By: Mike Muschiano and Mike Steier
It’s that time of the year; time for baseball owners and general managers to start thinking about trading and signing players.
As the date for baseball’s annual winter meetings for major league baseball executives and player agents held on December 8-11 in Las Vegas quickly approaches, the biggest topic is how much money players want and also, how much money ownership is willing to shell out. Yet with the current economy and president-elect Barack Obama’s tax plan, some are starting to ask “what now?”
Agents and owners are searching for possible loopholes in Obama’s tax plan, which include tax increases for those earning over $250,000 a year and raising the federal income tax rate from 35 percent to 39.6 percent. Many are hoping that, if these increases take effect after January 1, 2009, that all deals made before the New Year will not be subjected to these changes.
“I am looking for the agents to use the January tax hike scare as a leveraging tool to get their clients signed before the end of the year,” said Paul Greco, owner and managing editor of Gotham Baseball Magazine. “I also believe that agents are going to try and get as much money up front for their client in the form of a signing bonus. By doing this, agents believe they will end up saving money in the long run for owners.”
However, only a small number of transactions are typically made between the beginning of the trade period and January 1. Scott Boras, one of the top agents in the MLB, told the Associated Press “there’s some consideration to be had with the impact of the election.” However, it is probable that Boras and most other agents would not sell their clients short, in an attempt to get a deal done earlier than January 1.
“Scott Boras historically uses the clock to his advantage,” said Jim Baumbach, Newsday columnist. “If he thinks he can get a player $20 million more by waiting until mid-January, he’s going to do that instead of rushing to sign before January 1 so that $4 million signing bonus is not taxed as much.”
A player earning $10 million next year would end up paying more than $400,000 in taxes. This may not seem like much in the big picture, but for a player such as Alex Rodriguez, you’re talking about millions taken out for the government. Also, the league’s yearly minimum is $400,000; therefore every player in the majors will be affected by the tax plan.
Will teams be willing to part with $5 million or $10 million early to land their most coveted free agent? This should fluctuate on a team to team basis. While the New York Yankees, who have deep pockets, might be willing to do so, a team with less salary room, such as the Florida Marlins, might not be.
The biggest loser
In the wake of the potential tax increase, who is the biggest loser? Is it the player, who will not claim as much money after being taxed? Is it the owner, who will pay the big contracts but lose attendance because of the spike in ticket price? Or is it the fan, who will be forced to pay the increased ticket price?
“I can’t see a family of four going to a game right now and spending $200 to $300 for a game,” Greco said. “I believe the owners will take a loss because the fans would rather watch the game on TV than spend $300 at the ballpark.”
Prior to the 2008 season, the MLB set new attendance records for four consecutive seasons, beginning in 2004, according to mlb.com. This past season was not a slouch either, as the MLB recorded the second-highest total attendance with 78.6 million fans; behind only 2007 and its record 79.5 million fans.
Commissioner Bud Selig blamed last year’s slight decline on a combination of bad weather and high gas prices. From the 2007 season to last year, the average ticket price for a MLB game increased 10.1 percent to $25.43, according to a study conducted by Team Marketing Report. If the 2009 season sees an even steeper dip in attendance, Selig might not have a choice on where to place the blame.
“With the economy the way it is now, even if ticket prices stayed the same, i probably would not be able to shell out money like that,” said Sam Glater, a 54-year-old New York Yankees fan from West Hartford, Conn. “If ticket prices do increase, you won’t be seeing me at many, if any, baseball games this season.”
Baseball faced a similar tax hike with President Bill Clinton during his presidency, but the effect was not a lasting one. With the current economy’s state, baseball is certainly not immune to these issues, but should remain unaltered in the long run.
“It’s going to be a matter of teams and their players adjusting to a new tax situation and losing a couple extra bucks out of their wallets,” Paul Greco said. “The game will be the same, it has been for over 100 years. Just because the players will have to pay a little more, does not mean the product on the field will change.”