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November 11, 2013

Baseball Therapy

The Cost of a Cost-Controlled Win

by Russell A. Carleton


It’s free agent season, a time traditionally reserved for the baseball commentariat to wonder aloud how we’ve gotten to the point where passably decent outfielders are worth $10 million a year. The standard line is that, in the free agent market, one win above replacement retails for about $5 million. More recent research suggests that GMs actually ended up paying about $7 million per win for free agents during the 2013 season.

With free agents being so expensive, it’s often said that the way to prosperity in baseball, especially for “small market” teams (which seems to be a euphemism for “everything north, south, and west of New York”), is to grow a bunch of cost-controlled rookies in the farm system. After all, they are astoundingly cheap to pay for the first three years. Consider that Mike Trout, Paul Goldschmidt, Matt Carpenter, and Josh Donaldson made just over $2 million between the four of them, and all four will get deserved MVP consideration this week. Even in years four through six, young, cost-controlled players are still something of a bargain even after they (usually threaten to) go through the arbitration process. If it’s #snarkweek on Twitter (and, honestly, when is it not #snarkweek on Twitter?) there’s a ready-made retort to any free agent signing. The team is being lazy or foolish or is overpaying for the false certainty of past performance because they probably could pay $500,000 to some 23-year-old who could give them the same performance. It must be comfortable in that armchair.

But is the cost of that 23-year-old really a cool half million? If we view an organization as only its major league payroll, then the answer is yes. But let’s be a little more comprehensive, shall we? At some point, that 23-year-old got a signing bonus. He also drew a small (but non-zero) salary during his stay in the minors, and he certainly did not emerge as an 18-year-old draftee ready to pitch in the minors. There’s the cost of coaches, trainers, and the hotel rooms in Beloit and Albuquerque that he stayed in when he was in the minors. And oh yeah, there’s the cost of the scouting network that found him and recommended him. None of those things is free.

Then there’s the reality of the situation. A lot of rookies, sophomores, and juniors just aren’t that good at playing baseball. Some are, and that’s wonderful for the teams that are lucky enough to have them, but the guys who have been around a while are there because they were good enough not to be jettisoned. These guys might be cheap, but the ones who are MVP caliber are the exceptions. Most of the time, you get what you pay for. Is that 23-year-old really a value when you add everything up?

Today, we’re going to do some back-of-the-envelope math to answer a question that’s important if we’re going to Mike Carp about a win costing $5 million (or $7 million). Compared to what? If cost-controlled players are such a bargain, how big a bargain are they?

Warning! Gory Mathematical Details Ahead!
Consider the 23-year-old rookie on the day of his major league debut. He didn’t just magically appear in the clubhouse, mind you. Yes, that’s the way that it works in video games, but in reality, the team whose uniform he now proudly sports may have made first contact with him seven years earlier. When he was 16, an area scout probably saw him and wrote him up. He’s standing here now, so it was probably a good report. During his senior year, a national cross-checker came to see him, and agreed with the initial assessment: this kid has major league potential. It’s just potential, mind you. At 18, he’s certainly not ready to face a Clayton Kershaw curveball, and maybe not even to face Clayton Kershaw the hitter. But with a few years’ worth of development, he might be.

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