The following is a guest post from our dear friend David Meadvin. David's a long-time reader, first-time contributor.
If you sell hot dogs for a living, your annual income is tied to the number of hot dogs you sell. If you’re a taxi driver, your income depends on how many rides you can squeeze into each day. On the other hand, if you play Major League Baseball, your salary is only vaguely connected to your on-field performance.
I’ve long dreamed of a salary structure where players are compensated based on their statistics in a given year. Instead of paying Alex Rodriguez a flat $30 million, for example, why not give him a base salary of $15 million and make him earn the other half in performance incentives?
I realize this isn’t likely to happen – the MLBPA would surely object. That’s why I call it my dream scenario. But here’s another proposal that just might work: why not sign free agents to declining-value contracts?
Let’s stick with the Alex Rodriguez example. Here’s what A-Rod’s earned in each year of his current 10 year, $275 million contract, compared with his on-field value for each season:
As Rodriguez continues to age into the twilight years of his career, we can reasonably expect the gap between actual salary and on-field value to grow ever wider.
But what if A-Rod had signed a contract like this:
Year 1: $50 million
Year 2: $45 million
Year 3: $40 million
Year 4: $35 million
Year 5: $30 million
Year 6: $25 million
Year 7: $20 million
Year 8: $15 million
Year 9: $10 million
Year 10: $5 million
Rodriguez should love this deal from a purely economic perspective. He earns the same total amount and gets more of it up-front. And it makes even more sense for the Yankees, who might vastly overpay for his prime years, but in exchange, have far more salary flexibility in his later years to supplement his likely diminished production with younger, more expensive bats.
The sheer size of A-Rod’s monster deal makes this example extreme, and I can see why any team would balk at committing $50 million to a player in one season. And to be fair, his contract does decline somewhat in his last few years, though not nearly to the extent I'm suggesting.
If you follow this logic to all contracts, you create a situation where teams get far better return on their investment – and avoid the problem of aging, unproductive veterans eating up the payroll that the Yanks will have to deal with this offseason and in years to come.
By night, David Meadvin is a diehard Yankees fan and Yankeeist reader. By day, he is president of a Washington, DC speechwriting and communications firm, Inkwell Strategies.