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Why MLB's average salary is now $3.8 million and what it means for analyzing long-term contracts

Maybe it isn't so crazy to give a starting pitcher $200 million. Maybe.

Joe Nicholson-USA TODAY Sports

In 1967, when the average salary for a major leaguer was first recorded, players received a minimum of $6,000 a season with an average pay of $19K, figures that, even adjusted for inflation, are exponentially lower than the ones we've grown accustomed to during the last few decades.

$19,000 equates to just over $134K in today's market, according to the Consumer Price Index's inflation calculator, or about 3.5 percent of the $3.82 million average salary for 2014 that the Major League Baseball Players Association revealed on Tuesday. For some perspective, Giancarlo Stanton will make $68,449 every day until his recently signed 13-year contract expires, or right around half of the average MLB salary in 1967 using 2014 dollars.

Why has there been such an astronomical increase in player salary not just over the years, but even in recent seasons? The average MLB player made more than $1 million for the first time in 1992, and 22 years later, that figure is on pace to quadruple within the next year or so. The average MLB salary has also doubled since the start of the 21st century, as has the minimum annual pay, and this year’s nearly half-million-dollar increase from the $3.39 million mark of 2013 represents an enormous 13 percent hike.

This trend is both unsurprising and unlikely to reverse direction any time soon. The league has found new and better ways to maximize its revenue, which is currently in the ballpark of $9 billion, including the somewhat recent (and very lucrative) television contracts signed with ESPN, FOX and CBS, along with MLB Advanced Media (the league's extremely profitable digital venture) and individual TV deals (think the Yankees with YES Network or the Dodgers with Time Warner). That, combined with a variety of other factors like strong bargaining power, reflected in the 2012 labor agreement that increased minimum salaries for major and minor leaguers, as well as brand new or renovated stadiums that draw millions from increased ticket sales and profits from other ballpark amenities, all work to account for the figures that were released this week. As a bonus, these stadium projects are often financed by public subsidies.

Specifically, MLB Advanced Media grossed $600 million in 2012 and 2013, according to a Bloomberg report, and because each of the 30 teams has an equal piece of the pie (3.33 percent ownership per team), they receive millions alone from MLBAM. Even more pertinent is the $25 million or so increase in national TV revenue that teams will receive through 2021 (beginning this past season) as a result of the aforementioned deals signed in 2012 worth more than $12 billion. The $1.5 billion going to the league's Central Fund each year represents a $750 million increase from the TV contracts that expired after 2013, according to Wendy Thurm's article on FanGraphs from November 2013, and while some teams won't devote all or even any of that additional cash to the payroll, teams like the Mariners have already taken advantage of it (i.e. giving Robinson Cano $24 million annually).

This makes life tough for people like myself who try to assess these deals. Every offseason, when players sign multi-year contracts worth millions and millions of dollars, baseball writers and analysts (attempt to) apply all sorts of calculations and values to those deals in an effort to reach some type of consensus. Typically, you'll see how much money a team is projected to pay per WAR for a recently signed free agent, or perhaps a comparison between that free agent and a similar player with a similar contract.

But with rapid and continuous salary increases across the league and with teams drawing in more money than ever before, it's very difficult (perhaps even impossible) to truly assess the quality of long-term deals because those massive contracts (i.e. Cano's $240 million deal or Stanton's record $325 million contact) were certainly signed with revenue increases in mind.

So, even if Stanton's backloaded deal looks a little bit ugly now and still might look a little bit ugly if he doesn't opt out and makes $32 million at age 35, it's reasonable to assume that $32 million will look quite a bit different in 2025 than it does now. Similarly, it makes little sense to look at Cano's contract with only the current market in mind because in, say, 2017, the $24 million Cano makes really won't have the same value as the $24 million he earned in 2014.

FOX Sports' Jon Morosi wrote a really smart column in the wake of catcher Russell Martin's five-year, $82 million deal with the Blue Jays back in November. The gist of Morosi's argument was that while it might appear a little odd to give so much money over so many years to a soon-to-be 32-year-old catcher with only one season batting above .250 since 2009, the Jays can afford it because of MLB's revenue boost, and they were right to do it because the team hasn't been to the playoffs since their back-to-back titles in '92-'93. Martin probably received similar offers from other clubs, forcing the Jays to pay a little bit extra for an important player who can create an extremely positive impact on the club in many ways. Whether or not Martin lives up to the deal, precedents like this show the direction MLB salaries are headed in.

Still, this creates a bit of a paradox, because some of the most successful teams are the ones that forego the Cano-esque deals (see: 2010-2014 San Francisco Giants), but at the same time, neglecting to sign top free agents because of the cost could mean you'll be stuck with Matt Duffy or Joaquin Arias at third base instead of Pablo Sandoval. (Luckily for the Giants, GM Brian Sabean is a crafty dude, and the team's 2014 third baseman is now Casey McGehee.)

Point being, as salaries continue to rise and players sign increasingly ridiculous deals, it will be more important than ever for front offices to calculate risk in a way that'll help them find the best points to concede to the "overpayment" that every team has to do at some points (like the Blue Jays-Martin deal), while also avoiding the Pujols-type albatross contracts. Giving out the wrong deal could suddenly have $300 million repercussions instead of $100 million ones. Paying $200 million for a frontline pitcher (see: Scherzer, Max), even with all the risk involved, might not look so ridiculous in five or 10 years when multiple starters are receiving deals like that.

This ever-changing landscape makes life that much harder for MLB front offices and that much more enjoyable for us observers. Remember, if you think of these long-term contracts in 2014 terms, you'll probably be misled.