Baseball Musings: Why the Rise?

November 28, 2006

Why the Rise?

Sabernomics presents four hypotheses for the rise in yearly salaries to this free agent class. Truthfully, I'm not happy with any of them. Inflation usually happens when there are too many dollars chasing too few goods. The teams are making more money, and this free agent class is thin. Over the past few seasons, there were lots of good free agents available. You could tell Vlad Guerrero that Miguel Tejada was an alternative. There just aren't many alternatives this season at the high end.

Posted by David Pinto at 08:17 AM | Free Agents • | Free Agents | TrackBack (0)

Comments

This looks like teams just throwing money at players. Really, $9-10M/yr at Gary Matthews and Juan Pierre? The only explanation that's marginally sensible that I can think of (well, there's one limit right there) is that everyone (well, enough teams to make it crazy) feels compelled to keep up with the Joneses (to impress their fans that they're doing *something* in the off-season), except there aren't any Joneses. (the role of the proverbial "Joneses" having been played, in previous years, by the Yankees)

Posted by: Chris at November 28, 2006 10:03 AM

I think JC is asking a different kind of question. Specifically, he's asking why incremental salaries are so much higher than incremental revenues. In theory, incremental costs shouldn't be higher than incremental revenue, regardless of the relative supply and demand of players.

I would cite a couple of reasons:

1. There are many great young players making the minimum. So even though free agent salaries are rising, total salary per player isn't rising so fast. In essence, money has been freed from the "fixed" pool of costs to finance incremental salaries.

2. The CBA calls for less revenue sharing (I forget the figure), so that incremental revenue has risen for the big-market teams--and its the big-market teams who set the level of free agent salaries.

Posted by: studes at November 28, 2006 10:19 AM

That second point - well, actually just the words incremental and revenue and the reminder that big-market teams set the level of free-agent salaries - makes me wonder if the big-market teams are seeing this as a way to drive up the price of players - not just at the star level, but at the supporting-cast level - to stave off competition from cheap or small-market teams by changing the market. A rising tide lifts all boats, but it swamps the guy who can't move to higher ground when the tide patterns change. Or maybe not. But it's an alternative explanation (if not particularly precise...)

Posted by: Chris at November 28, 2006 11:09 AM

I personally don't think there's anything nefarious involved. MLB is flush with cash (thanks to MLBAM), their franchise values have increased 15% each of the last two years, they've got a bunch of low-cost players, and they're spending their leftover cash on available players. Pretty normal human economic behavior, in my eyes.

Posted by: studes at November 28, 2006 11:42 AM

I think Studes has this right. Owners basically make a "super-profit" on players during their first six years of service (especially the pre-arb players). Owners spend a portion of that on the FAs, so that FAs are in fact paid more than their marginal revenue.

Why would an owner take a "loss" on FAs? Two reasons:
1) this is in part a hobby, not just a business, and at least some owners want to win;
2) the owners know that if they just pocket the excess profits instead of sharing it with the players (via high FA salaries), eventually the MLBPA will go on strike and force them to do so (and/or abolish the limits on FA for younger players).

Posted by: Guy at November 28, 2006 02:29 PM

Maybe my theory had a stronger air of conspiracy than I meant it to. I wouldn't argue there's collusion (among whom, players *and* owners *and* agents? who does that leave out, fans? this could be a victimless "crime" ;-) - but I'm baffled at how the market for middling outfielders (and there will probably be other flagrant over-payments; it doesn't seem to be position-specific) has gone more than a couple steps past what one might expect. It reminds me of someone's theory about how Boston wound up bidding $51.1M for the rights to talk to Matsuzaka - they decided to go to $50M, anticipated another team might also go to fifty, then thought they'd outsmart Team B by going one higher to $51M, then thought Team B might anticipate *that*, and went to fifty-one *point* one. What were Pierre and Matthews' next-best offers? Not that matching-plus-one would be airtight or advisable, but it'd be a measure...

Or maybe the analogy is to me just over-thinking or out-thinking myself here (wouldn't be hard, wouldn't be the first time...)

Posted by: Chris at November 28, 2006 03:12 PM

I should add, in partial response to Guy's explanation, that I wouldn't disagree about the economic incentives, but I'm just surprised that more than two teams (NYY, BOS being the usual suspects) seem intent on declaring that the best use of an extra several million dollars involves making sure an unremarkable free agent is *very* very happy to play for them instead of merely very happy to play for them. It just seems less than efficient (sort of like an NFL team staying under the cap when they have a conspicuous weakness - you've got the money, why not allocate it to your needs more effectively? or maybe the reality (or perception) is that neither has a superior option...)

Posted by: Chris at November 28, 2006 03:16 PM

I don't know how you can tell Vlad Guerrero that Miguel Tejada is an alternative if they don't even play the same position.

Posted by: Tim at November 28, 2006 04:44 PM

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