The Rise of Major League Baseball Salaries

Made By: Jack Rogers

For over a century, baseball has been America’s past time.

The game has continuously evolved with new technologies and talent, and analytics has become a very important part of baseball.

More people around the world are becoming baseball stars and making an impact on this sport.

Since the 20th century, training methods have advanced and so have the athletes. Players today are bigger, stronger, and more skilled than ever before.

Pitchers are throwing harder, with the average fastball velocity rising from around 88 mph in the 1980s to over 94 mph today.

With these developments, team salaries have taken off.

This data contains information on the average team salary from 1985 to 2024. I got this data from Baseball Reference, and then adjusted the data for inflation.

In 1985, the average salary per team was about 10.2 million dollars. In 2024, the average salary per team (adjusted for inflation), is about 60 million dollars.

Without adjusting for inflation, however, the average team spent about 170 million dollars in 2024. Several teams spent over 200 million dollars in 2024, and some teams around 300 million dollars.

Over time, the average team salary followed a fluctuating trend, with some years seeing significant increases while others remained relatively steady. It followed a slightly linear trend over time, with a slight pattern between 2003 to 2015. The pattern initially declined in the first year, but then gradually increased over the next five years.

It also did that between 1986 to 1992. It’s not a consistent pattern that occurs every six years, but it has happened on a few occasions.

Take a look at the year 2020.

In 2020, the average team salary took a big hit. It went from being at about 56 million dollars in 2019 to about 31 million dollars in 2020.

We all remember this as the year the pandemic shocked the world and impacted many different people. Many things got shut down and the MLB had announced that spring training was postponed.

The MLB commissioner, Rob Manfred, later announced the 2020 Major League Baseball season to be a 60 game season. That is a little over 100 games shorter than the regular season.

Since teams played fewer games, players didn’t get their full salaries. Instead, they were paid only for the games they played, which is called “pro-rated salaries.” This made it difficult to compare the 2020 season to usual payroll numbers since it didn’t have the full-season amounts.

The salary then bounced back pretty quickly between 2021 and 2024, as the seasons returned to normal.

However there were some big changing events that happened before that.

There was also a television revenue boom.

In the early 1990s, MLB teams started making a lot more money from TV deals. With this extra money, teams could pay players bigger salaries and this led to some big contracts. This also created a bigger gap between rich and poor teams, as big-market teams made much more money from TV than smaller-market teams.

Franchises like the New York Mets, Los Angeles Dodgers, and New York Yankees consistently spend at the top of the league, sometimes spending over $300 million in total yearly salary.

Major League Baseball implemented the luxury tax in 2003 to try and help stop excessive spending. The luxury tax is a rule in the MLB designed to prevent teams from spending way more money than other teams to gain an unfair advantage. It works like a penalty for teams that spend too much on player salaries, as they are charged for it financially. It was made to help with smaller market teams that can’t afford as much.

By looking at the graph, we can see overall payroll still trends upward after 2003. The gap in payroll between those big and small market teams remains a defining issue in the modern game.

Another impactful event that occurred throughout this time was in 1994. It introduced the idea of a salary cap, which was similar to the luxury tax mentioned earlier. However, instead of taxing teams that spent over the limit, it would have completely prevented them from exceeding the set spending limit.

Players were strongly against it because they felt they would not be able to earn fair wages. This disagreement led to a major strike by the players, leading to the rest of the season being cancelled.

The strike had a major impact on the league, causing teams to spend less on players. It took a few years for the league to recover from this issue.

I forecasted the future MLB average team salaries. I used an ARIMA model for my forecast. The model looked at how salaries have changed over time, considering patterns and any fluctuations.

Using this information, it generated a forecast for the next 5 years, predicting how much the average team will likely spend on player salaries if current trends continue.

The model predicts that the average payroll will slowly increase over the next 5 years, based on the patterns from the past data. The wide curves on the sides represent the prediction intervals, which show the range of values the payroll could fall into with a certain confidence level.

The confidence levels here are 80 and 95 percent, which means we are either 80 or 95 percent confident that the average team payroll across the MLB will be within that range at that specified time. The darker blue range represents the 80 percent interval, and the lighter blue range represents the 95 percent interval. These intervals help us understand how much the payroll could vary, so we’re not just guessing one specific number but giving a range of possibilities.

This is a reliable model and is capable of making strong predictions.

The model predicts that the average salary per team will be about 60 million dollars in 2025, adjusting for inflation since 1985. The 95 percent prediction interval ranges from approximately 49 million to 69.5 million dollars, meaning we are 95 percent confident that the average team salary, also adjusted for inflation, will fall within this range in that year.

Obviously, no prediction model will be perfect. If we could make a perfect prediction model for anything, life would be different. Unexpected events may occur, just like the event of COVID and how that impacted the MLB and the economic industry. There could possibly be new league policies introduced in the next few years that we do not know about. However, this ARIMA model allows us to see a good prediction of where the future average payroll across the MLB teams might head towards.

As baseball continues to evolve, there is still a couple questions that remain.

Question 1

Question 2

The future of the MLB is uncertain but you can always be certain that money plays a big role in how the game is managed.

Sources

- What will happen to MLB salaries in the future?

- If MLB salaries keep increasing over time, do you think there will ever be a salary cap?