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The staggering economics of Major League Baseball

Editor's note: In this segment, we referred to Mike Trout as the richest athlete in North America. We should have stated that he is the highest-paid athlete in North America currently. 

A new season of Major League Baseball begins this week, after a busy and lucrative winter that saw just 10 players awarded a total of over $2 billion in contracts. What’s behind these huge numbers for superstars, and where does it leave the rest of the player population financially? Amna Nawaz talks to ESPN columnist Jeff Passan, author of a book about baseball players as commodities.

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  • Judy Woodruff:

    It's the first week of Major League Baseball, and there's a story emerging off the field, top players being signed for hundreds of millions of dollars.

    Amna Nawaz takes a look.

  • Amna Nawaz:

    The latest deal, the Atlanta Braves announced it will pay star outfielder Ronald Acuna $100 million over eight years. This comes after a series of major deals, including the Los Angeles Angels signing outfielder Mike Trout to a contract making him the richest athlete in North America. It's a 12-year deal worth more than $425 million.

    Another big name, Philadelphia Phillies' deal with Bryce Harper, that for $330 million over 13 years.

    All told, just 10 players have gotten long-term deals over $2 billion since this winter.

    Let's try to understand what's going on and what it means for the game.

    Jeff Passan is the author of the book "The Arm: Inside the Billion-Dollar Mystery of the Most Valuable Commodity in Sports" and a baseball columnist with ESPN.

    Jeff Passan, welcome to the "NewsHour."

    Please help me understand, what is behind all these enormous numbers?

  • Jeff Passan:

    Well, Amna, Major League Baseball is a really good business now. It's making upwards of $10 billion a year.

    And when you have that much money in the pockets of the owners, some of it needs to go back to the players. The question, though, is, is the right amount going back to the players? And the fact that 4-plus billion dollars has been spent in long-term guaranteed contracts since November 1 still doesn't satisfy a large segment of players.

    Now, that sounds counterintuitive, because it's a ridiculous amount of money, because you have athletes who are getting upward of a half-billion-dollar guaranteed contracts, but Major League Baseball is making such hand-over-fist money at this point that the percentage that's going to players is the important part.

    And when you have a system like Major League Baseball that doesn't have a salary cap, like the NFL or like the NBA, there is no limit on what teams can spend and what they can give players. And the amount of money that has been going to the top-end guys has been huge, but the erasure of the middle class has been the big story line this season, veteran players not getting contracts nearly what they did in the past.

    And it's leading to a lot of animus really between the MLB and the Players Association.

  • Amna Nawaz:

    So, these super big salary we see for just a small number of players, what does that mean for all the other salaries? Those aren't rising similarly, right? Is this creating kind of an ultra-rich and everyone else in baseball?

  • Jeff Passan:

    That's exactly right. You can call it a stars and scrubs sport, because that's what it's turning into.

    Now, the way Major League Baseball's salary structure works is this. Every team gets control of a player for six years. The first three years of the contract, they can pay him whatever they want. Usually, it's around the Major League minimum, which is $545,000.

    In years three through six, you go into the arbitration system, where you ask for a number, the team offers another number, and you either settle somewhere in between or a panel of three arbitrators decides which of those salaries is correct.

    Then, after six full years in the Major Leagues, you get to hit free agency. And free agency for a long time was Valhalla for players. They would go out. Team would bid against one another. The contract prices would get driven up.

    Free agency, though, over the last three years in particular has become something of a graveyard for players. And, listen, it's weird saying that in a year where Bryce Harper got $330 million, where Manny Machado got $300 million, but those are the outliers.

    It's the players who are at the lower levels, who aren't quite the superstars, who aren't being paid what they once were.

  • Amna Nawaz:

    So, Jeff, in very simple terms, though, why is Mike Trout worth over $400 million?

  • Jeff Passan:

    I apologize for getting a little nerdy with you here, but it's important to contextualize this.

    There's a metric in baseball that has been devised called wins above replacement. The idea is, if you use just some random player who's at AAA and put him in the Major Leagues, how much better is every other player compared to him?

    And a win above replacement is worth around $8 million or so on the free agent market. Mike Trout is anywhere between an eight-to-ten win player on an annual basis. So we're talking about value that he's creating for the Los Angeles Angels worth anywhere from, $65 million to $80 million, upwards some years of $100 million.

    So, a $425 million investment actually is seen throughout the industry as a bargain for the Angels, considering what Trout brings on a daily basis.

  • Amna Nawaz:

    So, Jeff, let me ask you this. Is baseball different?

    Because, if you take a look at the NFL, that big money, the salaries are still centered around the quarterbacks. How is baseball different than what we see there?

  • Jeff Passan:

    Well, it goes back to the lack of a salary cap, Amna.

    And the salaries, accordingly, should be driven up significantly, but because they haven't been over the last few years, that's where the anger from the Players Association is toward MLB.

    Now, granted, I say the salaries haven't been driven up. We're still talking about millions of dollars, tens of millions, hundreds of millions in some cases. So the guys are getting paid. They're just not getting paid what they feel they should be getting paid.

  • Amna Nawaz:

    Jeff Passan of ESPN, thanks so much for being with us.

    Thanks. Appreciate it.

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