THE BOOK--Playing The Percentages In Baseball

In the comments, Justin points out the obvious, that at some point MLB salaries cannot continue to grow faster than GDP.

Doesn’t mean the trend can’t continue in the short run, and I can’t predict how long it will take for the trend to expire, but I can plug in some numbers and tell you that if MLB salaries increase 10% per year while GDP increases 5%, in 185 years the entire GDP of the country will be MLB salaries! Talk about making baseball the national game again.

I suspect we’ll see a correction, maybe not this year, but probably in the next 10, where ballplayer salaries actually grow less than GDP.

I saw the headline and wondered “what link could there possibly be between salaries and double play rate?” LOL.

Salary growth is a function of two things:  MLB revenue vs. GDP growth, and salaries as % of revenue.  Has the salary % grown since 1990?  My guess is that it has.  But that growth is clearly unsustainable, and players’ share of the pie is probably maxed out.  So then the question is whether MLB revenue can continue to outpace GDP growth, and by how much. As countries grow richer, the share of income spent on entertainment logically grows. But so does competition from other forms of entertainment. Like Rally, I would guess the rate of growth will slow soon.

I would also note that the period looked at here (last 2 decades) was one of skyrocketing inequality in this country.  Rich people getting richer is a larger trend.  It’s not clear that will continue in future.

Remember that salaries are just a function of revenues, which only loosely tracks GDP. Here’s my chart on this, MLB’s three-year rolling growth rate adj for inflation:

http://baseballprospectus.com/news/images/8450_01.jpg

Revenues declined in the the early ‘70s when real gdp was rising pretty fast, but MLB killed it in the early ‘80s when the economy was tanking. The economy has a big impact on attendance/gate receipts, but MLB’s had a bunch of catalysts that have outweighed the general economy—bigger nat tv deals, local cable, the wild card, new stadiums, mlbam, etc. So the question is, what are the catalysts for the next ten years....

This thread seems eerily similar to higher education tuition costs… is there a link?

The first two comments on this thread took the wind out of my sails, since I was going to make the same points.  But I think they are worth repeating.

Almost by definition, a part of the economy can’t grow faster than the GDP forever.  The tricky part is predicting when the correction will happen.  I’ve noticed with other parts of the economy people make the mistake all the time that assuming growth faster than the GDP will continue for much longer than it can.

Except for this last quarter, if you haven’t noticed GDP has been declining in the US.  Actually it appears that the last quarter was a matter of buying more smoke and more mirrors, but that is debatable.  But given the overall trend there is simply no basis for assuming continued GDP growth for the next few years.

The point about the growth of baseball salaries being more of a function of a tendency in the US to concentrate wealth is a good one.  Also the growth of entertainment as an important part of the US economy, which is another thing that is not really sustainable.  If the players’ salaries didn’t grow the owners would be even wealthier!  But you are really discussing at this point whether the profits at investment banks should be concentrated in the hands of the partners, or should be spread throughout the firms so key traders and analysts also get rich.