The MLBPA’s Indifference Toward International Amateurs is Coming Back to Bite It

Yoan Moncada was given the largest international amateur signing bonus by Boston in 2015. (via Arturo Pardavila III)

The story of this offseason has been the lack of stories. With about two weeks to go until pitchers and catchers report, roughly half of the league’s top free agents remain unsigned. Top players like Yu Darvish, Jake Arrieta, and J.D. Martinez are still without contracts. The hot stove has been ice cold.

Commentators from around the baseball world have sought to explain the sluggish offseason. Owners have intentionally agreed to act in concert and limit free agent salaries before, under Commissioner Peter Ueberroth in the 1980s, and while there’s been no evidence of that kind of overt agreement among ownership, the game has changed in the last 40 years, and it stands to reason that the patterns of collusion would have changed as well. Collusion is inherently tricky to prove, and after the $300 million penalty imposed on the league in the ‘80s, owners probably know better than to leave a paper trail even if they are acting in concert. Others have pointed to subtler types of anti-competitive behavior, like a general agreement on the part of ownership that free agents are paid too much.

But whether intentional suppression or coincidental decline is to blame, this offseason feels deeply wrong. This is not how baseball’s winter is supposed to unfold. Something is broken, and it needs fixing no matter what the cause is. It’s not just fans who are grumbling; the players also know something is amiss, to the point where some are openly talking about the possibility of a strike. Maybe things won’t come to a head this offseason or next, but tensions are rising, and something will eventually have to give.

As labor peace feels more and more precarious, several analysts have looked at the negotiations over the most recent collective bargaining agreement with a more critical eye. The consensus opinion is that the MLBPA was fleeced and didn’t even realize it. Jeff Passan of Yahoo! Sports obtained the union’s post-negotiation memo, in which the increased luxury tax penalties for big-spending teams are celebrated as a victory, not as the de facto salary cap that they are. Those penalties have been cited as one potential explanation for the lack of free agent spending this offseason. But another change to the CBA has also had an impact, and while the mechanism is less direct, there’s a critical lesson the union needs to learn from its error if it wants to keep this offseason from becoming the norm.

Before the 2017 season, each team had an allotted pool of money to spend on international amateurs. If a team had a good record in the prior year, it got less money, around $2 million in the last year of this arrangement; if a team did better, it got more money, around $6 million. A team that spent more than its pool value had to pay a massive penalty to the league, but clubs still jumped at the opportunity to turn cash into prospects and routinely exceeded their limits, sometimes dramatically so. In 2015, Yoan Moncada got a record-setting $31.5 million bonus from the Red Sox, with Boston paying the same amount to MLB for the privilege. At the time, it seemed like that record would be surpassed within years, not decades.

All that changed in the most recent CBA. Teams now have bonus pools that were set based on market size, and don’t change year to year. The international “amateurs” who can be signed using those pools are defined as players under the age of 25 who have fewer than six years of experience, rather than players under the age of 23 with fewer than five years of experience (as they were under the old CBA). And most importantly, organizations now have no choice but to stay under their spending limits, as the league will void any agreement made using money not in the bonus pools.

As a result of these changes, teams are spending much, much less than they used to on international amateurs across the board. Less than two years after Boston spent $63 million on Moncada, the top international amateur signed in 2017 took home a comparatively paltry $3.8 million.

If I had to guess, I’d say the MLBPA agreed to this change because it thought it wouldn’t have much impact, and that it might get some marginal benefit. Judging by the lack of foresight shown in response to the new luxury tax, there were many in the union during the negotiations who viewed these kinds of spending limits as a competitive stimulus and were therefore willing to embrace a hard spending cap so long as it applied to international amateurs and not major leaguers. At the time the new CBA was announced, I viewed the new international rules in that same basic frame: I criticized the union for selling out these international players, and for not negotiating any comparable concessions from the owners in return, but I didn’t think the players had made a major tactical error as it related to their own compensation.

What the union and I both missed is how this would impact the free agent market. International amateurs are, in Econ 101 terms, a “substitute good” for major league free agents. They’re an imperfect substitute, to be sure: major leaguers can help a team right away, while an amateur needs to either develop or be traded for a major leaguer before making an impact in the big leagues. But an imperfect substitute is still a substitute, and a big enough price differential will gloss over a lot of imperfections. A team has a number of options from which to choose when building for the future; under the new CBA, one of those options has been rendered much, much less expensive than it used to be. The options that still cost the same — like building a team through free agency — are less attractive as a result.

To illustrate, let’s look at this offseason through the eyes of a generic team, one of the many organizations that aren’t among the game’s ultra-rich but also weren’t in the midst of a rebuild in the 2017 season. This could be the Rays, the Blue Jays, the Angels, or a great number of other teams. These organizations are under a lot of pressure from fans to do something to improve themselves, ideally for the upcoming season but at the very least for the near future. The efficacy of that pressure can vary, but there are real consequences if a fan base comes to see its team as complacent.

Prior to the most recent CBA, these teams didn’t have any inexpensive options to satisfy that drive for improvement. Signing impact free agents isn’t cheap, of course, and as discussed above, adding to your team via the international amateur market wasn’t either, requiring an expenditure of at least $30-$40 million every few years. Progress required spending, and teams that didn’t spend in some way were sure to end up with a host of angry and dissatisfied fans.

But starting this offseason, the international market is a cost-controlled way that an organization can improve its  outlook. You can assuage your fans by committing $150 million over six years to Darvish, or if you’re the Angels, you can sign Shohei Ohtani for about $25 million and blow your fans out of the water. Under the old CBA, Ohtani would’ve cost as much as $300 million, and the Angels would be looking at lot more closely at Darvish.

Of course, not every team was lucky enough to be able to sign Ohtani, or any international amateur who can make an impact in the big leagues starting in 2018. Most of the players signing these ultra-cheap deals are 16-year-olds, with the better part of a decade between them and the majors. But more so than ever before, fans can be satisfied by a team planning for the long-term. In today’s game, “windows of competition” and “win curves” are familiar concepts, and payroll flexibility is fetishized and valued nearly as much as actual talent. General managers have no trouble convincing fan bases that their focus on the future is deliberate and prudent, and that spending a few million dollars on Cuban and Dominican teenagers is actually preferable to spending nearly $200 million on J.D. Martinez or Eric Hosmer.

Look at the Rays, for example. They were not known for their prodigious free agent spending before the new CBA took effect, but dissatisfaction with their stinginess was common, even among their own players. Under the new CBA, however, they can spend just a few million dollars in the international market to make some real splashes — by Baseball America’s rankings, they penned deals with the best and 13th-best available players in the most recent signing period — and point to those signings as proof of their commitment to sustainable success. Tampa Bay can now be stingy and simultaneously sign excellent amateur players, thus keeping their fans relatively satisfied and greatly reducing the pressure to spend in free agency.

A Hardball Times Update
Goodbye for now.

With the new international spending rules, the MLBPA thought it was giving up something that didn’t have any value to the established major leaguers that form its membership. But by imposing an incredibly low price cap on a path to improvement that doesn’t run through free agency, the union made it easier than ever for teams to bypass veteran free agents entirely.

The owners of major league baseball’s 30 teams have immense control over and power in all the markets for talented baseball players. To combat capital’s control in any type of market, laborers needs to stand in solidarity, not sell each other out for temporary and illusory gains.

Baseball is no different. International amateurs are not part of the MLBPA — it’s not obligated to advocate for their interests. Indeed, the Players’ Association has repeatedly compromised the negotiating position of minor leaguers and amateurs in exchange for short-term gains for veterans. But what this offseason shows is that the interests of the different groups of major league baseball laborers cannot be so neatly divided from one another. If the MLBPA wants this offseason to be an outlier and not the new norm, it has to broaden its focus, and start protecting the rights of international amateurs, domestic amateurs, and minor leaguers too. Undoing the recent changes to the international market would be a good start.

References and Resources

 


Henry is a very-part-time baseball writer whose past work has appeared at Beyond the Box Score and Baseball Prospectus. Find him on Twitter @henrydruschel, and find his other writing at medium.com/@henrydruschel.
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willl
4 years ago

Interesting perspective. I’d always viewed the sub-minimum wages for minor league players as a moral issue. How can a multi-billion dollar operation like MLB pay their future superstars inhumane wages that force them to sleep on couches and eat sub-standard quality food for years while they strive to make it to the top?

It wouldn’t even cost much to pay every minor leaguer a living wage: $15/hr or $33k/year x 8 teams x 25 players/team = only $6.6m total. But coupled with your argument, this too would contribute to increasing the costs (through wages) of minor leaguers, which would thereby increase the comparative value of major leaguers. Plus, it would strengthen the MLBPA’s moral standing, and the quality of life of Latin/Caribbean rookie-league players, who derive the greatest benefit from a living wage.

v2miccamember
4 years ago

Reminds me of what happened in the NFL when the NFLPA agreed to the rookie salary cap during the 2011 CBA. The veterans thought that limiting rookie salaries would free up more money for veteran free agents. Instead, veterans saw themselves increasingly replaced by the influx of cheap young labor.

Dave T
4 years ago
Reply to  v2micca

I think that what you’re saying very much oversimplifies what’s happened in the NFL.

It’s tough to compare to baseball, since the NFL has both a hard salary cap and a hard salary floor. With that structure, however, limiting rookie salaries basically has to make more money available for veteran free agents, which is what happened.

I think that unintended consequence, however, has been that a certain category of veteran free agent does in fact face pressure from low-salary rookies. It’s the marginal veteran player, often a backup / special teams player, who can now be replaced by a low-salary player on a rookie contract. The extra available money under the cap has therefore been driven toward veteran players who are somewhere on the scale between “superstar” and “average or better starting player”, not toward the fairly numerous group of veteran players who are below that talent level.

Paul22
4 years ago
Reply to  v2micca

Main difference is NFL draft picks are NFL ready while international signings in MLB are mostly 16 yo kids years away from being ready, with 90% never being ready. Lottery picks

frangipard
4 years ago

Ehhhh … I’m unpersuaded.

I agree that modern valuation methods are a big part of the story … but
it seems just as likely and that teams are looking at their rosters, looking at the handful of really loaded teams in each league and saying “nope, Darvish won’t make us competitive with the Dodgers.” They may well turn around and invest more in IFAs this year for that reason, but I’m not convinced that’s some fundamental change in the long-term market structure instead of just the way things have shaken out this year.

The first few paragraphs are pure emotion-driven reasoning — “something feels wrong.” Perhaps there has been some sort of fundamental shift … or perhaps it’s a coincidence. Right now, we have a sample size of one.

tb.25
4 years ago
Reply to  frangipard

Pre-WildCard, you could try to argue the same thing – a few juggernauts dissuading middle-of-the-road teams from signing FA.

Yet, they still did.

Paul22
4 years ago
Reply to  frangipard

They dont have to compete with the Dodgers. Thats what the purpose of a 2nd WC was to address. More teams having a chance for the post season. Playoffs are a lottery, anyone can win a short series

The Hammerermember
4 years ago

Well written article: I think the problem is at some point the cost relative to performance becomes too great. The MLBPA has negotiated this cost difference and it has reached an inflection point. Pre-arb players cost essentially nothing, international FA’s are just slightly more than nothing, professional FA’s are inefficiently expensive. Now if the expected performance is large enough it makes sense to get a FA. If you don’t want to take on variance in performance then FA’s make sense. The top players (since they are rare) will likely continue to get big contracts, the middle players get squeezed because the cost of 10M per win vs other options is too great. Rebuilding clubs to the articles point can, choose to not spend by acquiring future talent through hard capped methods, never having to enter the FA fray except for very targeted signings when they feel they can win.

The solution (without a radical overhaul, building on the current CBA and half century history) is relatively simple:

1. insist on higher minimum salaries pre arb, with a significant structured escalator for yr 2 and 3. Something like 800k, 1 M, 1.2 M- then arb. This would drive arbitration higher as well. The direct benefits to the players is something like 200 million in payroll and likely much higher as the cost disparity between pre arb talent and FA’s narrows.

2. significantly increased amount or decreased penalties for exceeding luxury tax. This lets the top teams drive the market as they always have.

3. One extra roster spot (minimum extra 30 million in payroll) plus lessons the roster opportunity cost of veteran player so this would drive more FA activity. This is not likely to be used as a pre-arb development spot since it would likely be infrequently used, roster depth type person.

My favorite idea would be:

An age guaranteed free agency. As an example any player that is pre FA (subject to league minimums or arb) at age 30 could become a FA. This would help stop the service time manipulation, recognize players limited window to earn money yet protect teams development costs and player movement restrictions currently in place.

alashieve
4 years ago
Reply to  The Hammerer

What do the players give up for these concessions?

Jorge Fabregasmember
4 years ago

Small note:
“Less than two years after Boston spent $63 million on Moncada, the top international amateur signed in 2017 took home a comparatively paltry $3.8 million.”
Luis Robert was signed in 2017 for a hefty sum (technically you could call him a pro, but only in the same way Moncada was). I’m assuming this refers to the players signed on or after July 2 in 2017.

Paul G.member
4 years ago

So you are saying that price ceilings disrupt markets? Who knew? I mean besides anyone who took Economics 101. Of course baseball’s market is already disrupted in the name of competitive balance so there are more moving parts than usual, but, yes, if you make something artificially cheap it does tend to acquire much more interest.

bookbook
4 years ago

Well… that would be Karmic Justice.

Jetsy Extrano
4 years ago

Yep. Good economic argument.

You could probably quantify the substitution and get a paper out of this.

shawkr
4 years ago

Your economics are way off. The new IFA rules have no impact on the MLB free agent market.

For one thing, 16 year-old Dominican kids and 30 year-old veterans are non-substitutes. The latter impact your team for the next 1-5 seasons. The former won’t impact your team until after that. The only way decisions in these two markets could be connected is if teams are liquidity-constrained, in which case the effect would be to divert more resources to the MLB market, the exact opposite of what you claimed.

Secondly, you are treating the new IFA rule like a price ceiling. But it’s not a price ceiling; it’s a spending cap. Teams won’t be able to sign more players. They’ll just end up paying them less. In fact, I imagine we’ll see fewer signings as teams eschew the lower tiers of amateur talent.

In general, the consternation about this off-season is greatly overdone. Do any of the contracts that have been signed seem surprising low? I can’t think of any. Relievers are making out like bandits. Guys like Morrow and Hunter, who signed minor league deals just a year ago, are getting 2-$20M. Useful players like Jay Bruce, Zach Cosart and Lorenzo Cain are getting exactly what people expected. And rumour has it that Eric Hosmer is sitting on 7-$140M and JD Martinez on 5-$125M. Those are not low-ball offers for flawed players.

The only broken aspect of the CBA is the silly format of the luxury tax. By escalating the rates over time, the CBA has a built-in incentive for teams to periodically reduce payroll to reset the rate. So what we’re seeing was perfectly predictable. A steady rise in player salaries and then, when the current FA cohort is mediocre but the next one is great, a big incentive to get below the threshold. And since all teams are exposed to the same pressures, they do it all at the same time.

I agree though that the new IFA rules were bad. But I disagree when you say that the MLBPA is not obligated to advocate for their interests. I think the union has a moral responsibility to consider the interests of all who are affected by the CBA, including amateurs and minor leagues. The incumbent voting class of baseball players is kind of a like a trustee; they have a fiduciary responsibility to look for future members. And this is a responsibility they have continuously abdicated, bargaining way the rights of amateurs, both domestic and international. That’s why I find it hard to sympathize with any player finding out that their self-perceived value is not matched by the market.

ThomServo
4 years ago
Reply to  shawkr

Agree, well written.

The author’s point that Ohtani being cheap was somehow bad for MLBPA veterans is also backwards. No team has any reason at all to spend less money now, because Ohtani signed cheaply for LAA, than they would have- and clubs as a whole have $300m more than they would have if he had signed a normal FA deal. That money won’t necessarily benefit mediocre free agents, but it could fuel other record breaking deals for Correa/Betts extensions, Harper/Machado mega-deals, and other modern big spends.

The Hammerermember
4 years ago
Reply to  shawkr

I think you are missing his point. Previously the only way to build or rebuild would be spend money somewhere either via the amatuer draft (and its previously soft caps), the IFA market (which had soft caps as well), or via free agency. The MLBPA thought by giving cost certainty to 2 of these 3 (which are also not part of the union membership) it would force teams to spend on free agents. What it did was make these 2 others methods so much cheaper and therefore less risky that the performance/ variance gap with established FA’s no longer made sense. It now acts as a drag on FA value.

Here is a specific example: Otahni would have garnered a 200 million contract in a previous market. Well if I am a team looking at him and make a value assessment of him versus JD Martinez, or Jake Arrieta or anyone else it changes that comparative value.

If I am the rebuilding Pirates and just traded away my core, previously I still had to spend either in the draft (with large signings bonuses) or IFA (with large contracts) and wait. Now I don’t have to spend since those are low cost, hard cap options to acquire players, and I get 6 years of cheap, under market salaries from those guys- never having to pay market rates for talent. Previously I had compare the risk/cost analysis of these 2 other methods vs free agency and decide on a way forward. Most likely I would find a method that combined some semblance of all 3 not just the 2 cheap ways that all small market teams will favor (and large markets will exploit as well.)

Dave T
4 years ago
Reply to  The Hammerer

Even if Druschel’s point is correct over time, though, the timing doesn’t work for the amateur IFA caps to impact this year’s free agent market. We’d expect to see that impact over time as these players become minimum salary alternatives for teams several years from now. That timing admittedly does work better for hard slots in the draft, which went into effect several years ago.

I also see an issue with his substitution premise because there are only so many MLB-quality players available in the draft and amateur IFA markets. Bonus caps can be expected re-distribute how they are spread among teams, but should have essentially zero impact on the absolute number of them available. I think that’s a pretty big issue with applying the economic theory of substitute goods here, because in that Econ 101 concept we’re assuming that substitute goods have typical supply and demand curves: quantity of good B that’s a substitute for good A is not fixed but will change (increase) to reflect demand. That’s not the case with MLB-quality baseball players.

shawkr
4 years ago
Reply to  Dave T

This is a good point that people tend to miss. The supply of labour in baseball markets is essentially inelastic. After all, would Dominican kids just stop playing baseball if the average bonus fell from $200,000 to $150,000?

shawkr
4 years ago
Reply to  The Hammerer

No, this is incorrect.

Suppose the “price” of IFA talent is initially x. Then the hard cap is imposed. Now the observed price falls to y < x. For example, Eric Pardinho signed for $1.4M in 2017 whereas he would have received $4.1M (say) under the old rules.

But this doesn't mean that a team can just go out and buy as much IFA talent as it wants at the lower price y. Because remember, there is a spending CAP, which is the reason why observed prices fell in the first place.

Same logic applies to the Rule 4 draft. The net effect of these hard cap rules is a transfer of surplus from the amateurs to the owners.

Now, if teams are budget-constrained (meaning they can't make all the positive-surplus moves they would like to because, for one reason or another, they operate under a strict organizational budget limit), then the new IFA rules would actually free up resources for veterans.

So the correct theoretical prediction is that the new rules would weakly increase MLB free agent prices. The author's claim is wrong.

The Hammerermember
4 years ago
Reply to  shawkr

Its pretty strong to starkly declare “you are wrong” and argue about something theoretical when the teams actual behavior shows the opposite of your conclusion. I understand that in theory resources saved from acquiring talent in one bucket will be freed up to spend in others. This was what the flawed reasoning was of the MLBPA was. What actually happens is these resources are now moved to the owners pockets with no or negative change on the FA market.

Let me restate: Teams now can acquire players at an artificially restricted price, and then pay those players once they are in the majors an artificially restricted wage and then dump them. Previously, I could choose to not buy FA’s but I still needed to spend money is a competitive environment against other teams to acquire players. In the draft, from IFA’s, savvy trades- something. I don’t need to do that anymore because I know exactly what my talent is going to cost to acquire.

shawkr
4 years ago
Reply to  The Hammerer

The author made a theoretical claim. That theoretical claim is wrong. Why is “strong” to declare it?

Let me restate: The stiffer caps on draft and IFA bonuses lowers (by construction) the observed price of amateur talent. But this doesn’t make it possible to substitute amateur talent for veteran talent. Have you taken an intro economics course? If yes, recall the effect of a binding price ceiling. Such a policy would, of course, lower the observed price of the product. And that, in turn, would increase the quantity demanded. But it doesn’t increase the quantity exchanged. Just because I would like to sign an extra 20 IFAs doesn’t mean I can. Two reasons: (1) the supply is inelastic; (2) I am subject to an expenditure cap.

If teams are not budget constrained, then the new IFA rules have zero effect on the FA market. If they are budget constrained, then it would have a positive effect. That is why I said the new rules would WEAKLY increase MLB free agent prices.

Also, you have no evidence to say that “teams actual behavior shows the opposite of [my] conclusion”. There are numerous plausible factors at play, and with just a single observation we have no identifying power.

The Hammerermember
4 years ago
Reply to  shawkr

Oh let me count the ways you are off:

There is one “product” here. It is a major league baseball player. That product can be acquired in several ways. 2 of the 3 means of doing so have been artificially capped in cost. Teams have nearly zero cost risk associated with acquiring those players. This has depressed the price of the third means of acquiring players- free agency. Pretty straight forward.

Your point about not being able to substitute IFA, amateur draft and FA talent is not correct. I have a ready supply of them in the minors, I can acquire a yearly stream of them at a known cost that I can then use to operate my team. I never have to pay fair market rates. In the past, I would have this same option but I had to bid on both pools of players against other teams. It was not a known cost there was market risk. Now there isn’t.

You keep making the mistake of saying a team wants “more” IFA or other players. Thats not the point- its that the players they will get are at a known and defined cost and they don’t ever have to pay a fair market value. You are also incorrect in that I can’t acquire more players. I can. The cap can be exceeded because signings of 50k or less don’t count. If I really wanted to I could go find as many 16 year olds as I wanted and pay them 50k to sign with me. But once again, that not even what the argument is.

As for the Econ 101 “I am very smart” lesson- puuuhhhleeese. You are misapplying it and even as finance degree holder myself, know that most economic theory is about as accurate in predicting as a monkey throwing darts.

shawkr
4 years ago
Reply to  The Hammerer

No, there are many products. There are 2018 baseball players, 2019 baseball players, 2020 baseball players, etc. If I want to hire some 2018 baseball players then I have one avenue: major league free agency.

You appear to suggest that teams no longer have to compete in the IFA market. This is obviously untrue. Of course they’re competing. It’s just that they’re bidding against each other in a bid-depressed environment.

I am very confused about your constant referrals to the disappearance of “market risk”. What market risk are you referring to? And why has it disappeared? Because the players are just as risky as before. Cheaper perhaps, but still risky. Are you maybe referring to the ex ante uncertainty of what a particular player may cost to sign? Because (a) that still exists; and (b) that kind of uncertainty is irrelevant to a team’s decision-making. Once you know the price, the ex ante uncertainty is meaningless. So I’m confused. Please clarify.

The point about the low-money deals not counting against the cap is well taken. But I have a few comments: (1) Everything I said still applies to the premium talent; (2) These players have pretty low success rates. You’re doing well if you get one major leaguer from every 20 that you sign; (3) you still have to compete against other teams: why are all the $50K guys going to sign with you and not one of the other 29 organizations?; (4) The supply is still inelastic. You could sign every Dominican 16-year old you can find; it’s not going to change the fact that the pool of future major league talent is basically fixed; and (5) it has always been possible to sign unlimited numbers of fringy amateur talent at dirt-cheap prices, including domestic guys, but no team has ever done it.

Finally, when I asked “Have you taken an intro economics course?” it wasn’t to condescend. It was merely a segue into what followed. But I assure you, I am not misapplying any concepts. And your comment about economic theory only reveals that you are, in fact, telling the truth about holding a finance degree.

The Hammerermember
4 years ago
Reply to  shawkr

alrighty,

Each year doesnt just exist in a vacuum. There is a level of planning, subject to some uncertainty, to arriving at 2018. There is a pipeline a talent and that pipeline is currently filled with players. When I have a need for those players I call them up. If I know that my 2b is going to be a free agent in 2018 I should have a plan to replace that player if I do not intend to sign him. That plan and replacement is a young, cheaply acquired, artificially capped player. Since I can now fill that pipeline of talent at a known cost. I can figure out right now what I will need to spend for the next 5 years to get my players. If my scouting or player development is bad, I need to trade, accept poor performance/ risk or only then acquire a free agent. So, how does this differ from pre 2011 and more harshly applied 2016 CBA’s? Lets examine each method to acquire players in a non capped (pre 2011) and capped world.

Amateur Draft: If I don’t make an appropriate offer for talent-the player can sit a year and re-enter the draft. I lose big time. current system- draftee has zero leverage they lose a year, and get the same offer (or less based on slot) next year. My cost is known, my market risk (meaning what I have to pay relative to the value equation a player would make vs sitting for a year) is gone. I make a slot offer- the player accepts. I smile and go take a treasure bath with the money I saved due to the CBA.

IFA (under 25): See above, except that any team can make an offer but its effectively all the same. I pay what my IFA pool allows me to pay. There is no bidding for top talent. Ohtani is an anomaly, but can anyone imagine the Angels getting him in a non capped IFA world? To name a few examples of players who signed big IFA contracts and didn’t pan out Rusney Castillo, Hector Olivera. This is the risk that I am referring to. All non proven players are risky, if I have to pay 72 million to acquire top talent it is even more so. If I am a team evaluating how I will address player needs in the new system Rusney Castillo is annoying. In the old system- he’s catastorphic. I either can’t participate or I take on more risk than all but the highest revenue teams can afford. (which is why the Dodgers and Red Sox signed most of these guys). This drives me to evaluate Free agents risk/reward/cost differently.

IFA (over 25 with 6 years playing somewhere else): I am effectively a free agent now, but would have previously been from day one.

Now moving onto my point: Since the capped system has been in place for 6 years we are just now seeing its effect,(since developing players takes a bit of time) and its effect is depressing free agent activity and pricing. I have for the past 6 years and for the next 5 acquired players with a virtually fixed and known cost. Once I see who rises in those players, I plug them into my major league roster, as other players age out, at a fixed and known cost (with small variance for 3 years of arbitration but I would say any 1 year arbitration award carries negligible risk) Previously, I had to either get substandard talent, make semi market based offers for young talent or take known major league players on free agency. By granting teams absolute certainty in what players will cost from the moment they sign until the moment they hit free agency- it has reduced free agents value (in the words of our president) HUGELY. I as a team GM will have my multi-year talent pipeline which is just an overhead cost (since its fixed and predictable) like paying rent, and never have to fairly bid on players for my roster. I can plug gaps via trades.

So, what I am saying and I think where we disagree is that we are not looking at separate pools of players, with their effects not connected. We are looking at one pool of players- and the way that teams get them. Once you artificially depress the cost of acquiring some of them, it doesnt free up resources for others. It depresses their value. Which is what we are seeing this year.

Thanks- and sorry if I was jerky in my responses hard to capture intent on the interwebs.

This will be my last post- you can have last word if you like. Good arguing with you.

shawkr
4 years ago
Reply to  The Hammerer

I can’t refuse the last word. I guess my final comments are this:
(1) The prices of substitute goods normally co-vary positively, which seems to be the economic tenet you are appealing to. But this effect actually reverses when the change in one price is artificial in nature, rather than market-driven. Think instead of apples and bananas. If the government imposes a price ceiling of $0.10/lb on bananas, consumers will be excited to buy them at such a cheap price. But they will be disappointed when they arrive at the banana stand and discover that the banana supply has dried up. To satisfy their fruit needs they will actually have to buy more apples than before, driving up the price. So: “price of bananas goes down artificially => price of apples goes up”. Now if the supply of bananas is essentially fixed (as is the supply of international amateurs) then there will be no cross-effect and the price of apples remains unchanged. So more precisely: “price of bananas decreases artificially => price of apples increases weakly.”
(2) I don’t see any empirical evidence of depressed free agent prices. None of the signed or rumoured contracts seem lower-than-expected (to me at least). If Jake Arrieta ends up with 3-$45 then you might have something.

ThomServo
4 years ago

This is poor writing IMO-

” this offseason feels deeply wrong. This is not how baseball’s winter is supposed to unfold. Something is broken, and it needs fixing no matter what the cause is. It’s not just fans who are grumbling; the players also know something is amiss.”

This article is the same as so many written here on fangraphs: (1) complains about not enough FA spending; (2) blames Tony Clark; and (3) uses little information and uses it poorly.

The increased penalties for the luxury tax do not necessarily create a hard cap. Boston, for example, is currently over and several clubs will be over next season. Analayzing these penalties requires a detailed economic study on maximizing the pie, out of which MLB players get a fixed share of baseball related revenue.

Importantly, the penalties cause NYY and LAD to ‘pick their spots’ as far as going way over the tax, thereby encouraging other clubs to spend more than they would if NYY and LAD spent $280m. The idea is that if NYY and LAD aren’t bidding $10/WAR on Darivsh and Helton, that Minnesota and SD and KC will. The market value offers are being made, players simply aren’t accepting yet, which is no sort of problem nor is it broken.

Dave T
4 years ago

I think that Druschel tangentially touches on the real issue here but doesn’t explicitly address it and instead goes in a direction that is somewhat off-base.

The real issue I see is that observed free agency pricing (to buy WAR) has simply become so much higher than the cost of minimum salary and pre-arb players. The amateur IFA limits somewhat feed into that, but due to development time these players aren’t actually a great substitute for signing a free agent right now. The real substitutes are players in the organization today, either in the upper minors or major leaguers with option years remaining.

People such as Matt Swartz have shown in after the fact analysis that free agents on average cost something like $8-$9 million per WAR. That number has grown over time, I think at a higher percentage rate than the minimum salary. And even if the percentage rate of growth is the same as minimum salaries, a growth rate of (for example) 5% in a ~$15 million salary for a free agent implies an increasing gap in dollars even if the slightly over $500k minimum salary grows at that same 5% each year.

Point of Pittsburgh research also indicates the that gap between arb year salaries and free agent salaries has grown over time. The rule of thumb from several years ago was that arb year salaries progressed as 40% / 60% / 80% of free agent salaries, but that more recent averages are around 25% / 40% / 60%. ( http://www.thepointofpittsburgh.com/calculating-mlb-arbitration-percentages/ ).

So we seem to have a situation where a somewhat narrow slice of teams can justify signings at the average free agent $/WAR. Teams need to be at a spot on the win curve where the playoff odds implications from an extra win or two justify that spending. From a business perspective, revenue level impacts the willingness/ability of a team to decide just how many expected WAR to pay for at free agency prices. At $8 to $9 million per WAR, a true talent .500 team (33 WAR) costs approximately $260 to $300 million of total payroll. Teams are only going to pay for so much WAR at free agent salaries, and all but a handful of teams in the league could make what appear to be “good” free agent signings by surplus value calculations relative to free agent costs and still find themselves maxed out on their payroll budgets before building a 35-40 WAR roster that has a legitimate shot at a playoff spot.

Add this up, and quite a few teams: those with only a puncher’s chance at the playoffs, those who are getting only the relatively modest short-term and long-term revenue benefits of winning 75 games rather than 70 games, those with payroll limitations – have an incentive to roll the dice with plugging in a prospect who (for example) projects as only a 1 to 1.5 WAR player rather than paying up in free agency for an established veteran who projects as a 2 to 2.5 WAR player. Given that the projection for the prospect almost certainly has greater variance than for the established player, and that this team will need to hit its optimistic upside to be a relevant playoff contender, that’s even more motivation to take the risk of playing the prospect.

Dave T
4 years ago
Reply to  Dave T

My explanation above is one of a secular shift that’s been building over time. While I think that’s real, I also see cyclical conditions particularly impacting this particular offseason.

These cyclical factors been noted elsewhere: a relatively weak FA class to be followed by a relatively strong one, relatively few divisional races that look to be competitive, relatively few legitimate wild card contenders (which is an unusual combination with divisional races not looking to be competitive: usually that would imply a lot of teams projecting as well behind division favorites but in the wild card mix), and a couple of big-spending teams (Dodgers and Yankees) resolving to spend less to re-set their luxury tax penalties. Note also that the last has lined up almost perfectly for both teams: both teams project to be very good due to several very good minimum salary players (Seager, Bellinger, Judge, Severino, etc.) and next year’s bumper free agent class is a strong motivation to re-set.

So, while I don’t think that this year’s free agent experience is a “new normal”, I do see secular trends (per my prior comment) that are necessary but not sufficient for these cyclical conditions to matter for this year’s free agents.

Summarizing, I think that the overall impact of the MLPA putting so many of its eggs in the free agency basket is that free agency has become finely balanced to the point that a relative handful of teams (2 or 3) deciding to be less active rather than more drives a much less frenzied level of free agent bidding.

I think it’s still an open question, however, just how much even this less frenzied level of interest truly impacts ultimate free agent contracts. Rumors point toward this year’s remaining free agents not finding the robust market that they’d wanted, but still signing deals that are generally well above a “cratered market” compared to predictions (Martinez will get a 5 year contract rather than 6, Darvish will get 5 years rather than 6 or more, Lynn and Cobb may have 3-year contracts, etc., but all at similar AAV’s to what writers predicted prior to free agency).

shawkr
4 years ago
Reply to  Dave T

Yes, these are very relevant points. Even if the salary scale increases at a uniform rate, the LEVEL difference between league minimum and free agency continues to widen.

Paul22
4 years ago

Not buying it most of these guys are 16 yo who are lottery tickets. Teams are saving a ton of money for the same number of players. They should be spending the savings on FA. For whatever they lose in spending limits they can trade a not so great prospect for dollars. Remember, the previous penalty was losing a 1st round pick, this has less impact on teams than that by far.