Does money still matter in baseball?

Aside from great pitching (aka terrible hitting) and some blatant dives, this year’s playoffs have been notable for the presence of both “have” and “have not” teams. Per Deadspin, the average team payroll in the majors at the start of 2013 was a shade over $106 million. The average post-season qualifier’s payroll? Just a little over $5 million higher, or basically, indistinguishable from the mean. The picture shifts slightly if you drop the wildcard teams—the average division-winner outspent the mean by about 20%, or $27 million—but the point remains that this was a year in which any well managed team had a real shot at making the playoffs.

The story in 2012 was pretty similar, with the average playoff team spending a little less than 10% more than the league-wide mean. This seems a far cry from a decade or two ago; heck, the Expos spent its final years as a glorified farm team. More generally, given baseball’s status as the “unfair game,” the declining effect of money—if real—seems significant. Let’s assume for the moment that it is real (which is to say I don’t have time to look up more years to check if it actually is). Why is it happening?

Typical answers focus on the spread of moneyball principles and the expansion of the playoffs, but these seem insufficient. If everyone uses the same strategies now, one would think the rich teams would be able to do better with them. Likewise, if there are more berths in the post season, why don’t more rich teams just get in?

I think a couple of things are going on. I’d like to focus on one aspect here, namely the decline of that great bastion of team inequality: free agency. Free agency has traditionally been the backbone of any rich team’s fast-track to rebuilding. A rich and even somewhat well-managed baseball team could simply buy its way to contention, if not ultimate victory, through a series of big-name off-season signings. In the last few years however, the opposite almost seems true: the surest way to expensive mediocrity has been to sign a highly sought free agent. (Or, if you’re the Angels, to sign all of them.) So, why don’t free agents help any more?

There seem to be structural, informational, and (jargon alert) ideational changes at work here. Structurally, baseball’s most recent labour agreement has had a couple of effects. First, its escalator-style luxury tax has led to the emergence of a new breed of responsible “have” teams.  The Yankees, for instance, suddenly seemed to realize in early 2012 that the luxury tax was an actual thing that they ought to think about, and pledged to try and get under the now-looming $189 million tax rate trigger. Boston also tapped out last year on its stratospheric payroll, trading away the expensive half of their team to the only truly high rollers left: the LA Dodgers.

The basic agreement also makes it relatively easy for teams to control players throughout their most productive years. Teams get six years of increasingly expensive control, but only in year seven of a player’s career do unfiltered market forces take effect. A cagey team can thus keep its core players until their early 30s with just one truly market-value deal; the rest is cost and mobility controlled to some extent. If the player’s development and contracts are managed correctly, the result is something like the Evan Longoria contracts with the Rays: a balance of salary and long term security, leaving everyone happy (except Longoria’s fantasy baseball owners, of course. Would it kill the guy to stay healthy for an entire season?)

The result is that almost all teams, even the have-nots, can keep great players under contract throughout their prime. Usually, if they manage the call-up right, they only have to sign one properly market-valued contract to do so. In consequence, relatively few elite players ever make it to free agency in their prime. If the player signals an intention to test the market, the team can usually find some way to get something in return. Information and fan scrutiny ensures that teams now feel compelled (and equipped) to get something back from an impending free agent before losing control of the player.

That information revolution, produced in large part by the sabermetrics revolution, is a second key element. It has made it  possible to get a good approximation of the proper value of most players, most of the time. There is far less uncertainty in the player market now. Combined with the relentless scrutiny provided via the social panopticon internet, there is a much accordingly reduced chance that a team will ever get truly fleeced in a trade, or let a a valuable asset simply walk away.

The third, ideational factor relates to the value teams now place on the future. In the present age, it’s not enough—indeed, not even desirable at times—to show well in the moment. Teams have reinterpreted those sage words of Herm Edwards. Teams in fact do not play to win the game. They play to win the championship, no matter how many years of preparation it takes, and how many losses come in the interim.  The conventional wisdom is now that you’ve got to be (or at least appear to be) putting the pieces in place to make a run at a championship.

It’s such a fundamental point that it seems self-evident evident to many. It’s not, of course. Think of English premier league football, for a second. (Or don’t; see if I care.) There’s only a handful of clubs that actually are seriously playing to win the championship, either this year or the next. The others would love to, but don’t seriously think they have a chance. Those other squads play for all sorts of reasons. Some play for promotion, others to avoid relegation, others to defeat feared rivals like Pease Pottage FC. (Though if you ask me, their defence looks a bit soupy. Amirite?)  Some play simply because it’s what they’ve always done. The use of championships (or failing that, playoff appearances) as the sole meaningful measuring stick is a peculiarly North American institution.

In some cases, the point is pushed to an extreme such that teams act as if competitiveness in the future is  more highly prized than in the present  (I’m looking at you, 2012 Washington Natinals). In nerdy terms, the discount rate is closer to zero than ever before, and actually seems negative in cases like Washington’s.

(As it happens, there is actually a rational explanation for this approach. All teams, indeed especially lousy ones, are selling hope above all else. Given this, in many ways the actual championship run is not as important as the preparation for one. A couple of exciting prospects or stocked cupboard of draft picks will always give fans more hope than a slowly declining but still solid veteran.)

This change in priorities has radically increased the value of a particular currency in baseball: future considerations. When trades happen, players fetch draft picks and prospects in return. That value on the future ensures that a team with money, but a poor farm system, will likely not even get a shot at signing a player in free agency; the best ones get traded beforehand for picks and prospects. More often than not, those players resign with their new teams as well; often, the players in question had no-trade clauses that they waived precisely because they liked the situation they were heading into.

Thus, when impending free agents becomes actual free agents, it’s often because there’s a disconnect between the team and player regarding that player’s perceived and actual value going forward (*cough* Josh Hamilton). The only players that get to free agency are those that teams didn’t want to keep and/or could find a willing trade partner for. Simply put, they’re high risk cases, often with their best days behind them and often with sufficient question marks to prevented smart teams from parting with precious picks and prospects, the true coin of the realm.

Bottom line, even when a team like the Dodgers (or as rumour has it, the 2014 Yankees—apparently it’s a lot easier for them to talk about getting under the tax in years in which they make the playoffs) is still willing to buck the luxury tax and buy their way to victory, they have to find creative ways to do it. Free spending on free agents is no longer a surefire route to contention. Consider how this year’s Dodgers have been built. Partly, the roster has been constructed through a willingness to take on other teams’ financial headaches; just as important, however, has been their ability to mine one of the few remaining points of arbitrage in the free agent system: unproven and undrafted foreign prospects. Obviously, Yasiel Puig is exhibit A here. The Dodgers didn’t really take off this year until they picked up Puig and signed him to what at the time seemed a very expensive and risky contract, one that had him making 8 or 10 times more than Trout is.[1] Clearly, it paid off, but even if it hadn’t, it’s the sort of risk a team like the Dodgers can still afford, and smaller budget teams can’t. It’s in marginal places like that that dollars make a difference. Given imitation and flattery and all that, one should perhaps be unsurprised that the (surprisingly free spending) Chicago White Sox signed recent Cuban arrival Jose Abreu to a six year, $68 million contract.

Simply put, if the Yankees are really planning to break the bank once again next year, they should do it in Cuba.

[Update. I wrote this post before World Series. If I knew then what I know now, I don’t know that I’d change all that much. The Red Sox were a pretty good example of the way in which free agency really can help a team–filling holes around a solid pre-existing core, and (possibly, if you believe in such things) enabling a shift in culture, often through the contribution elements such as professionalism—a quality much sought after in many fields, not just sports.]


[1] On a final tangential note, there’s a separate debate to be had here (ok, not here, but maybe in a different post) about whether Puig is an example of a violation of a key sabermetric assumption, namely the observational independence of separate events. Does the Dodgers’ post-Puig arrival run constitute example of the value of team chemistry? Statistics are poorly positioned to investigate this; you’d need something more like anthropology—saberpology anyone?

photo credit: Joe Y Jiang via photopin cc

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