Thursday, March 20, 2008

Defending the Tenth

I remember the good old days – some of you might remember them as “January” – when, if Rob Neyer disagreed with my opinion (which was pretty much all the time), he’d respond in the little chat window that pops up in my gmail account, and pretty soon we’d have a dialogue, and the next thing you’d know another Rob & Rany would appear on his website.

Now, when Rob disagrees with me I get to find out about it the same way the rest of you do, in his column. Rob politely disagreed with my take that the changing economic climate that I talked about in Reason #10 is a good thing for small-market teams like the Royals:

“Are teams really smarter? Probably. But that doesn't help teams like the Royals. It hurts them. When rich teams throw stupid money at free agents it makes things easier for the poor teams. Not a lot easier; all that stupid money drives up payroll costs for everybody, rich and poor. But if the rich teams aren't overspending -- if they're valuing players correctly, and thus are willing to pay only a small premium for short-term success -- then where do the poor teams find their edge?

Jazayerli correctly notes that the gap between rich and poor is shrinking, due largely to various revenue-sharing measures. I still think a smart rich team has a massive advantage over a smart poor team.”

I’m not picking on Rob. I can’t, since many of you feel the same way. The comments on my post include: “For the forseeable future, small market teams won't be able to re-sign many of the great players they develop. They will lose out on the bidding for top free agents. They will be able to sign fewer good free agents than large market teams.

It seemed like your post was saying that for the [m]ost part significant economic disparity will soon be gone. I don't think that is even close to correct. The facts simply don't support such a contention.”

And this one: “One question. Wouldn't the money that's being spread to all 30 teams also increase the pockets of the large market teams? Since the revenue is equal in these situations, it does nothing to level any playing fields. It increases the amount all teams have to spend, on an even basis. Just because the Yankees don't immediately dump it into a crappy Juan Pierre type contract, doesn't mean they lose any ground.

The small market team definitely benefit in the short term by an influx of immediate funds, but the large market teams are reaping the exact same benefits as well.”

When one person disagrees with what I say, the resolution to that conflict is easy: that guy is a moron. When multiple people disagree with me…well, I have to entertain the notion that I’m the moron. (To quote one of the great first lines in movie history: “Listen, here’s the thing. If you can’t spot the sucker in the first half hour at the table, then you are the sucker.”)

In this case, I don’t think I’m the moron, I just think I didn’t explain myself very well. I don’t mean to state that because the Royals are now spending $70 million and the Yankees are spending $150 million, they can contend more easily than when it was $30 million and $100 million. The payroll ratio may have improved, but the payroll gap has stayed the same or even increased.

But it’s not just that the Royals have more money to spend, or that teams are getting smarter about how they spend their money. It’s that teams are spending less of their money on the talent they put on the field. And what this means, more or less, is that every team in baseball has the money to keep their own talent.

Rob argues that when rich teams throw money at bad free agents, that it helps poor teams because the rich teams are wasting their money. I disagree. When the Dodgers gave Juan Pierre $44 million for 5 years, it meant that the Dodgers had just set 44 million dollars on fire. That’s good if you’re a Royals fan. But it also meant that the market for even average outfielders just went way up – that’s bad if you’re a Royals fan. The Royals wanted Torii Hunter and Andruw Jones, and weren’t able to sign them because if Pierre is worth $9 million a year and Gary Matthews Jr. is worth $10 million, then the market value for Hunter and Jones was $18 million. Jose Guillen is probably overpaid at $12 million – but he’s a bargain compared to Pierre.

But if – and granted, it’s a big if – teams are getting smarter about spending their free agent dollars, then contracts like Pierre’s and Matthews’ are going to become less common. (It’s telling that both the Dodgers and Angels are suffering buyer’s remorse, to the point that both Pierre and Matthews may be fourth outfielders this year. That also means both teams understand the concept of sunk costs – something that wasn’t true in baseball five or ten years ago.) And if all 30 teams decide that it’s not worth paying half of A-Rod’s salary for a player that’s half as good, suddenly the market for middle-tier free agents is going to crater. You’re already seeing signs of this, the Lohse contract being the most recent example.

Yes, the Yankees and Red Sox can blow the Royals out of the water. But what if they choose not to? In other words, what if those teams, rather than continuing to increase their payroll into the $200 million range to insure they’ll challenge 100 wins every year, decide they can keep their payroll about where it is by cutting out the $5-10 million free agents and blending the occasional rookie into the lineup, and still win 92-95 games every year? The Yankees and Red Sox (and other big-market teams) may decide that reducing their playoff odds by maybe 15% may well be worth an additional $50 million in profit. Baseball is a business, after all. These teams can have their cake and eat it too.

I think we might be entering an era in which the distinguishing factor between large-market and small-market teams won’t be their competitiveness on the field, it will be their profitability off the field. Yes, a huge bidding war could erupt between the large-market teams and C.C. Sabathia might get $30 million a year when he hits free agency next winter. But I don’t see it. There was hardly a market this winter for Alex Rodriguez, for God’s sake. Teams seem to have reached the joint conclusion – and I don’t think it’s collusion, just multiple teams engaging in good business practices – that they don’t have to chase after every free agent that hits the market. And if they are confident that other teams aren’t pushing the market higher, there will be even less pressure to set the bar higher themselves. Revenues will continue to increase, at least in the short term, but salaries may not. Every team will be profitable – some teams will be immensely profitable.

Besides, the Royals aren’t really competing with the Yankees and Red Sox. Four out of 14 AL teams make the playoffs, which theoretically gives the Royals 28.6% odds of a playoff berth. But the reality is that they’re competing for one playoff spot, the AL Central title, which puts their odds at a still-acceptable 20%. And the great thing is, no matter how many games the Yankees and Red Sox win, they can’t reduce those odds any further.

So do you really want to argue that the Royals can’t compete in the AL Central? Well, their payroll last season was $67.1 million, which pales to the White Sox at $108.7 million, or the Tigers at $95.2 million. Even the Twins had a higher payroll at $71.4 million. The only team in the division the Royals outspent was…um...the division-winning Indians, at $61.7 million.

Do you want to know why the Tigers and White Sox had a higher payroll than the Royals? Because they had better players, and better players cost more to keep – not because they were able to afford more expensive players in free agency than the Royals could. This isn’t specifically true of the Tigers, who loaded up on guys like Magglio Ordonez and Ivan Rodriguez, but as I’ve documented before, the Tigers’ resurrection is pretty unique, and few people in history have the eye for talent that Dave Dombrowski has. (Besides, if you want to use the Detroit Tigers as your reason for why the Royals can’t contend, be my guest. The Tigers were the most hopeless team in baseball five years ago – suddenly they’re being talked about as a large-market team swinging with the big boys in New York and Boston. If they can do it, we can do it.)

The six most expensive players on the White Sox last year were Jim Thome, Javier Vazquez, Paul Konerko, Jon Garland, Mark Buehrle, and Jose Contreras, who combined made a fraction more than the entire Royals team last year. Buehrle was drafted by Chicago, and the other five came via trade (Kenny Williams is pretty unique in his own way.) These weren’t guys acquired in salary dumps either – Konerko and Garland had done nothing in the majors when they were picked up, Contreras was an overpriced mediocrity the Yankees wanted to rid themselves of, and even Thome was coming off a bad back and a lost season, and was a big gamble to acquire.

The Indians, on the other hand, won with a young, mostly homegrown team, and nothing keeps payroll down like young talent. Grady Sizemore made $916,667. C.C. Sabathia led the team in salary at $8.75 million; Paul Byrd and Kenny Lofton were the only high-priced imports at 7 and 6 million respectively. The Indians won the division because they did the best job of developing young talent in the division, and not only were they able to keep all their young players, they did so without breaking a sweat.

The Royals may well lag the other teams in the division in payroll for the next year or two, simply because they haven’t developed young talent that’s worthy of a big payday. (Or hopefully, talent that’s worthy of a big payday yet.) But the financial realities today are much different than they were in the early part of the decade, when Jermaine Dye, Johnny Damon, and Carlos Beltran were all dealt away because the Royals couldn’t or wouldn’t pay them what they were worth.

Maybe the Royals wouldn’t be able to keep Carlos Beltran if he were about to become a free agent today. There’s always a chance that a potential Hall of Fame player is going to test the market regardless. The Twins felt compelled to trade Johan Santana because they weren’t willing to pay him $20 million a year…but on the other hand, they signed Justin Morneau to a six-year deal this winter, and Michael Cuddyer got three years. Anyway, if a team isn’t willing to offer a long-term deal to its best young talent years before free agency strikes, they don’t deserve to keep him anyway.

We’ll know just how able or willing the Royals are to keep their young talent a year from now. If Alex Gordon, Billy Butler, and Zack Greinke all get long-term deals that keep them in a Royals uniform for at least a year past their scheduled free agency, then you can be pretty certain the Royals have the money it takes to keep the talent they develop. Really, that’s all that you can ask for as a fan of a small-market team. If the team is willing to spend money to grab other team’s free agents…that’s a bonus.

Just keep in mind that the Royals gave out the largest new free-agent contract of any team in the AL Central…both in 2007 and in 2006. If that’s not a team that can compete financially, I don’t know what is.


Old Man Duggan said...

Personally, I think you've got a point. But I'm not nearly the pessimist that someone like Rob Neyer is. Keep on truckin', you've got big mo' on your side.

Unknown said...

I was wondering why I liked you blog better than the old Rob & Rany. Thanks for reminding me.

K.C.Tigerfan said...

I moved to K.C. from Detroit a few years ago, before the Tigers started turning things around. I had the distinct pleasure of rooting for two lousy teams (Detroit, my first love; and the Royals, my mistress) at the same time. I now feel an awakening in K.C. which reminds me of the awakening in Detroit. The parallels are amazing - signing that one free agent for over market value that signals a change in spending habits (Pudge/Meche)and gets other free agents to take ntoice; signign a young stud outfielder the next year (Magglio Ordonez/Carlos Guillen) the owners starting to cede control to a smart, tireless GM (Dombrowski/Moore). I just hope that the Royals keep thse young, power hitting outfielders, because I can easily see Guillen getting hurt and missing much of the year, jus tlike Maggs did in Detroit his first year. It would be better to give some extended P.T. to Huber, Maier or that career minor leaguer (can't remember his name) for a month at a time and see what happens. Then, if Guillen comes back strong in 2009, we have actually developed (maybe) a young power hitter to compliment him. Maggs getting hurt in his first year in Detroit led to the development of Granderson, who prior to that time couldn't even beat out Nook Logan for P.T.

Anonymous said...

"But the reality is that they’re competing for one playoff spot, the AL Central title, which puts their odds at a still-acceptable 20%. And the great thing is, no matter how many games the Yankees and Red Sox win, they can’t reduce those odds any further."

The lack of a cap (and floor) has done much to kill baseball in Toronto, Baltimore and Tampa Bay, though.

Robb said...

(Er, and I should also add that even though I have no connection to the Royals, I am loving your site. This is great, well-written and thoughtful stuff.)

Anonymous said...

Just a nitpick. The Twins did offer Santana 5yrs/$100 million but Santana wanted the 6th and 7th years.

Good read. I still miss the old Rob & Rany. It got the feel of two old friends arguing over beer.

Anonymous said...

Rany, I really, truly hope you're right. I fear you are not.

Anonymous said...

A multi-year contract is a compromise between full-market rates per year, which tend to increase, and injury/slump risk, which reduces what you can get the next year. It only makes sense for the Royals to offer it if it saves them money over the life of the deal versus arbitration and that first year of free agency. It only makes sense for a player to accept it if they feel that the downside risk is outweighed by the guaranteed money.

If in a year, the Royals offer Gordon, Butler, etc. contracts that buy out some of the player's free agency, that's a sign they can compete.

However, if Gordon, Butler, etc. decide that they're young, indestructible and slump-proof (hey, they've advanced to being one of the best 400 people on the planet at what they do; they're not lacking in confidence, dedication and talent at that point), they might decide to see what happens in arbitration, and eventually free agency.

In general, that becomes more likely if teams are throwing around money like it's going out of style. The more money there is to throw around, the more likely that it will get spent, and the more likely it becomes that a young talent will look at that and realize that if he survives the next few years, he can end up with twice as much money by signing a deal in that sixth year.

The Royals can offer, and they should. It's still not clear to me that with all that money floating around, it's the right decision for the young talent to accept.

Anonymous said...

I defended you in Rob's comments, and I agree with you again here. It's actually a lot simpler than what you've gone to great lengths to explain. When players all are valued according to their performance relative to their peers, more teams will be able to afford more players.

It has always been a strategy in business to use your financial advantages to ruin your competition, and having done so, focus on maximizing profit. This is not really an option in baseball: the competition is needed to sustain the industry. The more teams that focus on maximizing their own profit, the more level the playing field becomes.

Anonymous said...

This is for k.c.tigerfan... Pudge is a hall of fame catcher. Magglio is an occasional MVP candidate. Gil Meche is Gil Meche. And Jose Guillen? Those aren't sparkling parallels. You can argue pretty well against the wisdom of the Pudge signing (perhaps it changed the culture) and the Ordonez signing was a huge gamble for Dombrowski and he must thank God every night that it didn't blow up in his face, but as players those two are in a much higher class than the Royals pair.

RDLinville said...

Completely off topic, but…I was a service member who just moved back home to the KC area today, and nothing has got me more pumped up about the upcoming season than reading your blogs…Unfortunately I have not had the privilege of watching the Royals (except last season’s opener against Boston) like some of you have, but I can’t wait to get back in the mix…Between you and the ESPN Royals blogs I am officially PUMPED UP! Let’s be honest, I’m all for home grown talent, but if any of us owned Wal-Mart we would be looking down at the Central and laughing!

Anonymous said...

Even if all teams are valuing players only by performance relative to their peers, that will not be the only factor in the money they offer them. Here's an example.

Let's say that next year the Yankees and the Royals both want Mark Teixeira. And let's say that they both "value" him at being worthy of about 5yrs/$100M in the current market. So, both teams make an offer in that vicinity. Then Teixeira's agent goes to the Yankees and tells him what the Royals have offered. So the Yankees respond by upping the offer by $1-2M per year or by adding another year. If you add more teams to the bidding (and there will be), the auction factor increases even more.

Market factors are at play here. There's a ton of money out there. And the large market geams have much more than the small market teams. They aren't going to just sit on that revenue. They know that they can increase it by winning more games and more championships. And you do that by improving your team by adding talent. If you have a greater capacity to pay for talent, then you are going to do just that.

That is why the Dodgers got A. Jones and the Angels got T. Hunter. And the Royals got neither.

Anonymous said...

One more thing. In addition to having the most money to sign the best free agents, large market teams also have a huge advantage in signing the best Japanese players. Were in small market teams in the running to pay the posting fee and then the huge contract for Matsuzaka? Will any small market teams have any chance of winning the posting fee bidding for Yu Darvish? Nope, players like this are only going to be available to the richest teams.

And yet we are still going to pretend that if small market teams aren't contending, then they can't blame the financial structure? Please.