Free agent market and the boom and bust cycle
We’ve made some asides in posts and comments about the “market price is market price” and “get in now” crowd, the latter of which need to have their keyboards taken from them.
Dave and I have both argued here, along with a host of smart people elsewhere, that like many markets, free agency is cyclical. New money comes into the market, Mike Hampton gets a bazillion dollars. Soon, second-tier free agents are being frozen out and crying collusion. Then more money comes in, and you get the Juan Pierre/Gary Matthews deals.
We’ve said that you’re better off investing in trades, player development, international free agents, taking on other people’s contracts, whatever – when the market for free agents gets so bad, you shop for what bargains you can get. If there’s nothing there, you’re better off walking away than doing long-term damage to the franchise.
At one point I compared people encouraging teams to spend now before prices went up even further to tulip speculators in late 1636. An even better contemporary analog is housing, though. In February last year, David Lereah (who has a dog in this race) wrote a book called “Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade – And How to Profit From Them” and people snapped it up.
The free agent market was compared to real estate investing: overpaying for free agents today meant you were underpaying for them next year. If you were interested in Player X and his asking price went up $10m between phone calls, you should sign him immediately because his price was going to go up again and that meant he was worth even more than his latest demand. And so on, and so forth.
Every time there’s a boom, these arguments come out: real estate is a fixed asset and can’t go down in value. Technology stocks are the product of technology that increases productivity. Tulips will always be pretty.
And the true believers end up underwater on four house mortgages, worthless shares of eTissue.com (the internet’s leading seller of personal and bathroom tissues), and some lovely flowers to plant in their garden.
Fortunately for purposes of our learning, we can go see the housing market stall and in some markets already recede. People who encouraged others to get involved in a bidding wars for houses are now pretending they never said anything like that. “It’s good news if the seller wants more money? Why would I ever say something like that?”
In 2000-2001, there were people arguing that a new free agent market had been established and teams were going to have to pony up if they ever wanted to sign anyone, that Mike Hampton and company would look like great values in a few years, just as today this year’s free agent contracts are heralded as the dawn of a new age. And in a few years, sooner for some of these deals, the contracts handed out will be recognized as clearly insane, the people who gave them derided for their irresponsibility. Then we’ll repeat.
Hampton did not turn out to be worth what he got just because he got it. Priceline wasn’t worth over $100 a share in the boom, even though people bought it, and analysts who pumped up Priceline at $134 a share were wrong, no matter their motivations. We’ll look at many of this year’s deals in the same light soon, but the lesson’s clear: be smart, and look to the long-term.
Anyone who has ever argued that you have to jump into an overpriced market, or that an overheated market can only ever increase is not a serious person, is willfully ignorant of both basic tenets of markets and of history, baseball and otherwise, and should not be listened to.
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To the greater degree, this makes sense. There’s some modeling that can be done (and the economics are complex enough that some modeling has to be done to gauge the proper levels).
But folks should realize that as more money comes into the system, salaries will inevitably go up–you’ll never get back to the days of six figure salaries down the board. And it can make sense to jump into an overly hot market if you have one need and there’s a unique, superstar player that can satisfy that need.
But where the Mariners are at, it doesn’t make sense to jump in blindly. Too many holes, not enough players worth the salaries necessary.
While I agree with your basic premise here, that there are always surges and valleys in free agent spending, I think the real estate analogy is relevant in another way – when is the last time the prices went down? Even now, with a supposed bubble burst, prices are increasing – just not as rapidly as before.
Though no one in their right mind would argue Gil Meche at $11 mill. per is a good deal, I’m old enough to remember when the Gil Meche’s of the world were just making a few hundred thousand a year. The price always goes up over the long-term.
My point? The Mariners salary structure will continue to increase, either now or a few years from now. Another point: It is better to have a one-year run to a championship ala Florida then to never have one at all.
On more money: baseball’s not going to increase revenues 10% a year, every year, forever. Not even for the life of Soriano’s contract. If there’s a recession, teams are going to take it in the shorts as they lose suite/box/seat license revenues.
On when the last time real estate prices went down: in many markets they’re going down now. Look at Boston, for instance – home sales and prices are way down, and foreclosures are up.
In an inflationary market, stagnation is a decrease in the real cost.
In general, though, I certainly agree that the worst place to be in would be a team that needs to win this year and who can’t shop through trades for whatever reason – you’re in a world of hurt trying to get a free agent-heavy squad together. Which is why you shouldn’t ever put yourself in that position. But that’s a whole other argument.
I think that what really kills is long term contracts. It’s probably not that bad to way overpay someone that you really need for a year, but most people of free agent age are more likely to decline or be injured than appreciate in value.
Hm, yes, but real estate don’t stay down. Based on my experience with California prices, they may stagnate (for a couple of years at best) and then they’ve risen steeply again.
I won’t bet on salaries going down until I see a steep drop in, say, broadasting rights.
I don’t think any one local market is a good comparison, though, particularly California/Arizona/Nevada because nationally, people are migrating to the southwest. It’d be like… I don’t know, if baseball added a team every few years and they could only purchase pitchers, or some similar unbalancing change was made.
Tell that to the Japanese. Japanese real estate nationwide fell 13 straight years, from about 1990 to 2003 or 2004, and commercial real estate fell more than 70% on average. Anyone who thinks a market can’t go down — and go down a lot — is just being naive.
My new favorite is the “you have to prove you want to win by spending X dollars on free agent pitcher Y, and if you don’t, you’re clearly not willing your team to victory” line. I don’t think anybody has tried harder to prove to the public they want to win more than the Rockies of the early part of this decade, the Orioles for the past five to ten years, the A-Rod era Rangers, the Devil Rays at the beginning of their inception, or the Angels of the past few years.
All of these franchises have spent huge dollars on big name free agent signings in an effort to convince their fans of their desire to win a World Series. People who like this theory always point to the Angels as the model – look, it’s Arte Moreno on TV clapping, so clearly he cares a lot! – but ignore the massive failures of the strategy.
Meanwhile, the well run teams generally ignore the inflationary free agent market and build winners year after year through alternate means of talent acquisition.
Big Spending Franchises: Baltimore, Colorado, Texas, Tampa, Anaheim
Well Run Franchises: Oakland, Minnesota, Atlanta, St. Louis, Cleveland
Which group would you rather be a part of?
you people just don’t understand time value of money…..
The major difference between the housing market and the free agent market is one of value over time. Real estate, in general, continues to appreciate over the long term. Baseball players? Not so much. If you buy a house for too much money now, chances are that in eight years, you’ll be able to more than break even. If you pay too much for Alfonso Soriano now, on the other hand, you may be eating his contract after eight years, when he’s no longer a viable option to start. Young baseball players appreciate in value, but they’re not eligible for free agency. The kind of players eligible almost all depreciate over the length of their contracts.
Good point Dave.
Unfortunately the Mariners do not currently have the baseball minds in place to replicate the Oakland/Minnesota experiences.
Also I’d like to point out that despite the love those organizations always garner in baseball chat rooms, neither Oakland nor Minnesota has won a World Series since 1991.
In the last 10 years all of the champions have come from the upper echelon of spenders in those years (Diamondbacks, Angels, Red Sox, White Sox, Cardinals, Marlins twice, Yankees three times).
Signing multi-year contracts is an attempt to hedge your bet, locking in at today’s price thinking that the market is going up – not unlike folks who bought a bunch of rental properties. If you do it at the right time, and with the right property, it can be a good thing but predicting performance of a human being versus a house is apples versus oranges. I mean, teams can, to some degree, assume the market in general will go up – it has proven itself to be true – but for a particular property, that’s a different matter. With a house, you can look at fairly objective and obvious developments on the horizon, like ‘are they building new roads in the neighborhood, or a new school’ but with a player, you’re really just guessing – guessing that he’s at the right age, guessing that he’ll continue with a good offseason workout plan, guessing that the physical (equivalent to the home inspection?) caught everything….
A new development with regard to international free agent signings is also likely to impact the game in coming years. The visa situation is about to dramatically change for baseball. Major leaguers come in on P-1 visas – which are virtually unlimited as they’re supposed to be for the highest level professionals of all kinds (players, entertainiers of all kinds). Minor leaguers have come in on H2-Bs, which cover lower skilled seasonal employment – maids at summer resorts in New England, migrant farm workers, etc. and are capped at 66K a year AND have to be issued within 120 days of the start of employment. The timing and quota have proven to be issues for baseball the past few years.
However, MLB and NHL lobbied hard and Baseball America just reported there is a bill on Dubya’s desk right now that’ll make minor leaguers come in under P-1s. Virtually unlimited – and much much easier to get. While some of the big agents have penetrated the world market for the main signings, that’s a lot of ground for them to cover….and now with the visa situation resolved, I’d imagine signing bonuses for drafted players will start leveling if not dropping, as the minor league market floods with international players. It’ll be more important than ever to be competitive in THAT field…..
That’s not true. National prices are, in fact, in a y/y decline according to national housing price surveys. Some locations are still slowly rising, some falling, but the national average is down. #7 brought up a good point. Most people here in the US think that it can’t happen just because they haven’t experienced it.
The comparison of the free agent market to other markets (housing, stocks, etc) is appropriate. In the long run, they trend up. But in the short term, they’re volatile, and can decline. It’s surprising to me that people can look back at previous free-agent spending cycles and say “This time, it’s different”. It isn’t.
Comedy gold.
And DMZ is, as usual, right. I’m a little confused as to why so many Ms fans seem so eager to have their team turn into Baltimore. Is there some big payoff to being an Oriole fan that they want to replicate the experience over here? I always had this assumption going that, say, Oakland fans or Minnesota fans had more fun with the game. They, after all, win games and go to playoff series.
This is absolutely not true, as even a modicum of research would show you.
2006 – the Cardinals were 11th in total payroll.
2005 – the White Sox were 13th
2004 – Red Sox, sure, big spenders
2003 – Marlins were 25th in payroll
…
Upper echelon indeed. Come on. Put some minimal effort into it.
#13:
Not sure what your sources are Cecil but the latest story (today) about home price says this:
NEW YORK – Prices of single-family homes across the nation rose in October at the slowest rate in almost a decade, a housing index released Tuesday by Standard & Poor’s showed, giving more evidence of the housing market’s deceleration.
The S&P/Case-Shiller composite index showed a 2.4 percent year-over-year increase in the price of a single-family home …
Housing prices are not going down, they just aren’t increasing very rapidly.
Either way there is little evidence, even given a recession, that housing prices will recede over a longer term, even if there was a year or two that was the exception to that rule.
And there is absolutely no evidence that major league baseball salaries will go down. Does anyone see a real decrease in revenues in the sport based on lower TV ratings or something? Because barring that, the price of a Gil Meche-type pitcher in 2016 is going to be more than $11 million a year, not less.
The visa story is enormous. MLB, generally has seen their returns from investing in player development overall in the Carribean, South and Centeral America to have been an effective and lucrative return. Kids are identified sooner, for minimal dollars taught how to play and if there is talent there, they flow to minor league teams. 18 year old American players, generally speaking are far less prepared than their counterparts because they’ve played far fewer games. The gap narrows after time spent in college for Americans.
The draft and previous legislation was enacted to protect American
boys from “predatory” behavior by MLB teams. Its hard to perceive how predatory it was really. There were kids signed to contracts in their high school years and that was felt to be wrong. Golfer’s and tennis players become professional now prior to high school graduation. Most high school age players in US would willingly go to one of these academies now if it meant an accelerated path to mlb, but they can’t.
Go look up what happened to real estate in California in the early 90’s, particularly southern California. Prices fell by 40%. California’s market drives Seattle’s, btw. Real Estate speculation eventually leads to market price adjustment.
The speculation in the housing market and the refinancing boom is one of the major reasons we haven’t undergone a serious recession during the current administration’s debt accumulating reign. Unsecured consumber debt is at an all time high as a percent of disposable income.
Just watch the market as interest rates climb over the next year or two. All that creative financing and interest only zero down ARMs are going to come back to bite people and foreclosures will begin to pile up as a result. Then you’ll see the market adjustment that we saw in California in the early 90’s.
This analogy is spot on.
For those who think that baseball player salaries don’t go down, they fell by 2.5% just two years ago in 2004 and by 4% in 1995 according to the MLBPA. And there are several other times when they fell in real terms. It’s not a straight line up…there is cyclicality involved.
And this doesn’t even consider the issues regarding the value of free agents available each year. Just because Zito is the “best” pitcher available this offseason doesn’t make him worth $100 million.
Teams will pay what the market will bear. Last I read, players’ salaries accounted for somewhere around 52% of team revenue. Players are the product AND the labor; one could argue that they should get an even (much) higher percentage of the revenue that wouldn’t exist were it not for them.
It’s not as simple as looking at an individual players’ talent – you have to look at it in the context of the larger market and what the addition of that player does to a teams’ revenue stream (economic term is MRP I believe, marginal revenue product).
Go look at what happened to real estate in California in this decade. Draw the time scale narrowly enough and, yeah, the prices go down. But in the longer run, I think I’d rather have the prices back in the 80s than the ones now.
Anybody aware of any studies w/r/t average length of a major league player’s career? is it staying roughly the same, declining, or increasing? I’m wondering whether the added pressure of more and more players in pre-arb/arb-eligible status effectively shortens major league careers and/or will ultimately cause salaries to drop.
The MLBPA doesn’t get to bargain w/r/t international free agent signings right now; the draft was (I think) only subject to collective bargaining because of the compensatory draft pick for free agents that didn’t re-sign with their teams. Seems like the change in visa status opens up a whole new threat to major league salaries and career length that the players’ union will now have to catch up with…. (i.e., the larger the pool of minor leaguers to choose from, the better the quality – ‘compression of talent’ – and the less likely a team needs to sign a journeyman grizzled veteran to fill a role on the team (well, in theory, if guys like bavasi and hargrove ever catch on to that idea….))
For what purpose? My intent was to refute the assertion that real estate either “stagnated” or “had steeply risen”. This decade doesn’t give us enough data to observe the market, (too small of a sample size).
Looking over the last 20 years as opposed to the last 10 is drawing a narrow time scale?
Huh?
Maybe I’m missing your point here, but history shows that the real estate market is cyclical, including both positive and negative growth. People who bought into the “you can’t lose investing in real estate” investment strategy are starting to look quite foolish.
whoops, meant to bold negative…
I want to apologize to all the bright minds on this site for including the 2003 Marlins in my list of big money teams.
I have to learn to better check things before hitting that button to post. I stand by my other contention that the Cardinals and White Sox were in the upper echelon of spending though. Being the 11th highest spending team is certainly different than being Pittsburgh.
I believe my main points are still valid though: That over the long term, barring some major catastrophe for the sport, salaries will continue to rise; and that the teams that win spend money to do so.
That’s not the same as saying Zito is worth $100 million though. That’s a different discussion.
Anyway, thanks for calling me on my mistake. Next time I’ll check facts before posting. Or, alternately I’ll just ramble on with opinions based on no facts at all so you all have something to get perturbed about.
I believe my main points are still valid though: That over the long term, barring some major catastrophe for the sport, salaries will continue to rise; and that the teams that win spend money to do so.
No one disagrees with this. We know payrolls are going to rise. We’re not expecting a market correction that takes us back to the contracts of yore.
We’re just saying the rate of inflation this year is unsustainable, and that in an overheated market, the best option is often to find value elsewhere. At the tail end of the housing bubble in places like Myrtle Beach and Florida, the smart move was to rent until the correction came, then buy.
Same deal here. I’d imagine that next year or the year after will be a great year (relative to other years, anyways) to buy free agents.
Do you even know what an echelon is? I’m sure it looked good when you typed it, but an echelon is one level or grade out of many. Unless that “many” is “two” then you’re wrong. Generally, it’s used in the context of something with many levels, and any reasonable division of teams by payroll (say, Yankees, then other big spenders, followed by teams in the giant pack in the middle, then low spenders, then the no-spenders) means you’re wrong. Even arguing that it’s “top half” and “bottom half” still doesn’t quite work, and that’s deceptive because the difference between a team at the top of the middle pack and the bottom of the middle pack is only ~$10m, while the difference between the Yankees and the next highest team in recent years is a multiple of that.
You’re at best wrong. Your contention is wrong and inapplicable. Let it go.
Why is it that every time salaries come up with respect to winning, everybody crying poor points at the Royals, the Devil Rays, the Pirates, but never the Twins, the Athletics, or the Indians? Pittsburgh sucks because it’s badly managed. It has nothing to do with salary. If Pittsburgh were to suddenly get a nine digit payroll, it wouldn’t turn them into a good team, it would probably just turn them into Baltimore.
2006 team payrolls, by the way
There’s more money parity in baseball’s FOs than there is intelligence parity. So long as that’s the case, payrolls just don’t matter that much. The Mariners are going to spend a lot of money next year and have a very real chance of being a below-.500 team again.
In fact,
Derek, I am having a hard time understanding your argument here because it sounds like you are saying that teams shouldn’t sign FAs to fill out their roster? Or is it that FAs aren’t the best way to construct a roster? Look, obviously everyone would like to have a great farm system with great players coming up all the time but it doesn’t work that way even if you draft great potential (remember when guys like Anderson, Meche, Nageotte were great prospects?)
)
We all agree that teams shouldn’t “overpay” but who would argue otherwise? (well, maybe TEX, CHI, and HOU but that is another conversation.
Then you use guys like Hampton, Pierre and Matthews as your examples but most would agree that they were/are all overpaid even by FA “market” standards. And I have seen you and Dave comment that a guy like Dellucci was a good sign by CLE this year and that Beltre is a good contract so apparently you aren’t arguing against signing any FAs, correct?
If you want a guy who is a FA to fill out your roster then you are going to have to pay for it. Currently Studes prices wins above replacement at $4.5mm/WAR and Tango is using estimates of $4mm/WAR, so as long as you are paying in line with that, then what is the problem?
Sure, you could speculate that in three years we will have a different President and interest rates will be higher so the price of FAs (or is it homes?) will go down to $3mm/WAR and THAT is the time to jump into the market OR you can accept that $4mm/WAR is the going price and since nobody wants to come to south Alaska so you have to go an extra year or two to get the guy you want.
So as long as we find the right players then we are ok? In fact, Delucci and Beltre fit right in line with those numbers so I understand your thinking on those players. And I understand why Sexson was/is a bad deal, especially when factoring in age and injury history.
But then, why is someone like Zito a bad deal at 6/$100 when his WAR is estimated at 4-4.5? Because if it is that six year deals for pitchers are a bad idea, then I can understand that line of thought even though Zito is 28, has no injury history and is a great fit for Safeco. But then again your argument is that six years for FAs are a bad idea, at least not above.
At the end of the day, GMs get a budget and are going to spend as much of it as they can to fill out the roster. If it is $40mm then they trade like Beane and try and make it work. If it is $140mm then Beane turns into Epstein and spend on DM, Drew and Lugo. Bottom line is if they can afford to buy FAs they do. A GM can do either option and will win when their risks pan out and lose when they don’t.
I don’t even know where to start answering that comment.
I actually started to answer that comment but it was taking too long.
Long response made short: you’re missing the point.
Great read. I think two factors come into play here. 1) Will the resources to support a huge market remain in the next, let’s say, oh 5 to 7 years? The answer is yes. Tickets sold reached another high for the 2nd straight year. The Yankees are as popular as ever, and the Red Sox too, even if the rivalry is getting a bit boring in and of itself. The Daisuke Matsuzaka signing, and a few of the Japanese players coming in this year, will boost immediately the popularity of the game in the international market. The WBC also will help this in future years. This may seem minor, and is somewhat of a personal caveat, but the popularity of moneyball and enthusiasm over analyzing the crap load of stats also coincides with the increasing popularity of baseball the last few years. This is helped by the fact that mlb has the market cornered on marketing themselves on the internet, another booming industry. The one area of improvement is TV ratings, but if its nots the Yankees and its teams like Houston, then there ain’t much you can do I don’t think.
2) Will there be enough young talent coming up through farm systems to offset the need for teams to desperately seek out commodities to help their teams win in the near future? The inner voice in me says, well there is always a balance in talent throughout the ages, isn’t there? I mean, baseball is a competitive sport relative to other players, its not being measured against objective goals. But the logical voice inside me says, there isn’t necessarily a steady stream of good young players coming up. There are a lot of factors to answer this question. Improved nutrition for pitchers, popularity of baseball for the young-uns and size of talent pool. I’ve only been watching baseball the past couple of years closely, so all I could say is that 1 year can have a poor rookie campaign, AL 2004 for example, and last year’s was historically good for pitchers. Verlander, Zumaya, Weaver, Sowers, Papelbon, and on and on. If more and more of these players reach free agency, then the talent pool will not be as scarce to demand inflated prices. Thus, I think salaries will decline in a few years, then by the next CBA, will go back up again. But that depends on the youth influx.
ok, lets simplify. Your point is something along the line that this year is not a good one to buy FA’s but that next year or the year after will be because the market is due for a correction, correct?
Problem is it doesn’t work that way, at least not on average. OF course you can cherry pick the deals like Soriano, Lee, Pierre and Matthews where big money teams are overspending to make sure they get what they need, but that will happen in any market. Studes showed that the cost per WAR last year was $4.5mm and that is roughly what is being paid in this market (actually a little less according to Tangotiger, more like $4mm this year).
Which means that guys like Delucci, Kennedy, Eaton, Drew and Catalanato, to name a few, are being paid exactly what they should be getting paid. And to take it a step further, to pay Zito 5/83 or 6/96 is exactly what he should get based on his value above replacement as a free agent.
I was under the impression teams offered multi-year deals because that’s what they needed in order to sign the FA they decided they just had to have. If they didn’t offer 5 years, Baltimore or Colorado or someone else would…
Well, it’s a fact of life that you generally can’t fill our a contending roster with nothing but young guys making $350k a year, and FAs will be overpaid compared to kids still under team control, but that doesn’t mean you have to be stupid about it. In particular, it’s really expensive to be inflexible about roster contsruction. If you decide you must have a particular style of roster (e.g. veteran leader-type as DH, proven closer, left-handed sock, etc.) and that’s not what your farm system lends itself to, you will spend big dollars retooling via Free Agency. Especially if you have a fetish for veterans.
I’d have to say one of my favorite things about this board is that when the contentions of the authors is challenged, the eventual answer is something like “you’re at best wrong” or (to Bilbo) “you’re missing the point.”
I don’t think either of those things is true, by the way. But then I imagine you knew that.
What we can agree on, I think, is that the Mariners, no matter what their budget, are currently managing it poorly. Count me among the crowd, small on this site it appears, who don’t care if they spend more, even a lot more, if it helps them put together a contending team.
Count me among the crowd, small on this site it appears, who don’t care if they spend more, even a lot more, if it helps them put together a contending team.
Because hey, its better to have more enjoyment for ourselves than for that money to sit in the pocket of our rich owners and so his kids can have an extra dozen ferraris.
Count me among the crowd, small on this site it appears, who don’t care if they spend more, even a lot more, if it helps them put together a contending team.I doubt that anybody here would mind if the Mariner’s FO made a commitment to spending more on the team. It’s a bit of a non sequitor to say so, of course, since nobody here has argued against this per se. What people argue against is spending money on Barry Zito with the frankly obvious unspoken assumption that they’d prefer to see that money spent more wisely.
It would be nice if the Mariners could just pay all their players in Monopoly money and sign all the free agents that catch their eye. But I (and hopefully you) know that that’s not going to happen. The Mariners have a budget. They can spend that money foolishly or they can spend that money wisely, but in no case will they suddenly discover one hundred million dollars in the laundry and decide that they can afford Barry Zito after all.
But you, Scott, seem to be wanting… something else. Some perfect world of unicorns and rainbows where the Mariners can just sign Barry Zito for six years, paying him 16 rainbow giggles a year! It’d be nice, and I’d like to put in that I’d like a pony, too. A unicorn pony that talks, if possible.
Personally, I’ve found that attitudes like that are fun and games until the hungover morning arrives and you notice that you’ve woken up in bed with Mike Flanagan and haven’t sniffed .500 in about a decade. Do you have a backup plan for not turning this team into the Orioles?
While I do understand the logic that markets and economies move in cycles, and I agree that principle probably applies to baseball free agent spending, one question I have is- was the 2000-2001 boom/correction a fluke or was it part of a several decade long pattern of ups and downs in free agent pricing? I’m sure this is true, but I’d need to see it (beyond just the 2001 example).
Nationally, inflation is increasing steadily, on average, every year by a couple, or even a few percentage points. Baseball is outpacing that, at about 10%. While I don’t think Baseball could continue that rate for 100 years, its not unthinkable for it to continue at that rate for another 10.
There are other factors too- teams are getting more runs/wins out of prospect level (or otherwise dirt cheap) players than last year, by a fairly dramatic margin. Having lots of scrubs means having a smaller payroll, which means more dollars to spend on free agents. So basically, team payrolls are staying reasonably close to what they were before in total dollars, but the dollar distribution is now even more skewed towards free agent players than it was in the last couple of years.
With the quality the current MLB roster is getting from those miiiilion dollars. I’m just glad as bad as this offseason has been, with all the heat on Bavasi to win now or lose his job, that he’s resisted sinking big bucks, especially since he probably won’t be around to see the albatross years.
Is there a character cap on those posts? It (weirdly) cut out two paragraphs from my last posts and melded them, so if my last post seemed to end strangely, thats why.
Anyway, quickly, I’d like to touch on “the last 10 champions” argument, that they generally have higher payrolls. Yes, with the exception of the Marlins, teams that won it all had at least above average payrolls. The Marlins, with the exception of their championship seasons, have been pretty terrible. They’ve only had 4 winning seasons ever- winning 92, 91, 83 and 83 games in those seasons. Both championships came as wildcards, and the Marlins have never once won their division. So in short, the Marlins are kind of a weird team, and proof that luck is a tremendous factor in the postseason.
But anyway, the short version of my opinion is that I do think that having a bigger payroll does help a teams chances of winning more games, unless it is spent unwisely. And I don’t think the Marlins, A’s, or Twins neccessarily disprove that. There are a lot of smart ways to build a contending team. Smartly spending a lot of money is one way. Which is why more and more teams are no longer returning Zito’s calls.
Argh. The point that we should take from this offseason isn’t that the Mariners should be staying out of the market because too much money is being given out, it’s that the Mariners are not in a position to gain all that much from free agency. This would be the case if baseball inflation was 20% or 3% (okay, maybe not 3% but you get the idea). Because of the 6-year rule, free agency mostly gives you the shot to net post-prime or at-prime players (who will be post-prime by the end of the contract) and because most GMs are baseball people and not economics mavens, you’re going to end up paying for what the guy did in the past rather than what he’s likely to do in the future.
But hey, if you can find a guy at a good price… as I was saying though, the point here isn’t that Zito would be a bad fit in the M’s rotation, it’s that if management signs him and as a result they win, say, 85 games and allow Bill Bavasi to stick around and rape the farm system for another couple or three years. What do you want? 85 wins now or 95 wins in 5 years? Personally, I’d rather just wait for the team to make up for the stupidity in drafting in the late 90s and early 2000s (where is Michael Garciaparra now?) and have a squad that is legitimately a Seattle squad and that can have its two or three weaknesses addressed by the free agent market.
As for the idea that it’s “always better to buy a World Series like the Marlins”, have you seen their attendance? That dismantling of the ‘97 team was stupid even at first in that the year after you win is generally where a team reaps the economic benefits of a ring. The Marlins were one of the few first-time winners in league history to actually drop attendance the next season. But that’s only a small part of the story. The fans felt betrayed by this – and rightly so – and 5 years later Florida drew fewer fans in a single season than *any* Mariners team (discounting 1981, of course – the ‘81 Mariners drew more fans per game than the ‘02 Marlins as well). Think about that for a second. Remember how awful the M’s were under Danny Kaye and George Argyros, and how easy it was to get tickets? The Marlins, playing after 20 years of expanded attendance and having recently won a World Series, drew *fewer* fans than what might have been the worst franchise to watch for an extended period of time since the Athletics left Kansas City. New management even bought a second WS title and they *still* haven’t been able to break the 2 million mark. I’m not generally a fan of team movement, but the Marlins’ relationship with their fan base is so fractured that a new city might be the only fix.
So no, it’s not good business sense to just buy up a lot of overpaid FAs, win more games than your farm system and season tickets can support, and then blow it up the next year because you didn’t really have the money. It’s a very, very bad move, in fact.
First, there’s no way you can know the answer to that question either way.
Second, any larger economic downturn will effect baseball’s revenues. There are signs that’s happening.
No.
Also, the “players are worth what they’re paid” argument’s entirely flawed. Hampton wasn’t worth what he got because he got it.
This is not a board.
That isn’t true.
I don’t see why we’re under any obligation to answer the same questions over and over. We answered the questions about our “Ryan Franklin’s success isn’t sustainable” opinion every day for years. They never stopped.
No one argues this. But as long as the powers that be limit the budget to x, spending x badly means pain for fans.
No. See Bela’s comments for proof.
Yes. A hundred times yes.
w/r/t Johnny’s long comment:
I think I agree with you in general: I don’t much care to see the team wallow at 75-80 wins indefinitely. I want a pennant, and playoffs. But, and I think Dave and I have written a lot about the fact that the M’s have a huge revenue stream means that they don’t have to endure some of the pain a team like Cleveland’s gone through in rebuilding. The M’s can afford the finest in minor league free agents, the best Guillen-type short-term rentals or Frank Thomas-like comeback specials. Smart spending can lessen the pain a lot.
That second title wasn’t bought.
It’s good you’re acquainted with the Marlins’ situation, since you’re aware of the 97 stab-and-twist, but there’s more to it than this. The old owner essentially gets all the money from the stadium they play in. So the Marlins, besides having other ownership problems, are in a situation where they don’t really make any more money if fans turn out or not, plus their stadium’s crap anyway. They’re really over a financial barrel, so to speak: their lease is one of the few legitimately oppressive ones in pro sports. The Marlins do well in local media ratings – if the team’s ownership group would strike a deal to finance a nice park, they’d probably draw well.
Or, alternately, if MLB really cared about the health of their franchises, they’d use their massive cash horde to help finance a park and get the Marlins off the revenue sharing dole. But they don’t.
Anyway!
Free agency prices are inflated. Teams are not only not forced to spend on whoever’s available, they’re often better off doing nothing. There are certainly better places to spend that money for a team like the Mariners.
Good point about Huizenga still owning the stadium. The thing is, even if they played in their own park I’m not sure it’d make that big of a difference. The biggest thing that city needs IMO is either time or a new beginning. That I see, anyway. FWIW, I think the situation in Montreal was another good example. People always bring up the two-languages thing like that was what destroyed them. That and the (admittedly horrible) stadium. But they didn’t always not draw well… looking at their attendance data, what happened to them in 1983? In any case, they didn’t draw a lot of fans from ‘84 through ‘97, but trading Pedro is about when the bottom fell out and they went from small-market to no-market.
In any case, my theory on this is: you can spend money on your team or you can keep it away, but whatever you do don’t spend one year and then take it all back the next year. Fans can be forgiving of a lot of things – Seattle, for instance, pretty much forgave the M’s for 20 years of not even trying because of one month in 1995 – but what Huizenga did was the equivalent of shaking a lollipop in front of a baby, licking it down to the stick, and then asking someone else to change its diaper.
But that’s neither here nor there. Signing Zito actually wouldn’t kill me or anything: I mean, they’ve already traded away f’ing Snelling for Jose Vidro and Soriano for Ramirez. It’s not like my dismay can get any deeper. Still, even with the bigger-than-normal inflation rates, it is conceivably possible that Zito can still be had at a decent price. I guess my biggest red flag is that if the owners let him do that, he might have raised enough good will to pull a trigger on a Beltre for prospects or Randy Johnson or something.
If you want a guy who is a FA to fill out your roster then you are going to have to pay for it. Currently Studes prices wins above replacement at $4.5mm/WAR and Tango is using estimates of $4mm/WAR, so as long as you are paying in line with that, then what is the problem?
The fact that teams are paying $4 to $4.5 million per win on the free agent market doesn’t make that a good decision. As an industry, baseball is paying about $2.2 milllion per win for all players. If you have a finite budget, and you spend a huge chunk of it on $4 million per win players, you’re going to run out of money long before your competitors do.
Or, to keep with the housing theme, Americans, en masse, have been financing their mortgages as ARMs or interest only loans to get into houses they can’t afford, and a large percentage of them are going to be foreclosed on in the next few years. It’s not a good idea just because everyone else is doing it.
So as long as we find the right players then we are ok? In fact, Delucci and Beltre fit right in line with those numbers so I understand your thinking on those players. And I understand why Sexson was/is a bad deal, especially when factoring in age and injury history.
Dellucci got a lot less than $4 million per win. The point we’re making isn’t “never sign a free agent”. The point we’re making is that consistently paying $4 million per win isn’t something the Mariners can do. The Yankees can, the Red Sox can, and that’s about it. Everyone else is buying themselves into mediocrity.
But then, why is someone like Zito a bad deal at 6/$100 when his WAR is estimated at 4-4.5?
Barry Zito’s not anything close to a 4 win pitcher. He wasn’t last year, he won’t be next year, and he certainly won’t be in 4-6 years.
I don’t disagree with the general point about booms and busts. The problem becomes that (to borrow from the housing analogy) if you’re budgeting like it’s 2006, but it’s actually 1997, you won’t only be homeless but you won’t get a chance to put a roof over your head for a decade to come.
I believe the spending will be higher and more shockingly outrageous in the fall of 2007 and 2008 than it was in 2006.
Correct me if I’m wrong – The outrageous Tejada and Delgado deals of the past turned out to be good values. Heck, even Sexson isn’t as bad a deal as I thought it was at the time. (Not good for the M’s, but not outrageously overvalued in this market either.)
I don’t know whether the outrageous Soriano and Ramirez deals of this year will look the same two years hence. Though I’m very glad the M’s aren’t on the hook to find out.
Pierre/Matthews/Meche can never end up looking reasonable.
+ Big Spending Franchises: Baltimore, Colorado, Texas, Tampa, Anaheim
Well Run Franchises: Oakland, Minnesota, Atlanta, St. Louis, Cleveland
Which group would you rather be a part of? +
Are Boston and NY (and LA) left out because their city/situations are so different that Seattle couldn’t be their kind of big-spenders?
Surely the biggest reason that this bubble will never last is because players are so cheap for their first 6 years, and owners will realise that it’s far more efficient to use essentially free young players than ludicrously overpriced veterans?
I believe the spending will be higher and more shockingly outrageous in the fall of 2007 and 2008 than it was in 2006.
If you believe that this market surge won’t be followed by a correction, you’re arguing that this is a unique surge in spending that has never been seen before in MLB. There’s no reason to believe that’s true.
Correct me if I’m wrong – The outrageous Tejada and Delgado deals of the past turned out to be good values.
Miguel Tejada had the three best years of his career at 28, 29, and 30 after signing his big contract. That’s highly unusual. If you’re counting on a free agent to play better than they ever have before, it’s a sure sign that you don’t know what you’re doing.
Heck, even Sexson isn’t as bad a deal as I thought it was at the time. (Not good for the M’s, but not outrageously overvalued in this market either.)
No, it is that bad. If you contort everything possible in Sexson’s favor, he’s a two win player making $14 million a year. Realistically, he’s probably closer to a one win player. His deal is one of the worst in baseball. It’s atrocius.
Are Boston and NY (and LA) left out because their city/situations are so different that Seattle couldn’t be their kind of big-spenders?
Boston and New York are playing a different game than everyone else. They have income streams that no one else has, play in markets that no one else can compete with, and have fan bases built on hundreds of years of tradition that can’t be replicated. They can afford to pay $4 or $5 million per win, because their revenues create a budget so large that they have room to compete on that kind of scale.
Boston and New York aren’t a comparison for anyone. They’re outliars.
Surely the biggest reason that this bubble will never last is because players are so cheap for their first 6 years, and owners will realise that it’s far more efficient to use essentially free young players than ludicrously overpriced veterans?
The people giving out these contracts are going to get fired in large part due to these contracts. Eventually, major league teams will stop hiring people like Jim Hendry.
This really is the crux of the issue…. discussions about market fluctuations without the context of budget constraints have, well, no context….
Sure. We’re making all these statements under the assumption that the Mariners aren’t going to start spending $150 million on player payroll next year. Considering their track record and public statements, that’s a pretty safe bet.
I think that one of the bigger differences between the free agent market and the real estate market is that the way you make money off your investment is totally different.
Your team makes money because it’s an attractive product, usually this means doing better than the competition. I think the amount of value a player will add to your team depends on the team’s situation as much as the raw number of wins you expect that player to add.
It’s doubly stupid for Kansas City to pay Gil Meche 11 million a year. Not only is he not likely to be worth it, but Kansas City is a crap team and even if Meche were good he isn’t going to change that. Clearly KC should be investing in young players and building for the future, not 11 million dollar “stars” to act as a bandaid.
It’s probably less stupid for the Redsox to be blowing huge money on posting fees because they have a short to put out a memorable team, which earns them money in the long run.
The FA market is OK to get one player a year that really improves your team.If a FO expects to fill your roster with FA that is fool hardy. SP’s have to be home grown because pitching is the high ticket items in the FA market from here on out(Salaries for FA pitchers ain’t coming down).The teams are making more money and the luxury tax paid to smaller markets each year is sparking them to deal(like KC this year).
Is it reasonable to say that a team like Seattle could pay a free agent or two or two 4 mil per win and not be insane if they were truly a contender? Wins over 90 are worth a lot more than wins in the 75 to 87 range, right?
It’s doubly stupid for Kansas City to pay Gil Meche 11 million a year. Not only is he not likely to be worth it, but Kansas City is a crap team and even if Meche were good he isn’t going to change that.
Is this really that true? Can’t you argue that the ROyals are at least buying hope? Let’s just say Gil Meche remains a league-average innings eater. That’s still good to have in your rotation if the alternative is a guy with a 6.00 ERA. Is them winning the division so incomprehensible? I’m not saying its going to happen. But what if Detroit way overplayed themselves last year, the Indians are mediocre, the White Sox begin their decline, the Twins have no Liriano, and all of a sudden the Royals have great years from Ryan Shealy, Alex Gordon, Mark Teahen, Mike Sweeney, Mark Grudzelanek, Brian Bannister, Odalis Perez, Meche, Dotel and Reggie Sanders? In at least one parallel universe, they could be an alright team.
DMZ – I wasn’t guaranteeing the baseball market will be good fr the next 5-7 years, I was arguing that. Just sayin.
Correct me if I’m wrong – The outrageous Tejada and Delgado deals of the past turned out to be good values.
And the AJ Burnett one last year. I think the kicker on this year’s inflation is that the players are not even that talented to begin with. Teams are so desperate for talent, that they are forced to try and buy high and hope the upside comes in. But is this really that bad? MIke Hampton is a failed contract in retrospect, going into that contract he was a good pitcher (and hitter). The moral of the story is that past performance isn’t a good indicator of future performance. There are other factors involved. That’s why everyone hates Zito. He has had a great record, but declining peripherals, pitching in a pitcher’s park, etc., makes everyone believe he’ll blow up. If you are looking at the next couple of years, the pattern we’ll see, I argue, is this: a larger amount of net money will be spent, but the talent will be better. Sure, Carlos Zambrano could make $180 million, but he’s a really good pitcher. The talent coming up the next 2 seasons is pretty good. But the problem is a lot of team’s lock up their player’s, taking them off the market. Also, all the long-contracts being signed in the modern baseball era are long, and they may result in the lesser amount of free agent talent.
I don’t think you can buy hope; all you can do is borrow it at extortionate interest.
Is it reasonable to say that a team like Seattle could pay a free agent or two or two 4 mil per win and not be insane if they were truly a contender? Wins over 90 are worth a lot more than wins in the 75 to 87 range, right?
Absolutely. I think MGL/Tango have suggested the “sweet spot” of efficiency in terms of wins is somewhere around 93 or 94. Getting from 88 to 94 is huge, and if Barry Zito represented a significant portion of that (he wouldn’t, but this is a hypothetical), the Mariners could probably justify his acquisition. It wouldn’t be the best idea, but it would be an acceptable risk/reward trade-off.
But they clearly aren’t in that position. He’d get them from 82 wins to 84 wins, and they’d still miss out on all that playoff revenue goodness.
But, yes, for a team like the Angels this year, spending $4 million per win on a legitimate difference maker is totally justifiable, and I’d support that kind of move as an Angel fan. Unfortunately for them, they spent $5 million per win on Gary Matthews Jr.
But you also have to consider the budgets of all MLB teams. You can’t just state that the market will correct because the M’s have a budget that they’ve capped at $90 million or so. If the other 27 teams decide to increase their budgets by 20%, you will see a corresponding jump in salaries (simply because the pool of free agents is limited and fixed in size).
You also can’t apply macroeconomics to a microeconomic situation. The impact of the economy at large has little to do with the economic situation as it applies to baseball ownership. In baseball you have 28 individually owned entities. At any given point in time a single entity can deviate from the norm and affect the entire market (see Tom Hicks). Even if the decision is “stupid” it affects the rest of the market. The Mike Hampton deal set the bar for later contracts. The A-rod deal (while never surpassed) again raised the bar for future free agent deals.
The only time MLB owners have managed to hold salaries down for any length of time was when they colluded. Without collusion, they just can’t stop themselves (collectively or individually) from spending more each year. Even with a form of collusion in place for the draft, you still get teams offering value outside their slot to make sure they get the players they want.
Dave, while I agree with all the underlying sentiments, I have to ask – what makes you think it will ever change? Free Agency is not exacly new – it’s been around for three-plus decades now. A couple of generations of Front Offices have come and gone, and we still see the big contracts. What is new that will change the FA market?
What is new that will change the FA market?
The gaining acceptance of non-baseball men into influential positions in baseball operations departments. Despite Moneyball’s flaws, we can probably thank Michael Lewis for opening the eyes of many owners to a new way of running their organization. The St. Louis Cardinals owner, for instance, read the book, demanded implementation of some of the Moneyballistic ideas, and the old school Cardinals went out and hired Jeff Luhnow straight out of corporate America, and he has instituted all kinds of changes to the way the Cardinals draft, scout, and evaluate players.
The new wave of GM candidates are guys like Chris Antonetti who have law or business degrees and little or no professional baseball experience.
From Jon Daniels to Josh Byrnes and Andrew Friedman, we’re seeing more organizations shift away from experience and going towards academic education.
It’s not going to happen overnight, but baseball owners are businessmen, and they’re getting on the train of established business principles. “Trust my scouting instincts” isn’t going to pass as a reason to give out a $100 million contract for much longer.
As with any input into production, the value of a player is measured by the additional revenue they can generate. There are two primary avenues through which players can increase team revenue. First, players like Ichiro! have a direct impact on revenue because people come to the park to see players like him regardless of the quality of the rest of the team. Second, players add to revenue indirectly by increasing the quality of the team, leading to more wins and more fans. To suggest that the macroeconomic conditions present at a given time do not impact a player’s value is at best misguided. Clearly, macroeconomic conditions do have an impact, through fans’ willingness to spend money on baseball. Assuming some correlation between the value of a player and the price owners are willing to pay, the “market” prices depend on macroeconomic conditions as well.
Now for the real question: How related are a player’s value and their price? Obviously, it varies. Some players are underpaid (many players in their first six years are vastly underpaid relative to their value) while others are overpaid. For teams on a fixed budget, the key to success in baseball is finding ways to underpay players, which is what has made the A’s so successful. This is why players in their first six years are so precious. There are other ways to underpay players. For example, one could wait until there is a relatively small pool of funds for GM’s to spend and purchase free agents at that time, which, I believe, is what the authors of the site are suggesting. Purchasing free agents when the pool of funds is large (as it is this year) makes it likely the team will overpay.
While it’s highly unusual for a player to have his three best years after signing a large contract, I don’t think it should have been unexpected in the case of a player like Tejada. 28, 29, and 30 are peak years. If a player that good becomes available at 27 (or younger), the risk of overpaying is much less than it is for the vast majority of “big name” FA’s, who tend to be in their thirties.
This offseason reminds me of an NBA offseason. Every year, bad teams in the NBA try to acquire expiring contracts and shed as much payroll as they can, so that they have lots of “cap space” going into the offseason. Then, regardless of the talent available they spend all of the money they have until they reach the salary cap. So in years with good players available, teams get good deals, and in years without good players available, teams get albatross contracts.
It’s not the same number for each team in baseball, but each team has a practical limit for how much money they are going to spend in any given season. Thanks to the new revenue streams, a lot of teams had a bunch of extra cap space this year and they were itching to spend it.
If you’re hell bent on spending up to your limit, the smart teams are the ones spending that extra money on short-term deals that don’t hamper their flexibility or on long-term deals to legitimately premium talent (Matsuzaka). The bad teams have committed a bunch of long-term money to players who figure to be replacement level in two or three years and aren’t that much above replacement level now. Soon enough, they’ll be looking to shed those contracts and start the process of blindly snapping up whatever free agents are available whenever they have some money to spend.
It’s all more transparent in the NBA, because everyone knows where the spending limit for each team is set, but that’s the analogy that I see here.
The M’s should fire sale the team this year. Use all that extra money to invest in tract home real estate and development in say the Phoenix metro area. Then sell high in five years. Then in the offseason going in to the 2012 season spend 300 million on free agents. Voila, automatic WS Champs! I mean, neither market is ever going to go down, right? I see this as the way to exploit them both.
Thank you thank you thank you squared for making this point. I agree completely on all fronts, and believe that not enough people understand the cyclical nature of doing business, get too caught up in the moment and try to coerce everyone around them into sharing in the participation of dumb mistakes like overpaying for the flavor of the month.
#54, I think that when you’re as craptastic as Kansas City, you have to actually break down and rebuild and not pretend that guys like Gil Meche are bringing you hope. They lost 100 games last year!
This is a sore point with me because I think the M’s should have been rebuilding last year or the year before, and not kept trying to sign a few free agents and rely on hope that something miraculous would happen. If they had gutted out a few rebuilding years we might be in a lot more hopeful position now. There is always a way to squint at your team and see it as not that far off from competitive, but I think you’re a lot better off doing the hard work assembling a good team and not hoping for miracles.
+ If you believe that this market surge won’t be followed by a correction, you’re arguing that this is a unique surge in spending that has never been seen before in MLB. There’s no reason to believe that’s true. +
Definitely, there’ll be a correction. I don’t agree the correction will come right away. Because of higher revenue streams, I’m not convinced the correction will correct below this year’s values (disregarding the truly stupid Matthews/Pierre/Meche deals for the moment). I bought my house for $300K. It’s “worth” about $100K as far as I’m concerned. It will correct in the next two years down to about $400K from a high of $490 or so.
+ Miguel Tejada had the three best years of his career at 28, 29, and 30 after signing his big contract. That’s highly unusual. +
Agreed. He was an MVP before the contract, so I had assumed he hadn’t raised his game as much as he actually has. Off-topic, I wonder if the A’s park was particularly poorly suited to him? I generally expect shortstops and 3B’s to peak early, not late.
+ No, [The Sexson deal] is that bad. +
I will take your word for this. I never expected anything nearly as good as Mr. Sexson’s 140 OPS+ in 2005 (I thought he’d be injured, to be honest). I would have thought a hitter who rakes in a ballpark where most fail to do so would potentially be worth more. I seem to have fallen for the famous Glenn Davis fallacy.