Author Archive

The Economics of Baseball’s War on Drugs

People sometimes ask what initially got me interested in economics. The truth is that one of the first things that caught my attention was an application of supply-and-demand graphs that explained the war on drugs. What seemed like a set of policies with unpredictable effects actually had some very predictable — and undesired — consequences. Applying these concepts to Major League Baseball’s war on performance-enhancing drugs is naturally an article I was destined to write. I’ll start off by running through the basics of supply and demand for illegal drugs, show the concepts I found so fascinating years ago, and then show you how well they apply to what MLB is trying to do with PEDs and with Biogenesis in particular. I understand that drugs are a somewhat sensitive topic, and I have no interest in preaching any normative points of view. I will instead trust that readers can think of my commentary as descriptive, and not assume any agenda. I’ll also be peppering in references to The Wire throughout, because I’m definitely never going to get to do it again.

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What Cole Hamels Is Doing Differently

Cole Hamels has not looked like himself this year. After ERAs of 3.06, 2.79, and 3.05 from 2010 through 2012, Hamels now has a 4.61 ERA nine starts into this season. By itself, that doesn’t mean he’s doing anything wrong. Pitchers are vulnerable to random fluctuations and luck in nine — or even in 30 — starts. For example, take the Hamels from 2009: After the left-hander finished 2008 with a 3.09 ERA and a World Series MVP trophy, expectations were high for the next season. But Hamels fell by the wayside and posted a 4.32 ERA, even though his walk, strikeout, and ground ball numbers were all in the normal range for him.

His DIPS numbers suggested that there wasn’t anything really wrong with Hamels then, and that with a little bit of patience, he would go back to dominating hitters as he had previously. In 2010, that suggestion came to fruition, and Hamels went right back to being one of the game’s premier left-handed starters.

Fast forward to 2013, and Hamels ERA is up once again. However, this time, something does look different. Look at his walk rate, his strikeout rate, his SIERA and his ERA in the past six years:
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Why First Basemen Get Paid So Much

First basemen and outfielders seem pretty overpaid if we look at their salaries and their WAR. At the same time, catchers and the three other infield positions seem pretty underpaid. As I showed in February, second basemen were only paid about $3 million per WAR from 2007 to 2011; first basemen were paid exactly twice that much. I think I might know why.

Claims that some positions are relative bargains using $/WAR hinge on “positional adjustments” — estimates of how much more valuable equivalent production is from different positions — using what hypothetical defensive performance would be if you moved players between positions. Last month, I looked into how much credit general managers seem to give performance at different positions, and how offensive performance varied across those positions. My logic was that, if the average first baseman produces only a few more runs per season than the average second baseman, then it may explain why general managers pay so much more for power-hitting first basemen.

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Valuing Midseason Trade Targets

Buyers pay a premium for talent at the trade deadline when compared to the regular season. The production of a difference-maker in the playoffs — or just in a pennant chase in the regular season — is extra valuable right now, and it’s not just that talent is scarce. The wins themselves matter more. Today, I’ll show that the value of wins is actually about 44% higher now than it was at the beginning of the season.

Jesse Wolfersberger did a great job last week highlighting the effect of the new wild-card spot on the marginal value of a win, in terms of playoff probability. It is important to remember that what Jesse found related to the effect of getting one additional win on the probability of making the playoffs, based on what you know about your competitiveness at the beginning of the season. But in the middle of the season, it is far clearer to the Braves and to the Angels that one win might make all of the difference, since they both know that they are in the thick of the race and that there are a bunch of other teams near them in the standings. This makes the value of talent now higher than it was before the season started.

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Extend Cole Hamels Now (If You Want To)

If you took MRIs of Cole Hamels’ arm right now, he would probably get a clean bill of health. So would most elite pitchers who were about to receive nine-figure contracts. But that does not mean that they are likely to maintain their health and their elite performance level. Pitchers often fall apart soon after changing teams. I have written about this many times before, most notably in this year’s Hardball Times Annual. In that article, I produced the following chart of millions-of-dollars-per-WAR spent by teams for re-signed players (RSP) and other people’s players (OPP) in all multi-year deals ending between 2007 and 2011.
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Why Do First Basemen Get Paid So Much?

This April, Joey Votto signed a contract to man first base for the Reds for the next 12 years. For context, a dozen years ago, Jeff Bagwell was the first baseman who had just led the league in WAR. Votto is unlikely to be very productive in 2023, but the Reds already know this. This is just a $22 million-per-year payment plan to avoid having to pay Votto the $40 million they think he’s worth now.

In the past couple years, we’ve seen massive contracts given out to first basemen. Seven of 30 starting sluggers on the cold corner are currently playing with contracts in excess of $100 million, including Mark Teixeira, Miguel Cabrera, Ryan Howard, Adrian Gonzalez, Albert Pujols, Prince Fielder and Votto. In contrast, there are seven other position players — combined — who are playing with $100 million contracts.

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Translating Farm System Rankings into Wins

Knowledgeable baseball fans clamor for rankings of farm systems every offseason. Experts’ opinions are highly coveted, as fans eagerly await information on where their team’s prospects rank. This year, Baseball America ranked the Rangers atop its list, with the Royals just behind them. On the other hand, The White Sox’ and Indians’ farm systems were ranked at the bottom.

This year’s rankings saw big spenders like the Phillies, Dodgers and Tigers in the bottom-third in baseball, while the top-third included some teams with the lightest payrolls — like Rays, A’s and Padres. Obviously fans want their teams to be big spenders on veterans — and big farmers of young talent — but which is more important? What does a good ranking mean in the win and loss columns, and how much can payroll explain that performance?

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Nationals Wisely Extend Ryan Zimmerman

When the Washington Nationals and Ryan Zimmerman began negotiating his $100 million extension, Zimmerman was already bound to the team for 2012 and 2013 seasons. Even still, the Nats decided to give him a $100 million guarantee this weekend in exchange for his services from 2014 until 2019. Zimmerman’s performance through his 34th birthday is now the property of the Nationals. Washington had two years to decide whether to make such an investment in Zimmerman’s health and extended performance — but they decided to take the risk now.

The deal’s critics already pointed out Ryan Howard’s questionable extension in April 2010 — also two years before he became free-agent eligible — but there are a number of recent contracts that may be better comparisons for Zimmerman’s. While Howard’s deal appears that it will be a major overpay, it turns out these contracts generall work out quite well for teams. Instead of being unnecessary risks, they are usually hedges against spending even more money in the future.

Utilizing all contracts of players with at least six years service time from 2007 to 2011, I searched for deals that were signed at least two years before the player was eligible for free agency and that bought out at least three free agency years. I included deals that bought out arbitration years as well — though these  obviously are different than Zimmerman’s new contract — and found 11 contracts that met these criteria. To quantify these contracts’ values, I looked only at performance and pay from 2007 to 2011. This excluded six years of these deals that started before 2007, and 14 years of these contracts that ended after 2011.

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Positional Differences in the Price of WAR

This week, I’ve talked about the retrospective price of WAR on an aggregate level. What I haven’t studied is the retrospective price of WAR by position. I thought this was particularly important in light of my finding that positional adjustments didn’t matter much for arbitration salaries. Players who played tougher defensive positions were underpaid in arbitration, relative to those who played easier defensive positions. As it turns out, the price of WAR has been much more expensive for some positions.

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A Retrospective Look at the Price of a Win, Part Two

Yesterday, I discussed an important finding about the use of FanGraphs “Dollars” when evaluating past contracts. Specifically, I found that for all players with at least six years of service time in the past five years, their “Dollars” statistics summed $7.41 billion — but they were paid $8.46 billion. Players were paid 14% more than we estimated their market value to be at the time. This was happening primarily because we used projection systems that over-estimated playing time — with the side note that free agents tend to under-perform projections, anyway. Then there was this caveat: The $8.46 billion in total salaries doesn’t even take into account the value of draft picks surrendered to sign those free agents, which is another $780 million.

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A Retrospective Look at the Price of a Win

Barry Zito got paid $18.5 million last year and produced -0.4 Wins Above Replacement. You and I checked in at about 0 WAR — and by staying off the field, we out-produced Zito. I don’t know about you, but my paycheck didn’t look anything like Zito’s last year. And while my employer might be happy about that, the Giants are wondering what they got for their millions. In the everyday business world, an employer could find a way to get rid of a guy like Zito — an under-performing, overpaid employee. The Giants can’t. In fact, to get another team to take him, they’d need to pay most — if not all — of his salary. Regardless of his performance, Zito’s getting his money.

Then there’s Albert Pujols. He was paid $16 million last year and he produced 5.1 WAR. There’s nothing wrong with $16 million, if you were the St. Louis Cardinals. In fact, Pujols was worth a lot more. Teams fell over themselves trying to give Pujols a 50% raise this off-season, and that was no surprise.

So we know that the Giants had a bad deal with Zito, and the Cardinals had a good deal with Pujols. Those are extremes, and they’re obvious. But baseball, like life, is usually lived in a gray area — like the players who got the medium deals. But to figure out who those guys are, a more sophisticated analysis is required.

In today’s and tomorrow’s articles, I’ll determine the average price paid for a win in the past five years. To do this, I’ll first explain the difference between the expected price of wins before a season begins and the actual price paid after a season is finished. There are several important differences between expected price and actual price, and they’ll matter when we take a retrospective look at these contracts.

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Testing Projections for 2011

Each year, baseball fans and commentators across the nation make bold predictions about what they expect in the coming year. They frequently make outlandish claims like “Adam Dunn is going to hit 50 home runs in Comerica Park!” or “This is the year that Joe Mauer finally hits .400!” but such predictions are far more likely to be high than low. Sure, if you said Jose Bautista was going to summon greatness going into 2010, you looked pretty smart, but anyone who predicts performance seriously knows that you need to hedge your bets. While frequently accused of being overly pessimistic about whoever your Home Nine are, on average, they land high about as often as they land low. This field of “projection systems” grows by the year, but there are significant differences between them. Today, I’ll evaluate their 2011 projections for hitters and pitchers.

Firstly, lets peak at the candidates:

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Are Pitching Projections Better Than ERA Estimators?

ERA estimators estimate how well a pitcher pitched in the present, and pitcher projections estimate how well a pitcher is expected to pitch in the future. Naturally, we’d expect projections to more-accurately predict pitchers’ future performances, since that’s what they’re designed to do. But it appears that ERA estimators can figure future performance quite well — and SIERA, in particular, has actually done a better job projecting pitcher performance that than traditional projections.

Projecting pitchers is harder than projecting hitters. Not only do pitchers’ skill levels change often, but simply estimating a pitcher’s skill at any given time is challenging. Differentiating their performances from that of their fielders’ — and removing luck — are difficult tasks necessary to isolate pitchers’ true talent.

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More Than They Collectively Bargained For

Major League Baseball’s labor market is unlike any other. Seven billion dollars of revenue enter baseball’s coffers annually, and while nearly half goes to player salaries, the vast majority of that is skewed towards the 25 percent of major-leaguers who have at least six years of service time.

Andy Van Slyke once told our own David Laurilia, “I think that baseball, at its core, is the purest form of capitalism that we have in our society.” For an economist who also admired Van Slyke growing up, hearing that statement aged my heart a few months. Fewer statements could be further from the truth. Between the artificial oligopoly limited to 30 teams; a draft determining which one of these 30 teams is allowed to employ players for the entirety of most of their careers; and the reserve clause, baseball’s labor market is largely an artificial remnant of the Collective Bargaining Agreement that’s in place.

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How Compensation Picks Stifle Free Agent Salaries

The Major League Baseball Players Association and owners of Major League teams have just completed a new Collective Bargaining Agreement, as the previous agreement expired this December. One of the most underrated differences being discussed among the many changes is how the two sides resolved “compensation” for teams that lose free agents. The previous rule in recent years stated that when a player is ranked as an elite (“Type A”) player by Elias, the team that signs him forfeited their first or second round draft pick to the player’s previous team, and the player’s previous team picked up an additional “sandwich” pick between the first and second rounds as well (as long as the previous team offered salary arbitration to the player). When a semi-elite (“Type B”) player signed with a new team, then the previous team only received the sandwich pick, but no pick was transferred between teams.

On its face, it sounded like a fair gesture to maintain parity, but it really only served one main purpose—to act as a restraint on salaries and drive down the prices teams would pay for players on the open market. The “compensation pick” that a team forfeited when they sign a new player is actually what economists would consider a tax. When an employer has to surrender something valuable other than salary (cash or otherwise) to hire an employee, this has the effect of suppressing salary offers.

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Who Should Start Game Four for the Phillies?

Philadelphia Phillies skipper Charlie Manuel is expected to decide soon that Roy Oswalt will be the fourth starter for the club heading into the postseason. The decision obviously would come at the expense of 23-year-old standout Vance Worley, whose rookie season has made some folks in the City of Brotherly Love wonder if he’s the real fourth ace in this star-laden rotation.

Certainly, Manuel’s decision would have been expected in April when the Phillies entered the season with Roy Halladay, Cliff Lee, Cole Hamels and Oswalt on staff; but a flurry of ineffective starts — and two trips to the disabled list — have marred Oswalt’s season. Worley, meanwhile, now looks like the guy who should have been manning that fourth spot all along. His ERA is 3.00 — compared with Oswalt’s 3.66 — and Worley’s defense-neutral estimators all are about a third of a run better than Oswalt’s, as well.

So should Oswalt really be such a lock for that start? Well, here’s the way to tell: Tell both pitchers to warm up, and then put the radar gun on the 34-year-old’s fastball. If it’s above 91.5 mph, put in Oswalt. If it’s below — well, you know the answer.

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SIERA Mailbag Answers

1. What is SIERA? Sounds like xFIP to me. Give me one sentence on it.

SIERA is an estimator of what a pitcher’s ERA would be with average luck, defense, and park, by looking at other pitchers with similar strikeouts, walks, and ground ball rates in recent seasons, and goes a step further than similar estimators by accounting for the BABIPs and HR/FBs of similar pitchers.

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SIERA Mailbag

Please leave questions about SIERA in the comments to this post. I will respond to as many as possible in a follow-up post soon. Thank you all for your interest.


New SIERA, Part Five (of Five): What Didn’t Work

SIERA is now available at FanGraphs, and several important changes have been made to improve its performance, as discussed in parts one, two, three and four. Still, there were some components that I didn’t adopt. For the sake of completeness — and for those interested in what I learned about pitching along the way — I include these in the final installment of my five-part series.

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New SIERA, Part Four (of Five): Testing

SIERA’s updated version was unveiled Monday at FanGraphs, and as part of the release, I’ve been taking readers through its ERA-estimation process. I’ve written about SIERA’s ability to predict BABIP and HR/FB, and then I broke down its formula and structure. But like any good analysis, it needed to be tested against other estimators.

So far, the results are pretty conclusive. In fact, SIERA might be the best tool yet to help us understand and better-interpret pitching performance. Read the rest of this entry »