You can make a pretty simple argument that, in the collective, MLB players in the sport are underpaid every year by hundreds of millions of dollars. The three other major sports in the USA all have union-league agreements that generally split revenues between the players and owners 50/50 or close to it. In fy2024, here’s what MLB’s macro financial situation looked like:
- MLB 2025 revenues: Not reported yet, but estimating a 9% increase over 2024’s $12.1B (call it $13.2)
- MLB 2025 opening day payroll: $4.9B
- MLB 2025 full Luxury Tax Payroll (incl all 40-man players and benefits): $6B
Assuming 2025’s revenues come in at the $13.2B level, players are getting just 45% of revenues, which is somewhere in the range of a $660M payroll gap to the 50% line. And this $500-$600M delta has been the case for years, for more than a decade frankly.
Why does MLB have such a massive payroll discrepancy? Well, a lot of it is due to the arbitration system. Teams have undergone the gradual replacement of near-replacement level mid-30s free agents with near-replacement level pre-arb players for years, for obvious reasons, while benefitting from (sometimes drastically) underpaid pre-arb and arbitration-age players. We have had some pretty famous examples in the past:
Mike Trout’s first three full-seasons in 2012-14 produced a Rookie of the Year, an MVP, two MVP runner-ups that probably would have all been actual 1st place votes if his team was competitive, three All Star appearances, 3 Silver sluggers … and total bWAR of 27.1. Total pay for those three years? A shade under $2M. Total. After a 10-win rookie season, the Angels increased his pay by the grand total of $27,500. For that $2M in payroll, Trout provided something in the range of $200-$240M in WAR value (at $8-$9M/war estimate frequently used).
Yet, now that Trout has signed a massive extension and has struggled with injuries, many call it an albatross of a contract and one the Angels never should have signed. They got allll that value for nearly nothing a decade ago, and now are on the hook for hundreds of millions as he plays out the string.
The message is pretty clear: the sport drastically underpays its younger stars, and then teams continue to fight to underpay them, and only the lucky ones can get a long-term deal deep into their 30s to “make up” for all that time being underpaid.
Enter 2-time defending Cy Young winner Tarik Skubal, who couldn’t come to an agreement on 2026 salary in his last arb year prior to the deadline, and now has filed along with the team. He’s entering his last arbitration year coming off of his second straight dominant season, and has filed for $32M in salary. Meanwhile, Detroit has filed at $19M, a laughably low figure for the player based on his accomplishments in the last two years and what he’d command on the open market, but what they filed nonetheless. In case you weren’t sure just how sh*tty teams behave in this process, Detroit actually offered Skubal $19.8M as a salary figure… then took it back and filed at a figure $800k lower.
The two sides are set to argue this week in front of a 3-person panel.
Skubal’s salary in arbitration has gone from pre-arb figures to $2.65M in 2024, to $10.15M last year. Both of those figures were pre-hearing figures, settled upon by the teams. Skubal has filed a figure that would make him the highest ever pay determined by this system. but one that seems supported based on the current market conditions.
In theory, players should be getting roughly 40%, 60%, and 80% of their fair market value in their three arb years; one has to think Skubal would get a contract with a starting AAV much better than the Cole/Snell/deGrom range (all $36-$37M/year), and perhaps closer to the Scherzer/Verlander AAV range (both got $43M in their 2022-24 range contracts). 80% of $40M is exactly $32M, or exactly what Skubal filed for. I’m not entirely sure what Detroit’s arb team would argue for, if this went to a hearing … what possible criticism could you offer a two-time defending Cy Young champ? Odds are the two sides end up meeting in the middle somewhere, unless Skubal decides he wants to set a new precedent.
Here’s the larger issue that this case illustrates pretty clearly. Baseball has a major problem with paying for player value at the time that value is delivered. Skubal should be the highest paid pitcher in the league, right now, no argument. There’s no two ways about it. Trout should have been getting immediately paid at the top of the sport’s pay cycle after his first three seasons, and he shouldn’t be getting $35M/year in his decline years. But, because Trout was screwed for so long … the fact that he’s finally getting paid seems completely fair. This is a problem across the sport, where players are paid at pre-arb salaries for 3 years that are literally “assigned” by the teams, then kept artificially low for years more. Most players are between 29-31 before they finally hit the FA market … and now on the downside of their careers.
How do you fix this? I’m not entirely sure. You need a system that gets players appropriate pay earlier in their careers, but doesn’t penalize them heavily if they get hurt. You want to give some security to players, but also to the teams. So, you’d have to be able to support all these questions:
- If you win the MVP as a rookie, do you jump from $750k/year to $40M/year? No, of course not.
- If you are earning $20M this year and tear your ACL on opening day, do you earn the MLB minimum the next year since you provided no value? No, that’s not feasible either.
- Should you be forced into three years of team-assigned payroll, this following sometimes 4-5 years of even lower team assigned payroll while in the minors? No, I think that’s clearly too long.
- Is the arb system too long? Do you eliminate it and make everyone a FA after 3 years? Well, no that’s probably too short for to be fair to teams.
- How about a restricted FA system like the NBA uses, where there’s a period where you can find other deals and your existing team can match them?
I dunno. I’m not sure what solution is on an individual player basis.
As for Skubal, something tells me they’ll settle pre-deadline, something in the $28M/year range. There’s no way Detroit wants to go to a hearing and criticize their best player to try to argue for a blatantly under-market deal. But, you never know. Teams have done weirder things in the past, especially when it comes to Boras-represented clients.