people to host players.  With their salary, they cannot afford rent.  It is why it is not uncommon to hear about four or five players sharing space in two room apartments while in the minors.

Wait, what about signing bonuses?
Players signed outside of the top ten rounds see signing bonuses ranging from $1,000 to $100,000 dollars for signing a 6.5 year contract.  Senior college players typically sign for $10,000 in the first ten rounds.  At any time, an organization has about 10% of its minor leaguers as guys who had a signing bonus for more than $500,000 for that 6.5 year contract.  International players often sign for far less and often send much of their meager paycheck back home to their families.

As you may know, baseball is a nine billion dollar industry.  Revenue for each team ranges from the low 200 million mark for the Rays to over 500 million for the Yankees.  Assuming that each team has 250 minor leaguers in their system, it costs each club about 1.53 million dollars to pay salaries for every minor leaguer in the system (If clubs also paid for spring training, that would add 0.27 MM).  The public line by MLB is that it would be cost prohibitive to put minor league players under FLSA scope.  You often hear a few things, such as how thankful minor leaguers are of having this opportunity (which though the severity is different in scale, this was something you often heard about child labor or back breaking hours before FLSA went into effect).  You also hear organization lament about what if they had to tell their guy who wants more batting practice time that he has to go home because his hours are up (which is silly because you can do whatever you want off hours and MLB teams can pay for overtime).

So how much would it cost?
There are a few ways to look at potential solutions:
Per Hour
1. Straight Time
2. Time Plus 1.5
3. Living Wage in Season
4. Living Wage Salary (whole year)
5. Living Wage + child Salary (whole year)
6. Split Roster
Straight Time
For this exercise, we will use Sarasota as the baseline for minimum wage for US leagues and the Dominican minimum wage.  Under this scenario, we assume that each baseball player is paid in-season plus spring training for all their hours working for the club (estimated as 60 hours under employer oversight).  Florida minimum wage is $8.25.

Time Plus 1.5
This approach is the same as straight time except that any hour worked over 40 hours a week would result in being paid 1.5x the hourly rate ($12.38).  Florida is again the baseline here.

Living Wage in Season
In Sarasota, the Living Wage is considered $12.00.  This is a bit of a false statement because a living wage would assume 2,080 hours of work per year, while a full season plus spring training workload would be 1,548 paid hours.
Straight Time Plus Living
Complex 12771 14900 18576
DSL 1491 1491 1491
Rookie 6386 7450 9288
Short A 6386 7450 9288
Low A 12771 14900 18576
Hi A 12771 14900 18576
AA 12771 14900 18576
AAA 12771 14900 18576
Total 2.59 MM 3.02 MM 3.75 MM
Increase 1.06 MM 1.49 MM 2.22 MM
AAA players really do not benefit until you reach that third option, but, over the course of their professional careers, it would benefit them in the low minors to have earnings of $12,771 or $14,900 as opposed to the $3,450 a low A player makes up to the $8,500 a AA player makes.  Perhaps most interesting is that, of these, the highest increase in cost would be the living wage option at 2.22 MM a year for the entire minor league system.  The Tampa Bay Rays would be impacted most as their minor league salary base would take up 1.06% of their revenue as opposed to the current projected cost of about 0.86%.  For a team like the Yankees, they see an increase from 0.33% to 0.40% of their revenue.

While the above pay options improve the financial security of minor leaguers, we are still talking about poverty level employment.  For a single house dweller, poverty is considered less than $15,060 per year while a wife brings the poverty level to $20,290 and a wife and kid takes you to $25,520.  So, yes, almost all baseball players would remain in the poverty zone under the scenarios above.  This takes us to a salary approach.

Living Wage Salary
This approach would take into consideration that players would reason a full living wage, making up those 532 hours otherwise not covered with only in-season pay.

Living Wage + child Salary
While baseball is a family sport (or at least it is sold as one), the minor leagues are quite unconcerned about providing for a player with a family.  In this scenario, we consider living wage salaries and assume all players have a single child.  This scenario is the same as the Living Wage Salary scenario, but with that child component.
Living Living +1
Complex 24960 52000
DSL 3280 5964
Rookie 14477 30160
Short A 14477 30160
Low A 24960 52000
Hi A 24960 52000
AA 24960 52000
AAA 24960 52000
Total 5.17 MM 10.76 MM
Increase 3.64 MM 9.23 MM
These are certainly more, perhaps, socially responsible figures.  What these approaches do is respect these professionals as full year employees, which makes some sense as they are signed for 6.5 years exclusive to the team.  What the second option does is honor and respect the families of these employees who serve as the foundation of Major League Baseball.  From what I understand, this approach would be more similar to what Japanese players make in their minor leagues.

For the Tampa Bay Rays, this would increase the revenue share from 0.86% to 1.73% for the single and 4.40% for the family plan.  For the Yankees, they would see it increase from 0.33% to 0.66% for the single and 1.68% for the family plan.

Split Roster
This scenario is a bit more complicated.  This scenario considers the creation of a 60 man minor league roster.  Being on this roster would provide the team the same protection that the 6.5 year first contract provides, but also pays the players on this roster a living wage salary.  That 60 man number though does not consider the other 190 players needed to fill out the minors.  These players would play under existing rules, but be additionally compensated for Spring Training and be free to sign with any team after the season ends.
60 man Seasonal
Complex 24960 7800
DSL 3280 900
Rookie 14477 2850
Short A 14477 3450
Low A 24960 7800
Hi A 24960 9000
AA 24960 10200
AAA 24960 14400
Total 1.28 MM 1.28 MM
Increase 1.03 MM 
Under this scenario, we have a compromise.  You have a two-tiered system where players the team truely designates as future stars are provided with a living wage salary and the club enjoys the protections of the first contract.  Meanwhile, the other 90 players are handled much like the seasonal/recreational labor that MLB claims them to be.  These contracts would be pay for play and the players would be free to sign with any organization at the conclusion of each year.

The Tampa Bay Rays would be impacted most as their minor league salary base would take up 1.22% of their revenue as opposed to the current projected cost of about 0.86%.  For a team like the Yankees, they see an increase from 0.33% to 0.47% of their revenue.  To me, this seems fair.

When I spoke generally about this in December, former site contributor Nick Faleris piped in with the idea that maybe this sort of structure would alter things more significantly.  He suggested that perhaps many clubs would reduce the number of minor league affiliates.

This was referring to a true living salary, so that is what I will compare it to.  I figured the club would keep its complex at full strength, but that it would include more half year players who were in the draft.  The club would also keep its Low A, Hi A, and AA clubs.  Under this scenario, the full system cost of 5.17 MM would decrease to 2.58 MM and cost 125 jobs per club choosing to go this route.

That leads us to a lot of questions.
Is the minor system oversaturated with clubs, developmentally speaking?
Are certain levels not needed for development or as a holding pen for MLB level substitution?
Is the industry of minor league baseball more important than the earnings of its employees?
Are multi-year contracted employees of MLB as minor leaguers truly seasonal labor like carnival workers?
Is it moral as spectators to enjoy the game when you know the minor leagues is full of struggling families?
It can be hard to really get a good grip about what all of this means and to see it more personally. Based on unpublished research, the typical minor league baseball player comes from a white, upper middle class home and by the age of thirty has half the earning potential and assets as a similar person from the same background that did not go into baseball.  That difference in earning can have major impacts on a person's life.  That difference is worth about two years of life (my extrapolation from the data).  Based on a Stanford study, the value of a year of life is about $129,000.  So, from a purely financial perspective, the players are not only making next to nothing, they are paying about $256,000 for the privilege of playing the game.

Maybe that is a question we could answer for ourselves.  How much would we pay to be a professional baseball player in the minors?


Addendum: I have seen some complain about the unpublished research mention. Sorry, when you work with academics, that is what happens.  That is the best data I have.  I can put forward worse data.  If we take BLS data on earnings and how those change over time, then we see some differences even in that simple of a study methodology.  Let us compare the median person (which is a lower standard than the upper middle class median of your typical entry level professional baseball player from the United States) who got a 10k signing bonus in three scenarios: (1) going to college and choosing a non-baseball career, (2) going pro and entering a non-baseball profession after four seasons in minors, and (3) going pro, entering college after four seasons in the minors.  At age 30, the lifetime earnings of a person who went to college instead of a pro career is 376k.  The baseball player who never went to to college is at 240k.  The baseball player who went back to college, at this point, is at 223k, but that individual will bypass the high school diploma player at age 32.  What we see here is a difference of 136k.  That is about half of what the unpublished data suggests.

Second addendum: Using a different method to see where that upper class family kid would land, the difference in earnings of the baseball playing high school diploma individual increased from 57% more to 82% more. So initial class status appears to have accounted for much of that difference.


Jayne Hansen said...

Other factors that minor leaguers have to deal with: paying dues to the clubby, paying for Uber/taxis if they don't have a car, finding a sponsor to help keep them in bats and gloves, etc., paying for high-quality nutritional supplements that won't result in a bad drug test and much more. Some teams will provide accommodations for the rookie leagues, but beyond that, they're on their own. Not every team will have host families or booster clubs that will take the guys shopping for the necessities. But the very fact that it's the minor league fans that are helping these guys survive rather than the team they play for is absurd.

Excellent post, by the way. Keep up the good work!!

hicken said...

This is a great post. I want to hone in on one statement you made and connect it to the concerns about baseball's inability to attract black players.

You write, "Based on unpublished research, the typical minor league baseball player comes from a white, upper middle class home and by the age of thirty has half the earning potential and assets as a similar person from the same background that did not go into baseball."

Many of the white, upper middle-class players are able to pursue the dream because they are getting support from mom and dad. In other words, their family is sending them spending money, letting them drive their old car, helping them line up a decent job in the off-season, etc.

Players whose families don't have money - which would mean lower-middle and working-class players of any racial background, disproportionately black players - are less likely to choose minor-league baseball or to stick with it. If they are American citizens, then they almost certainly have better options. You could make more money and better provide for your family even in relatively low-prestige jobs like restaurant service, for example.

Immigrant players are a bit different calculus. You maybe don't have a better option as a poor kid from the Dominican Republic or Venezuela. So they're more like to struggle through the minors.

But basically, if baseball genuinely wanted to attract a more diverse set of players, they would pay better in the minor leagues.

Pip said...

The biggest problem is that the MLBPA ignores the needs of the minor leaguers and focus entirely on themselves.
I think I remember that Caleb Joseph had a job delivering pizza in the offseason.

Pip said...

The major need is for the Major leaguers to care about others.
"Insofar as you have done this to the least of these my brethren, so,too, have you done it to me."
It's appalling how not just Tony Parker but all his predecessors, have ignored minor league needs.
The first solution is to create an 8 year( 6 years for college draftees) free agent clock that starts when you're signed and NOT when you hit the bigs. That eliminates keeping guys down to delay their clock and allows players to hit FA sooner.
Have minimum minor league salaries, based on length and level. That eliminates "minimum wage" debates. If you're at A, you get this much pay for the season, if AA, this
Much, and so on.
Include provided housing and per diem from "pitchers and catchers report" day till the end of the season plus a week.
Provide, gratis, extensive English langue training so every foreign player can more easily assimilate into US society, if desired, after playing is done.
It's ridiculous to make a minor leaguer support himself during spring training.
These are simple things and even when considered throughout an entire system aren't that expensive and will help the players who need it most.
I am a union member and I have experienced, multiple times, the concept of "I only care about me and I don't give a damn about you" and what the minor leaguers endure resonates with me.

Unknown said...

Very informative article. It does ignore one point. As with many professions, from acting. etc., if you are good enough, you make a lot of money. Look at all the kids playing basketball whereas the NBA has only 2 rounds of drafting plus a small number of free agents. Most have wasted their time. As a Boston RS fan, it's clear the RS would not find it a burden. Some of the poorer clubs would. And don't expect the Major League Ball Players union to do anything. They already have sacrificed players with less than 3 years of experience for a number of stiffs who are not worth the money they get.

Jon Shepherd said...

Actors make scale rate, which tends to be around $8 for every hour of work. Issue for actors is the amount of work available, so they depend on other jobs. In baseball, we are talking about 60 hours or more of work, so you have a wage of about $4.

Developmental basketball leagues have issues, but base salary is 19,500, which is about a third higher than AAA salary.

Again, the issue this all comes back to is wages per hour and you will be hard pressed to find a similar industry that pays so poorly and entrenches you in contracts that last more than six years.

Jon Shepherd said...

A common question is about why MLBPA does not include minor league players. Marvin Miller initially considered unionizing everyone, but decided not to for three reasons:
(1) Resources were tight
(2) Lots of minor league players all over the country, dispersed.
(3) The mindset of a minor league player was one that he thought would readily cave in to owner demands and undermine the MLB portion of the membership.

Unknown said...

I've been playing The Show a lot recently, doing the Franchise mode. Each offseason you have to re-sign all your minor league guys (there's dozens, even though the game doesn't do much below the AA level). Anyway, the "default" salary for even the worst prospects was at least $40k and as much as $100k.

I understand its a game and I'm sure the developers just wanted to make signing one year deals for minor league guys simple, but if I was being slightly paranoid I'd note that the biggest vehicle for introducing millions of baseball fans to the pay structures of these players is an MLB licensed game that gives the largely false impression these guys make way more money than they really do.

Jon Shepherd said...

Charlie, if you are a sought after minor league free agent (typically over six years as a professional and probably a decent amount of MLB experience) then you can grab a deal between 40 and 100k. I have heard some rumors that the Yankees have given larger deals for MiL players. However, 0-6 guys are not enjoying that.

Unknown said...

I agree with the basic premise that minor-league players should be paid more than they are currently. I make the following two observations merely in the spirit of contrariness:

1. If I am interpreting Jon's point correctly and a player's minor-league career costs him approximately $260,000 in earning potential, then a player catches up if he makes the major leagues for half a season.

2. It does not appear to be the case that significant numbers of talented baseball players are giving up baseball careers because the pay is so low in the minor leagues. Or, to put it more bluntly, it appears that players play in the minor leagues because they prefer it to their alternative career choices.

Jon Shepherd said...

Joe, I don't think the first point matters. The second point about it being a willful choice, well, then what you actually suggest is that we abolish FLSA protections in general because I think you need to establish why this particular occupation deserves that exemption and for the taxpayer to subsidize that business through entitlement programs.

I would also suggest that it does appear that talented baseball players are choosing not to have baseball careers simply by looking at the demographics for domestic talent. I think it certainly is a complicated question to answer. Anecdotally, I know several families that effectively forced the father to give up the dream and do something else. It will often be described as simply not being good enough, but to think money is not a factor in that decision seems a bit narrow in conclusion.

Unknown said...

Jon, your responses are valid and legitimate. And, from the other side I'll bring up an issue not generally addressed - why should minor league players suffer low pay so that, ultimately, towns like Beloit, WI; Hagerstown, MD; Kinston, NC; and Jackson, TN can have professional baseball teams?

Pip said...

Whether that was correct or not at the time, or even now(Miller was a very long time ago) it is obvious that the minor leaguers have been sacrificed for the sake of the major leaguers, and it is equally obvious that the major-league players association does not consider the minor-leaguers.
And if the major leaguers were willing to strike for the sake of the minor leaguers, all of this could be very easily solved. The pie would not get any bigger or smaller, But the players who need it the most would certainly get a bigger slice.

Unknown said...

Excellent article with an interesting premise. I don’t know much about the Minor league contract structure but am curious: Is it possible for teams to pay their minor league players extra (and perhaps realize competitive advantage in the process)?

Unknown said...

The thing to remember is that MLB/MILB is pretty close to to a monopsony or oligpsony, meaning that they can buy labor for below-market rates because baseball isn't a free market industry. Leagues and teams can't really start on their own, and players have a limited number of places to sell their services. The entry draft and MLB's exemption from anti-trust laws only exacerbate the situation. A minor league player's only hope is the MLBPA, and they seem content with collecting their salaries. A sad state of affairs all around.