Ballplayers and their Marginal Revenue Product
This post is in response to this thread going on at Tango Tiger's site, which is a response to some curious salary valuation by JC Bradbury. The summary is that Bradbury has come up with an economic model that says Jeff Francoeur, who used up 652 plate appearances for the Braves last year (and made 479 outs) was worth 12 million dollars. The voices on Tango's site are trying to convince him that the proper place for such a model is the porcelain bowl that sits in the smallest room of your house.
Let's suppose that you own a factory with some great automated processes that produce a great product. You can sell these products and make 25 million dollars per year. The only thing you need is workers to push a few buttons at specified times. It's a very simple job, practically anyone can be trained to do it, but for some reason it has to be done by humans, and you need 25 of them to do it. With no workers, you can't make any products, and your revenue will be zero.
Do you put an ad in the paper for 25 entry level positions paying near 1 million dollars? (a little less than $1M obviously to account for overhead).
I don't think so. You are going to just pay enough to attract reliable workers. Maybe a bit more if you are generous, since you are making so much money yourself, but you aren't going to give all of that to the workers. Most of the money is earned by the capital expenditure, the factory.
An MLB franchise is that money producing factory. To make a lot of money, you need a big, expensive stadium (while most of those are public expenitures, not from the owner's capital, that is another debate. The MLB owner benefits from it) You also need the tradition, the big city location, the national TV contracts, and all the benefits that come from being a part of the exclusive club of 30 teams that get to call themselves major league baseball.
Add to this mix 25 replacement level players, by our definition players who are between 15 and 30 runs worse than average over a full season, and you will make money. We are talking about a major league team that wins 40-50 games, a really bad team. The last team this bad was the 2003 Tigers, but even they were able to draw 1.3 million fans. Say this replacement level team makes 100 million dollars. Should the 25 replacement players be considered responsible for that revenue?
I don't think so, for two reasons:
1. They are by definition replaceable. There are many more players who are a step below average than there are above average or average players. There are hundreds of players in the minors who are just as capable of contributing to a 45 win team, and would jump at the chance to do so for the major league minimum.
2. These players, outside of the money making context that is major league baseball, could not come close to drawing 100 million dollars in revenue. A good AAA team would likely be as good as this 45 win major league team, but the difference in money is staggering. A few AAA teams have drawn 1 million fans, but even those teams do so with ticket prices that are a fraction of what MLB tickets cost.
This is why replacement level players do not add significantly to revenue in major league baseball, and why no team would ever pay them more than the league minimum. That is, as long as the team recognizes them as replacement level players, errors in judgement will always exist. Major league baseball is set up as a huge money maker as long as they can get minimally acceptable players to show up and play. They increase their revenue beyond this minimum by acquiring the good players, the rare talents that are average major leaguers and better. These are the players who earn, and receive, the rewards of the game.