Talent is scarce. Extraordinary proven and precocious talent is even more rare. That’s what makes it highly desirable and consequently more valuable. A single talented individual with significant potential can reshape the trajectory of organizations, corporations, or in this case a franchise.

When such talent cannot be farmed or grown internally, organizations must turn to the marketplace and compete for it. The central point lies in determining a fair and reasonable price while outbidding competitors. Financial prudence remains essential, not only to ensure the acquisition is affordable but also to maintain the organization’s sustainability and ability to support long-term growth.

Juan Soto record-breaking deal with the New York Mets shows a convergence of extraordinary talent with an organization’s willingness to invest and looking to change its trajectory. With this signing, Major League Baseball has seen the largest and most lucrative contracts awarded over the past two years (Shohei Ohtani in 2023). While this may be more an exception given the generational talent rather than a growing salary trend that could strain club finances, it does raise some compelling questions.

Juan Soto’s quality and talent are undeniable, but the magnitude of the deal draws a deeper analysis of the economic dynamics in Major League Baseball. Key questions arise; What is the salary growth of the highest individual earners and how does it compared to average league salaries? Is the pay gap widening between top earners and the average league salaries? how do MLB salary trends compare to those in the broader economy? Is this a good deal for the NY Mets?

Determining the Fair Value of a Player

Evaluating a player’s ability and skills is a fundamental and essential starting point in determining their value. Traditionally, baseball evaluates players based in specific areas: hitting, hitting for power, speed, fielding and throwing. A players’ performance is continuously evaluated and monitored by a multitude of professionals, including baseball scouts, sportswriters and subject matter experts. Rankings are established for each position across leagues and divisions.

Scouts primarily focus on the impact a player has on determining the outcome of a game. At the major league level, this is best represented by WAR (Wins Above Replacement). In a sport that has been leading the adoption of advanced statistics, WAR provides a comprehensive measure of a player’s value in a single metric. It quantifies how many additional wins a player contributes compared to a replacement-level player.

In a closed league like Major League Baseball, certain rules influence the determination of a player’s fair value. One of such is service time. Players are only eligible to sign with any club as a free agent after completing six years of professional major league service. This restriction appears detrimental and manipulative, as it limits players from maximizing their earnings during their prime years when they are younger, healthier, and possess significant upside potential for the future.

Despite the staggering size and terms of the deal, 15-year, $765 million contract, $75 million signing bonus, the anticipation of Juan Soto’s free agency had been building for years, making this deal unsurprising to many. From his rise as a top prospect and becoming World Series champion at just 20 years old, to having the best on-base percentage in baseball, following by his decision to turn down a 15-year, $440 million offer and the precedent set by Shohei Ohtani’s record-breaking contract that further enhanced his value. The combination of all these factors contributed to boost Soto’s market value.

The market value of a baseball player is influenced by numerous factors previously outlined, ranging from position played, baseball skills, durability, WAR, individual accolades to market benchmarks and the potential impact on team wins. However, baseball is ultimately a business operating within the Media & Entertainment sector. A franchise’s ability to sign players to hefty contracts depends on its capacity to commercialize its brand, product, and drive revenue growth. Therefore, when determining the fair value of a player’s contract an organization should place greater emphasis in estimating the economic contribution a player may have to the club’s top line.

MLB Salary Progression

Over the last four seasons, the record for the highest average annual value (AAV) has been broken or matched each year. Juan Soto’s average annual salary of $51 million per year, which can even rise to $53.6 million, has surpassed Shohei Ohtani’s $46 million per year as the highest AAV. Before that, the record was set by Max Scherzer at $43.3 million in 2021 and later matched by Justin Verlander in 2022, with both players signing with the New York Mets.

Since 2014, a new AAV record has been set or matched nine times, averaging one new record every 1.2 years. In contrast, between 2000 and 2013, there were only four new record AAV, this represents a new record every 3.5 years.

Contracts lengths have also increased dramatically. Since 2014, record-breaking deals have averaged 8 years, this is nearly double the average of 4.6 years seen during the period from 1989 to 1998.

Richer and Longer Contracts since 2014

The trend of signing players with longer contracts has gained popularity across the league in recent years. Among the top 15 largest active contracts, the average length now stands at 11.3 years. The rise in contract duration and total value reflects front offices’ strategic approach to secure talent at a fixed cost which help mitigating future market fluctuations.

This approach highlights baseball organizations’ innovative methods when acquiring players. It suggests there is a collaborative effort involving multiple areas ranging from financial strategy, baseball operations, advanced analytics, and commercial and marketing teams. This cohesive strategy supports informed decision making, while reducing noise and biases.

MLB Most Lucrative Contracts have an Average Length of 11 years

The accelerated pace of record-breaking contracts has also led to faster salary growth for top individual earners compared to the league’s average salary growth. Between 2019 to 2023, the salary of the highest-paid individual increased by an average of 6.4% per year, compared to the league’s average salary growth of 2.9%. This translates to a pay ratio of 9.4 times.

Looking at the longer-term, the trend of salary growth is more comparable. From 1996 to 2023, the salary of the highest-paid player grew by a cumulative a 302%, which is closely in line with the league’s average salary growth of 317%. This represents an annual average growth rate of 5.3% and 5.4% respectively.

A more recent period, from 2007 to 2023, shows a similar trend. During this time, the league’s average salary grew by 68%, nearly matching the 67% salary growth of the highest-paid player.

In 2023, MLB Pay Ratio at 9.4 times between Highest Individual Earner and Average Salaries

Another interesting comparison to help understand salaries growth in Major League Baseball is against inflation rates. Between 2000 to 2023, the league’s average salary grew at annual rate of 4.0%, much higher than inflation rate of 2.5% during the same period. Expanding further back to 1989, MLB average salary has increased by an average 6.9% rate, outpacing inflation rate of 2.6%.

MLB Average Salaries Outpacing Inflation Rates

Compensation Trends in Other Industries

The sports industry operates under a unique business model. The players, who are the club’s employees and its key assets, are also the product. Unlike traditional companies, where the highest-paid employee is typically the CEO, in professional sports, players command the highest compensation. This presents an interesting comparison between the highest paid positions in different industries and the pay gap relative to average salaries.

According to the Economic Policy Institute (EPI), a nonprofit American organization that analyzes economic policies, the 2023 CEO pay report reveals that CEOs of the 350 largest U.S. companies earned 290 times more than the typical worker. This represents an enormous pay gap, far exceeding the one seen in Major League Baseball. Since 2000, the CEO-to-worker ratio has averaged an staggering 300 times. During the same period, the highest-paid player in MLB earned in average 10 times more the league’s average salary.

The report also highlights a strong correlation between CEO compensation and the stock market. From 1978 to 2023, CEO realized compensation increased by 1,085% closely tracked the 1,008% growth of the S&P 500. However, from 1995 to 2023, the stock market outpaced CEO pay growth, r increasing by 324% compared to a 228% growth in CEO realized compensation. This trend reflects the compensation structures of CEOs and other executives, which heavily relies on long-term incentive plans such as stock options and equity awards. This aligns company earnings with market performance.

While the comparison between top earners is not perfectly symmetrical, it highlights issues from income disparity and can also help enhancing compensation structures in baseball. Employees in traditional industries, operate under hierarchical, vertical organizations where their responsibilities and scope vary widely, and thus their contributions are measured differently. In contrast, MLB players represent a select group of around 1,200 individuals with high specialized skills where their contributions may vary largely from each other.

This analysis underscores the potential risks is of having a significant pay gap between top earners and rest of players. In MLB, pay inequality appears to be more a concern between organizations rather than among players. The league faces a constant challenge to keep the competitive balance while promoting economic growth.

However, one key takeaway is the strong relationship between CEO pay and the stock market performance. Baseball clubs could benefit from incorporating similar compensation models, adjusting pay structures parameters to account for metrics such as EBITDA or net income, in addition to revenue contribution.

In 2023 CEOs of the largest companies were paid 290 times more than a typical worker. CEO pay highly correlated to stock market performance

Since 2000, CEOs paid in average 300 times as much as typical worker. MLB highest-paid player earned in average 10 times more the league’s average.

Financials and Key Performance Indicators by Team

Since 1998, Forbes magazine has been estimating the valuations of Major League Baseball franchises, providing insights into the teams’ financial performance. In 2023, the average revenue per team was $378 million, while the average operating income was $19 million per team. The teams with higher revenue have naturally greater financial flexibility, allowing them to operate with higher payrolls. For example, the New York Yankees and Los Angeles Dodgers topped the revenue rankings at $679 million and $549 million, respectively. Their payrolls, including Luxury tax payment, are ranked among the top five in the league.

However, there are anomalies to this rule and financial mismanagement can create significant challenges for the organizations. The San Diego Padres and the Toronto Blue Jays ranked 15th and 17th in revenue, respectively while they had some the league’s highest payrolls, ranking 3rd and 6th in the Competitive Balance Tax payroll. These figures indicate that the Padres allocated 94% of their revenue to payroll, while the Blue Jays spent 79%.

These discrepancies highlights the importance of disciplined financial management, particularly when committing to long-term player contracts.

2023 MLB Team Valuation and Financial Performance

Having more resources does not guaranteed better results. For large organizations, operating efficiently while maintaining a lean structure can be even more challenging. When focusing in operational efficiency, the goal for any organization is to maximize the outcome given the available resources.

The Wins-to-Cost ratio is an efficiency ratio that measures the number of wins a team achieves relative to its payroll, compared to the MLB average. In 2023, the Baltimore Orioles led the league with Wins-to-Cost ratio of 278%, far above the league average. The Orioles managed to win 101 games despite having the second-lowest payroll. This demonstrates exceptional operational efficiency.

Another operational efficiency success story in 2023 is the Texas Rangers. After making significant investments the year prior, Texas managed to win the World Series while having the 8th highest payroll of the league. Despite exceeding the Competitive Balance Tax Threshold, which triggered a $1.8 million tax, the Rangers Wins-to-Cost ratio resulted in 117% outperforming the league average.

MLB Wins-to-Player Cost Ratio by Team 2023

Past History As The Best Indicator

In 2000, when the Texas Rangers signed Alex Rodriguez to a 10-year, $252 million contract, it represented the richest deal in sports history at the time. However, the same contract proved to be a costly mistake for the organization. Not only did they significantly overpay for his services, it also restricted the club from acquiring more players, and eventually placing the franchise under considerable financial strain.

Years later, the financial issues became evident as the team struggled to meet its debt obligations. After defaulting on its debt, the Texas Rangers’ ownership filed for bankruptcy and completed the sale of the team in May 2010. One of the largest unsecured creditors was Alex Rodriguez, who was owed approximately $24.9 million in deferred payments from the contract signed a decade earlier.

The similarities between Rodriguez’s contract with the Texas Rangers and Juan Soto’s deal with the New York Mets are remarkable. In 2001, Rodriguez’s salary accounted for 25% of the team’s total payroll (there wasn’t Luxury tax during that period), while Soto’s salary in 2025 represents 21% of the Mets’ CBT payroll. Both teams were big spenders in free agency following ownership takeovers by their billionaire financiers. In 2000, Texas was in greater need to bolster its starting pitching staff rather than spending more in positions players—a situation that may also apply to the Mets today.

Whether history will repeat is hard to predict. However, like in many disciplines, studying the past is an important aspect for learning, improving, and most importantly avoiding the same mistakes.

Conclusions

In both business and personal life, acquiring any type of asset comes with the expectation of obtaining a return. The New York Mets anticipate that acquiring Juan Soto will lead to more wins on the field, a higher chance of winning a championship, and, most importantly, an improved baseball product that enhances brand awareness and ultimately drives revenue.

Implementing innovative and well-integrated strategies strengthens decision-making for baseball organizations while mitigating potential risks. A player’s fair value may or may not align with market value, but what truly matters is achieving a positive return on investment over the contract’s duration to justify the acquisition.