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December 9, 2003

Prospectus Today

The Rules Have Changed

by Joe Sheehan

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Yes, I'm still alive.

As most of you know, I didn't write for Baseball Prospectus 2003. Having taken a year off, I apparently completely forgot what it was like to put together book chapters, and getting back on that horse has swallowed all my time since the postseason ended. Hopefully, you'll all enjoy the finished product, because a lot of work has gone into putting together our first book with a new publisher.

The good news is that I'm approaching the finish line, and will be back to writing regular columns soon. In fact, I'll be filing daily reports from the winter meetings in New Orleans, so look for those starting Friday.

Today, I want to focus on what happened Sunday, as the deadline for offering free agents arbitration passed with a lot of teams cutting ties to their big names. Two years ago, I wrote a column that lambasted a couple of teams which had neglected to offer arbitration to their free agents:

The decision to offer arbitration to a player eligible for free agency is one of the few bright-line tests of a baseball team's front-office acumen. The elements of the decision are fairly simple, yet nearly every year a handful of teams do things that border on the bizarre, that reflect a lack of preparation for the problem or a misunderstanding of the issues involved.

My first reaction to the news that Vladimir Guerrero, Gary Sheffield, Greg Maddux and others hadn't been offered arbitration was pretty much in line with the above. It seemed silly to decline even the option to continue to negotiate, and to forfeit the valuable draft picks that you get if the player signs elsewhere, as most free agents of this quality do when faced with current teams who show little interest in having them return.

The more I thought about it, though, the more I realized that the thought process from two years ago no longer applies. The premise behind offering arbitration is that either you'll lose the player and get draft picks, or you'll keep the player for a one-year contract. The latter has historically seemed like a good idea, because the problem with free agents is rarely the price, but the length of a commitment. Getting a good player back for one year at an arbitration salary used to seem like a good option.

These days, however, there's a very high probability that a player will make more, much more, by going to arbitration than he will on the market. There seems to be very little competition for the services of baseball players outside of a few select cities, and a lack of demand for labor drives prices down. Going to arbitration allows a player to compare himself to players with contracts signed before the current CBA was signed, contracts that bear little resemblance to what is currently available in the marketplace.

So the equation has changed. A team offering arbitration is much more likely to find that offer accepted, because arbitration is more likely to be a rational choice for the free agent. Not only does a team have less chance of garnering draft picks, it has a greater chance of ending up with a player who is overpaid relative to the market. That makes tendering the offer a riskier proposition, especially for teams that have decided, en masse, to reduce payroll.

Up until Sunday, I was fairly sure that we weren't seeing collusive action by the owners. I believed that there had been the proverbial market correction, with a recognition that the nominal "middle class" of baseball players was fungible, which is why we saw so many non-tenders last winter. Sunday, though, was an outright rejection of star players, which for the first time made me wonder.

I still don't think this is 1980s-style collusion. Free agents are being signed in some places, and certainly a number of teams are trying to win. It's more likely a culture change in which not competing for labor is considered the thing to do, and results in positive feedback, regardless of its baseball impact.

I've been thinking about this in terms of what MLB keeps trying to do in CBA negotiations, which is create an NFL-style structure in which the teams compete on the fields, but not so much in the labor market, with the effect of lower labor costs. (Or, in actuality, an industry cap on labor costs.)

MLB hasn't been able to get that kind of structure in its game, so many owners may be trying to create that structure in practice by not competing for labor, even if doing so has the short-term effect of hurting the individual clubs. The long-term effect might be to fracture the MLBPA by creating a system that enough players feel is detrimental to their needs to force the kinds of changes that: 1) protect the nominal "middle class" but 2) limit competition for labor and the overall cost of labor. This would be a huge win for MLB, enough to dwarf the short-term effect on the field and make the strategy the correct one.

Doug Pappas correctly points out that the revenue-sharing provisions of the new CBA reduce the marginal revenue of signing players, which would lead to lower salaries even in the absence of this culture change. I agree that that is the case, but I think we're seeing something more here, something that isn't just the logical reaction to new circumstances, but an overall approach designed to affect the level of investment in baseball players.

This is bad for baseball. It's bad for baseball players, but that's not the issue. It's bad for baseball when the financial interests are cleaved from the on-field interests, when a strategy that causes teams to intentionally become worse--by declining the option to further negotiate with their best players, by declining compensation for the loss of those players--is the correct one because it dovetails with an industry-wide effort to cap labor costs. Maybe it doesn't take all 30 teams, and maybe it doesn't have to involve capital-C collusion.

Individually, some of the decisions still border on the insane. The Braves declined to offer arbitration to Gary Sheffield arbitration, and Sheffield is pretty much already spending the money from his Yankee deal. The Expos declined to tender Vlad Guerrero, which was disappointing to me personally because I'd been saying all along that Guerrero would have accepted and stayed in Montreal for one more season, giving MLB another year to get its act together. That that outcome was untenable for MLB, that they were willing to make the Expos suffer even further for their long line of mistakes in handling the franchise, speaks volumes about how little the game cares for its ward.

Billy Beane, of course, happily made a play for the draft picks or the one-year deal, offering arbitration to Miguel Tejada and Keith Foulke. The pitchers on the market, for the most part, got offers: Bartolo Colon, Andy Pettitte, Kevin Millwood, which may reflect the perception that there will still be money for those players. (Colon has since been offered a four-year, $48 million deal by the Angels and is expected to sign it soon.)

As is often the case, many players were offered arbitration who you would imagine won't accept it, with the offer tendered as much to extend the negotiating period as anything else. That's why people like Pat Borders, Terry Mulholland, Mark Sweeney, and John Vander Wal can still go back to their teams, while Mike Cameron, Rafael Palmeiro, Javy Lopez, and Ivan Rodriguez will be moving on.

I'd imagine that the evaluation the last few days won't be complete until we see where the market for baseball players goes over the next year or two. For now, though, I'm comfortable saying that the rules by which we evaluate these decisions have changed, and that what was irrational two years ago makes good business--if not baseball--sense today.

--

  • The Mets' signing of Kazuo Matsui was something of a surprise to me in that the Mets have one of the better shortstop prospects in the game in Jose Reyes. The plan is to make Reyes a second baseman, which reduces his long-term value and increases his injury risk. Second basemen just don't develop the way other players do, and while Reyes may be the exception, I don't see why you intentionally reduce the value of the best prospect you've had in two decades.

    The signing makes the Mets better in the short term, and certainly makes economic sense. I doubt, however, that it will be enough to make them a playoff team in the next year or two. The team around the middle infield is old, bad and expensive. By the time Matsui's three-year deal is up, the Mets will have turned over the roster and installed much of the young talent currently in their system, such as David Wright, Justin Huber, Craig Brazell, and Scott Kazmir, as well as whatever of the many players acquired in trades in 2003, such as Victor Diaz, establish themselves. By that time, Matsui will be 32 and beginning his decline, leaving the Mets needing to fill the most critical position on the field and having burnt their best opportunity for filling it.

    I like Matsui. I've been calling him the better Matsui (as opposed to Hideki) for two years now, and I think he's going to be a Barry Larkin-caliber player on this side of the Pacific. I just don't think he's the right fit for the Mets, and the impact this signing will have on the team will be an overall negative in every way but on their balance sheet.

  • Setting aside the ridiculous MVP talk, why would the Twins, who have corner outfielders coming out of their ears and who are supposed to have budget restrictions, make a three-year commitment to a left fielder with no power? The Shannon Stewart contract was a terrible mistake for a team that has a perfectly good Stewart comp in Lew Ford and other corner outfield candidates such as Michael Cuddyer and Mike Restovich, all of whom will cost about $17 million less over three seasons.

    The Twins just commited $17 million to fixing a problem that didn't exist, and they still have OBP issues at four lineup slots. I don't know who is going to win the AL Central next season, but if I'm the Blue Jays, I'm trying like hell to get past the bouncer.

  • Bear with me for a second on this next part.

    Now that USC is #1 in both polls but #3 in the BCS, a popular pastime is bitching about how the computers ruined the process, same as in 2000.

    But the reason the computers coughed up that result is that the idiots behind the BCS came up with the stupid idea that the computers couldn't use margin of victory in their calculations, even though almost all (maybe all, I don't remember) of them had a well-crafted diminishing returns factor that mitigated against running up the score.

    So the humans can use margin of victory in their calculations, but the computers can't. If you give one group of anything better data, you get a better result. The computer systems have been intentionally hamstrung.

    I'm very angry about this. I'm sick and tired of things being blamed on "the computers" when the problem is the humans that make the rules for the computers.

    The computers don't start with a ranking in August and then simply go through the year modifying it. You think Miami of Ohio thinks the polls are fair? Boise State? The only difference between them and the three other one-loss teams is that they started the year unranked. I haven't verified this, but I think if you catgorize all teams according to number of losses, they will be ranked today in the same order they were in the preseason polls, with an adjustment for date of losses.

    So the polls aren't any less formulaic than the computers. "How good we thought you'd be" plus "how many times you lost" plus "when you lost" equal "ranking."

    If any of you talk college football with people, please try and hit these points, and maybe in a small way, the discussion will improve. If any of you know opinion makers for CFB, feel free to forward this to them.

    For the record, this isn't about USC not making the Sugar Bowl. While that is disappointing, and would be different if the computers were allowed to factor in margin of victory, my motivation here is to point out the stupidity of blaming said outcome on the computers. The process sucks; the outcome is just the natural result of a sucky process.

Back Friday...

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

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