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Why do Major League Baseball teams spend so much money?

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Aaron Judge, Carlos Correa, and Tria Turner have combined contracts worth nearly $1 billion. Xander Bogaerts, Jacob deGrom, Dansby Swanson, Carlos Rodón, Brandon Nimmo, and Willson Contreras added up to another billion.

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They are only nine players. Just one profitable slice of baseball’s December spending spree.

What difference does the year make.

It’s been an already epic holiday season for many teams and players — a year after Major League Baseball locked out its players in an ugly labor dispute that delayed spring training.

Judge decided to stay with the New York Yankees for baseball’s largest free agent deal ever, a $360 million nine-year contract. Correa has a pending $315 million, 12-year agreement to join the New York Mets, and Turner signed a $300 million, 11-year contract with Philadelphia.

Including Wednesday’s transactions, major league teams doled out nearly $3.2 billion in final contracts to major league free agents this offseason. This dwarfs winter spending at this point in each of the past five years.

As of December 20, 2021, that number was $1.9 billion. It was $187.4 million in 2020 — when teams were leaving the shortened season due to the coronavirus pandemic — $1.6 billion in 2019, $658.95 million in 2018, and $413.25 million in 2017.

“Whether it’s ownership, whether it’s teams that failed the playoffs, teams that did well in the playoffs, teams that are willing to take a step up from maybe three, four, five years of rebuilding, you’re looking for a team,” said Padres general manager AJ Priller. During baseball’s Winter Meetings “few teams take a step back.”

“Almost everyone is looking to get ahead. And that, along with some really great players, is why it’s such an aggressive market.”

How did this happen?

The March labor agreement that set the rules for the industry through 2026 is one factor behind the increased spending, but there are many other forces at play.

The business deal included an expanded playoff formula, which resulted in more television money for the owners, and paved the way for advertising uniforms and helmets for the first time.

Under the five-year agreement, the luxury goods tax floor will rise to $244 million by the final season, and tax rates will remain unchanged at the first, second and third thresholds. A new, fourth threshold has been added — presumably aimed at Mets owner Steve Cohen — but the billionaire appears to see the huge tax bill as much of a nuisance as his team’s payroll has been pushed up to nearly $400 million.

If a more punitive cap system was put in place, such as a salary cap—and it’s almost certainly a popular concept among some owners—the spending would probably be more subdued this season.

Labor peace is, of course, good for business in general, but MLB is also in the process of distributing the $900 million it received from The Walt Disney Company for its remaining stake in the streaming services technology company. This money is expected to go to the clubs before the end of the year.

MLB had new broadcast network packages on Apple TV+ and Peacock last season, and announced in October that fans watched more than 11.5 billion minutes of game action on MLB.TV during the regular season, a record for a streaming package.

This year’s World Series has had lackluster TV ratings, and in the era of cord cutting, there are major questions about the viability of regional sports networks carrying baseball games. Attendance is down 5% from its pre-pandemic level, but spending indicates at least some optimism about the health of baseball.

It also reflects an unusually deep free agent class. Judge is the reigning AL MVP, and Turner, Correa, Bogaerts, and Swanson are All-Star shortstops. Justin Verlander won the AL Cy Young Award with Houston last season, then signed a two-year, $86.7 million contract with the Mets.

What then?

Looming over all of that spending is Los Angeles Angels star Shohei Ohtani, who could become a free agent after the 2023 season. If Ohtani gets free agency, he could potentially break both of baseball’s financial records for player contracts.

Ohtani, who turns 29 in July, hits . 273 with 34 homers and 95 RBI this year. He also went 15-9 with a 2.33 ERA in 28 starts.

San Diego Padres third baseman Manny Machado could drop out of his $300 million 10-year deal after next season, part with $150 million over the last five seasons, and almost certainly keep an eye on all the money being handed out this season. .

San Francisco manager Gabe Kapler said, “People are debating who the free agents are in ’24 and ’25 now because it’s like one big puzzle. So what happens this season will definitely influence what happens two seasons from now.”

Machado’s decision was likely one of the reasons San Diego gave Bogarts a $280 million, 11-year contract.

Also worth watching are baseball’s small-marketers, most of whom have quietly stood aside since the end of the season. Undoubtedly, there is some private discontent going on behind the scenes, particularly over some of the longer-term deals that mitigate the intended impact of the sport’s tax system.

“We have a level of revenue disparity in this sport that makes it impossible for some of our markets to compete in some of the numbers that we’ve seen,” MLB Commissioner Rob Manfred said during the winter meetings.

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