Posts Tagged ‘Small Markets’

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Talent Show

January 16, 2009

DD writes:
Wasn’t there an argument that the expansion of the ’90s diluted the MLB talent pool a bit? The glut of still-available, decent-performing free agents speaks more to the economy than anything else, but is it a sign that the league’s talent level is as high as it’s been?

I think the glut of still-available free agents is due to a couple factors. The first of which is baseball’s extremely flawed draft-pick compensation system. Originally conceived to put some friction on the inflation of star salaries and to compensate small- and mid-market teams that could not afford to keep their home-grown superstars, it is now penalizing middle-tier players AND lower-market teams. 

Here’s how the system works. The Elias Sports Bureau ranks the available free agents every year. Players are assigned to three ranking categories (Type A, Type B, and unranked) on the basis of Elias determination of their performance over the past two years. Type A free agents are supposed to represent the cream of the crop at their positional group (middle infielders, corner players, catchers, relievers, etc.), Type B represent above-average players, and unranked players are at the bottom. The rankings are extremely flawed due to their reliance on past rather than future performance, and because the statistics used are often things such as RBI, pitcher wins, batting average, and errors. These stats are often highly context dependent (players on good teams have more RBIs and wins), and so are unreliable predictors of future performance. Because the rankings are based on the past two years, the rankings produce some very poor results. 

Teams that sign a Type A free agent have to give up their first round draft pick, unless it is protected (in the top 15 slots), or it has already been given away to another team by signing a better player. The success of the Rockies, Rays, and Red Sox, and Indians with large home-grown cores supplemented by free agents has forced teams to reconsider the value of their first-round pick. Jason Varitek, who while not a great player is at least serviceable at catcher, can’t get a job because as a Type A free agent, no team is willing to give up a potential home-grown stud in exchange for a year of an old, declining (but still useful) player. Rather than compensate a small-market team losing a star, the system is giving the Red Sox management a very powerful piece of negotiating leverage to prevent Varitek from looking for anything better than the Red Sox low-ball offer.

Now that teams are carefully guarding their draft picks, Type A free agents who are not elite superstars are in a terrible predicament. The only teams with interest in marginal Type A players would be teams that already gave up their first round pick due to a Type A signing, such as the Yankees with Mark Teixeira. I’m not going to argue that the system is designed to bolster the Yankees (the Red Sox have gone on their own Type A spending sprees in the past), but this sort of arrangement prevents a team like Kansas City from using Varitek’s knowledge for a year and gives the Yankees more leverage with certain kinds of free agents. Clearly the intent is not being served.

I suspect a second factor that is amplifying teams reluctance to give up draft picks is a better understanding of defense (and the cost of poor defense). Many of the veteran players we see hanging around on the market (Manny, Abreu, Dunn) are poor defenders. I wonder if teams are placing more weight on defense in their player projections, which might narrow the perceived gap in the projected value between a player such as Bobby Abreu and a young, minimum salary outfielder with a better glove.

So to answer your question in an indirect way, I think the talent level in MLB IS as high as it’s ever been, but that is somewhat difficult to prove with quick-and-dirty math. I think the swarm of unsigned free agents is a symptom of the poor economic outlook and the realization by teams that the contributions of young minimum salary players may provide more bang for the buck than those of aging veterans. Paying for past performance is quite expensive.

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Tipping your cap

January 14, 2009

The Yankees off-season spending spree has left fans of teams with less well-lined pockets crying foul, and some of them are clamoring for a salary cap. The ranks of the dissatisfied reaches even the front offices, as Pittsburgh Pirates president (and former Bud Selig lieutenant) Frank Coonelly is now calling for a cap. A cap is not the answer to baseball’s lack of financial parity.

There are two big arguments for a cap. The first is that players earn too much money and that ticket prices are too high, etc. This line of thinking relies on an idea of unfairness toward the fans, and ignores fundamental realities of economics. Baseball is an extremely profitable venture, making something along the lines of six billion dollars in revenue in 2008. The sport exists because of the players. The owners and the league office do lots of things that provide value, but the sport is about the players. They provide services, and they are the best at what they do. Players (at least those in their seventh year of play) are competing in the market for contracts, and they deserve whatever the teams are willing to pay them. If the players were to be compensated with less, that money would not go back to the fans, it goes to the owners. Owners are going to charge whatever prices they can to maximize revenue. If a team had empty stadiums and low bids for TV contracts, it might consider lowering ticket prices, but that is not the case for the majority of MLB cities. The complaint that it has become too expensive to take a family of four to the park is legitimate and sad, but the players are not to blame. A salary cap is merely a transfer of wealth from the players, a large group of rich people, to the owners, a tiny group of far richer people.

The second argument is much stronger, but not as simple as it would seem at first glance. Many, including Coonelly, want a salary cap because the playing field for teams is not level. Teams with larger revenue streams from better attendance and larger or denser television regions (often factors of city size) get bigger shares of the revenue pie, and are able to plow those revenues into better players. I’m a fan of a big market team, but I can sympathize with Athletics or Rays fans who know their team has to be smart, lucky, and well-timed in order to compete with the Yankees, Sox, and Angels of the world. Big payroll doesn’t guarantee success, but it certainly does help.

We don’t have much access to financial information on MLB teams. Other than a brief period in the 1990s where the Cleveland Indians were partially publicly traded, no MLB team has made their team or regional sports network (RSN) finances public. We don’t know how many teams are turning a profit. Could the Minnesota Twins spend more and still be solvent? Since we don’t know, I’m going to assume that all owners turn a small profit (very conservative, as I think most owners turn a huge profit), and that access to funds is the reason that teams spend less than the cluster of teams in the 100-millions: The Tigers, Mets, Red Sox, Mariners, White Sox, Angels, Braves, Cubs, and Dodgers. (I found these 2008 payrolls on Cot’s Baseball Contracts, an incredible resource for salaries and contract terms for every player in the bigs and several in the minors.)

I think most fans of smaller-payroll teams would like to see their teams spend as much as the big dogs. Oakland A’s fans may take pleasure in Billy Beane outsmarting the rest of the pack and winning with clever moves, but the A’s are only competitive some of the time despite having one of the best management teams in the industry. How could we equal out teams’ access to payroll resources? A salary cap might make the levels more equal for each team, but my guess is that the Yankees and Red Sox would find other ways to spend their revenue toward an advantage. They might plow funding into Latin America, the Caribbean, Asia, and Australia (or even India and Pakistan!) in search of new talent, or they might finally look to the great untapped pool of female labor for talent. They could sign these players with huge bonuses that would not fall under the cap. Or maybe the teams buy up all the good analytical talent, depriving other teams of the intellectual horsepower to sign players. The point here is that lowering salaries artificially is not an ideal solution. It’s unfair to the players, who are the real product.

A better solution would be to impose a mandatory salary floor for teams, and to get more revenue sharing to support the floor. The Yankees, Red Sox, and others rely on the other teams for competition. Few would watch 162 games of just the Yankees and Sox playing each other. The fun of sports comes from not knowing whether or not your team will win, and facing a variety of competitors. I think the best way to accomplish this would be to require teams to disclose to MLB a greater amount of information about their media revenues, and then to share them more aggressively. The NFL shares TV revenues equally due to a bold decision backed by the Giants owners soon after the birth of the league. If a greater share of TV revenue (maybe the ESPN/TBS contracts, or the playoff revenue) were passed on to teams like Oakland, Minnesota, and Tampa, and then those teams were required to spend more, you’d see greater payroll parity without a ridiculously anti-player, pro-owner measure such as a salary cap.