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August 26, 2002

The Daily Prospectus

Two Hours of Rambling

by Gary Huckabay

I recently sat down for lunch with a very old friend of mine with an affinity for baseball, finance, and philosophy. Lunch took about half an hour, and the ensuing conversation took about two hours. Since I've mentioned him before in this space, and he's fond of his privacy, we'll call him "Dave" for purposes of this column. (Approximately 70% of the guys I speak with on a regular basis are named Keith, Chris, Michael, or Dave. A much lower percentage is named Rany.)

Obviously, this is paraphrased, but has been run by Dave to make sure everything's on the up and up as far as he's concerned. I hope you enjoy this edited transcript as much I as enjoyed the conversation. It's long, and it's rambling, so perhaps you should check it out in small bites.

Gary: The email's been fairly heavy. I get criticized a lot for being too pro-player when it comes to the labor negotiations and CBA structure. I'm getting pretty tired of reiterating that a free market position is not necessarily pro-player.

Dave: It's a difficult and nuanced concept to get across, and people don't want to hear it anyway. If you ran a friggin' club, the clubhouse would have two guys that make a fortune, and truckload of players making the minimum, or at least less than the average. That's not the point. People are frustrated because they're asked and prodded to buy into large, almost epic six-month crusade, and for half the years in the last decade, there's a big sword of Damocles over the conclusion of the season. People want to see the end of the movie. No amount of boring accounting is going to change that.

Gary: The Dick Dorf mantra of "Incite, don't Inform". I know. But we've got a business that's basically based on walking the line between inciting and informing; kind of an "incite through information" model. And also, I find labor negotiations, collective bargaining, and contract law pretty interesting.

Dave: Yeah, but you're a pretentious, annoying, intellectual blowhard. People just don't turn to the sports pages, or to baseball books and web sites, for a lesson in intellectual consistency and how it should apply to a union whose average member makes 10 times the salary of the President.

Gary: Actually, they do. The numbers for a lot of the stuff on the labor negotiations and the business side are very high.

Dave: Higher than they are for HACKING MASS?

Gary: Probably not.

Dave: Face it. If you wanted numbers and cash, you'd peddle porn. A few people, the top of the pyramid of baseball fans, are interested in the negotiations and the subtle systemic effects on the game as a whole, but by and large, most people would prefer if the business side just went away. And everyone hates Don Fehr. For the same reason they hate Scott Boras.

Gary: They've not met Don Fehr, and he hasn't done anything to warrant the antipathy. I can't think of a false or misleading statement he's made.

Dave: You think that matters? The guy looks like an angry sock puppet, and every time he shows up on TV, it's because there's a threat of their nightly Baseball Tonight fix vanishing. They don't like Selig either, and that's certainly warranted, but there's more anger at the players than the owners.

Gary: I think that's true, but it's not logical.

Dave: Again, you seem to think that matters, when it really doesn't. People want to like the players; they don't expect to like the owners, so it's OK if they're rich, greedy assholes. Someone looks petulant and greedy if they say "An average of $2.4 million isn't enough, so we're going on strike." Doesn't matter that the money's already in the pot, and the money will instead go to egomaniacal tools like Jeff Loria.

Gary: So the point at which personal convictions are thrown out the window is somewhere between $1.2 and $2.4 million?

Dave: What personal convictions?

Gary: The idea of a meritocracy, a free market, etc. All those things that typical collective bargaining often tries to quash.

Dave: You really think that's what at stake here?

Gary: I do. The owners have every single tool they need at their disposal right now to dramatically reduce their salary costs, while simultaneously putting a better team on the field. It's not the MLBPA's fault that most baseball execs are going about their jobs without all the tools they need. Why would someone offer Derek Bell, David Segui, Pat Meares, and literally hundreds of other players massive, financially unjustifiable contracts, unless they were painfully unaware of the available substitutes?

Dave: A salary cap would fix that. Clubs won't have the option of paying spuds like those.

Gary: Oh, please. You're on crack. All that would do is change the proportion of cash spent on the underperforming contracts, and protect the least competent management teams from their own mistakes. What teams need is to develop a system in which they evaluate all player personnel expenditures in terms of how they'll affect the bottom line. What is the expected contribution of the player on the field? What's the impact of that expected performance on the team's success? How much revenue can we reasonably expect to see as a result of that success? What alternatives are available? Can we pick up a guy buried in the minors like Mario Valdez instead of paying Tino Martinez a fortune, and actually get a better player in the deal? That's due diligence, and most clubs don't go through that kind of a process right now. A salary cap doesn't change the process, and the process is dysfunctional.

Dave: C'mon. Clubs do that already, and you do know it.

Gary: No. They don't. Not only is there a big pile of evidence to the contrary, but if you actually ask the GMs, they'll tell you they don't. I'm not kidding. Most of these guys don't have the tools available within their organizations to do it, and if they do have the tools, they're often spread out in a whole bunch of different places, and those people simply don't run into each other in the office.

Dave: OK. But if people have to have a solid understanding of all that in order to understand the difference between pro-free market and pro-player, are you really surprised that you're painted as pro-player?

Gary: I guess not. My real fear here is that a salary cap will be bad for baseball. I want to see the best players, which means I want to see the best management. And, put simply, let's face it - large scale revenue sharing and a salary cap is pretty close to socialism. And last time I checked, there's not a lot of pressure on underperformers in management under such a system. Which ultimately means an inferior product on the field.

Dave: You're walking chutzpah. How do you possibly get into an argument against socialism here? And, ultimately, why should I care? Shouldn't Kansas City have the same opportunity as other clubs?

Gary: Try to divorce yourself from your class envy for just a moment. Think about what the owners are proposing. The clubs make money through local attendance, local broadcasting, national broadcasting, out-of-home advertising, concessions, licensing, and affiliated services and products. If the Seattle Mariners spend a bunch of money to open new markets, and as a result of their investment, make more local broadcast revenue, and then they have to substantially share those revenues with clubs who have chosen not to invest, and made poor decisions, leading to a bad team on the field, how is that NOT socialist?

Dave: So the NFL consists of a bunch of socialists?

Gary: It's certainly got a socialist structure. And that may not be a horrible thing, but let's at least call it what it is. I'm not suggesting that the other sports leagues are about to build missiles in Cuba or something.

Dave: That structure will work in baseball, too!

Gary: Whether or not it'll work is completely beside the point! Almost any structure will nominally function in any league. I can't believe they let you into the Republican party. If you're a member of the John Henry group that bought the Red Sox for $X dollars, you paid more than someone would for say, the Royals. Why? Because the Red Sox have more money coming in from year to year. The value of the franchise drops dramatically if say, $10 million per year comes off the top. By instituting wide revenue sharing, you've just eliminated at least $100 million off the value of that franchise. Poof. It's gone. And that's just one problem with it. The biggest one is that it undermines the movement towards a meritocracy.

Dave: You can't be serious. As an A's fan, you should know better. Right now, if the A's develop a great player, let's call him Jason, and he becomes a great player with Oakland, the A's are at a disadvantage because they can't keep him when he becomes a free agent. How are clubs like Oakland, Minnesota, Kansas City, Detroit, Florida, Tampa Bay, etc. supposed to compete, if they can't keep their best players?

Gary: Check the standings! The A's are in first place! And furthermore, they can compete by doing their homework, being creative, and developing a minor league system that turns athletes into ballplayers. They can get Chad Bradford and let him pitch for close to the league minimum, rather than spending several million bucks on the likes of Roberto Hernandez or Buddy Groom. Would the A's be better if Jason Giambi were still playing first base? Probably, but not by enough to justify paying him what, $17 million annually? How likely is that contract to be an anvil around some club's neck five years from now?

Dave: What happens to Minnesota when Torii Hunter, Corey Koskie, and all those guys become eligible for free agency and go to New York, Texas, or LA?

Gary: They take advantage of what's been a very strong minor league system, and pick the spots where they want to invest. They need to be better at it than richer competitors, but that's the essence of competition! They develop players like Morneau, Mauer, Kielty, Cuddyer, Restovich, etc.

Dave: Can a club keep doing that? Be realistic.

Gary: It's hard, but clubs are doing it now.

Dave: But under a salary cap, they'd be able to keep their best players, too, and have a bigger advantage for running their clubs well. And you say that's what you want. So why are you against a salary cap?

Gary: It won't do that. If I own a club, a salary cap takes away my incentive to invest in my own business, and that's just wrong. If my club is barren at shortstop, but winning 88 games a year, and I can sign Alex Rodriguez for $40 million a year, it might make sense financially to do it. But if I'm prevented from making the best investment I can for my club, that's just philosophically wrong.

Dave: OK, I'm convinced. But if it takes you this long to convince just one person with an open mind that it makes more sense from a free-market perspective to support a system without a salary cap or gigantic revenue sharing, how come you're surprised that you can't convince a quarter million people a month?

Gary: I dunno.

Dave: You always try to remove emotion from issues, and that's a horrible mistake on your part. You know from your work that people don't make decisions, even big ones, on cold, rational analysis of facts and figures. People don't drink Coke over Pepsi because it tastes better. They do it because of an emotional attachment. And that's more true with ballclubs than just about anything else. They don't want to be intellectually consistent and wish their favorite player well when he leaves their hometown team. They want the player to stay. People already see owners as a whole bunch of Montgomery Burns clones, so a few extra bucks in their pocket isn't an issue. But they want players to be more focused on the field, and not the money. Deal with it.

Gary: How did I end up losing this argument? Why do you always do that?

Dave: You convinced me that a salary cap's bad. Think of that as a win. I just once again pointed out your enormous shortcomings in terms of predicting how people will behave. If people all made decisions the way you think they should make decisions, we'd all be driving hybrid Volvos and recruiting John Anderson to run for President. Volvos are boxy and boring, and John Anderson got less than 10% of the vote, my friend. So you pick up the tab, and I'll head out to my gas-guzzling, tragedy-of-the-commons, two-parking-space Ford Excursion. And try to remember that making decisions in the fashion with which you're so comfortable, with lots of emphasis on information, isn't necessarily better than a gut feeling. Often, there's no right or wrong answer, and you simply don't pick up chicks with a Volvo. Don't be a Volvo.

Gary: Deep. Is that my life lesson for the day?

Dave: And all it cost you was a turkey and avocado sandwich. How much did you pay for that MBA? I'm a better value.

Gary: You get the next tab. And an Excursion isn't exactly a babe magnet.

Dave: I'm married.

Gary Huckabay is an author of Baseball Prospectus. You can contact him by clicking here.

Gary Huckabay is an author of Baseball Prospectus. 
Click here to see Gary's other articles. You can contact Gary by clicking here

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