Friday, July 13, 2007

What You Get For The Money

$20 million a year for Ichiro. $35 million a year for A-Rod? $17 million dollars a year for Big Z, who will play in, at most, 35 games each season? Even Mark Buehrle's contract just seems ridiculous to me. And, I don't mean in an, "Oh my God, these guys make so much money," kind of way. From a baseball perspective, it just doesn't make sense.

These contracts are part of a bigger problem though: baseball people seem entirely incapable of valuing baseball talent. And don't give me that, "If the market will pay, then they're worth it," nonsense. If you can get the same production for less money, then it's not worth it.

I think the problem stems in part from the lack of a salary cap in baseball. I'm not advocating for a cap, that's another debate for another day, and anyway, if I had to give a knee-jerk reaction, I'd say that I'm against having a cap. But the absence of a cap has allowed GMs to become lazy about valuing production. If you know you have exactly $100 million dollars to spend, then you have to carefully determine whether a player is worth X percentage of your payroll. But without the cap, you can pay a guy you like whatever you have to in order to sign him, and it doesn't feel like you're sacrificing anything.

But you are. See, every team, even the Yankees, has a budget of what they can afford to spend for on-field talent. And every dollar you spend at one position IS a dollar you can't spend elsewhere. So paying more for a player than his production is worth will eventually kill you. Not so quickly if you're the Yankees, immediately if you're the Twins.

Say two teams are getting the same production out of one spot in their starting rotation -- let's say a VORP of 28. One team signed their guy off of waivers, and will pay him $380,000 this year. The other team signed their guy as a big name free agent, and will pay him $6.3 million this year. Both teams are really happy with their signing, but team A now has an extra $5.5 million to spend on talent somewhere else, that they might not have had if they signed the expensive free agent. Now, in this example, baseball's financial imbalance, and the incompetence of some of its GMs, are relevant. Team A is the Orioles, who while they made a great signing when they grabbed Jeremy Guthrie off of waivers, generally have no clue about how to spend the money they saved by acquired an ace for less than half a million bucks a year. Team B is the Red Sox, who being at the top of baseball's financial heap, can afford to spend serious cash for a guy Daisuke Matsuzaka without sacrificing a whole lot at another position.

But for a team like the White Sox -- among baseball's "haves," but not obscenely wealthy, and blessed with a GM who generally seems to spend money in a way that is at least somewhat productive -- having an extra $5 million bucks to spend at, say, second base, could be the difference between returning to contender status, or languishing in the cellar for a few years

You could put together a near all-star team for the $30 million a year A-Rod will get paid next season. If the Mets can get fairly comparable production from David Wright for $1.2 million, as someone is getting from A-Rod for $30 million, then the Mets are better off, even if A-Rod's production is somewhat better. Which is why, no matter how good A-Rod and Ichiro are, overpaying for their services -- as measured by how much similar production would cost on the open market, as opposed to how much the market is willing to pay for that specific player -- is a mistake.

The inability of GMs to properly value production is hamstringing the trade market too. Teams are starting to value their own young prospects more. Pre-arbitration talent is key in the current economic scheme because that's where you can most readily find players whose salaries are actually below the cost of comparable production on the open market. It's why the Mets are paying $1.2 million bucks for Wright, whose production would cost about $26 million a season on the market (using BP's MORP stat, which measures, coincidentally, the value of a player's production on the open market). Anyway, all of a sudden teams won't offer their top prospects for average big leaguers. No one wants to be the next guy to trade Jeff Bagwell. Nevertheless, when another team offers a good prospect for an average established player, the GM with the established guy often feels as if he's being offered 30 cents on the dollar. "They won't offer their top prospect for this guy because they value their prospects, so the prospect they are offering is a low-ball offer."

It doesn't work this way. While teams are starting to properly value their own prospects, they continue to undervalue everyone else's prospects. People always value that which they have more than that which they want. Plus, GMs are more familiar with their own prospects. But part of the problem is that GMs continue to underestimate the value of cheap, young, productive talent.

How does this play out? Jose Contreras makes about $9 million a year. His production is worth about $4 or $5 million a year. So, if the Sox can trade him for a decent prospect, one who can give comparable production even, but for less money, then they've won the trade. The Mets won't give the Sox a top prospect like Lastings Milledge for Contreras, but they might give up Mike Pelfrey. Pelfrey has struggled mightily this year, but clearly has the talent to be a middle of the rotation kind of guy: 10-15 wins a year, and ERA in the 4.00 to 4.50 range. That sounds a whole lot like what the Sox get out of Contreras, but because Pelfrey is still young, it comes at a lot lower price. Pelfrey may have lost some of his sheen, but that doesn't mean that he's a low-ball offer. In fact, if the Sox could get him for Contreras, they should jump at the opportunity.

Or take another player the Sox covet: Dodgers outfielder Matt Kemp. The Dodgers won't cough up Kemp for Contreras straight up. Kemp can play all three outfield spots and has top of the order skills, all for the low, low price of $380,000 a year. Signing a guy who could give the team comparable production on the open market this off-season would run about $16 million a year, based in MORP. So, if the Dodgers want Contreras and Jermaine Dye for Kemp and some lesser prospects, the Sox should do it. They cut $16 million dollars from their payroll and replace Dye's production in the outfield. That leaves a whole lot of money to both replace Contreras's production on the mound (which remember, should only cost about $5 million a year), and to upgrade at SS, 2B, or one of the other outfield positions. That's how you build a winning baseball team for the long haul. I sure hope Kenny Williams gets that.


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