The Impact of the Long-Term Contract in Major League Baseball

Buster Posey didn't need free agency to land his big deal.

With the recent contract extensions awarded to Tigers’ ace Justin Verlander ($180M/7 yrs) and Giants’ MVP Buster Posey ($167M/9 yrs), it’s hard to ignore what has become a powerful trend in Major League Baseball. Teams are locking up their young talent as we rapidly approach what Grantland’s Jonah Keri calls “the death of free agency.” The list of homegrown stars that have recently signed long-term extensions with their clubs is vast, highlighted by names such as Joey Votto, Felix Hernandez, and Evan Longoria.

Changes to the recent CBA, coupled with a new TV contract for MLB, have fueled this trend on both the supply and demand sides of baseball’s labor market. New luxury tax incentives to reduce payroll, as well as a revamped free agent compensation system that raises the implicit costs of signing a player, have created new risks for players entering free agency Rather than test this tenuous market, players are wise to ink lucrative deals as soon as they become available. Further, small-market teams, anticipating their equal share in MLB’s forthcoming massive TV contract with FOX and Turner Sports, are more willing than ever to pay a hefty price to keep their young talent.

So the stage is set for an era of parity in baseball. It’s no coincidence that this upcoming season is so difficult to predict, as the times of buying one’s way to a championship is essentially over. Instead, teams will need to direct funds toward talent development within their systems if they wish to compete.

But will the effect on competitive balance truly be positive? The answer is yes, but a very qualified yes. See why after the jump.

In the short run, there is no doubt this trend will help improve on-field parity. Teams evidently no longer feel compelled to trade their stars prior to their entering free agency, and similarly, big market teams simply won’t be able to buy up talent on the free agent market. But in the long run, the answer is not so clear-cut. The ultimate irony of free agency is that it has incidentally served as a great equalizer between small and large market teams. And the pattern of securing young players early in their careers threatens the balancing function of free agency.

Because players are not eligible for free agency until they have amassed at least six years of service, players generally do not reach the open market until their late 20s. At this point, most them have reached or passed their primes, rendering long-term contracts to free agents generally unfavorable for teams, particularly at the tail end of a deal. When you think long-term free agent contract, it’s much easier to come up with a bad one (Alex Rodriguez, Vernon Wells, Alfonso Soriano) than a good one (I can’t think of any). Free agency, therefore, has offered an easy out for small-market teams. They can let their soon-to-be-aging-stars walk, while saving face to their fans by blaming the rich. Then, they can funnel the cash that they would have wasted years down the road toward retooling their farm systems. Now, however, small market teams will remain on the hook for their star players even once they have passed their primes. Undoubtedly, Buster Posey is an excellent player. But $18.5 million for a 35-year old catcher in 2022? Probably not ideal. The Giants, of course, are a relatively large-market team and can probably absorb that cost. If Posey can go on and consistently perform at the level he is clearly capable, and wins the Giants a few more World Series on the way, no one in San Francisco will complain. But consider the Joey Votto deal ($251.5m/12years), in which the small-market Reds will owe him $21 million in 2023, when he is 40 years old. Sounds like an impending disaster.

Small market teams are trying to beat the free agent system that has stolen their talent since its inception. But this process has largely been a blessing in disguise, and these teams are now killing the very game that has allowed them to compete in recent years.

The NHL Lockout: Questions for International Labor Law

Will the Canadiens be paid during the lockout?

International law is a tricky concept to tackle. If law implies governance, then, by definition, law applies only to a governed region. And since no two countries operate under the same governing body, international law is ultimately toothless.

But sometimes international law must be addressed, as in instances in which a multinational legal issue arises. The ongoing NHL players’ lockout presents such a case, providing insight into the convoluted arena of international law, namely with respect to labor and employment.

First, let’s lay the groundwork for the issue at hand. The National Labor Relations Act (NLRA), which serves as the chief authority on U.S. private sector labor law, maintains federal jurisdiction over matters of interstate commerce. The NHL, whose operations depend upon commerce across states (i.e. games), therefore falls under the purview of the NLRA. Under the NLRA, both employers and employees may use economic weapons, such as strikes and lockouts, during collective bargaining negotiations.

But what happens when interstate commerce becomes international commerce? Seven of the thirty NHL teams are based in Canada, a notable proportion considering that the three other major sports leagues contain in total only two Canadian teams. Technically, despite bargaining under the NLRA, these owners and players are subject to Canadian law. So where does our conception of labor law fit into this hazy framework?

Canada, of course, does not care about the NLRA; it functions pursuant to its own codes and laws. For one, up north, labor law is strictly provincial in nature. According to the Vancouver Sun, under Quebec law, an employer may issue an employee lockout only if those employees are members of a board-certified union. The NHLPA is not certified by Quebec’s labor relations board, potentially rendering the lockout impermissible in Quebec.

Recently, players for the Montreal Canadians have taken advantage of this clause to seek an injunction against the NHL lockout in Quebec court. If granted, the labor relations board could enjoin the lockout for Montreal players only, granting them regular pay and benefits while players for the other twenty-nine teams remained locked out. In the history of NHL labor relations, however, not once have players tried to use the Canadian court system to enjoin a lockout. The very fact that the NHL and NHLPA have bargained under the NLRA for decades may suggest that these player efforts are nothing more than unfounded distractions.

Even if courts in Quebec enjoin the lockout and compel Montreal ownership to pay its players, there is little evidence that this maneuver on its own will have any impact on widespread bargaining issues. But this viewpoint may be shortsighted, as a successful injunction could have a palpable impact on the axis of bargaining power in player-owner negotiations.

If the players are indeed successful in Canadian court, that success could perhaps prompt players on other Canadian teams to similarly challenge the lockout in their respective provinces. In fact, Edmonton Oilers and Calgary Flames players have already attempted to do so (albeit unsuccessfully, though they are currently appealing the decision).

What is crucial here is the inverse relationship between the number of successful “personalized” injunctions and owner bargaining power. With each Canadian team’s success in court, owner bargaining power is slashed, if only marginally. If all Canadian teams were victorious, however, a considerable number of owners would be forced to pay players in vain, since the ongoing lockout for U.S. teams would preclude games from being held. In such a case, a sustained lockout makes little, if any, economic sense for owners. And with nearly a quarter of owners placed in this position, owners on the whole may soften their bargaining stance, especially in an industry where economic interdependence is so pronounced.

Of course, this scenario requires many hypothetical situations to materialize. It appears highly unlikely that all Canadian players will seek to enjoin the lockout, let alone succeed in this endeavor. Nonetheless, the ongoing NHL lockout provides for an interesting study of international issues as they apply to labor and employment law.

The New CBA: What it Means for Free Agent Compensation

Berkman: A Type B Free Agent in 2010

No strikes, no lockouts, and no antitrust lawsuits. Yes, labor relations in baseball appear to be at their zenith with respect to recent memory. Now, with the ratification of the new CBA, it appears we will have at least five more years of union-owner peace. But MLB’s new deal did more than just extend this period of tranquility. The new CBA addresses major issues in the free agent compensation system, offering a fierce overhaul whose more nuanced effects will greatly facilitate competitive balance.

I have written previously on the absurdly arbitrary nature of the old compensation system. Under this framework, players could be designated Type A, B, or neither. A team losing a Type A free agent received two compensatory draft picks, one from the signing team and one “sandwich pick;” a team losing a Type B free agent was granted one sandwich pick; and a team losing an undesignated player was awarded nothing. These compensatory picks were only awarded provided the team first offer salary arbitration to its free agent player. Sounds fair enough, right? Well, according to the ranking gurus at Elias, Yuniesky Beatencourt > Carlos Beltran. Enough said.

Instead of these enigmatic Type A and Type B designations, MLB will institute something similar to the NFL’s franchise player system, whereby teams can offer their to-be free agents a contract worth the average value of that of the top 125 players in the league. If rejected, then the team will earn compensation. This is a brilliant idea for multiple reasons:

For one, we can expect a decline in the game of chicken that MLB dubs the salary arbitration system. Presumably, the intention of including an arbitration offer as requisite for compensation was that this action would indicate the team highly valued this player. However, the process has simply become an exercise in game theory, with teams offering arbitration to players they do not wish to retain, praying they decline, and shamelessly walking away with an extra draft pick.

What is most problematic in this regard is that teams win a statistically significantly larger portion of arbitration cases than do players, rendering arbitration acceptance (instead of free agency) generally unappealing and rare. Thus, teams are really taking little risk when offering arbitration to their subpar Type B players, and frequently earning unjustified compensation. Now, teams will be required to offer a one-year contract of roughly $12 million (in 2012), an amount of money that will not be taken so lightly. Teams will only be compensated if they lose a player they value at least $12 million dollars.

Moreover, we should observe a fall in another one of general managers’ favorite schemes: the bizarre midseason trade. Why, on the eve of thee 2010 trade deadline, did the heavy hitting Yankees, with Mark Teixiera manning first base, trade for the rapidly declining (or so it seemed) Lance Berkman? Simple: Berkman was a Type B free agent. The Yankees, able to eat a large portion of his contract, acquired Berkman for the stretch run not because they needed his bat, but rather because offering him arbitration at the end of the season would invariably yield a draft pick for the team. Again, this activity was never the purpose of draft pick compensation, and, accordingly, we should expect a decline in deadline deals that feature rich teams racking up veteran players with the sole intention of letting them go.

In short, changes to the free agent compensation system were both necessary and shrewd. MLB is cracking down on loopholes that serve to undermine and threaten competitive balance, and, accordingly, should be commended.

The Market for Defense: An Application of Moneyball

Billy Beane

We all know the story. Financially strapped, the 2002 Oakland Athletics rose to prominence through the shrewd market analysis of General Manager Billy Beane and Co. This simple plotline, of course, is the premise of Moneyball: the theory, the book, the movie, and now culture, that has both revolutionized talent evaluation in Major League Baseball and permeated the vernacular of fans and nonfans alike.

The Moneyball hypothesis focuses primarily on the undervaluation of a player’s ability to get on base. Given its contribution to a team’s likelihood of winning, the statistic On-Base Percentage (OBP) was not adequately compensated on the open market. This inefficiency allowed for teams such as the A’s to purchase these critical statistics at affordable rates. However, it is a widely held conception that the Moneyball hypothesis has now dissipated, largely due to the dissemination of knowledge across MLB. Naturally, once other teams catch on, the market inefficiency can no longer exist.

But have market inefficiencies totally eroded?

Find out after the jump.

Not quite, according to our analysis.

If the market is efficient, we expect the correlation between team winning percentage and team payroll to be quite high. That is, teams pay players to win games, so if they are spending money wisely, these two figures will fall in line with one another. In 2011, the correlation coefficient between winning percentage and team salary was a modest .41. Clearly, this relationship is still far from perfect.

This insight opens the doors for future discussion. Even if Moneyball has largely dissipated, it is almost certain that other market inefficiencies are at play. One of the hallmarks of the Moneyball hypothesis is that defense does not matter. But perhaps this disregard for half the sport stems from a failure to objectively and accurately quantify baseball’s mysterious final frontier. After all, the best defensive metrics are still far from ubiquitous.

Though much more research still needs to be done with respect to the usefulness of defensive statistics, we can use the ones at hand to see if the market for defensive skill is functioning optimally. In the spirit of Billy Beane, we must evaluate this question analytically. To do so, we will compare the correlation between UZR/150, a sabermetric statistic that, according to FanGraphs, quantifies “the number of runs above or below average a fielder is, per 150 defensive games,” and team winning percentage, with the correlation between UZR/150 and team salary.

In 2011, the correlation coefficient between team UZR/150 and team winning percentage was a modest .349. This figure indicates that UZR/150 contributes to 12.2% of the variance in team winning percentage. To place this in figure into perspective, team OBP and team winning percentage feature a correlation coefficient of .551. As such, OBP accounts for 30.4% of the variance in team winning percentage. Pursuant to this somewhat crude analysis, Beane was correct in his assessment that offensive trumps defensive value.

Next, let us compare these correlations to the correlations with team payroll. We should expect that, in an efficient market, the correlations would be similar, since, as stated prior, the overarching goal of paying players is to win games. However, the correlation between UZR/150 and salary is just .04. Thus, less than 1% of the variance in salary is accounted for by UZR/150, a shockingly small figure. Interestingly, our results indicate that OBP is undervalued as well accounting for just 14.8% of the variation in salary with a correlation of .38. The results are encapsulated in the chart below:

R-Squared Values			Ratios
	Salary	WPCT	Sal/WPCT
OBP	14.80%	30.40%	48.70%
UZR/150	0.20%	12.20%	1.60%

What can we take away from this analysis? For one, though neither statistic is totally justifiably compensated, offense is more fairly remunerated than defense on the open market. But the scope of this difference is startling. The ratio of salary accounted for to win percentage accounted for by OBP is 48.7%, indicating the market is operating at less than 50% efficiency. Surprisingly, this would suggest that the Moneyball hypothesis is still relevant.

More shocking, however, is that same ratio for UZR/150 equals only 1.6%. Yes, 1.6%. In light of its contribution to winning percentage, UZR/150 is only accounted for by 1.6% of what it should be in salary determination. Granted, the validity of UZR/150 is not necessarily accepted, but this utter lack of relevance is still inexplicable. Though UZR/150 accounts for relatively little in a team’s variance in win percentage, it is still disproportionately undervalued.

Evidently (at least in 2011), the original Moneyball hypothesis is still alive, as is the possibility (or plausibility) for future Moneyball endeavors. Perhaps when front offices can more effectively operationalize the obscurity that is defense, we will see new small market teams rise to power through Beane-like market analysis.

A New Way to Look at the MVP Race

Clayton Kershaw: 2011 MVP?

The craziness of the 2011 MLB season has sparked extra heat under an already charged topic of debate: voting for the league’s Most Valuable Player. Consider the American League MVP race. Rarely, if ever, have the front-running candidates for baseball’s most prestigious award consisted of: A non-position player (Detroit pitcher Justin Verlander), two outfielders whose teams failed to make the playoffs (Toronto’s Jose Bautista and Boston’s Jacoby Ellsbury- no comment necessary on the latter), and a third outfielder whose batting average just barely beats the league standard (New York’s Curtis Granderson, at .262).

The use of any of the conventional standards for MVP consideration (i.e. “best player on the best team,” “a pitcher can’t win” “BA/HR/RBI”) simply won’t work in the American League this season. So, perhaps the strange nature of this season’s award race will precipitate a fundamental shift in the way the term MVP is defined and determined.

Here’s one proposal: consider the literal definition of the word valuable. Inherently, expectations for each player are not equal; each player is held to a different standard based on his respective salary. In 2011, for instance, St. Louis Cardinals’ first baseman Albert Pujols contributed 5.1 Wins Above Replacement (WAR) to his ballclub, collecting over $14 million for his efforts. New York Yankees’ outfielder Brett Gardner also provided his team with 5.1 WAR, but earned just a tad over $500,000. Thus, I would argue that Gardner was more “valuable” in the purest form of the word*.

*Assuming, of course, you buy into the advanced metric WAR – I don’t blame you if you have a hard time accepting that Pujols and Gardner had statistically comparable seasons.

The bottom line is that value should be assessed through the lens of cost-benefits anlaysis. To operationalize the term “value,” we should consider the ratio of dollars earned by a player to his contribution to wins. Gathering salary data (from USA Today) for every qualified Major League player in 2011, and the WAR for each of these players (from Fangraphs), we can identify which players were truly the most (and least) valuable.

Most Valuable Players

Player	Team	Salary	WAR	$/WAR
Clayton Kershaw	LAD	$500,000	6.8	$73,529.41
Alex Avila	DET	$425,000	5.5	$77,272.73
Doug Fister	SEA/DET	$436,500	5.6	$77,946.43
Andrew McCutchen	PIT	$452,500	5.7	$79,385.96
Madison Bumgarner	SF	$450,000	5.5	$81,818.18
Ian Kennedy	ARI	$423,000	5	$84,600.00
Cameron Maybin	SD	$429,100	4.7	$91,297.87
Mike Stanton	FLA	$416,000	4.5	$92,444.44
Justin Masterson	CLE	$468,400	4.9	$95,591.84
Peter Bourjos	LAA	$414,000	4.3	$96,279.07

Least Valuable Players

Player	Team	Salary	WAR	$/WAR
Kosuke Fukudome	CHC	$14,500,000	-0.2	($72,500,000.00)
Juan Pierre	CWS	$8,500,000	-0.4	($21,250,000.00)
Alex Rios	CWS	$12,500,000	-0.7	($17,857,142.86)
Aubrey Huff	SF	$10,000,000	-0.6	($16,666,666.67)
Raul Ibanez	PHI	$12,166,666	-1.3	($9,358,973.85)
Bronson Arroyo	CIN	$7,666,666	-1.3	($5,897,435.38)
Ichiro Suzuki	SEA	$18,000,000	0.2	$90,000,000.00
Vernon Wells	LAA	$26,187,500	0.3	$87,291,666.67
Carl Crawford	BOS	$14,857,142	0.2	$74,285,710.00
Jason Bay	NYM	$18,125,000	0.7	$25,892,857.14

Our analysis indicates that Los Angeles Dodger’s pitcher Clayton Kershaw was the most valuable player in the Majors in 2011, costing just over $73,000 per win above replacement. Amazingly, Seattle Mariners’ outfielder Ichiro Suzuki was the least-productive productive player, with his club shelling out $90 million per win above replacement he provided. Chicago Cubs’ outfielder Kosuke Fukudome brings least valuable to a new level; theoretically, should have owed his team over $72 million per win (below) replacement.

So there you have it: Kershaw for NL MVP. Value aside, his “hard” stats alone could potentially serve his case (9.57 K/9, 4.59 K/BB, 2.47 FIP). In the AL, forget the heavy hitters out east. Catcher Alex Avila of Detroit has been the most valuable player. Costing just above the league minimum in salary, Avila posted a very impressive .895 OPS while fielding baseball’s most difficult position flawlessly. Each player a star; each player a bargain. The essence of an MVP.

Below, check out the “most valuable team” for the 2011 season:

C: Alex Aliva, Detroit Tigers
1B: Gaby Sanchez, Florida Marlins
2B: Neil Walker, Pittsburgh Pirates
SS: Elvis Andrus, Texas Rangers
3B: Ryan Roberts, Arizona Diamondbacks
LF: Bret Gardner, NY Yankees
CF: Andrew McCutchen, Pittsburgh Pirates
RF: Mike Stanton, Florida Marlins
DH: Billy Butler, Kansas City Royals
P: Clayton Kershaw, LA Dodgers

Using Free Agency to Assess the Valuation of Draft Picks in MLB

Gerrit Cole / MLB Amateur Draft - First Overall (2011)

Untelevised and hardly analyzed, Major League Baseball’s amateur draft is certainly less hyped than its cohorts in the other Big Four sports. But does a lack of coverage equate to diminished importance? Some will argue the affirmative, citing the unrefined skill of baseball draftees and the clouds of doubt that often surround their abilities to develop into full-fledged major leaguers. Such uncertainty is not necessarily characteristic of recently drafted players in the NFL or NBA, where a top pick can almost instantly contribute to his team.

Among others, however, this anti-draft sentiment is waning. The channeling of patience and resources into farm systems as a plausible explanation for the recent success of small-market teams such as the Tampa Bay Rays and Cincinnati Reds suggests that perhaps the draft can be a powerful vehicle in driving a franchise to success against the odds.

So, which philosophy ultimately reigns supreme in Major League Baseball? Have major league front offices placed greater value on draft picks in recent years? Though seemingly unrelated, we can use the free agent compensation system as a litmus for gauging the changing valuation of draft picks in baseball.

To explore this question, it is first useful to breakdown the convoluted free agent compensation system. Pursuant to the current Collective Bargaining Agreement, each year, the third-party Elias Sports Bureau designates labels of “Type A” or “Type B” to select, primer free agents. Type A indicates the player is in the top twenty percent of his free agent class, while Type B indicates he is within the top forty percent.

(Read how Type A and Type B free agents are chosen)

When a team loses a Type A or Type B free agent, it gains a compensatory supplemental draft pick in the amateur draft. In addition to this extra pick, teams losing a Type A free agent also receive the first round draft pick of the team signing that player.*

*As a caveat, the team obtains these picks only if it initially offered binding salary arbitration to this player as an alternative to free agency. Generally, (and in all the cases discussed in this column), teams indeed offer arbitration to designated free agents as a means of hedging its losses should the player sign elsewhere.

Thus, in our analysis, Type A free agents who have been offered arbitration will be of interest, as these players “cost a draft pick,” so to speak. Economic theory succinctly states that the cost of something is what you give up to get it. That is, not only should tangible monetary cost be used in the valuation of a commodity, but also the “opportunity cost” must be considered.

Therefore, the cost of signing a Type A free agent is not only the monetary value attached to that player’s contract, but also the perceived cost of the forgone draft pick. Singing a Type B or undesignated free agent costs a team only the monetary value ascribed to the player’s contract.



If draft picks are indeed gaining value in the eyes of baseball front offices, we should see that salaries of Type A free agents are falling at a greater rate than are the salaries of Type B and undesignated free agents.

In order to account for the fact that Type A free agents are likely better compensated by the very virtue of their Type A status, we will compare the changes in salary within player designation rather than across it

**It should be noted that the designation system is so warped that this clustering may not even be warranted. To this point, following the 2010 season, Ramon Hernandez received a Type A designation and Lance Berkman was deemed Type B. Case and point.

Moreover, this analysis will only consider the free agent market for starting pitchers for the sake of uniformity. To evaluate all free agents holistically would disregard the nuanced, unique value of players in each position. The following is data shows the average salaries for the 59 free agent starting pitchers from 2008-2010, sorted by free agent rating.

No Designation/Type B Type A 2008 $4,948,148.15 $18,166,666.67 2009 $5,132,456.14 $16,500,000.00 2010 $3,678,333.33 $14,333,333.33 Avg. % Change -12.30% -11.15%

Granted, salaries for Type A free agent pitchers have declined over the past three years, perhaps suggesting that draft picks are becoming more highly valued. However, given that salaries for both groups of players have declined at roughly the same relative rate renders market factors the likely driving force in the decline. In other words, the fact that these percentages are essentially equal indicates that the prospect of losing a draft pick is more or less negligible for teams signing Type A free agents.

So, what may be the cause of this phenomenon? Why might teams disregard draft picks in their assessment of free agent talent? For one, the uncertainty of the materialization of top draft picks is undeniable. In a Sports, Inc. article from Spring 2011, I noted that the average top five draft pick from 2003-2006 contributed .027 Wins Above Replacement (WAR) per game throughout the course of his career. Here, WAR was assessed on a “per game basis” to account for varying career lengths. To place that figure into perspective, that equates to a similar level of production as Minnesota Twins’ Nick Blackburn in 2011 (4.49 ERA, 1.60 WHIP). Acceptable? Barely. Profound enough to make a team think twice about signing a top free agent? Highly unlikely.

This scenario should cause top free agents to breathe a sigh of relief. The MLB Player’s Association has long contested the Elias ranking system as it (presumably) serves as a means of repressing the free agent market. Players fear our very hypothesis, that teams will consider the cost of relinquishing a draft pick before shelling out top dollar to Type A free agents. No need for them to worry though. The draft is hardly valued.

Division "De-Alignment"

Will Bud Selig green light a huge change to Major League Baseball?

“Contract the Twins!” “Relocate the Marlins!” “Expand the playoff field to five teams!” For years, we’ve heard a wide range of calls to alter the state of Major League Baseball. And even though these refrains have failed to outlive the early stages of deliberation, they retain symbolic significance, echoing the penchant for change that pervades the thoughts and desires of baseball officials. Simply put, Major League Baseball is always up for trying something new.

The current hot topic of debate: division realignment (or, perhaps more aptly termed, division “de-alignment”). Read about it after the jump.

Commissioner Selig insists that such a change is far from imminent, but rumors abound that MLB is in the midst of weighing a radical new plan for league configuration. The plan entails balancing out the American and National Leagues into fifteen teams each (presumably by moving the Houston Astros from the jam packed NL Central to the sparse AL West), then abolishing the division system altogether, leaving the top five teams in each league to advance to the postseason.

Although this system is undoubtedly not without flaws (i.e. mitigating potential September pennant races), there are a variety of practical reasons for division realignment. Each reason ultimately boils down to baseball’s favorite goal: equity.

Perhaps the most straightforward and logically sound argument made by proponents of realignment is that the current system is inherently unfair. Since the AL West contains only four teams whereas the NL Central houses six teams, certain teams have a better chance of advancing to the playoffs by virtue of pure statistics. How ironic, for a sport that has made long strides towards leveling the playing field, to so blatantly disregard a serious impediment to equity. Pursuant to this point, since divisions were aligned to their current format in 1995, each AL West team has enjoyed multiple division crowns, while only four of the six NL Central teams have proudly hung division banners.

Second, the current playoff qualification system has paved the way for inferior teams to squeeze into the playoffs over undoubtedly superior teams. Because each division winner is automatically awarded a playoff berth, mediocrity is often rewarded. In 2008, for instance, the Los Angeles Dodgers won a mere 84 games- tied for seventh best in the NL- yet advanced to the playoffs because their division was so incredibly weak. A similar event took okace in 2004 when the San Diego Padres won the NL West with just 82 wins, also good (or bad) for seventh in the NL.

Lastly comes the economic argument for division realignment. The magic words “competitive balance” strike a chord when discussing any MLB policy, and the issue of realignment is no exception. From 2009-2010, the average payroll by division was as follows:

AL East: $106,830,039.40

NL East: $91,253,239.80

AL Central: $85,710,282.00

NL Central: $86,307,420.83

AL West: $85,775,491.00

NL West: $ 75,096,581.60

Clearly payroll is not equal across the divisions. This issue is particularly poignant for small-market teams like the Tampa Bay Rays, who are consistently competing with the budget-less New York Yankees and Boston Red Sox in the goldmine that is the AL East. Doing away with divisions could address the increasingly difficult task of winning games for hard-luck poorer teams.

Talking specifics, moving the Astros to the AL West may actually be favorable for the financial state of baseball. Though constant interleague play is an unfavorable proposition to many, from an economic standpoint, interleague play may actually be beneficial. In 2010, average attendance for a Rangers-Astros interleague matchup was 36,344. This represents a nearly 16% increase from any other games played by these teams, where average attendance was 31,407 fans. (See this article for more on the success of interleague play in 2010.)

Of course, a full debate over the specific terms of realignment deserves its own blog post. But it should be evident that the status quo in the realm of alignment is unsustainable if baseball is going to achieve equity.

Five Unconventional Predictions for the 2011 MLB Season

Your 2011 World Series Champions: Atlanta Braves

In all places not Ithaca, winter has finally drawn to a close, and life has re-emerged. Of the many signs that spring is underway, the onset of a new year in Major League Baseball is certainly one of the most exciting. Why? Because the possibilities for all* teams are virtually limitless. Did anyone predict a San Francisco Giants-Texas Rangers World Series last year? Probably not. Who would have expected the Cincinnati Reds to win the NL Central and Joey Votto to take home the NL MVP? Not I. And who thought the perennially bad San Diego Padres would hang in the playoff hunt until the final day of the season? Definitely not I. So with the concept of “possibility” in mind, I give you five predictions geared around the notion that anything could happen this season. The goal of this post is not to reiterate common baseball perceptions, but rather to spark debate and shed light on the new season’s vast realm of possibilities.
*Does not include Royals, Indians, or Pirates

Check out the predictions after the jump:

1. If you’re looking for this year’s Giants, then search no further than across the San Francisco Bay. The Oakland Athletics will win the American League West for the first time since 2006, and could even make noise in October. Granted, the A’s are something of a trendy sleeper pick this season, but they are still underdogs by nature. Their patchwork veteran lineup coupled with a foursome of up and coming young pitchers (Trevor Cahill, Gio Gonzalez, Dallas Braden and Brett Anderson), mirrors the San Francisco model from last season. In 2010, both teams were, by most accounts, average offensively, ranking 17th and 23rd, respectively, in runs scored. But the Giants were able to propel themselves into and through the playoffs on the brute strength of their arms. The team lead the majors with a 3.36 ERA and were fourth in WHIP at 1.27. The A’s were right behind them, fourth in ERA at 3.56 and sixth in WHIP at 1.28. Perhaps most relevant to success is the category in which the A’s lead all teams, including even the Giants: quality starts. The A’s had 103 of those compared to the Giants’ 95. In other words, the A’s starters kept their team in the game more than any other team in the majors. Throw in a bit of timely hitting (the addition of former World Series MVP Hideki Matsui will assist here), and the A’s should be able to overtake the Cliff Lee-less Rangers.

2. To anyone who jumped to crown the Philadelphia Phillies National League champs back in November, keep in mind that baseball is not won on paper. I am not a member of the Phillies’ overcrowded bandwagon, nor do I foresee an NL crown in their immediate future. In fact, I don’t even see an NL East crown in their near future. Talented as their pitching rotation may be (and make no mistake, it is indeed tremendous, possibly the best ever), their lineup is littered with questions, ranging from the health of Chase Utley to the vacancy left by Jayson Werth in right field. According to FanGraphs, these two accounted for 10.2 Wins Above Replacement (WAR) in 2010, a level of production that even the signing of Cliff Lee (2010 WAR = 7.1) cannot counter alone. While I like the Phillies to come away with the wild card, the Atlanta Braves, who, top to bottom, may be the most well balanced team in the league, are ripe to win this division. In the process, I see Tommy Hanson emerging as one of the game’s elite starting pitchers.

3. As embodied in Philadelphia, the National League is saturated with great young pitchers. How can you choose just one Cy Young winner among Roy Halladay, Cliff Lee, Tim Lincecum, and Josh Johnson? You don’t. Yovani Gallardo of the Milwaukee Brewers will win the National League Cy Young Award in 2011. Gallardo is a young, emerging pitcher who appears ready to take the next step into stardom. His 9.73 strikeouts per nine innings (K/9), good for third best in the majors, illustrates his electrifying stuff. But here’s the real catch: last season, he endured a .324 BABIP, the eighth highest in the league. What does this mean? It means that of all balls put into contact off Gallardo, over 32% landed for hits. The assumption among sabermetricians is that pitchers do not control whether a batted ball lands for a hit, meaning Gallardo endured a rather unlucky season. Should his BABIP regress to a more typical .300, you can expect an improvement in his stats all across the board.

In the American League, I like Jon Lester of the Boston Red Sox. It’s hard to bet against the Seattle Mariners’ Felix Hernandez, who lead the league in virtually ever category in his 2010 Cy Young campaign, but Lester has shown nothing but promise, boasting a 3.25 ERA, a 1.20 WHIP and a better-than Gallardo 9.74 K/9.

4. San Francisco’s Buster Posey and a New York Yankee will win the respective league MVP awards. Posey, last year’s NL Rookie of the Year, will add the NL MVP to his growing collection of baseball trophies in his first full year in the majors. Posey had a WAR (Wins Above Replacement) of 3.9 in just 108 games last season. That’s an average of .036 WAR per game played, a figure almost identical to fellow star catcher and former AL MVP Joe Mauer of the Minnesota Twins. If the Giants are to repeat, Posey will be essential to their defense. My ambiguous “Yankee” pick is one of two players: Robinson Cano or Alex Rodriguez. Cano seems like the more standard choice, who, after a monster year in 2010, proved to be the centerpiece of the Yankees offense. His numbers featured a 29 homeruns and a .915 OPS. My A-Rod pick is more of a gut feel, one that is harder to quantify. He had a great spring training, and he could return to 2009 postseason form. Regardless of who wins, it is evident that the Yankees will need to slug their way to a playoff berth, as the re-tooled Boston Red Sox are far and away the class of the AL East. I think the Yankees have the hitting to squeeze into the playoffs, and should they do so, their top hitter should be recognized accordingly.

5. It’s difficult not to pick a Red Sox-Phillies World Series. There’s a good reason these teams are the Las Vegas favorites, as Boston seems to be the most complete team in baseball (by far) and Philadelphia’s killer rotation makes them a dangerous matchup for anyone in the postseason. But for argument’s sake, I’m going with this Fall Classic: Atlanta Braves over Chicago White Sox, in seven games, catcher Brian McCann is the MVP. The White Sox, with a deep pitching staff and solid lineup, will enjoy their signing of Adam Dunn. Dunn was born to be a DH, and the White Sox desperately needed a power hitter in the heart of their lineup. He should put them over the hump in the ultra-close AL Central, where the Detroit Tigers and Minnesota Twins will also vie for the title. Ultimately, I like the White Sox, and I trust their pitching to come through in October and deliver their first AL pennant since 2005. As I mentioned earlier, the Braves may be the most complete team in the National League. Their pitching, bullpen, and lineup (featuring a more experienced Jayson Heyward and a newly acquired Dan Ugggla) will propel them to their first title since 1995.

What are your predictions for the 2011 MLB Season? Let us know in the comments below.

A New Solution to Competitive Balance in Major League Baseball

Is it time for the Diamondbacks and Pirates to start spending some money?

Why MLB Needs a Salary Floor

During the 2002 labor negotiations, baseball owners arrived at the bargaining table with a unified central vision: To improve competitive balance while curbing skyrocketing player salaries. The most obvious way to achieve this goal would have been through a salary cap, a paradigm enjoyed by owners in the other Big Four sports. The MLB Player’s Association, however, vehemently opposed this policy, as it would have limited large-market teams from setting the salary bar indefinitely high during free agency.

So the owners and players compromised. The new Collective Bargaining Agreement (CBA) called for the institution of something of a “soft” salary cap. In comparison to a hard cap, under which teams cannot surpass a certain salary limit, a soft cap simply creates a disincentive system towards such excessive spending.

Two key facets of this soft cap scheme were the luxury tax and revenue sharing. The luxury tax, in essence, punishes the New York Yankees for crossing a certain threshold payroll (I say “punishes the Yankees” because the threshold has been so absurdly high that the Yankees have been the only perennial contributors to this fund). Moreover, given the requisite financial health of teams paying it, the luxury tax has been little more than a slight nuisance, rendering it ineffective as a means of inducing competitive balance and restricting salaries.

Revenue sharing, on the other hand, has had a more complex effect on the economic state of MLB. It is fairly self-explanatory, as teams set aside a portion of their yearly revenue (around 31%), which gets pooled together and then redistributed evenly. To get a sense of how this affects overall competitive balance, the mean revenue for teams in 2009 was $196,600,000, with a standard deviation of $57,308,963. That figure dropped to $39,543,184 after revenue sharing, indicating the variance in revenues decreased quite a bit through this practice. Needless to say, this revenue sharing system can improve competitive balance by providing poorer teams with more cash.

Revenue sharing also serves a means of salary depression. According to economic theory, without revenue sharing, owners simply need to ensure that a player’s value equals his marginal revenue product (MRP). That is, a player is worth the value he returns in the forms of ticket sales, merchandising, etc. With revenue sharing, however, owners now need to ensure that a player’s salary is restricted to just 69% of his MRP, as the owner will need to share 31% of his value with other teams. Owners will therefore be less willing to grant large contracts, or, at least, contracts that respect a player’s true market value.

It appears that this system falls nicely into line with the owners’ aforementioned goals. This is partially true. Granted, revenue sharing boasts a foundationally sound framework for depressing player salaries. With regards to competitive balance, however, the revenue sharing structure is fundamentally flawed. Why? Because the system says nothing about how shared revenue is to be spent. This loophole has created an ironically adverse effect, allowing teams to gain revenue while stagnating salaries and thus doing nothing to improve overall competitive balance.

Let us examine this phenomenon in further depth. The average shared revenue by teams in 2009 was $60,946,000. Ideally, all twenty-two teams generating less than this figure (and thus benefiting from the subsidy) should be using the money gained to increase their payrolls. Thus, for these organizations, we should find that 2010 payroll as a proportion of adjusted revenue should be greater than 2009 payroll as a proportion of initial revenue. For nearly two-thirds of the relevant teams, however, this assumption fails to hold true.

Declines in Payroll as a Proportion of Revenue After Receiving Revenue Sharing, 2009-2010

Team	2009 Payroll/Initial 2009 Revenue	2010 Payroll/ Adjusted 2009 Revenue
Los Angeles Dodgers	51.49%	48.57%
Seattle Mariners	50.98%	50.50%
Atlanta Braves	50.64%	43.80%
Cleveland Indians	43.39%	32.10%
Toronto Blue Jays	43.77%	33.36%
Milwaukee Brewers	43.82%	43.32%
Cincinnati Reds	43.02%	40.45%
Arizona Diamondbacks	42.99%	33.93%
Kansas City Royals	41.48%	40.54%
Texas Rangers	41.07%	31.48%
Oakland Athletics	39.94%	30.64%
Washington Nationals	38.92%	36.59%
Pittsburgh Pirates	31.41%	20.81%
San Diego Padres	30.16%	23.48%

These teams are the “parasites” of MLB, simply reaping the benefits of other teams’ subsidies while not actually doing their part in Bud Selig’s quest for competitive balance. The Pittsburgh Pirates, Arizona Diamondbacks and Cleveland Indians are the worst violators, each exhibiting drops of roughly 11% in payroll as a proportion of revenue after receiving the subsidy. Low and behold, from 2009-2010, the Diamondbacks and Pirates both came in last place in their respective divisions while the Indians finished next to last. It is unclear where the shared revenue is going, but it is clearly not being used for its intended purpose.

So, with the current CBA expiring in December of 2011, here is a revolutionary proposal: What MLB should do in order to increase competitive balance is not introduce a hard salary cap. On the contrary, what baseball needs is a salary floor. A salary floor is the very opposite of a cap. Instead of limiting spending done by large market teams, the new CBA should simply mandate a minimum amount of money each team spends on salary each season.

Consider that in 2009, payroll accounted for 21% of the variance in wins, indicating that teams must spend their money if they wish to win. Winning, in turn, generates more cash, accounting for 22% of the variance in revenue. This figure of 22% indicates that winning is actually more influential than market size (r-squared= 20%) in determining revenue. This revelation leads to an important insight: small market teams have the capacity to succeed, but they must apply more of their funds towards payroll. A salary floor creates a system of self-regulation that fosters competitive balance through mandated spending. As such, it should be considered in the upcoming CBA negotiations.