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As far as the players automatically getting new contracts - this is because in early baseball (actually in most of baseball history until the late 1970s) players weren't free agents - so the team just basically decided on what they would pay them. In game this means (if you don't take manual action) that the ownership will simply give all the players new contracts, higher pay if they did well and pay cuts if they didn't perform.
Honestly I'm not sure how to manually intervene in this or whether it is possible. I'm sure someone here does.
Once you reach the free agent era you have a lot more control over player salaries, can choose what to offer them, but the downside is they can freely go to other teams once their contract ends if they don't like your offer.
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