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March 6, 2014

Is the Market for MLB Front Office Employees Rational?

The Potential Case for Paying Non-Players

by Lewie Pollis

The following is an excerpt from the author’s senior thesis at Brown University. He will be presenting his research at the Society for American Baseball Research Analytics Conference on March 15. The full paper will be made available later this spring.

Anyone who’s read Moneyball knows the story. At the end of the 2002 season, Billy Beane and Paul DePodesta arranged to trade Beane to the Boston Red Sox in exchange for two minor-league players, including Kevin Youkilis. To most teams Youkilis was an unexceptional minor leaguer with an unathletic body and no noteworthy skills, and it is probably fair to say that few in the game outside of Boston and Oakland saw any promise in him. Youkilis ended up developing into a very good player and went on to thrive with the Red Sox for years, but it is striking that the cost of a GM with the ability to identify a hidden gem like Youkilis was two minor league players in whom most of the rest of the league saw little value.

Though Beane ultimately decided to stay in Oakland, the episode remains a fascinating illustration of how MLB franchises value the people who put their teams together relative to the players they acquire. Those inside the Athletics’ front office knew better than anyone how important Beane was to the organization, yet DePodesta agreed to receive a pair of unproven minor league players in exchange for the man who had built the entire operation. In other words, one of the game’s then-premier experts on inefficiencies in the market for players had no qualms about trading the goose for a single golden egg. According to Michael Lewis, Beane was fully aware of what was happening in the deal: “He could see only one way to exploit this grotesque market inefficiency: trade himself.”

Nine years later, Theo Epstein found himself in a similar situation. Faced with internal discord after the Red Sox suffered an historic collapse at the end of the 2011 season, Epstein left Boston to accept a job as President of Baseball Operations with the Chicago Cubs—thus raising the question of a top baseball executive’s value again. Some speculated that the Red Sox would demand Trey McNutt, the Cubs’ top prospect, in exchange for Epstein. However, they eventually settled for two less prestigious players, and at the time most analysts seemed to agree that Chicago needed not give up a top prospect in exchange for a non-player. Bradley Woodrum summed up the prevailing sentiment in the title of an analysis he wrote in the midst of the negotiations: “Trey McNutt for Theo Epstein: Eh, Maybe.”

This sentiment is difficult to reconcile with the facts that Epstein was generally regarded as one of the best general managers in the game and the Cubs were about to make him the highest-paid baseball operations executive in the history of the sport. Would not an elite talent evaluator be able to find and acquire several more players of McNutt’s caliber to replace the lost prospect? If the perception that Beane’s value was equal to Youkilis’ raises some questions, the implication that Epstein was worth less than McNutt is downright baffling.

Alternatively, one could express this apparent undervaluation in terms of dollars. I estimate the cost of a win purchased by signing a player through free agency to have been $7,032,099 for the 2013 season. Yet the highest-paid baseball operations executive in the game (Epstein) made just $3.7 million, implying that there is not a single non-uniformed MLB team employee who is worth more than about half a win to his or her team per season—clearly out of line with popular perceptions of how much of a difference a single executive can make. “GMs are just on a different scale,” Woodrum observes. But that such a phenomenon exists in the market does not mean that it represents rational behavior.

This potential market inefficiency could also include lower-ranking team employees. If teams are willing to pay $7 million per additional win, that should hold no matter where those wins come from. Consider an advance scout who sees that an opposing pitcher has a habit of tipping his pitches that no one else had noticed. If the scout’s team uses that knowledge to win a game that it would otherwise have lost, that observation is worth $7 million to his employer because its effect on the team’s win-loss record is equal to the boost it would expect to get from spending $7 million on a player.

However, that does not line up with how well team employees are paid. Entry-level front office positions are extremely competitive—millions of people have dreamed about working for an MLB team, and there are only 30 possible employers—and even qualified, well-educated professionals usually start out as interns making close to the minimum wage with no guarantee of future advancement. Every team’s hiring and salary structures are different, but Tom Tango estimates that junior front office executives generally make as little as half what they could get if they worked in another industry, and I would guess that it’s usually even lower.

Deconstructing the Market
The typical explanation for why wages are so low for front office jobs is that employees agree to take salary discounts because they receive substantial nonmonetary utility from working in baseball—or, in economic terms, that the perks of working in baseball (material or otherwise) shift the supply curve for front office labor to the left. Perhaps more importantly, anecdotally speaking the supply curve seems almost perfectly inelastic around the current equilibrium point; that jobs in baseball pay relatively poorly has not squelched the competitiveness of the application processes nor the zeal with which aspiring employees seek to break into the industry. MLB player agent Joshua Kusnick sums up the current state of the market well: “Teams always have the advantage when hiring, because so many people are willing to work for next to nothing just to get their foot in the door.”

But the rationality of this model is not a given. Rather, it hinges on three key assumptions that may not be true: that there are no meaningful differences in ability and value between prospective hires, that the impact of decreasing marginal returns is large enough to render labor demand generally inelastic, and that a potential hire’s willingness to take a salary cut to work in baseball is unrelated to how qualified he or she is for the job.

The most important assumption for explaining the rationality of the predominant model for the MLB non-player labor market is that of relative homogeneity across the population of prospective hires. As an illustration, Kusnick writes that a common occurrence for baseball operations employees is that, “At some point you price yourself out and end up getting replaced by people who are the same age you were when you started.” From the standpoint of a team this strategy makes sense only if the difference in value between the established employee and his or her replacements is smaller than the difference in their wages. “The supply of qualified candidates is so high that I’m not sure that throwing a lot of money at an established guy is actually going to bring you a significant upgrade,” Dave Cameron writes in support of this viewpoint.

Yet anecdotally speaking the assumption that prospective front office employees are generally interchangeable seems dubious. It would be difficult, for example, to read Moneyball without prior prejudices and not come away with the impression that certain key members of the 2002 Oakland Athletics’ baseball operations department were significantly better at their jobs than not just their counterparts with other teams but even some of their peers within the organization. (Granted, the gaps may have been wider over a decade ago.)

Even if this potential heterogeneity were concentrated in a small proportion of potential baseball operations employees, its presence should affect the way teams approach the labor market. Consider how teams think about players. In any given year there are hundreds of players who are plausible candidates to play outfield for an MLB team that season (ignoring the millions of people who are willing but unqualified). Looking at the vast majority of that population—say, after the best few dozen players—it matters very little whom among them a team promotes from the minors or acquires to fill an open outfield spot because the differences between their projected values are quite small.

But the market for outfielders is defined not by the majority of players whose values are roughly interchangeable but by the minority of exceptional outfielders who stand above the rest: that the New York Yankees could have signed any number of inferior free agents to play center field for close to the league minimum did not stop them from signing Jacoby Ellsbury to a $153 million contract this winter. It is unlikely that the best quantitative analyst or minor-league scout is worth as much to his or her team as an All-Star outfielder, but when teams spend several million dollars to win an extra game, even a very slight variation in skill among possible employees should lead to far greater competition in bidding for at least the best job candidates.

Relatedly, that teams do not take greater advantage of the inelastic supply of aspiring baseball operations employees makes sense only if the effect of diminishing marginal returns for front office personnel is so great that even the best unemployed candidate would be worth less to a team than what a minimum-wage internship would cost. This idea works with the assumption of value homogeneity to keep wages down and discourage competition for job candidates—when labor demand is nearly fixed, noncompetitive, and significantly lower than labor supply, the employers have all the leverage in hiring negotiations.

However, this assumption is questionable as well. Considering again the enormous sums of money that teams are willing to spend to make themselves marginally better, if the next hire provides even a fraction of a win’s worth of value each year while making standard market wages, he or she would provide his or her employer with a phenomenal return on investment. An additional employee would have to be almost literally worthless not to be worth his or her salary. Further, this idea ignores the potential agglomeration effects of bringing multiple insightful baseball minds together, which would mitigate the impact of the decreasing marginal utility of additional hires.

Finally, the prevailing model also assumes that those who are willing to accept significantly lower wages to work in baseball are just as qualified as the would-be applicants for whom substantially lower salaries are dealbreakers (or at least that the difference would not be worth what it would cost to hire applicants with higher income demands). This assumption is more believable than the previous two: presumably both being willing to take a large pay cut to work for an MLB team and being sufficiently knowledgeable about baseball to be a top candidate in a highly competitive job market require a strong passion for the game, so there is probably a correlation between a prospective hire’s qualifications for a baseball operations job and the nonmonetary utility he or she would get from it.

However, if the job in question requires skills that are not specific to baseball operations work, the stronger a candidate is in terms of his or her broadly applicable credentials, the better the job he or she would be able to obtain in another industry and the higher the opportunity cost he or she would face by working in baseball. The truthfulness of this assumption thus likely varies based on how marketable the requisite skills for the front office job in question would be outside of baseball—the difference between an elite hire and an ordinary candidate’s willingness to work in baseball for less money might be relatively small among scouts but would probably be quite large among quantitative analysts.

If instead there is substantial variation in value among baseball operations personnel, our conception of the labor market should be radically different. Each prospective employee should be seen as constituting his or her own market with a perfectly inelastic supply curve kinked from not working in baseball to working in baseball at his or her industry reservation wage. Every organization would be represented by its own discrete demand curve, which would be perfectly inelastic and kinked from hiring to not hiring at a wage equal to how much value the team thinks he or she would add; we would expect to see heterogeneity in the demand curves based on each team’s needs and differing estimates of how qualified the prospective employee is. If at least one organization is willing to pay more than the individual’s industry reservation wage, he or she would take a job with the team that offers the best combination of salary and non-material workplace perks. If not, he or she would take a job in another field.

Irrational Rationales
In our discussions on the subject and his attempts to play devil’s advocate, Matt Swartz has offered three good theories for why the inelastic-supply model could be pervasive throughout the league even if it is irrational, though from a team’s perspective none is a rational explanation for the lack of demand-side competitiveness in the non-player labor market if there exists substantial heterogeneity in value among prospective hires. Two of Swartz’ ideas seem like plausible descriptions of how the people who run MLB teams think: Teams fear internal capacity constraints that could render hiring additional analysts unhelpful beyond basic decreasing marginal returns (i.e., the difficulty of coordinating projects among more employees and the possibility of confusing decision-makers with too many opinions and perspectives), and they lack the means to accurately estimate the value of a prospective hire who is trying to break into the industry or whose previous work for other teams was confidential. However, capacity constraints would not be a problem in the long run if teams were willing to restructure their baseball operations departments to accommodate more employees—consider how teams manage their large staffs of scouts—and in the short term the issues could be minimized through teleworking and establishing clear chains of command for new hires.

The uncertainty argument also fails to hold up under scrutiny. No employer in any industry knows exactly how much a job applicant is worth before he or she is hired; if teams (or any firms) are unable to discern substantial differences between job applicants, how do they ever decide whom to hire? Even within baseball this problem is not unique to the front office. Though their work is admittedly more visible than baseball operations employees’, projecting players’ future performances is far from a perfect science, and the physical nature of a player’s job means he is far more likely to be incapacitated due to an injury or other physical issue than a member of the front office staff. In addition, many aspiring baseball operations employees have active online presences in the baseball blogosphere, so teams can get a decent idea of an applicant’s ability by reading his or her record of published work. And the uncertainty argument would not have made sense for someone like Beane or Epstein, who at the times of their respective self-trade negotiations were widely considered to be among the best general managers in baseball.

Swartz’ third explanation makes more sense: Teams may see the choice of whether or not to bid up prices in the non-player labor market at any given time as part of a series of repeated cooperative games in which MLB teams are all better off not upsetting the status quo. “If say the Astros decide they are going to pay a lot more than what everyone else is paying but everyone notices and starts bidding up analysts, they are worse off than when they started,” Swartz writes. Yet just as Beane’s Athletics famously benefitted from taking advantage of the undervalued market for plate discipline before the rest of the league caught on, if the popular conception of the non-player labor market is incorrect, the first team that begins bidding more than the market price for undervalued front office personnel will end up having gained a relative advantage over its 29 competitors—especially if the organization can negotiate the inclusions of non-compete agreements in its new hires’ contracts.

More importantly, this theory mistakenly assumes the existence of either a leaguewide openness to change or a general awareness of the market inefficiency that seem uncharacteristic of the industry at large. That not every team has seriously integrated sabermetric analysis into its player evaluations and decision-making process more than a decade after the publication of Moneyball speaks to baseball’s slowness to conform to new ideas, and if teams thought they were getting such phenomenal returns on investment from their non-player employees, they would expand their baseball operations departments substantially to take advantage of this vast supply of undervalued labor. Finally, the rationality of any one team’s preference to maintain the status quo is contingent upon the assumption that none of the other 29 organizations will ever challenge it either. If a market correction of this potential inefficiency is not wholly evitable, a team’s best response is to be the first to take advantage of it.

Why This Matters
As an unrealistic but theoretically possible example of this potential market inefficiency, consider a team that is deciding whether to spend $7 million on one or more players in a free agent market similar to the 2013 incarnation or on its front office. The expected returns from spending $7 million on free agent players would be one win. But if those funds were put toward the front office, the team could offer $7 million to any general manager (or any other non-uniformed baseball operations employee) in the game and have it represent at least double his current salary. If there is indeed significant heterogeneity in skill among general managers, one would think that adding one of the brightest baseball minds in the world would lead to more than one win on an annual basis.

Or perhaps the team could hire the 100 best available or aspiring front office employees at the well-above-market salary of $70,000 per year. Would the collective fruits of their observations, research, and manpower be worth more than one win over the course of a 162-game season? If so, that represents an important inefficiency in the baseball labor market: The cost of a win is cheaper when it comes from an executive than when it comes from a player. That would mean that an extra dollar is better spent on the front office than on the field itself.

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

Related Content:  Front Offices,  Market Inefficiencies

41 comments have been left for this article. (Click to hide comments)

BP Comment Quick Links

garciamckinley

"that jobs in baseball pay relatively poorly has not squelched the competitiveness of the application processes nor the zeal with which aspiring employees seek to break into the industry. MLB player agent Joshua Kusnick sums up the current state of the market well: “Teams always have the advantage when hiring, because so many people are willing to work for next to nothing just to get their foot in the door.”"

The baseball job market is exactly like academia's then.

Mar 06, 2014 05:40 AM
rating: 1
 
jnossal

“At some point you price yourself out and end up getting replaced by people who are the same age you were when you started.”

Not just academia, that describes the job market in general. Welcome to reality, gentlemen.

Mar 06, 2014 07:35 AM
rating: 1
 
jdeich

What is your estimate of the variance of general manager performance? It's not a perfect process, and you'd have to do it well after the events happened (to know if they succeeded) but you could pool results from drafts, trades, free agent signings, etc. It should be possible to hindcast who the best general managers of, say, 10-15 years ago were.

From there, a second-level analysis that looks for leading indicators of GM excellence (or its opposite) might be fruitful. This will be challenging (you're dealing with N=30 at best, and significant turnover), but you might get some broad strokes. It seems like a wide-open field of research, but I might be simply unaware of the prior art here.

Mar 06, 2014 07:08 AM
rating: 1
 
Lewie Pollis

I can't reveal that yet! I'll be debuting the rest of my research at SABR Analytics next week, and my full research will be available in the next couple months.

Mar 06, 2014 09:20 AM
rating: 0
 
drmorris75

MW/M$ ... No?

Mar 06, 2014 18:02 PM
rating: -1
 
cbf1985

Great article. I think the major driver for "below wins added" wages is the third one Swartz mentions - the "cooperative" (i.e. monopoly) nature of the MLB keeping wages down. Interestingly, the underpaying of front office employees expands beyond baseball, it is true in all professional sports.

Although one would think that the presence of other professional sports leagues would help increase wages, especially for entry level employees where the skills required are more quantitative/thought process based, and not sport specific (i.e. a good entry level employee for a baseball team would probably be good at a similar job in the NBA. GMs, not so much). Especially for someone who was interested in "working in sports," they might be relatively indifferent between working for the MLB or NBA which should increase their employment options and consequently wages. If you expand the potential labor market to all sports, in theory this should help to break the monopoly and improve wages, but that doesn't seem to be happening.

Finally, its interesting to note that while front office employees are willing to take major discounts to work in the game, the same is not true of owners (see, Bud Selig making +$20mn per year). Sports owners always talk about earning a fair return on their investment - you never hear any say "breaking even is fine because of the non-monetary benefits I receive from owning a team." So the wage pressure happens at every level, except for the people who get to make the rules. But that is a whole other issue....



Mar 06, 2014 07:13 AM
rating: 3
 
Lewie Pollis

Interesting point about the competition between leagues, though anecdotally speaking I'm not sure how true it is. The general sense I've gotten from the people I know in/who want to work in the industry is that they're much more passionate about baseball than about any other sports. That's not to say that they'd be unwilling to go to the NBA or NFL if it were a good opportunity, but I'm not sure it's fair to say that the nonmonetary utility an average prospective employee would get from working in baseball would be the same in any other sports.

Mar 06, 2014 09:23 AM
rating: 0
 
Biesterfield

Do you have an explanation as to why or why not this phenomenon exists in other professions? I find it curious that this pay structure also exists in say news reporting or acting, but not in say banking and finance. In either case, there is high supply of labor and top positions (GM for a baseball club) are very highly paid, but entry level pay differs drastically in the different fields. Do you think it just has to do with the demand of labor - meaning that there are finite jobs in baseball and media but maybe not necessarily so in finance. Or perhaps that there are very little non-monetary benefits of working in finance.

Mar 06, 2014 07:25 AM
rating: 0
 
jnossal

Pretty simple.

Every labor pool consists of a small number of elite performers and a large number of fungible candidates.

The elite performers in any industry will get paid top dollar (if the industry structure is rational), everyone else will be clustered in a relatively narrow salary band.

See Freakonomics for a discussion of this phenomenon with respect to the illegal drug trade.

It is simple supply and demand. If you want to make a high salary, you have to own skills that are rare and highly sought after. Anyone can drive a truck, fewer can design one, fewer still can profitably manage a fleet of 500 trucks in 30 states along with the people required to maintain, drive and fill them.

Mar 06, 2014 08:10 AM
rating: 0
 
Biesterfield

Yes but that doesn't answer my question.

Mar 06, 2014 08:19 AM
rating: 1
 
Lewie Pollis

The key difference between MLB and these other industries is that, if there is significant heterogeneity in value in potential hires, the people at the top in baseball aren't being paid commensurate with their values either.

Say the best GM in baseball, whoever he is, is worth five wins per year (I'm making this number up) more than your team's current GM. If a win is worth $7MM to a team, that GM would be worth $35MM to your team a year — i.e., 10 times more than the highest-paid GM is making. If you offered him $10MM a year you'd be almost tripling the salary of the highest-paid GM in the game, but you'd still be making a 350% ROI from hiring him.

Mar 06, 2014 09:29 AM
rating: 0
 
jnossal

Isn't that only true if 5-win GMs are just as rare as 5-win players?

Of course, if every team has a 5-win GM, then aren't they all replacement level, or essentially zero-win GMs relative to the industry?

And if there a 100 guys without GM jobs who could step in and perform just as well as the 30 employed GMs, then a $5 million salary is just as ridiculous as a $35 million salary.

I suspect two factors at work, first the pool of qualified candidates among FOT is much deeper than among players (almost certain) and second, the difficulty in discriminating between a 2- and 5-win GM is so difficult that it is probable they would be regarded as equivalent in skill and deserving of the same salary.

Mar 06, 2014 11:18 AM
rating: 0
 
Lewie Pollis

Right. Hence why I specifically said that the five-win difference represented the best GM's advantage over the team's current GM. In this case, the best GM was worth five wins above replacement to our team. I'm not making any claims about what the universal replacement level would be or how many candidates there would be in between the best GM and this team's current GM. The point is that, if the best GM is worth 5 WAR, you should be willing to pay up to $35MM/year to hire him. If your replacement level is higher than that, as in your hypothetical, he wouldn't be worth five wins.

Mar 06, 2014 11:38 AM
rating: 0
 
canada

I get where you are coming from but I think, the current inability to measure GM's in WAR aside, you can't just equate the $ value of win from a player to the $ value of a win for a GM. I think you have to reflect on two things:

1) Scarcity: There are far more individuals out there who are capable of being a major league GM than a major league baseball player, purely from a physical talent standpoint. Even if you look on an intellect level, with the right training and talent, let's say any of the top 5% IQ individuals in America could probably be a competent GM. That's a theoretically pool of 15,000,000 people. There are far, far less who have the physical talent to play major league baseball

2) Risk: Baseball players are compensated, in part, for that fact that they risk suffering a career ending injury that will greatly reduce their earning power in the future. Outside of senility, debilitating mental illness or a brain injury, front office staff don't have that same level of risk. You could work in a front office from the time you are 20 to the time you are 70. You definitely cannot say that about a ballplayer


Mar 06, 2014 12:11 PM
rating: 0
 
Lewie Pollis

Those are both good points, but you're essentially restating (in a more nuanced way) the assumption that FOT job candidates are homogeneous.

Let's simplify matters by just thinking about GMs. Are the 30 GMs who are currently running MLB teams a reasonable approximation of the current 30 best potential candidates to be GMs? I say yes. I don't think that whoever the worst GM is is better than whoever the best potential GM who is not currently running a team is, but teams presumably do, and the fact that whoever the worst GM is still has a job reflects his team's implicit belief that he is better than whoever would replace him, and despite the fox-guarding-the-henhouse effect teams are probably in better positions to evaluate their GMs than we are.

Anyway, let's assume that teams are somewhat close to rational in their GM hiring decisions and that the current group of 30 is thus close to the best 30 candidates. If the effect of the high supply is that large, there shouldn't be much homogeneity among that group. But is that the case? Think about whoever you think the best GM in the game is and whoever you think the worst GM in the game is. Are you saying you wouldn't care which of the two runs your favorite team?

To your second argument, again, that makes sense, but only if the market is driven more by supply than by demand, which in turn makes sense only if prospective hires are roughly interchangeable.

A win is a win no matter where it comes from, and it's just as valuable coming from a FOT as from a player.

Mar 06, 2014 12:30 PM
rating: 0
 
misterjohnny
(925)

It exists in airline pilots. Those working for regional airlines get paid very low salaries.

Mar 06, 2014 09:56 AM
rating: 0
 
jnossal

Face it: most of us are replacement level.

Mar 06, 2014 07:36 AM
rating: 6
 
Luke in MN

I just thing you are so, so, so wrong about the uncertainty argument (So wrong!). The huge difference between baseball players and the vast majority of other jobs in existence, including front-office employees, is that we can isolate and quantify with a very high degree of precision how much more a baseball player has contributed than a replacement-level guy. In fact, I suspect it's this difference that makes baseball interesting to a lot of BP's readers.

Please, by all means, go ahead and try to figure out projected WARs for front-office types. And after you do that, for the sake of the economy at large, create a similar value-above-replacement stat for lawyers, doctors, CEOs, engineers, computer programmers, mechanics, etc., etc., etc. That would be very useful!

Mar 06, 2014 08:26 AM
rating: 5
 
Richie

This; x 1,000,000.

Mar 06, 2014 09:03 AM
rating: 0
 
Lewie Pollis

I'm not saying that uncertainty isn't a factor. I'm saying that it doesn't make sense that it should keep wages down in this particular industry when it doesn't in any other line of work.

Maybe teams don't know the exact scale of, say, how many more wins the best GM would get them compared to the worst GM. But if you really think about it you could probably come up with an estimate that makes some sense to you. A hand-waving "we'll never know for sure so it's not worth considering it any further" dismissal closes the door to improving our understanding the issue at all.

Also, I do have a model for estimating what the variance in individual skill is worth at some level of the front office. I'll be debuting it at SABR Analytics next week and explaining it in fuller detail when my full thesis is made available later this spring.

Mar 06, 2014 09:19 AM
rating: 1
 
Luke in MN

This uncertainty definitely does keep wages down in other lines of work. It's everywhere.

The reason smart, highly educated people in baseball are making less than similarly smart, highly educated people elsewhere is because "replacement level" is high and it's hard to tell who can beat that level reliably (and "reliably" is a huge part of it--someone might, e.g., come up with one super-clever, super-valuable Moneyball inefficiency, but does that mean that person can keep pulling those rabbits out of the hat?). I mean, there's a whole army of baseball nerds who do front-office-type analysis JUST FOR FUN! Cuz it IS fun, it's baseball. PERK!

I'm very interested in your model though. It's an interesting question and maybe you can prove me wrong.

Mar 06, 2014 13:17 PM
rating: 0
 
Lewie Pollis

I don't claim to be able to put a reliable concrete dollar value on how much any individual is worth, but I'm confident enough from my findings that a dollar spent on a top FOT will go further than a dollar spent on players. Sorry I can't be more specific than that yet!

In a vague sense I guess what I'd say is: I'll buy that the differences between prospective hires are often subtle, but in a game where a win is worth millions of dollars even a very slight improvement is worth a ton of money.

Mar 06, 2014 13:32 PM
rating: 0
 
philly

It will be interesting to see what valuations you come up with for established GMs like Beane and Epstein. But that retrospective study may or may not be informative to the decision to hire a new GM without a track record.

I'm more interested to hear how you would have valued Rick Hahn before he took over in Chicago and Michael Hill in Miami.

Better yet, what would your model say about Epstein in Nov of 2003 or Beane himself in Oct 1997?

Mar 06, 2014 13:51 PM
rating: 0
 
Shkspr

News Flash: High profile launching ground for aspiring front office employees advocates hiring aspiring front office employees en masse at higher-than-market salaries.

Mar 06, 2014 09:11 AM
rating: 10
 
Shkspr

Gently posted with affection, of course.

Mar 06, 2014 09:12 AM
rating: 1
 
BP staff member Russell A. Carleton
BP staff

Don't worry. The irony isn't lost on us either.

Mar 06, 2014 13:04 PM
 
Matthew W

Watch football? QED.

They've figured it out. It's why front office moves are bigger news than player news. The salaries represent this as well.

Mar 06, 2014 09:50 AM
rating: 0
 
therealn0d

Football doesn't have the kind of guaranteed contracts and arbitration system as baseball. Baseball contracts are much less fluid.

What I think is missing from this article is the (more or less) rigid nature of budgeting for player expenditures. You want to spend more on FOT? You have less for player payroll. It boils down to arguing that either there should be a bigger pie or that the pie should be split differently. I don't think the pie is going to get any bigger, not to the extent that FOT are going to get substantial raises.

At any rate, the real problem is that being really very smart at building teams gets squashed by the ability of certain teams to skew the market for wins. At that point, being the smartest GM boils down to a matter of need, as you are probably running a small budget team, in which case paying the execs more money is self-defeating.

Mar 06, 2014 10:24 AM
rating: 2
 
Lewie Pollis

Even if the money is a zero-sum game and an extra dollar spent on FOTs means one less dollar for players, if a dollar spent on an FOT leads to more wins than a dollar spent on a player, then if there is substantial heterogeneity in value among FOTs — and in this excerpt all I'm doing is speculating — even if the pie can't get any bigger the rational move is to try to hire the best FOTs.

Mar 06, 2014 10:31 AM
rating: 0
 
therealn0d

Of course, and the rational move is to pay them less than market value. They don't have the bargaining power. It's a hard position to win...the FOTs are at least as valuable as let's say, an average player? I look forward to seeing the argument.

Mar 06, 2014 11:59 AM
rating: 1
 
Lewie Pollis

As long as they can be purchased for less than market value, yes. But that doesn't mean they shouldn't bid up the price in the meantime.

Imagine that the best scout in baseball is worth one win above a replacement-level scout, so according to my estimates he provided his team with $7,032,099 in value last year. Say right now he makes $50,000 a year. Of course you don't immediately offer him a $7MM contract, but you should immediately offer him a raise large enough to hire him away.

Mar 06, 2014 12:05 PM
rating: 0
 
jdeich

Exactly. A rational opponent would offer that scout $80K and cover his moving expenses. A rational team would then counter-offer $100K and a personal assistant. Another rational opponent would then come along, and this spiral should continue until that scout is still the "best buy" on the market, ~$7M in total benefits annually.

Unlike on-field talent, that +1 win/year might come from a scouting department, and you might split that $7M over 12 top people to get +1 win every year. But look at any MLB draft with enough time for 20/20 hindsight.

10 years ago: The Padres picked Matt Bush first, passing over some guy named Justin Verlander. Jered Weaver went 12th. Dustin Pedroia went 65th. Ben Zobrist went 184th. The system is highly imperfect, and there is a lot of room for a better front office to generate an advantage.

Heck, someone deserves credit for "Well, here's the 439th pick. My report says that this Will Venable kid looks promising. Let Justin Nelson fall to 440th."

It doesn't take many decisions like that to provide millions of dollars of value. It's just that the successes and mistakes are largely invisible at the moment they're made, unlike a bad free-agent signing.

Now, how you structure that offer is debatable, but as a start I'd recommend: Every time a "homegrown" player (defined in some detail) plays in X MLB games (or Y appearances/IP for pitchers), $Z goes into a kitty, and the team divides it systematically among the first scout to write about him, the person who made the pick, his minor league coaches, etc. For sufficently large values of Z, that organization would draw in top talent.

Mar 06, 2014 13:20 PM
rating: 0
 
Dodger300

It's not just a zero-sum game in regards to money, but also a zero sum game in regards to wins.

If a team wins ninety games, and you want to credit the general manager with a win, you can't just increase the team's total to 91. You have to subtract a win from the players on the field.

I can't seem to get my mind around how one could accomplish that.

And if the very same players that the GM put on the field are now only credited with 89 wins, that is one less for the team he constructed. Which would seem to negate the very win he was credited for adding.

It seems like crediting the front office with a win is something of a Catch-22. An endless loop of addition and subtraction. A math problem that gives me a headache just thinking about how to provide the teacher with a proof for my work.

I must be looking at this all wrong. Please explain the error of my ways to me...

Mar 07, 2014 07:25 AM
rating: 4
 
Dodger300

Bingo, you nailed it!

Ownership isn't going to voluntarily pony up an extra $7 million to pay the GM for that extra win, figuring he already has paid for it through the players' payroll.

And the players are not going to pass a baseball hat amongst themselves to collect donations and give $7 million to the GM for the win that he earned, not them.

Mar 07, 2014 05:11 AM
rating: 0
 
eliyahu

I think that a lot of the explanations cited by Ben Lindbergh in his article on GMs at Grantland can be used to explain why the highest performing GMs don't get paid more.

As to Lewie's point about why Beane fetched so little 13 years ago, it could be because the market then had no real appreciation for Beane's skills. (Also, in order to hire a GM, one would need to have a vacancy or create one, which severely limits the supply of positions at a given time.)

Mar 06, 2014 11:15 AM
rating: 0
 
AciDjAzz

Except if they knew this prospective hire would fetch them, say, 5 more wins then the current guy they have at the moment, I guarantee you teams would be "creating a vacancy" very quickly.

Mar 06, 2014 20:25 PM
rating: 0
 
Tony B

Hey Lewie, nice work. Look forward to reading your thesis.

Did you look at similar industries (arts, media, etc.) and what I assume is some supply of academic literature related to those?

Is the difference between those persistently low-paying jobs and the ones in baseball predicated on your model, which (I assume) shows the bountiful benefits that FO staff can provide across levels of seniority?

Mar 06, 2014 13:37 PM
rating: 1
 
drmorris75

I work in the tech/startup space, which is maybe why I'm sympathetic to the idea that a team should invest $1M to hire ten really good/qualified/hungry front-office aspirants (at $100k salaries, plus a bit of overhead), co-locate them in an open floor plan, and let them work. If this "baseball startup" produces a single idea that's measurably worth a single win, you've made a 7x return on your investment.

Mar 06, 2014 18:12 PM
rating: 2
 
AciDjAzz

Great article, look forward to hearing what else you have on this topic after the SABR conference.

I've always wondered this as well, and pointed out to anyone who would listen that teams aren't capitalizing on this inefficiency in the market. Glad someone way smarter than me took the time to write about it haha.

Mar 06, 2014 20:32 PM
rating: 0
 
Nathan Aderhold

Good stuff, Lewie. Really looking forward to reading what conclusion you were able to draw after doing all the gory math.

I am woefully ignorant when it comes to economic principles, so I've got nothing to offer there, but it seems to me from a practical standpoint that FOT wages have dragged considerably behind players' because FOT personnel don't have the MLBPA in there corner. ~$7MM/win never exists without free agency and the perennial push to up the major-league minimum.

Mar 08, 2014 09:21 AM
rating: 0
 
cbernal4

Excellent article...absolutely loved reading it and the deep research behind it. I really enjoyed the parallel structure where you likened WAR on the field to WAR in the front office.

I don't think anyone is advocating for Wall Street salaries, but it would be absolutely fascinating to see a team think completely outside of the box on this and to see the potential effects it could have over a 3-6 year horizon. Well done!

Apr 10, 2014 20:42 PM
rating: 0
 
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