The Elephant Seal Paradox

cabrera2 In the first chapter of The Darwin Economy, Cornell economist Robert Frank uses Charles Darwin's analysis of elephant seal populations to explain the difference between the beneficent forces of healthy competition and the disastrous repercussions of blind self-interest. Darwin found that the primary determinant for mating privileges among male elephant seals was shear size. When two males quarreled over a harem, the larger one usually won. However, that same girth also made seals attractive to predators. The bigger the seal, the more likely he was to be eaten by a shark. Thus, Darwin postulated, elephant seals were actually selecting themselves into extinction. As the species grew larger, the population of males to reach mating age grew smaller. Natural selection, but not rational selection.

The lesson of the elephant seal, according to Frank, applies to the "invisible hand" of free enterprise as well. While markets are supposed to channel self-interest for the common good, sometimes what benefits the individual comes at the expense of the community, even the expense of civilization itself. Frank credits Adam Smith with understanding this caveat better than many contemporary economists. While Smith generally favored laissez faire, he conceded the necessity of vigilant government intervention in industries that became overrun with "bloated seals." Frank suggests, of course, that contemporary finance has suffered such a fate. Radically unequal distributions of wealth lead to inefficient markets, which function as a breeding ground for a diminishing population of overweight, oversexed seals.


I believe the elephant seal paradox also has a baseball correlative. In December of 2012, in response to Dan Rosenheck's skeptical critique of Marvin Miller's legacy for The Economist, I surmised that income inequalities in professional baseball mimicked those of the United States as a whole. In the intervening months I have been slowly gathering and analyzing salary data from the past several decades to test this hypothesis and its implications. Over the course of the season, taking the masthead quite literally, I'll be presenting some of my findings. The potentially groundbreaking Miguel Cabrera contract provides me with an opportunity to offer a little prequel.

This is not a diatribe on "greedy" players. What criticisms I have, I'd lay at the doorstep of the commissioner's office, MLBPA negotiators, and, to a slightly lesser extent, player agents. While the analogy may be unflattering, Cabrera and the other players we might label "bloated seals" bear little responsibility for creating the inefficient system in which they are the arbitrary beneficiaries.

When the MLBPA and agents applaud a deal like Cabrera's or Clayton Kershaw's, they frequently cite it as evidence that players (labor) are demanding their due share of MLB's ever-increasing revenue. This narrative is compelling when you consider only elite earners. The top 3-5% of salaries in MLB have trended consistently upward both in total dollars and as a percentage of total payroll. However, consideration of the other 95% of major-leaguers (not to mention thousands of unrepresented professionals in the farm systems) paints a different picture, one of stagnation, particularly on franchises which employ one or more players in that elite class. For example, if you ignore the 3-4 Yankees who make upwards of $20 Mil. annually, both the mean and median salaries of Yankees with major-league contracts has actually declined in every season since 2009, and that's without adjusting for inflation.

Income stagnation for the overwhelming majority of the American workforce, even during the boom years of the '90s and early '00s is one of the most troublesome aspects of the Great Recession. In baseball, I see a surprising analogue. Although the revenue growth of MLB is, by all accounts, very healthy, only a small cross-section of player salaries trend upward accordingly. The earning potential of the vast majority of players has changed very little over the course of the last decade. This disparity seems even more inefficient when you consider the almost inevitably declining productivity of the wealthiest players:

% of Yankees WAR / % of Total Payroll (Players Earning $20 Mil.+) 2009: 28% / 37% 2010: 30% / 49% 2011: 25% / 39% 2012: 18% / 38% 2013: 0.7% / 43%

Consider the inversion of these figures as well. In 2013, the players responsible for 99.3% of the Yankees production earned only 57% of the payroll and were paid on average about $1 Million less than analogous players from the 2009 club. This structure, shared by many, but not all MLB teams, rewards a few players more for doing less as they age, while most players struggle to earn what their productivity justifies, even during their prime seasons. In the Yankees case, the average rostered player with a salary under $20 Mil. produced 1.44 WAR in 2013 and earned about $4.5 Mil. Considering each Win Above Replacement was worth about $5.2 Million in 2013, the average Yankee was underpaid by about $3 Mil. (or about 66% of his actual salary).

I recognize that the $20 Mil. plateau is arbitrary (although it roughly distinguishes the upper 2.5% of MLB salaries in 2013) and the Yankees situation is not necessarily representative. However, although the disparities might not prove to be as extreme, the evidence I've collected thus far suggest such inequities are consistent throughout the league.

Obviously, fully rectifying this disparity requires a new CBA. It requires the MLBPA to reform its mission. And it likely requires the majority of professional baseball players to recognize that their personal interests are not always aligned with those of their agents or their union, at least as currently comprised. Strangely enough, the majority of player interests are probably more closely aligned with those of management. A more equal distribution of salaries not only offers better financial stability and incentives to more athletes, but also reduces the risk of any one contract, gives GMs more payroll flexibility, and likely creates a more competitive market for the vast majority of free agents.