The Market

Dave · December 14, 2004 at 1:51 pm · Filed Under Mariners 

I want to address the issue of market value that seems to be coming up a lot lately. There seems to be a school of thought that MLB is a captialist ideal where each player’s actual value is determined by what the top bidder is willing to pay for his services. The comment “Player X is worth his salary because that’s what the market is.” is idealistic crap. Using a free market ideology to justify huge contracts for non-superstar players is flawed thinking.

The baseball market is a zero sum game. Because the 30 franchises each have 25 roster spots, all major league players are competing for one of 750 jobs. Every time a player who is not one of the 750 best available gets a job, someone gets bumped to Triple-A who has major league skills. Financially, it works the same way. MLB as an entity spends about $3.1 billion per year on player salaries. Those dollars aren’t evenly distributed throughout the franchises, however, that is still the total pie that must be divided 750 ways.

A player’s actual value, of course, comes from his performance on the field. In a perfect market, the best players would get the most money and it would continue on down to the fringe major league types making the league minimum. However, as we all know, MLB is not a perfect market. There are inefficincies that can be exploited for a competitive advantage.

The late Doug Pappas invented a system he called Marginal Wins, which basically holds that a team of players making the league minimum plucked out of Triple-A could win about 50 games in a season. Therefore, what teams are actually paying for are wins above 50, the theoretical replacement level performance of a team of fringe players. He published a slew of essays for Baseball Prospectus on the topic, and they’re worth reading if you haven’t already. I’ll skip the details and just move on to the summary, for brevity sake.

Essentially, most winning teams pay approximately $1.5-$2 million per Marginal Win as a whole (the 2004 Mariners paid about $5 million per marginal win). If you have a higher payroll, you can afford to pay a bit more for the marginal wins to reduce risk. A team like Tampa may have a good marginal win/dollar ratio, but that’s because they haven’t spent enough to be competitive. The goal, obviously, is wins, not optimal win/dollar spending. However, a team that spends its money efficiently is going to win more than a team that doesn’t, given equal payrolls.

This is the problem a lot of us have with the signings of players like Delgado, Sexson, Koskie, Glaus, Ortiz, Wright, Pavano, Vizquel, etc… The market in the 2004 free agent period is severely out of touch with intelligent spending. The difference in performance between most of the free agents and what can be obtained for a fraction of the cost simply does not support the dollars being paid out to these players. The middle class of baseball has become extremely overpriced.

Because of the way the system is setup for players who do not have service time to qualify for 5th year arbitration or free agency, the big values among the players belong to that group. It is a unique advantage for a team to get premium performance for small dollar amounts, giving themselves the ability to spend a bulk of their payroll on star players. However, a weird reaction to the Alex Rodriguez contract has caused the price of superstar players to fall while shifting that surplus money to average or slightly above average players. This is a market inefficiency and one that can be exploited.

Currently, the optimal roster construction would be a collection of highly paid, elite players surrounded by a roster of pre-arbitration eligible role players. The system is designed to reward teams who develop prodcutive players from within the organization. Attempting to build a roster through free agency, paying “what the market will bear”, is a great way to spend a lot of money on a bad team.

People criticize us for saying that we can never be pleased, no matter how good a player the Mariners sign. This is pretty obviously not true, as the feed on Saturday will be one giant party if Adrian Beltre is signed by then. However, it goes to a point; the Mariners have consistently struggled at filling out the roster from the two tiers of players that return value; unique superstar talents that cannot be replaced and homegrown players producing in their pre-arbitration seasons.

Spending $12 million per season on Richie Sexson simply continues that tradition. Even ignoring the risks surrounding his injury (which is fool hardy, but is another post all together), his expected performance from 30-33 will not put him in the superstar elite class. He’s going to be a good player making great player money, returning less marginal wins than should be expected from a player with his contract.

I realize a large majority of the fan base are just happy that we’re spending money. However, unspent money still has value. The choices are not Free Agent A or Free Agent B for whatever the top bidder is willing to pay. There are hundreds of options available, and limiting ourselves to a Sexson/Delgado comparison is missing the big picture.


102 Responses to “The Market”

  1. Mike on December 15th, 2004 1:01 am

    I understand Beltre’s injury in 2003, but the 23 hr’s he hit that year was his high for his career. I do like the fact that the guy played in Chavez Ravene definately a pitchers park. I also like the fact that the guy has been getting a lot of AB’s every year since he came up. He hasn’t been injured other than the appendectomy last year.
    If Boras is keeping Drew locked away in a box for now that makes sense. Although it was the Angels who were calling on Palmero & Vlad’s agent last year about Palmiero when they stumbled on one of the bargains of the year.

  2. Monkey Ball on December 16th, 2004 7:29 am
    Salary and the baseball market
    There’s a great post over at the U.S.S. Mariner about the baseball market, the point of which is to effectively debunk the notion that the baseball market is the ideal capitalist environment. Dave’s right for a lot of reasons, many of which he very e…