July 2, 2012
How Much Salary Can You Allocate to One Player and Be Competitive?
The general manager and owner’s dilemma been around since Ban Johnson decided that it was better to pay players rather than having them play as amateurs, the dilemma of trying to balance a budget with creating the most competitive team possible. We armchair GMs like to talk about whether this deal or that deal is good or bad, often within the framework of how much a player is being paid and whether they are “worth it.” Indeed, Baseball Prospectus strives daily to provide data that works to define that conversation.
The general manager’s dilemma, however, is tougher than, say, the budget that you or I set for our household. With some exceptions, most of us have a general sense of what our income and expenses will be. We may get a modest raise and the cost of living may increase at a rate that we can see coming, so for the most part, our monthly budgets can be set and we can adjust accordingly.
For the GM of a Major League Baseball club, however, the challenges are a bit more daunting. A GM’s budget is dictated by ownership and driven off revenues that can ebb and flow from year to year. A GM’s ability to adjust the roster based upon that—with veterans hitting decline years, the pace of player development, and unforeseen events such as injuries—all play a part. Not only that, a GM is planning not just for the season he is in the midst of but likely five years out as well. All the while, owners are constantly pushing for cost certainty—that amount of player salary they’re on the hook for in subsequent years—while market escalation for premiere talent can skyrocket by the move of another club’s GM in the bat of an eye, throwing a GM’s budget planning out the window.
The focus on how much clubs spend on just one player didn’t really gain serious attention until Texas Rangers owner Tom Hicks signed Alex Rodriguez to a then-record $252 million deal in 2001. Owners and the league bemoaned the move given the enormity of the deal, while those bean counting from a roster construction position panned the move for how much A-Rod was getting compared to the rest of the roster.
A-Rod’s 2001 salary of $22 million accounted for 25 percent of the Ranges’ total Opening Day payroll of $88,633,500. To put Rodriguez’ salary in perspective that year, first baseman Rafael Palmeiro was the second-highest-paid player on the Rangers at $9 million. Of course, history has since told the story of that poor salary construction model; with player payroll not evenly distributed, the ability to bring in pieces to support A-Rod never materialized, and the team performed horribly in the standings. In the end, what a GM needs is flexibility, and Hicks’ deal for Rodriguez removed that.
This past off-season, the subject of how much to allocate to one roster spot became a big story for the league when Albert Pujols pushed for a 10-year deal in excess of $250 million. Speaking at a conference during the Baseball Winter Meetings, Cardinals GM John Mozeliak, who later would lose Pujols to the Angels, mentioned the dilemma:
Our research shows that only one club has ever allocated more than 20 percent to one resource and made the World Series, and that was Todd Helton with the Rockies in 2007.
In looking over the salaries, Helton actually accounted for far more than 20 percent that season. His $16.6 million salary that year comprised 31 percent of the Rockies’ $54,424,000 Opening Day payroll.
So, with the 2012 season nearly half over, how much are clubs allocating to individual players? Is how much a club has invested in one player indicative of poor planning or an effect of other forces that have impacted revenues? Is even distribution the best way to build a winner, or can you put all your eggs in one or two baskets? Here’s a look based upon Cot’s Contracts data here at BP.
Houston, We Have a Problem
As the stripping of salaries to make the sale palatable occurred, those contracts that were not easily moveable, or those that now comprised a larger percentage of the pie, remained. The former may certainly be the case with Carlos Lee. While his batting average is up 10 points this season compared to his numbers last year, his slugging numbers are down (.405 compared to a career average of .489), his VORP is tracking at -4.96, and his WARP is -0.8.
With a 2.91 WARP and a $483,000 annual salary, Jose Altuve ranks as the most cost-efficient player in the league at $166,199 per WARP. If the Astros intent is to get lean while revenues catch up (something that the club has said is a priority), then they could be headed in the right direction.
Is Johan Back?
Ichiro and King Felix
Spreading the Wealth
AL East – Yankees
The interesting thing to note with this data is that, with the exception of Jake Peavy, the division leaders are allocating 14-15 percent of their total player payroll to their highest-paid player. The White Sox could be in a tenuous position, allocating 56.83 percent of total player payroll to four players with percentages in double-digits. The Rangers, the bridesmaid in the last two World Series, have the most balanced allocation of salary of all the division leaders.
Interestingly, when looking at how player payroll is being allocated, “position” is a moving target. A good example is St. Louis this year. With Albert Pujols leaving for the Angels, left fielder Matt Holliday becomes the team’s highest-paid player. The Giants have lumped most of their resources into pitching, with the Zito deal still being an albatross while Tim Lincecum and Matt Cain occupy positions two and three. Only the Rangers, as a division leader, are lack any pitching among their top-paid players.
Ultimately, the key to payroll construction depends on your philosophy. Some clubs that have limited revenues over a long period of time may choose to spike spending on an individual player in the hopes of reaching the postseason for a given year. Others with less volatile and more sustainable revenues may be in a position to allocate a larger total sum to more players. That’s the position you prefer to be in. That should give you the ability to be the most competitive over the longest period of time. Welcome to the GM’s dilemma.