The Weekly Rant: Arbitration and Bullpen Construction

There has been a ton of recent discussion about teams over/undervaluing closers. Most of this comes from the high-profile bullpen additions made by the Tampa Bay Rays and the Oakland A's. Some have asked if the Rays/A's know something we don't know about relief pitching. Others have concluded that these teams were paying at or slightly below market rate for players that could readily improve their rosters.

That's a pretty reasonable conclusion to reach if you look at the acquisitions in isolation. Grant Balfour on a 2-year, $12 MM deal is rock solid with his projected WAR. Jim Johnson on a 1-year $10 MM contract in exchange for Jemile Weeks? Seems reasonable. A couple of duds for set-up men? That's what win-curve sensitive teams should do when they can't upgrade their roster easily at other positions, right?

I think all of that is logical, and in itself could explain these uncharacteristic relief expenditures. But I also think something else could be going on here. We should probably take another factor into consideration when considering these deals. Here's what Matt Swartz wrote on MLBTradeRumors about arbitration eligible relievers:

Relievers get paid by role. An elite closer with a history of saves gets paid far more than a set-up man, who gets paid far more than a middle reliever, even with similar performances. Andrew Bailey is slotted for $3.5MM this winter, but turn his 24 saves into 24 holds and he’d only get $2.1MM with the same elite ERA of 2.07. Even with his 51 career saves prior to 2011 still on his record. Take all those saves and holds away, and he’d get under $1.0M with 174 career IP of a 2.07 ERA.

According to his model (This was written in 2011, so the model has changed since then. Also, the dollar figures are a little low.), changing a pitcher's usage for one year from a closer to a set-up man could save the team $1.4 MM. Those savings would persist throughout the pitchers arbitration seasons, meaning a small role change could mean real money over the period of team control. This applies to a lesser extent to pre-arbitration eligible pitchers, whose career stats influence their salary during their first run through arbitration.

This is a definition of a market inefficiency. The arbitration process overvalues the differences in leverage between relievers. Arbitrary stats(holds and saves) largely account for the differences in salaries of relief pitchers in arbitration. Additionally, the arbitration process lags behind the market in valuing closers, meaning guys with big save numbers aren't coming at a discount through arbitration. It will take some years for the relatively diminished free agent market value of closers to trickle down and influence prices for arbitration players. Until then, elite closers will continue to make more than good starters.

So how would a team take advantage of a situation like this? The answer would be keeping the pre-arbitration pitchers and especially the arbitration eligible pitchers out of the closer role (and to a lesser extent, the set-up role). Bumping these "role-sensitive" pitchers as far down the bullpen pecking order as possible would result in the biggest cost savings.

So if there is a "proven closer" on the market for a reasonable price who is equal to or better than your best reliever, he's going to be worth significantly more than the improved performance of the bullpen. He could save the team a couple of million dollars on the team's "closer-in-waiting" arbitration eligible player in the future. And the trickle down goes all the way down the bullpen. Guys who were in the set-up role are now not getting holds. Read what Swartz says about the savings for that potential pitcher:

Tyler Clippard had 38 holds this year for the Nationals, which boosts him up to a $1.7MM salary estimate. Take away 33 of those 38 holds to make him a middle reliever, and he only projects to get $1.3MM.

And remember, these savings are basically carried over every additional time a player goes through arbitration. Depending on the service time makeup of a team's bullpen, adding a free agent closer for just one season could save the team several millions dollars each year come arbitration season. A free agent "proven set-up" man could mean a few more hundred thousand dollars in savings.

Everybody wants their team to have an awesome young pre-arbitration eligible bullpen. But that pre-arb bullpen would get very expensive, very fast. Adding a good closer through free agency could pay off even before considering marginally better performance.

Overall, I don't think the effect on other reliever's future salaries is getting enough consideration when analyzing free agent reliever deals. In fact, I think the potential cost savings in arbitration could be a driving force in bullpen construction. The Nationals signing of Rafael Soriano on a big 3-year deal makes a lot more sense when considering the cost savings on their talented young bullpen.

The other way to take advantage of this would be to extend young relievers before they rack up saves and holds. Once they are cost controlled, the team can use them however they wish without affecting future payroll. Again, the Nationals may have been ahead of the curve on this, locking up Craig Stammen for two arbitration years before last season.

Not all teams have the right pitchers to take full advantage of this market inefficiency, but generally, the interconnectedness of arbitration costs and bullpen construction needs to be examined thoroughly for any transaction.