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December 9, 2003
The Rules Have Changed
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:
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.