Archive for March, 2008

Valuing Miguel Cabrera

Miguel Cabrera is reportedly close to signing an eight-year $152.3 million deal. As hard as this is to believe, given the contract size, this is an amazing deal for Dave Dombrowski and the Detroit Tigers. I have Cabrera valued at $268 million over this time period, and this accounts for his first two years of the deal being restrained by arbitration.

Cabrera will be only 25 in 2008 and he has posted OPS+ in the 150s for the past three years. Eight years is a long time to be tied down to a contract, and during that time league revenues and salaries will grow. At growth rate of ten percent—the historical growth rate of major league salaries—salaries will double in seven years. By locking in now to a modest $19 million per season ($21 million per season after his arbitration-eligible years) the Tigers are protecting themselves against future salary growth.

And at the same time, I can understand why Cabrera would do this deal, because an injury could make it all go away. If had to choose between a guaranteed $152 million or a probabilistic $268 million to do what I am doing now for the next eight years, the former wouldn’t be a tough choice. For players, their eggs are in one basket. Teams can diversify their risks across many players—some will underperform their contracts, others will overperform—which is why it is smart for teams to make this type of deal. Detroit fans should be happy that they will have one of the best hitters in the game for a long time.

Baseball Musings Pledge Drive

David Pinto is hosting his annual pledge drive to support Baseball Musings. Baseball Musings is one of my favorite baseball blogs out there. I check in on it several times a day, and I appreciate all the hard work that David puts in.

David is offering copies of The Baseball Economist to anyone making a premium donation, while supplies last. I encourage you to stop by and make a contribution.

More on Human Growth Hormone

Headline: Growth hormone doesn’t boost athletic abilities: HGH may actually impair performance, review of studies finds

While growth hormone adds some muscle, it doesn’t appear to improve strength or exercise capacity, according to a review of studies that tested the hormone in mostly athletic young men.

“It doesn’t look like it helps and there’s a hint of evidence it may worsen athletic performance,” said Dr. Hau Liu, of Santa Clara Valley Medical Center in San Jose, Calif., who was lead author of the review.

Of course, this doesn’t stop the AP reporter from offering several qualifiers.

But the new research has some limitations and sheds no light on long-term use of HGH. The scientists note their analysis included few studies that measured performance. The tests also probably don’t reflect the dose and frequency practiced by athletes illegally using the hormone. Experiments like that aren’t likely to be conducted.

“It’s dangerous, unethical and it’s never going to be done,” said Dr. Gary I. Wadler, a member of the World Anti-Doping Agency and a spokesman for the American College of Sports Medicine.

Consequently, those in the field have to depend on such reviews or “what we hear on the ground,” he added.

You know, I don’t recall the media being so vigorous on catching up on the science when all of the stories were reporting on growth hormone as a performance-enhancer.

There is no doubt that the perfect study on the subject has yet to be done, nor will it ever be done. But, the studies that have been done lead me to believe that were such a study to be done I would expect it to find minimal ergogenic effects. It’s not just that some empirical studies have been done on strength, but that when the muscles themselves are studied, they are developing differently from normal muscle. Thus, when we hypothesize about larger doses, I think the current studies give us a good idea about would occur.

The problem going with WADA scientist Gary Wadler hears “on the ground” is that in uncontrolled experiments, the placebo effect rears its head.

Getting Up To Speed

Sorry to abandon the blog like that. I went out of town for a few days, and I had expected to have internet access but didn’t. I am way behind on e-mail and everything else I normally do; so, if you have sent me something and I haven’t responded yet, please be patient.

Sunday Beer Sales in Gwinnett

Here is a brief update on an important issue concerning the Gwinnett Braves from the GDP. I’m feeling a bit under the weather, so I won’t add much commentary.

A prohibition on Sunday beer sales at Gwinnett’s new baseball stadium wouldn’t blow up the project, Commissioner Lorraine Green said Thursday.

But unless Georgia lawmakers find a way to extract the controversial Sunday liquor sales issue from legislation intended to apply only to the planned ballpark, county officials and representatives of the Atlanta Braves may have to revisit an agreement to move the team’s AAA affiliate to Gwinnett next year, Green told reporters at the Capitol.

“The stadium will be built,” she said. “(But) we would hate to have to reopen those negotiations at this late date.”

Would the Braves really back out of this deal? Good grief! The team has already gotten nearly all of the stadium revenue. Are Sunday beer sales really a deal-breaker here? I hope the Braves are not serious about backing out; but, because all of the Sunday beer sales revenue would go to the Braves, the team has a clear stake in this battle.

Frank Stephenson offers his opinion. The Braves should calm down and take his research on the Rome Braves Sunday beer sales into consideration.

Rome’s 2004 referendum created a natural experiment for us to assess the effect of alcohol availability on attendance. We compared the Rome Braves 2003 and 2004 Sunday attendance (before beer sales were allowed) to their 2005-2006 Sunday attendance when beer was available. (We controlled for lots of other factors that might influence attendance–promotions, rehab appearances by Chipper Jones, …) We found that allowing Sunday sales resulted in a small (2%) and statistically insignificant increase in attendance. Attendance does seem to be influenced by cheap beer–the team offers two for one beverages on Thursdays and draws about 8% more fans than on other weeknights. While Rome’s experience may not carry over to other communities, our paper does call into question the conventional wisdom about beer and attendance.

If Only All Players Were Married to Medical Professionals

Mike Greenwell says that he was tempted to use steroids, but his wife talked him out of it.

Had it not been for his wife, Greenwell said he probably would have used them, too. He studied steroids “because I was very, very tempted as a player to do it,” he said Tuesday.

His wife convinced him not to.

“My wife’s a nurse, and basically told me she’d kill me if she caught me doing it,” Greenwell said. “I think there’s many, many players out there that were tempted to do it. Probably if I didn’t have my wife, I would have done it to try to perform at that level.”

Mariners Release HoRam

Yesterday, the Seattle Mariners released former Brave Horacio Ramirez. I was never a big HoRam fan, largely because the Braves always issued favorable HoRam talking points to reporters who repeated them to the public. He was a quietly polarizing player: you could divide Braves fans according to their opinion of him. (I know it seems hard to be “quietly polarizing” but if you were around when HoRam pitched for the Braves, I think you would agree with the term.) It was obvious from early on that he wasn’t ever going to be all that good. Still, there are plenty of players in the major leagues are aren’t all that good. You have to have some below-average players.

Here is what I had to say about him just after the Braves traded him.

With a market that’s paying Tanyon Sturtze $1.1 million, pitchers like Horacio Ramirez have value. Like Kevin Gryboski, I didn’t like seeing HoRam on the mound; I had no confidence in him. But at the end of the year, when I’d look back on his performance I could definitely see he’s not good, but there were many worse options out there….He’s not close to sniffing Triple-A ball, but just don’t expect anything more than a fifth starter. My guess is that Seattle isn’t anywhere near his last stop. He’s the type of guy who will go from team to team to fill out rotations.

I think the Mariners gave up on him too quickly. He was owed $2.75 million this year. I have his 2007—the worst season of his career—valued at $2.85 million. Soriano was barely more valuable at $3.36 million. HoRam is 28, left-handed, and has shown the ability to eat innings in the past. In a world where Jason Marquis can get a three-year $21 million contract, Horacio Ramirez has value. Why not at least try converting him to a LOOGY? It’s the WHIL principle, as Alex Remington calls it: Well, He IS a Lefty.

For another take, USS Mariner likes the deal. I can sympathize, because I do recall how good it felt to seem him finally gone.

Robert Downey, Jr. could asks this guy on advice for how to ask for second chance. The Braves have really gone out of there way to portray him as something special. Let me just say that Braves fans are tired of it; more so than seeing Jeff Francoeur hit pop flys to a kid in The Netherlands for Delta during the commercial break he just created. He doesn’t strike out hitters. He’s not particularly skilled at preventing walks or home runs. On top of this, he keeps getting injured, which has probably done more to prolong the team’s patience with him. Now, the team is finally moving on.

Someone will definitely pick him up, and I won’t be surprised or disappointed if it is the Braves.

How is Frenchy Doing?

Just a quick observation.

I don’t normally put much stock in spring training statistics; but, when a player says he’s planning to work on something, I pay attention. Last week, Jeff Francoeur expressed a goal of improving his walk rate. However, he doesn’t seem to be sticking to his plan. So far, he has one walk in 24 plate appearances, after earning his first walk yesterday. Scott Thorman, who normally makes Frenchy look like a disciplined hitter, has already walked five times in the same amount amount of plate appearances. Let’s hope that Francoeur is just getting a lot of good pitches to hit.

If you are interested in predicting Jeff Francoeur’s walk total, there is still time to enter The French God of Walks contest.

More Taxes and Lies

Over the past few days, a lot of new information has come to light on the Gwinnett stadium deal—actually it’s been pried from public officials. For any Gwinnett residents who still had confidence in their elected officials, it all has to be gone by now.

On Friday, Michael Pearson broke the biggest story yet on this issue in the Atlanta Journal-Constitution, finding more taxes and lies. (Strangely, the AJC buried this story online. I only learned of the article after my mother mentioned seeing it in the print edition of the paper.)

Gwinnett County officials have said no property tax increases are planned to help pay for the new baseball stadium, but records obtained under the Georgia Open Records Act reveal that’s not necessarily the case.

The documents show officials discussed a small property tax increase in the context of the overall financing package for the stadium, which will house the top minor-league affiliate of the Atlanta Braves.

One document, handwritten notes on the stadium project, lists four “county actions,” including an increase in recreation taxes:

“— Buy Land — $12 million

— Inact (sic) car rental tax

— Issue Bonds

— Raise Rec. Millage from .80 to 1.00 in 09.”

The tax increase is also mentioned as one of three points under a discussion of the county’s $12 million withdrawal from the recreation fund surplus, according to a printout of a presentation County Manager Jock Connell said he gave to commissioners in a closed session. The presentation reads: “Will require .20 mill increase for recreation in 2009.”

Such an increase would cost the owner of a $250,000 home $18.60 a year.

Still, Jack “we anticipate the stadium to pay for itself from day one” Connell insists no tax increase is in the works.

Connell said at least part of the handwritten notes were his and acknowledged mentioning raising the recreation fund’s tax rate in stadium presentations to the commission, but said it was not tied it to the stadium project.

He said he merely was taking the opportunity to remind commissioners that the rate may eventually have to be raised to meet operating obligations for all the new parks the county has built in recent years.

He said that would be the case regardless of the commission’s decision on the stadium project.

Commissioner Bert “I’ll give you anything you want as long as you bring the Braves to Gwinnett” Nasuti conveniently remembers the same thing.

He said he remembers Connell warning of possible property tax increases, including in the recreation fund, as long as 18 months ago, and said he didn’t interpret the presentation on the stadium as tying the increase to baseball.

“It wasn’t presented to me as, ‘If you do this, you must do that,’ ” he said.

While it is not hard to see through this ruse, Chairman of the Board of Commissioners Charles Bannister seems to admit they are connected while stumbling through his denial to the Gwinnett Daily Post (I’d like to think that my letter had something to do with the story).

“At some time in the future, because of the number of parks we have built, we will need to look at the possibility of increasing the recreation tax,” Chairman Charles Bannister said. “Our indications are, as we see it, the revenue streams will continue to tighten. At some point we will start looking at the budget for ’09. Right now, I don’t think one impacts the other.”

Commissioners voted to spend $12 million out of the recreation fund for the stadium – $7 million for construction and $5 million for the land along Buford Drive, south of the Mall of Georgia near Rock Springs Road.

Community Services Director Phil Hoskins said the reserves in the recreation fund are still three times higher than the required amount, but pressures on the fund have increased as commissioners buy more land for parks, pools and other amenities.

Let’s see, the county just spent $12 million from the recreation fund, yet taxes to put revenue back into the fund are unrelated? It is possible that the county expects to spend more than $12 million (plus potential earned interest) in the future, but this means that taxes must be increased further to cover the shortfall created by the stadium. Plus, let’s not forget about the interest on the $33 million debt on the stadium which the county must pay off.

Make no mistake about it, the coming tax increase is tied directly to the funding of the new ballpark. The county may shuffle funds around so that the stadium does not directly receive any of this money, as new tax revenue can be used to replace redirected funds to cover the stadium. But, the result is still the same: the stadium will cause taxes to go up.

The county has also acted foolishly so as to put taxpayers on the hook for more tax dollars though its bond instrument choice. Tim Tucker reports new information on the bonds.

The three major bond-rating agencies have assigned AAA grades to the $33 million in taxable revenue bonds that will fund the stadium. None of the three agencies attribute their rating to projected stadium revenue. All attribute the rating to the county’s fallback position.

“The … AAA rating reflects the security provided by a pledge of Gwinnett County’s full faith and credit and taxing power,” Fitch said in a report on the bonds.

In an interview, Moody’s public finance analyst Baye Larsen said: “The bottom line is they are pledging their full taxing authority, not just one revenue stream.”

First, while the commissioners have touted the fact that the bonds will get the highest rating, the rating is based on the fact that if the revenue the stadium generates doesn’t cover the cost of construction and operation—and it clearly won’t—taxpayers will be required to cover the shortfall. Hint, hint: more taxes are on the way.

And in their haste to push the bonds through, the commissioners chose bonds that will not be tax exempt, necessitating a higher interest rate.

Documents show that the county also looked at the option of financing the stadium with tax-exempt bonds, which would carry a lower interest rate and save millions of dollars in borrowing costs over 30 years. Gwinnett forecast tax-exempt rates for the stadium project to be about 1.5 percentage points less than taxable bonds, documents show.

Many sports facilities, including the Georgia Dome, have been built with tax-exempt bonds. But the practice has become rarer because of changes in tax law, and the Gwinnett project did not meet the current requirements for tax-exempt financing, experts said.

Comparing the total dollars paid out using a standard mortgage calculation—a calculation that underestimates the debt service, since the county will pay off less of the debt early on—the difference between 4.75% and 6.25% interest rates is over $11 million over the life of the loan. The commissioners have been creative in spinning the funding of this deal to the public, But when it came to getting their citizens a better deal on a loan, they weren’t nearly as creative.

A stadium that gets more than 10 percent of its use from a private business and more than 10 percent of the funds used for debt service from a private business cannot be financed with tax-exempt bonds, according to Atlanta attorney Earle Taylor, who focuses his practice on public finance.

The Gwinnett deal fails to qualify on both counts.

“Basically, in order to do the stadium tax-exempt, you have to give the stadium to the team for free,” said Taylor, a partner at law firm Kilpatrick Stockton. He is not involved in the Gwinnett deal.

In a notable recent case, New York found a way around the restrictions on tax-exempt stadium financing. New stadiums for the Yankees and Mets are being built largely with tax-exempt bonds.

After a lengthy process, the Internal Revenue Service signed off on a creative and complex approach in which New York removed the stadium sites from the property tax rolls and allowed the teams to make payments in lieu of taxes — PILOTs — and to pay no rent. The IRS held that the PILOTs would not count toward the 10 percent cap on private-business payments. The IRS has since issued further regulations on the matter.

Though the commissioners play coy, their secretive actions indicate that they are fully aware that the path they have chosen will result in higher taxes for citizens of Gwinnett. If they are being so obvious in their deception on this issue, I wonder what is going on in other areas of the budget where the money trail is not so easy to follow.

I have a challenge to the Board of Commissioners: respond to my AJC Op-Ed, or any other claim I have made on my website. It would seem to be the appropriate thing to do. If I am wrong, then you should not mind explaining why in a public forum. Just like you, I work for Georgia taxpayers. And in the future, let’s be a little more open with the media. The information is going to come out, and it only makes you look worse when you continue to hide facts and force reporters to use open records requests.

Why Do Players Take Human Growth Hormone If It Doesn’t Work?

I hear this question quite a bit when I point out that growth hormone does not improve athletic performance. One plausible explation is that players are not well informed on the subject, given that most of their information comes from drug pushers (see Andy Pettitte’s and Chuck Knoblauch’s depositions) and the ill-informed media. But, Justin Wolfers at Freakonomics points to a new study that offers another possible explanation: the placebo effect.

A placebo is a benign substance used in medical trials to control for psychological responses to drugs. For example, a drug given to arthritis patients may cause them to feel better just because they expect to feel better, not because the drug actually worked. Similarly, players who use human growth hormone may notice themselves feeling stronger and more productive after taking a substance that is supposed to have this effect. A colleague of mine who conducts clinical trials on athletes tells me it is common for his placebo subjects to insist they are getting the real stuff.

It turns out that the placebo effect of human growth hormone could be even stronger than previously expected. New research by economist Dan Ariely finds that the placebo effect is exacerbated by the price of the drug.

A higher price can create the impression of higher value, just as a placebo pill can reduce pain.

Now researchers have combined the two effects. A $2.50 placebo, they have found, works better one that costs 10 cents.

The finding may explain the popularity of some high-cost drugs over cheaper alternatives, the authors conclude. It may also help account for patients’ reports that generic drugs are less effective than brand-name ones, though their active ingredients are identical.

Why is this relevant? Human growth hormone is very expensive relative to other performance-enhancing drugs. According to the Mitchell Report, Kirk Radomski charged his clients $1,600 for a one-month supply of human growth hormone, while he only charged $400 for Winstrol.

Radomski typically paid at least $1,000 or more for one “kit” of human growth hormone, which included seven vials of distilled water and the same number of packages of lypholized human growth hormone powder, but the price depended on availability. He generally resold kits for $1,600 each, but in some instances charged less depending on his relationship with the player (pp. 144–145).

Radomski believed he made between three and five sales to [Chad] Allen involving Winstrol, testosterone, and Deca-Durabolin. According to Radomski, Allen could not afford human growth hormone…. Radomski mailed a one or two-month supply of Winstrol to Allen at his home in Texas. Allen paid Radomski approximately $400 by check (pp. 225–226).

Players who use performance-enhancing drugs have a strong reason to believe that a drug that is four-times as expensive as a common anabolic steroid is also going to improve performance. Thus, in light of Ariely’s study, it is not surprising that some players have convinced themselves that human growth hormone is responsible for improved performance.