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December 9, 2016

Baseball Therapy

The New CBA, By The Numbers

by Russell A. Carleton


There will be baseball next year!

Major League Baseball is now in its third decade without a work stoppage, probably because they saw how well the last one went over. Like any high school students working on a group project, the process to get to the agreement that brought about peace was a little messy and they waited until the last minute, but the result was a guarantee that there will be an actual season of baseball next year. And c’mon, it has literally been a month since the Cubs won the World Series. We can’t stop now.

Now that we know what the new CBA brings us, it’s time to take a look at the changes that were made, by the numbers.

Warning! Gory Mathematical Details Ahead!

(Quotes in italics are from the MLB press release.)

***

Five year contract

Well, at least MLB is confident that the apocalypse is not nigh and that the United States (and Toronto) will still be “a thing” in 2021.

***

Beginning in 2018, the regular season will be expanded to provide four additional off-days for players. Players will continue to be credited with a full year of service for accruing 172 service days over 187 days, rather than 183.

There’s a lot in these two little sentences. First, the calendar. Over the past few years, MLB has started its season with a nationally televised Sunday game, and then had 26 weeks (26 x 7 = 182, plus 1 is 183) of games with the season ending on a Sunday. That means if you weren’t on one of the two teams playing on ESPN, one of your “days off” was that Opening Night, while your season proper started on Monday. The season might be expanding by four days, but we don’t know in which direction.

In 2018, the logical place to start the season under the old system would be Sunday, April 1, with the 27th Sunday falling on September 30. MLB could move Opening Day back to Wednesday, March 28 or move the end of the season to Thursday, October 4, which could put World Series games in early November. (Then again, this year’s Game 7 was held on November 2.) The weather implications, as Mike Trout could no doubt fill us in on, are fairly obvious, but it will be interesting to see which way the schedule goes.

It’s hard for teams to sell tickets to games in April and early May. It’s usually not warm. Most cities see more rain during those times (and it’s getting wetter!). The kids aren’t out of school yet. It’s the beginning of the season, so no one has had time to fall in love with their local team. Despite all of that, teams might be getting more of those dates to fill. Or baseball could push the October part of the season out a little farther, which suffers from the same weather and school-related issues as March/April. The advantage to having those extra games be in October is that some of them will have pennant implications, and those are easier to sell tickets to.

On the field, four extra days off will probably mean some marginal effects. Rested hitters do hit better, but obviously, the pitchers that they face off against are going to get the same rest. One thing to watch is whether teams, with a few more days off--meaning fewer times that they have to actually play on five separate days--skip over the fifth starter more often. Why give a start to a guy who’s fringy at best when you have a perfectly well-rested ace over there? So, one marginal effect of the increased number of off days is probably a slight bit of downward pressure on run-scoring.

Also, the issue about service time accrual. Remember when the Cubs kept Kris Bryant down at Triple-A for the beginning of the 2015 season, until the 12th day? That way he would finish the season with 171 days on the MLB roster and it would delay his clock for a year? Sounds like teams pulling that trick (and it seems that trick has been left intact) will have to wait another four days.

***

Additional restrictions on start times of games on getaway days so that players will arrive in their next city at an earlier time.

If a team has a game scheduled for a Thursday, it’s usually the back end of a Tues-Wed-Thurs three-game set. (Occasionally, it’s the front end of a four-game weekend series.) In 2015, there were 253 games scheduled for a Thursday. Nearly 40 percent of them had daytime starts, which was just short of the percentage of Saturday games played underneath the sun. (Sunday remains the king of day baseball, with more than 90 percent of games.)

My guess is that players hated finishing games at 10:00 pm, flying to the next city, and getting in to the hotel at 3:00 am local time. So, hello Thursday noon games!

***

Home-field advantage in the World Series will be awarded to the Club with the higher winning percentage in the Championship Season, rather than based on the outcome of the All-Star Game.

The "Championship Season"? I’ve never heard it called that. (They mean The Regular Season.)

I’m personally not crazy about the idea of using regular season---sorry, Championship Season--records to determine home field. I suppose it’s not the worst thing in the world, but we have to ask whether records in the American League and National League are really comparable. Suppose one league had a bunch of teams in it that were ... what’s the polite term for tanking? Racking up 95-plus wins would be easier when the same team might win 90-92 games in the other league. We naturally assume that the AL and NL are comparable environments, but the truth is that they can vary. And so we might be giving home field not to the strongest team but to the one who accidentally ended up in the weaker league.

I appreciate that they didn’t use interleague records, which would structurally favor the American League, but if we’re going to award home field (which can tip the World Series more significantly than most people realize) on the basis of something that’s sort of arbitrary, why not just go back to alternating years?

***

All players on the Active Roster of the winning team shall share equally in a $640,000 bonus.

The roster for the All Star Game shall be 32 players, with 20 position players and 12 pitchers.

This is actually a reduction in the number of All-Stars from 34 to 32. It’s not clear whether everyone thought that the rosters were just getting too unwieldy or whether there was some other factor involved. And now, everyone on the winning team gets $20,000. Seems like a bribe to cut down on the constant stream of guys who are named to the team, but who suddenly get itchy fingernails disease and have to go see a specialist in Cabo.

Also, repeat after me: There is going to be another tie.

***

All Clubs will establish a Player/Management Advisory Council that will work with a full-time chef and registered dietician to improve clubhouse nutrition.

All Clubs must provide access, on a voluntary basis, to a sports psychologist.

The chef jobs already exist on some teams. Apparently they were popular enough that the players requested owners fund one for every team. Providing psychological services is another thing that some teams have offered in the past. (In theory, all teams were supposed to have one on call, but it didn’t necessarily have to be on-site.) One in four adults in the United States has a diagnosable mental health problem and baseball players are not immune.

I don’t know who came up with this idea, but I applaud it. We’ve reached a point where considering the people who play the game as humans and tending to their human needs, not just their baseball needs, is worthy of being put into a CBA.

***

The Competitive Balance Tax Thresholds will be $195 million in 2017, $197 million in 2018, $206 million in 2019, $208 million in 2020, and $210 million in 2021.

The base Competitive Balance Tax rates will be 20% for first-time CBT Payors, 30% for second-time CBT Payors, and 50% for third- or more time Payors.

Additional surtaxes will be applied per the schedule below

We don’t know what everyone’s Opening Day payroll will be for 2017, but in 2016, there were four teams whose Opening Day payroll was above the $197 million mark (Dodgers, Yankees, Red Sox, Tigers). The CBT has obviously not stopped teams from running high payrolls. I think the idea of the CBT has always been to stop the big market teams--well, let’s just say it, the Yankees, Red Sox, and Dodgers--from signing all of the good players.

In fact, last year, we might have seen the first victim of the CBT in Zack Greinke. There were rumors that he was entertaining an offer to return to the Dodgers with a contract that would have been similar to what he eventually got in Arizona, but for the Dodgers, the luxury tax would have meant both paying Greinke’s salary and the tax. The Diamondbacks, who were not facing the luxury tax, ended up with Greinke. He eventually got $34 million per year, but with the luxury tax the net effect to the Dodgers for signing him would have been $51 million per year (because the Dodgers have been up above the limit for the past few years.)

Paying $51 million per year for one player is a lot of money, but I’m not convinced teams would stop at that traffic light. Maybe Greinke wasn’t worth it, but suppose Mike Trout were on the market. In the past, I’ve written about salary compression at the top of the talent pool. We generally speak of players being worth $7-8 million per win on the free agent market, but we don’t see salaries that are in the $50 million range, even though a 6-7 win player would, theoretically, be worth that much.

If a seven-win player hit the market, and was worth $56 million based on an $8-million-per-win thumbnail, a team might still sign him to a contract like Greinke’s, tell him correctly that he is now “the highest paid player in the sport,” pay an effective rate of $56 million, and essentially just be paying market rate for wins. Since those teams are likely to have the actual physical money to do it, why not? The effect there is basically that teams in the luxury bracket don’t get to benefit as much from the salary compression.

But the CBA goes one step further. There are additional surtaxes to be paid, first at 12 percent for payroll between $20 and $40 million over the line, and a whopping 45 percent tax on marginal dollars that are spent over the $40 million line. Eventually, there comes a point where the marginal effect of signing a player, once you hit a certain threshold, is to double his sticker price. It’s hard to think of a player where that math works and you’re still just paying market rate for wins.

***

Beginning in 2018, Clubs with a payroll $40 million or more above the Tax Threshold shall have their highest selection in the next Rule 4 Draft moved back 10 places, except that the top six selections will be protected and those Clubs will have their 2nd highest selection moved back 10 places.

Imagine being a team that has a $240 million payroll ... and finishes in the bottom six.

This is an interesting wrinkle. Presumably, the offending team has their draft bonus pool moved back 10 spaces as well. This is a nod to the fact that if you really want to punish a team, the way to do so is through the amateur talent pipeline. Seems that baseball is realizing draft picks are very, very valuable. In addition to having to pay taxes such that the cost of a free agent becomes essentially double what it would otherwise be, a team is penalized in its draft bonus pool. Again, we see that the penalty kicks in at $40 million above the tax threshold.

For a long time, baseball has resisted having a salary cap. The NFL, NBA, and NHL all have one, but MLB has not. And technically, they still don’t. But I don’t think it’s a coincidence that all of these penalties phase in at the same point. A team could run a payroll of $300 million if it wanted to, so this isn’t a salary cap in the sense that the line must be drawn here! This far, no farther! But the CBA has also set up a system in which spending beyond that doesn’t make logical sense.

But I think that we need to write this one in the baby book. They won’t call it that, but baseball ever-so-unofficially just set its first salary cap. If this is meant to be an unofficial cap, it’s worth pointing out that the cap has some (small) yearly cost-of-living adjustments built into it, and the “number” ($235 million) is one that really only the Dodgers have crossed, so in theory, there are still 29 other teams under the cap who could spend up to that point. But it’s a cap and if the Dodgers wanted to go on a spending spree, it just got a lot harder for them.

If there's another influx of cash into the game, as everyone seems to think that there's about to be, some of that will initially flow to the players. But as a few more teams start hitting the cap, we could see some slight depression of player salaries as more teams say, “We’d love to sign you, but we’re over the limit, and signing you for $5 million a year would actually cost us $10 million.” Then again, if there's an influx of cash into the game and a lot of other big-ticket items are capped, players might be hoping that big spenders just shrug and figure what else are they gonna do if they need/want more talent? At that point, that’s just the price of doing business.

***

Clubs may not tender a Qualifying Offer to a player who has previously received a Qualifying Offer.

Clubs signing a Free Agent subject to compensation will no longer forfeit a first round selection, but will be subject to the following:

  • A non-market disqualified Revenue Sharing Payee Club shall forfeit its third highest remaining selection in the next Rule 4 Draft.
  • A CBT Payor shall forfeit its second-highest and fifth-highest remaining selections in the next Rule 4 Draft and shall have its International Signing Bonus Pool (described below) reduced by $1,000,000 in the next full Signing Period.
  • All other Clubs shall forfeit their second-highest remaining selection in the next Rule 4 Draft and shall have their International Signing Bonus Pool reduced by $500,000 in the next full Signing Bonus Period.
  • All forfeited International Signing Bonus Pool monies will be distributed equally among all other Clubs. Competitive Balance Selections will be exempt from forfeiture.

No more perpetual qualifying offer jail. No more first-round pick penalty for signing a QO guy. Now, you lose some international bonus pool money and later picks, which is a tax on signing QO eligible guys, but not at the level of losing a first-round pick. Previous research has shown a first-round pick outside the top 10 returns about $20 million in surplus value, while a second-round pick is much more likely to return something on the order of $10 million.

The qualifying offer system gave us the borderline cases of Kyle Lohse, Kendrys Morales, Stephen Drew, Ian Desmond. Players who were worth a good contract, but once the “tax” of the first-round pick was factored in, saw the wages that teams were willing to offer shrink well below what they thought they were worth. Now, the tax has been cut in half. There will always be edge cases, although I don’t think we’ll see as many in the coming years.

***

A Former Club of a Free Agent subject to draft pick compensation will receive the following:

  • A non-market disqualified Revenue Sharing Payee Club shall receive a selection immediately following the first round of the draft if the player signs a contract with a total guarantee of $50 million or more.

Get ready for it to happen: Lets's say, for instance, that the Giants sign Kenley Jansen to a one-year, $15 million contract, with three option years all valued at $15 million as well. The next day, all three option years are picked up. Hey, those three option years weren’t guaranteed, so the Dodgers don’t get any extra help.

(Jansen’s free agency this offseason will be probated under the “old” rules, but next year, someone will try something similar to this. Also, this made more sense before the Giants signed Mark Melancon while I was writing it.)

***

  • A CBT Payor Club shall receive a draft selection immediately following the fourth round of the next Rule 4 Draft.
  • All other Former Clubs shall receive a selection immediately following the Competitive Balance Round B of the next Rule 4 Draft (which follows the second round).

A moment, if you will, to meditate on the mechanics of trying to provide compensation for free agents lost. In the old system, where the spurned team got a first rounder, there was an incentive to extend what might be considered speculative qualifying offers. These are the ones extended to players who were good, but probably weren’t $17 million good. (cf. Jeremy Hellickson) However, the team figured that there was a decent chance the player would reject the offer and that team could walk away with the assurance of getting some extra first-round love.

It was a risky bet, but one that could be defended. Many of those will go away because the prize for betting high and winning just isn’t that big any more. Also, the fact that a player needs to be signed to a $50 million contract--the kind that some of those borderline cases might not actually get even on an open market--means that it’s pointless to offer him the QO. But that brings up an interesting question. The penalty for signing a player has gone down and the consolation prize for having one of your players signed has also gone down. The idea was that the qualifying offer was a way for small-market teams to be compensated for when the big-market teams poached their best players.

Last year, Alex Gordon was the perfect case study. Gordon had been developed by the Royals and had become one of the best,most underappreciated players in the game. The Royals offered him a qualifying contract (which he turned down), but he eventually returned to the Royals. The problem was that the qualifying offer number was so low it made sense to offer even average players that much. For a one-year, no-strings--attached contract, why not? Reports have said that the formula for determining the QO number, the average of the top-125 salaries in baseball for a one-year deal will, remain. It still makes no sense to have the number for a one-year deal be the average of a bunch of deals that were mostly 4-5 years in length.

Last offseason the Dodgers--hardly strapped for cash--made Howie Kendrick a qualifying offer, seemingly because they could. After all, even though they re-signed him, they went and got Chase Utley to play second base, while Kendrick roamed the outfield, and then was traded for Darin Ruf.) The Dodgers had not drafted or developed Kendrick--they got him in a trade with the other team in LA. He was hardly the face of the franchise. Why should the Dodgers benefit from the fact that they had picked Kendrick up and he was just valuable enough to be worth the qualifying offer and probably that he was just silly enough to reject it?

It’s something of a moral case to say that the Royals deserved some sort of compensation for losing Gordon while the Dodgers didn’t, but both would have netted their old team--had they gone somewhere else--a first-round pick. There’s just no way to tell those apart other than to have some sort of hilariously subjective “court” to hear the cases. I find it interesting that, while the CBA could have dropped the penalties for signing teams to get the market moving, they could have let the spurned teams slip into the first round. Or at least given them a little extra bonus pool cash to work with, if not a pick. Now all they get is a sandwich pick. In terms of draft pool money, the consolation prize drops from around $2.5 million to somewhere around $800,000, based on 2016 slot values.

The CBA is backing off the idea of compensating teams for losing free agents, though not entirely. But still, when looking at the Gordon-Kendrick problem, the players and owners somehow landed on a decision that said they’d rather not reward big-market teams for happening on a free-agent-to-be, even if it meant cutting off some of the only compensation a small-market team might get for its free-agent-to-be. I think the calculation was that the high compensation slowed down and sometimes stopped the market, which the players hated (just ask Ian Desmond), and there were just as many (if not more) Kendricks as there were Gordons.

***

The parties agreed on an international play plan in which Clubs will stage games or tours in Mexico, Asia, Puerto Rico, the Dominican Republic and London over the next five years in order to grow the game.

Teams have played regular season games in Puerto Rico and Tokyo before, so this seems about right. Maybe Chris Reed, who played two games with the Marlins in 2015, will get to play in front of his hometown crowd in London.

***

Each Club will be allocated a[n International] Signing Bonus Pool as follows:

1. Clubs that receive a Competitive Balance Pick in Round A of the Rule 4 Draft will receive a Signing Bonus Pool of $5.25 million.
2. Clubs that receive a Competitive Balance Pick in Round B of the Rule 4 Draft will receive a Signing Bonus Pool of $5.75 million.
3. All other Clubs will receive a Signing Bonus Pool of $4.75 million.

Oh good! The international bonus pools are going up! Last year, the median pool was about $2.5 million, so I’m sure everyone is happy to see more money flowing into the international market and ...

***
4. Clubs may not exceed their Signing Bonus Pools.

Oh. My. Lanta.

Yes, it’s true that the soft cap wasn’t working, although I’d argue that had more to do with design than philosophy. Teams had previously been allowed to go past their caps, but in doing so, they essentially incurred a big tax, basically doubling their outlays, and they were effectively frozen out of the market for two years. The double taxation wasn’t enough of a disincentive (clearly!) because the return on investment in the international market is just so great, and since there was no penalty beyond the one incurred for going past the official number, teams had every incentive to keep spending while they could. Sign four years’ worth of talent in one year, and even though you have to take the next two years off, you come out ahead.

Then, there were the shadier workarounds in which teams technically weren’t completely shut out of signing players. They could only sign players up to a certain threshold. It just so happened that they sometimes ended up signing a guy they wanted and five of his closest friends who were much lesser players and just happened to have the same “agent.” Let’s just say it was a creative workaround. So in this CBA, we have what looks to be a soft cap on player salaries and a hard cap on international signing bonuses to go with the one already in place on draft bonus pools. On an episode of Effectively Wild last week, Ben Lindbergh, Sam Miller, and I tried to figure out what teams would actually spend money on now that the days of the $60 million spending spree on international talent was over. We had a hard time coming up with things.

***

5. Pools will grow with industry revenue.

This might end up being the most important sentence in the entire press release. Maybe.

I doubt baseball will run dry in the international markets, but if I were an elite athlete who had dreams of playing professional sports and wanted to strike it rich, would I want to play baseball or some other sport? Given that each team will have, at most, $5.75 million to spend, the numbers that will be thrown around might be a bit lower than I was hoping for. If revenues grow, how much of that will be allowed to be put into the international market?

***

10. Foreign Professionals will continue to be exempt from the Pools. Foreign Professionals will be defined as players who are at least 25 years of age and who have played as a professional in a foreign league recognized by the Commissioner's Office for a minimum of six seasons.

I just want to point out that Japanese superstar Shohei Otani is 22 years old.

***

FIRST-YEAR PLAYER DRAFT (RULE 4 DRAFT)

Signing bonus values associated with first round selections were adjusted to reduce the spread between slots.

In 2016, the Phillies had the first pick and $9,015,000 in pool money associated with that pick. The Cardinals had the 34th and final pick in the first round, and got $1,878,000. That’s quite the spread. In fact, the Brewers, with the fifth pick, had less than half ($4,382,200) what the Phillies got in their bonus pool. What happened was that the first five picks in the 2016 draft went for under their slot value and those teams got some extra money to play with later in the draft. For example, the Phillies only spent $6.1 million of their bonus pool on first overall pick Mickey Moniak.

It’s not clear from this whether the overall size of the bonus pool will remain the same and that the distribution will just have a smaller standard deviation. However, that seems to penalize the teams who finished last, and the draft is ostensibly set up to help exactly those teams. They get a little extra to help them out in the rebuild. Maybe this was just seen as too much of a tanking incentive?

***

The penalties and prohibitions for Stimulant violations will be increased to 50 games for a second time violation; 100 games for a third time violation, and up to a permanent suspension for a fourth time violation.

The penalties for misusing stimulants have been increased. They are not at the same levels as those for steroid use, but MLB appears to be laying down the law on this one. Or are they? MLB allows what is known as a therapeutic use exemption for stimulants. Mostly commonly, they are used to treat ADHD, and if someone genuinely has ADHD, needs and wants medication, and is under the care of a doctor, then it would be cruel to deny him medicine.

But I’ve written in the past about the oddity that in MLB, around nine percent of players have a TUE, despite only about 4-5 percent of the population having the disorder. Stimulant medications can be (and are) abused by players who are trying to maintain their focus over the course of a long, grinding season. If MLB wants to get tough on stimulant abuse, then they might first want to look not into whether the punishments are too lenient, but whether they need stronger controls on their TUE policy.

***

All told, it seems that the players gave into a cap on international bonus spending and got back some concessions around compensation for free agents that will make life easier for the Ian Desmonds of the world. The players get a few more offdays, but don’t get fewer games. There is no 26th man on the roster. There is no DH in the National League. The All-Star game no longer "counts."

But the big news is the salary cap that isn’t a salary cap. It’s really a very severe progressive marginal tax rate plan that probably serves as a dress rehearsal for when owners want a real salary cap. Now that international signing bonuses and draft bonuses have been largely capped, and salaries have been capped, and because there aren’t a lot of other things that owners can spend major money on, there may come a point at which owners are simply taking profits and saying, “Well, I’d like to spend more, but the CBA hamstrings me.” And that could create some resentful players in five years.

But there will be baseball in April.

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

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