MLB Economics 2.0 -According to Ryan Braun, Hanley Ramirez, Troy Tulowitzki and Evan Logoria
In the last few weeks, the economics of Major League Baseball (MLB) has been rewritten in a way that would make Money Ball’s Billy Beane proud. MLB has seen an influx of very talented, very young players (under 27) – and general managers are forced to ask themselves whether to lock them up to big contracts now… or have them hit the open market and potentially sign far bigger deals. The players are forced to ask themselves whether to sign long-term contracts now or continue earning minimum level salaries ($100,000s / yr) until they hit the open market.
It’s a fascinating time for baseball.
Just a few months ago, a flurry of massive free agent deals were signed:
Alex Rodriguez (32 years old): $275m / 10 years
Mariano Rivera (38): $45m / 3
Mike Lowell (34): $37.5m / 3
Jose Guillen (32): $32m / 3
Francisco Corderro (33): $46m / 4
Aaron Rowand (30): $60m / 5
Torii Hunter (32): $90m / 5
Jorge Posada (36): $52m / 4
These are all enormous deals for players that will likely decline noticeably towards the end of the contracts. So while the numbers might make sense for the first part of the contract, I assure you that Jorge Posada will not be worth $13m / year when he’s 39 or 40. But when a talented player hits the open market, the bidding puts *everything* in his control. Just ask Johnny Damon, Eric Gagne, Barry Zito and others…
So four teams from four non-major markets have started a new economic wave by signing their own talent to long-terms deals that are favorable for both the player and the team. The Milwaukee Brewers, Colorado Rockies, Florida Marlins and Tampa Bay Rays ALL say their talent leave to major market teams able to pay their players major dollars. To protect themselves, they paid their players handsomely (but far less than the average open-market contract) but locked them into long deals with team options for an additional 1-3 years. Those players are all in their young 20s and have yet to hit a major payday (despite making $100,000s / year). So the clubs are able to secure the future at reasonable rates (should these players be even close to top talent) and the players are able to land deals that will pay them very well… and potentially still enable them to hit the open market and fetch the big dollars:
Player Total Contract Contract / Year Age Years
Ryan Braun, LF $45,000,000 $5,625,000 24 8
Hanley Ramirez,SS $70,000,000 $11,666,667 25 6
Troy Tulowitzki, SS $31,000,000 $5,166,667 24 6
Evan Longoria, 3B $17,500,000 $2,916,667 23 6
And soon enough you’ll see the Red Sox do the same with Papelbon, Pedroia, Jon Lester, Bucholtz, and Ellsbury. The Yankees will sign Joba Chamberlain, Phil Hughes, and Ian Kennedy (they already signed Robinson Cano). The Mets have tied up Jose Reyes and David Wright.
Even big-market teams like the Red Sox, Mets, Yankees, Tigers, etc understand that you’d rather gamble on upside than on downside… especially when signing people on the downturn of their career can be more expensive.
And it hasn’t been proven that it’s easier to predict success for veteran players. A couple examples based on recent memory:
- Johnny Damon and Pedro Martinez were signed to long contracts by the Yankees and Mets respectively. Neither played as well as their Red Sox days nor has remained healthy (both are aging as well).
- Andruw Jones signed a monster contract with the Dodgers this year ($36m / 2 years). He’s been horrible.
- Eric Gagne got $10m this season after hitting the open market. He leads baseball in blown saves and has relinquished his role as closer.
- Jorge Posada got big money and a four year contract from the Yankees. He’s spent most of the year on the DL – and I can’t imagine it will get better as he approaches 40.
Player Total Contract Contract / Year Age Years
Ryan Braun, LF $45,000,000 $5,625,000 24 8
Hanley Ramirez,SS $70,000,000 $11,666,667 25 6
Troy Tulowitzki, SS $31,000,000 $5,166,667 24 6
Evan Longoria, 3B $17,500,000 $2,916,667 23 6
David Riske, RP $13,000,000 $4,333,333 31 3
Mariano Rivera, RP $45,000,000 $15,000,000 38 3
Alex Rodriguez, 3B $275,000,000 $27,500,000 32 10
Kenny Rogers, SP $8,000,000 $8,000,000 43 1
Aaron Rowand, CF $60,000,000 $12,000,000 30 5
Johan Santana, SP $137,500,000 $22,916,667 29 6
Carlos Silva, SP $48,000,000 $12,000,000 29 4
Luis Castillo, 2B $25,000,000 $6,250,000 32 4
Francisco Cordero, RP $46,000,000 $11,500,000 33 4
Octavio Dotel, RP $11,000,000 $5,500,000 34 2
Keith Foulke, RP $7,000,000 $7,000,000 35 1
Eric Gagne, RP $10,000,000 $10,000,000 32 1
Tom Glavine, SP $8,000,000 $8,000,000 42 1
Jose Guillen, RF $36,000,000 $12,000,000 32 3
Torii Hunter, CF $90,000,000 $18,000,000 32 5
Geoff Jenkins, RF $13,000,000 $6,500,000 33 2
Andruw Jones, CF $36,200,000 $18,100,000 31 2
Scott Linebrink, RP $19,000,000 $4,750,000 31 4
Mike Lowell, 3B $37,500,000 $12,500,000 34 3
Kazuo Matsui, 2B $16,500,000 $5,500,000 32 3
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It’s “Billy Beane”, and he is the subject but not the author of Moneyball, which was written by Michael Lewis.
While I agree with your overall point that contracts locking up young players will turn out to be better deals than bringing in older free agents, there are a couple things that you could add to make your argument stronger. The most obvious is factoring in some actual production numbers (which would probably involve looking at contracts from before this past offseason and delving into how players in each category have performed since the contracts have been signed). In order to better compare players at different positions, Win Shares would probably be a good statistic to use, although it has its fair share of criticisms.
Mark – thanks! I fixed the obvious oversight and thought about adding game data / statistics… but Braun, Tulowitski, Hanley and Longoria don’t have any significant major league stats to delve into (as compared to Arod, Andruw Jones, and others).
The article was more a commentary on the shifting focus of general managers and free agency. It will be interesting to see locking up the young talent impacts open-market free agents… I suspect that trade deadlines continue to be very active and think that free agency will slow down slightly.
And while Moneyball was a fantastic book and I’m firmly in the sabermetric camp, going back to read it now is a bit of a jarring lesson in how rational people following good theories can get it totally wrong. Example A is the chapter on the 2002 draft, which featured Beane and the A’s staff gushing over Jeremy Brown and Brant Colamarino, (who “might be the best hitter in the country!” as the book quotes DePodesta) while sharply criticizing the picks of Jeremy Bonderman and Prince Fielder. Granted, when you add it all up and compare the results to other teams, the A’s 2002 draft was definitely a success, albeit not an overwhelming one. Nevertheless, it still shows the dangers of broad generalizations and putting too much faith in theories – I would expect that a couple of the contracts in your first category, especially A-Rod’s, will end up giving their team substantially more production per dollar than most of the players in your second list.
Hi Ryan
It certainly pays for teams like the Rays and Rockies to lock up their young stars. Not only will they keep hold of them for longer, but they get a bit of financial certainty that otherwise wouldn’t be there if they had to go to arbitration each year. The Phillies were unable to lock-up Ryan Howard and that’s left them in the position where they are paying $10m for him this year ($3m more than they wanted), and that figure is only going to rise in each of the next three years (if they don’t trade him in the meantime).
I guess the ‘problem’ teams face is that the player is well within their rights to go year to year and then hit a big pay day after six years of service as a free agent. The Dodgers want to lock up Russell Martin, but he’s happy not to go down that route. If he doesn’t get injured, he’s almost guaranteed to earn a lot more money that way. It depends whether a player wants to take that risk.
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Hi guys,
Cool Site!
I have found a widget that displays the cost per game for the major league baseball teams.
This little widget converts a super nice swivel dataset into a widget through a few calculations and conversions.
I think you might like it:-)
http://www.youcalc.com/apps/1219419071292
It's easy to put on your blog or your website.
Keep trucking!
for me Andruw Jones was a highly paid athlete but he's not worthy of his salary.. I hate how he moves recently..
In ffice right now will go through this latter.
regards
freanch
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why is it that Jones came out as the highest paid athlete in this post is beyond me!
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