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March 5, 2008

Prospectus Today

Objectivity

by Joe Sheehan

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The story of the week is that a bunch of players who are coming off of very good 2007 seasons, but who have less than the approximately two years and 120 days of service time necessary to go to arbitration, are unhappy about their 2008 salaries. Prince Fielder and Nick Markakis have been the most vocal, but others, such as Adam Wainwright, Cole Hamels and Jeff Francoeur have been renewed at numbers that represent a fraction of their market value.

The renewals, and the accompanying press, comes on the heels of this, which hit the wires two weeks ago:

The 110 players in salary arbitration averaged a 120 percent increase in salary, according to a study by The Associated Press, with Cincinnati's Brandon Phillips and the New York Yankees' Robinson Cano receiving the largest percentage raises.

Phillips' salary went up 1,556 percent, from $407,500 to an average of $6.75 million under his $27 million, four-year contract.

Cano's rose 1,428 percent, from $490,800 to an average of $7.5 million in his $30 million, four-year deal.

Philadelphia first baseman Ryan Howard, who defeated the Phillies in a case that went to a hearing, was third at 1,011 percent. He was awarded an increase from $900,000 to $10 million.

The average increase, from $1.38 million to $3.04 million, was up from 106 percent last year and the highest since a 123 percent rise in 2005. The average rose from $3.01 million last year but was below the record $3.26 million set in 2004.

I don't mean to pick on the AP, but is there any chance someone there might make a connection between the two stories? The quoted one, which we see every year, is an innumerate piece of trash. "Oh, look at the krrrrrazy raises those guys get for playing a game!" The percentage raises, repeated breathlessly on six o'clock news shows and talk-radio segments nationwide, mean nothing without context.

That context is the first story. That context is the one that suppresses the salaries of Fielder, of Markakis, of Wainwright to a tenth, a twentieth, a thirtieth, of what they could get on the open market. The raises these players get in arbitration are as large as they are not because the system is broken or players are greedy or because there's no payroll cap in baseball. The raises are that big because the players' pre-arbitration salaries are a monopolistic fiction.

Look at those numbers above. In 2006, Brandon Phillips hit .276/.324/.427 with 17 homers and 25/2 SB/CS. He was 25 that offseason, and while once a failed prospect, he'd put together a year that ranked him among the better second basemen in the game. For that, he made $27,500 above the minimum. Howard won the BBWAA NL MVP award in '06 by hitting 58 home runs. His 2007 salary wasn't even a million dollars. Free agent Aaron Boone, coming off a .251/.314/.370 year, signed a free-agent contract that paid him $925,000 in '07.

What's more out of line? The pre-arbitration salaries of Phillips and Howard, the money that Fielder, Markakis, Jonathan Papelbon, and others will make this year, or the arbitration-influenced salaries they make once they have enough service time to have leverage. That's what those raises reflect: not money, but leverage. Until a player has enough service time, the team has to pay him the minimum salary and not a dime more. It dictates salary, rather than negotiates it. So when very good players get leverage for the first time, it is natural that the first jump would be that high.

Understand that I'm not criticizing the teams for how they pay players in the pre-arbitration seasons. That's the last remaining hammer they own to keep salaries down, and they're right to use that leverage. There's absolutely no evidence that "playing the nice guy" engenders a better relationship between player and team than hardball does; by the time a player is able to become a free agent, the early battles are long forgotten, for one, and what determines where a player signs tends to be money, perceived competitiveness and geography, in some order.

No, my objection here is to that ridiculous wire story. Quoting again:

In all, teams hold a 279-205 advantage since arbitration began in 1974, but players generally receive large raises."

Well, of course they do. They're making three percent of their market value before, and maybe 50 percent of it after. They have no leverage before, and they have some-but far from market leverage-after.

What would balance it out is if the following would appear on the wire once in a while:

The Boston Red Sox made more than $10 million profit last year from the performance of Dustin Pedroia. Pedroia's .317/.380/.442 performance was worth five wins above replacement to the Red Sox, who bank approximately $2 million in revenue for each additional win. Pedroia made $380,000 last year.

Other teams who made eight-figure profits on their talent included the Milwaukee Brewers, behind Rookie of the Year Ryan Braun, the Colorado Rockies with Troy Tulowitzki, and the Kansas City Royals with Joakim Soria. Combined, those three players made a shade over $1 milllion in 2007, and returned 17 wins, worth approximately $34 million, for a return on investment of 3,300 percent.

All I'm asking for is some context, some balance. Nothing in the initial story explains why these players are getting such large percentage raises, and that's a critical element. Until baseball economics are covered with the verve that its interpersonal byplay is, we'll all be the lesser for it.

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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