Is The Market Changing?
Yet another year where Major League Baseball seduces its fan base with promises of an action packed winter meetings, only to produce nothing of interest for fans of 25 teams so far. After seeing how many bargains have been found late in the winter, many General Mangers are now content to let the market develop. The popularity of this strategy has led to an interminably long wait for deals to be struck.
I wonder, though, whether the late bargain market will actually develop this year. We’ve had about 10 free agent signings so far, and the price so far has come in around $3 million per win, significantly reduced from prior years. Essentially, the only players who have signed have been ones willing to take a discount. We’ve seen something of a reverse bidding war, where teams are telling players that they’ll sign the first guy from among a group of similar free agents to take a specific deal. Rather than teams competing over players, now players are fighting for roster spots, and it’s driven prices down.
However, I’m skeptical that this trend will last. It may be tempting to look at the signings so far and claim that teams are cutting back on spending, but I’d bet that we’re just seeing a selection bias. The guys who have signed so far are not a representative sample of the free agent population – they are mostly aging players on the decline, more interested in finding a landing spot than cashing in. These are the types of players who were waiting for contracts in February, and they have reacted by taking deals early and solidifying their place on a team.
To me, it looks like the free agent market has flipped. The guys willing to take a discount are signing early, while the guys who want to be paid are going to drag this process out through the winter. MLB’s revenues weren’t down that much in 2009 to where the numbers support a big pullback on spending this winter. There are teams with money to spend who just haven’t opened the wallets yet. When they do, I’d bet we’ll start to see some deals back over $4 million per win.
The late market might not be so full of bargains this year. The expectation of the market developing as it did last year may have changed the dynamics of how this thing plays out.
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I think it’s likely that pundits will look back at the end of the offseason and announce that the market has changed and the recession is hitting teams hard and that teams are cutting back on their spending because the contracts handed out will be smaller than in years past. However, I think this will be more of a reaction to the fact that it’s a relatively weak free agent market rather than a recession or a change in teams’ collective spending habits. Few will look at it in terms of dollars per win and instead will look at raw dollars and contract years and say, “Gee, teams sure are getting thrifty!”
Absolutely teams are more budget conscience today and it is affecting the free agent market. Some team owners are having financial difficulties outside of baseball: McCourt, Hicks, etc. MLB is not immune to macroeconomics.
And those owners will eventually sell to owners who aren’t having difficulties, and who want the ego boost that owning a team provides. There always are some. In any downturn there are still rich people, some outrageously so; there were people living the high life throughout the Great Depression, too. Conspicuous consumption may be (temporarily) out of fashion, but the ego can’t be denied. You only have to find 30 “winners” among the losers and the wheel keeps turning.
It’s true that attendance was down about 6.6% this year, but that was nothing like what some feared this time last year (and a big chunk of that drop — almost a third! — was merely due to reduced capacity in the new New York stadiums). I haven’t seen an “official” revenue figure from MLB (and it might be impolitic for them to release it if it doesn’t show a corresponding decline, so the numbers may require more cooking than usual this year) but it’s quite possible that overall (industry-wide) revenues didn’t decline at all — those new stadiums in New York brought in more revenue (yes, even with the empty box seats in the Bronx), several big market teams made the playoffs, and the new MLB Network added a couple of hundred million to the coffers. Heck they even made a couple million on the MLB iPhone App.
There’s no doubt some of the smaller teams didn’t do so well, and some like the Pirates got hurt badly (and the yard sale on talent that’s been going on in Pittsburgh since before the trade deadline is evidence) but baseball as a whole isn’t feeling the effects all that much. Certainly not enough to suggest that the teams need to pay 25% less per win.
But they certainly would like to. Any opportunity to spend less for the same talent would obviously be welcomed with open arms (by the teams, of course, not the players). So if the owners can all sit around mumbling about the “economic downturn” while winking and nudging across the table, it’s possible they can reach a sort of gentleman’s agreement to not break the bank or raise salaries, maybe even lower them… at least for now.
But it won’t last: the same competitive forces that were driving ever-larger salaries are still there, and will reassert themselves eventually. The teams have tried to collude before, covertly and overtly, and it always ends in failure. They might get away with it this offeason, maybe even next, but the egos are too strong and the temptation is too great: sooner or later somebody always chases a comparative advantage to the detriment of the “greater good” by offering a contract that breaks the “understanding” and the escalation resumes. And of course the MLBPA is out there too, ready to trumpet any shenanigans it might detect. So as long as “recession” is on everyone’s lips a decline in $/win is plausible, but that may not even last out this offseason. It’s early days yet. And the Yankees did most of their big ticket shopping last year; just wait until they lose a series to the Red Sox and feel the need to deploy some of that new stadium revenue to buy themselves some fresh ammunition.
I agree. I often find it interesting how quickly us sabermetric types say “small sample size” when it comes to player performance, but completely ignore that advice when looking at other aspects of baseball. I do it too, so that’s not an accusation.
The player market is correcting itself because most teams now have business people making spending decisions instead of retired ballplayers.
Also, if the arbitrators don’t recognize this, we’re going to see more players not being offerred arbitration and the ones that are more inclined to accept.
I think you’re missing an important part of this. The Dodgers not tendering any of their free agents, and the overall number of comp free agents across the league at its lowest level in a long time if not ever, are obvious indications that teams simply cannot afford to get stuck with a contract if a guy accepts.
I’m sure some are pointing to the Wolf offer by Milwaukee as evidence of the Dodgers idiocy. But then what about the Soriano situation. He gave the Braves permission to trade him, but who is going to give up anything for a guy who is going to out-price the market with his arb award?
If Detroit did not have Mags contract hanging over their head there is no way they deal Grandy, and maybe not Jackson. The point is that even larger market teams are concerned about their ability to eat a large deal in order to get a draft pick. The Dodgers would have been risking $6-8 million for draft picks. The better business decision is to get a non-comp starter for half that and go over-slot in rounds two and three. Or save the money and hope payroll is not down 7% again.
One of the other trends that sabermetric thinking has brought to the forefront in recent years is the value of cost controlled players. Most teams are just starting to realize this (others did earlier); replacement level veterans were still being signed even into last year (Aaron Miles, 2/5M) for roles that can be easily filled on the cheap. I’m no economist, but given that falsely inflated bubbles exist in many markets, I’m not sure why baseball is excluded. Obviously in a recession, a yacht is still a yacht and is sold as such; elite players still get paid. But I think part of the market correction is in the mid-level players, and more than just declining veterans. Their production can be replaced for league minimum or closer. But before more team’s realized that, they paid middle relievers 3M/year or bench players 5M, therefore overvaluing the win. Just thinking out loud.
Nice article.
I would add that just because revenues are about the same, it does not mean that the same amount of money is available, as each team has contracts that they have already committed to plus newly arbitration eligible players. For example, the Giants looked to have a lot of money available during the season, but with Lincecum, Sanchez, Wilson (plus other) looking for arbitration gold, they suddenly look like they might not have much money available. Could there be less money available this year?
I was sort of thinking earlier that it might make sense for GMs to seek the advice of economists. If, for example, a team of economists sees the recession improving within the next year, wouldn’t it make sense to sign more players now at their current market values, with the understanding that when the economy rebounds, years 2, 3, and beyond would look like absolute steals?
Yeah, because economists are so good at predicting things like, say, economic downturns. (Yeah, I know, there were plenty of people pointing out the bubbles, but in general the great thing about “a team of economists” is that if there are seven guys on that team you’ll get eight different opinions. Unless they’re doing “consensus” group-think, in which case they’ll most probably all be wrong together.)
More to the point: in the free agent era, salaries have always escalated. As a result, the dollar amounts of deals usually look at least a little better in the later years of the deal, and the most sensible deals often look like “steals” by then. (The bad ones of course tend to look bad no matter what.) Only if the teams are colluding to keep salary inflation in check (or there’s some other deal via the CBA with the MLPA) would that not be the case.
But the trouble is, players aren’t gold or foreign currencies. You can’t stockpile them now when prices are low and then cash them in later at a profit. They’re perishable goods, like produce, and you have to use them while they’re still fresh. Moreover you only have 25 roster spots and each of them is relatively specialized: you can try to corner the market on shortstops if you want (or offensive outfielders, if you’re the Nationals), but you also have to try to field a team.
Great post, and great discussion point Dave.
I think there’s probably two very different markets at work here.
If Lackey and Holliday wait until January to sign, I think they’d be unaffected. In fact, it might even enhance their value. The rest of the available talent pool dries up significantly, the trade winds have run their full course, and a few front offices look at those two players specifically and say to themselves, “Here’s the last way that I can signficantly improve my team prior to Spring Training. That’s 4+ wins sitting on the table for the taking if we pony up the cash.”
The second market IMO is the one that exists for second- or third-tier players. I think that one will support Dave’s premise and dry up considerably in late December/January. The brilliant thing that Dave has hit on here is the paucity of available 40-man roster slots leaguewide. I haven’t studied it yet, but if anyone here has the time, I’d love for someone to look at this: I’ll bet that teams protected more players in preparation for the Rule 5 draft than ever before. I’ll bet that more major league roster slots are already taken entering the free agency period than in year’s past.
That’s gonna have a chilling effect on the second-tier FA market. Many, many 30-somethings are going to have to accept minor league deals or split contracts. I think this has happened in large part because of the economy and the defensive and PED mini-revolutions. Teams are simply protecting more 24-25 year-olds from their organization than they used to. They realize that their fringy relievers who have 2-3 options are a more important asset to protect than many of the FA reliever offerings. They realize that the 24-25 year-old outfielders in their organization provide defense, versatility and baserunning value that offsets their offensive shortcomings in comparison to the elderly corner OFs, DHs, and 1bs on the market.
As Dave suggests, I think those factors are going to leave a lot of middle-tier and lower-tier players wishing they had signed early in the offseason once the available roster spots and money dry up.
Yeah, a while ago I speculated (from no real basis other than vague trends and a hunch) that this year the winners might be the anti-Rauls, the guys who wait until late to strike their deals rather than jumping in before the market collapsed like Ibanez did last year. It’s still too early to tell.