Archive for April, 2008

What Caused the Decline of African-Americans in Baseball?

With the celebration of Jackie Robinson Day earlier this month, I read quite a bit of commentary on African-American participation in baseball. This post contains some of my thoughts on the issue.

There is no denying that the percentage of Americans-Americans in baseball has declined over the past few years. A recent report The 2008 Racial and Gender Report Card: Major League Baseball by Richard Lapchick with Nikki Bowey and Ray Mathew has documented this trend over the past few years. The report is an excellent source of data on the recent racial trends in baseball.

The game has the lowest percentage (8.2) of African-Americans in the two decades that we have published the Report Card. That number is less than half what it was in 1997 on the 50th anniversary of Robinson’s debut with the Dodgers, when African-Americans made up 17 percent of the players, and less than the percentage of blacks in the general population of the U.S. (12.3 percent).



I understand that this is disappointing, but the overall trend of African-Americans and Latinos is positive. When we look at African-Americans and Latinos together, the percentage of non-whites rose from 1991 until 1997. And a large contingent of Latinos includes players who would have been considered black during MLB’s days of segregation.



In fact, the percentage of players who are white has dropped substantially since 1991.



According to the Report Card:

MLB has been remarkably consistent in terms of the percentage of white players. Between the 1997 and the 2007 seasons, 58-60 percent of the players have been white in each season.

Yes, but this is misleading. Look at what happened from 1991–1996. In 1991 68% of major-league players were white. The percentage of white players slowly decreased until 1997 when it reached 58%. (Aside: What the heck happened in 2004? It looks to be an outlier, and it is hard to tell because the 2003 data is not reported in the study. I am suspicious of a data-gathering problem, but it is also within the realm of random fluctuation.) It seems that both black and white players are being replaced by Latinos. Now, some of these Latinos are Americans, but many of them are immigrants who were groomed in training camps in their home countries. Teams have found it cheaper to rely less on the amateur draft and sign players whom they can identify before other teams. Because of the relative poverty to US and Canadian players, these players are a cheap substitute.

But, we really already knew this. I am still curious why African-American participation has declined in the past decade, while white participation has stayed the same. A discussion of potential explanations for the black-white racial gap in baseball follows.

Population Size
First, let’s look at the simplest explanation. Could it be that the population of baseball-age African-American men has decreased relative to white males? The graph below maps the percentage of U.S. males ages 25 to 34 for African-Americans and whites.



The white percentage is actually decreasing while the African-American percentage increasing. However, the change is small for both races. So, let’s cross this explanation off our list.

Brawn Drain
The most popular theory that I hear is that African-American athletes are choosing to play football and basketball over baseball. The popularity of these sports in the 1980s and 1990s—along with the success of a few notable black athletes—caused young African-Americans to choose these sports. But this theory has one big problem, according to the Racial Report Cards for the NFL and NBA, there hasn’t been much change in racial make-up since 1991. In the NBA, African-Americans have typically comprised 75% of the league. In the NFL, African-Americans have comprised 66% of the league.

The competing leagues lack MLB’s trend of declining African-American participation, which indicates that what is affecting baseball’s racial make-up is not affecting the NBA and NFL. More important is the fact that these sports do not appear to be substitutes for baseball. African-American athletes don’t appear to be abandoning baseball for the other major American sports leagues. Some athletes may choose other sports, but those who don’t play football and basketball, choose to do something other than play baseball.

Wealth
One difference between white and African-American communities is wealth. Could the difference in wealth affect the ability of these two groups to play baseball? It is possible that baseball requires more financial resources than other sports; thus, African-Americans, who are poorer than whites on average, are crowded out from playing baseball.



Looking at both the past—when current baseball players may have made an early decision to shun baseball—and present, there does not appear to be any obvious changes financial differences that might explain the fluctuation of the racial gap in baseball participation. Though African-Americans are less wealthy on average, the changes in wealth track the changes in whites closely over time.

Community Support
Another possible explanation is that playing baseball requires greater community involvement than other sports. Basketball involves a small number of participants, a hoop, and a ball. Community and school leagues are widespread. Organizing full-fledged football is a bit more complicated than basketball, but simple games of touch football are quick and easy to organize. The strong support in schools, with weekly games also serving as an important social gathering, may also contribute to the popularity of the sport.

While baseball can be played on a sandlot, it is not as easy to self-organize as basketball or football. Though I always loved baseball and played in organized leagues until I was 14, I don’t recall a single informal neighborhood game. The biggest obstacle is the need for an umpire. I played numerous pick-up basketball and football games despite never playing in an organized league. If a community lacks the resources to organize local youth leagues, as well as travel leagues for exceptional adolescents, then potential baseball players may not have the opportunity to play baseball. And because of a lack of early exposure, even athletes who wash out of basketball and football don’t have an interest in playing baseball.

What measures might we use to measure community support? The General Social Survey has a few questions about sports participation, but I could only find one that is captured over time: Membership in Sports Club. The graph below plots the responses by race over time.



The dotted and dashed curves represent quadratic fits of the data. Participation in sports clubs has been dropping for both races, with the biggest drop-off beginning in the late-1980s. This could explain the drop in baseball participation for both African-Americans and whites, but it doesn’t say much about the disparity between the groups. Anyway, I’m not even sure what a “sports club” really means, but it includes participation in all sports, not just baseball. I’m not sure that this survey information provides a good measure of community support, but it was the best that I could find.


Family Support

Similar to the need for community support, it is possible that family support is important for supporting a athletic activity. The demands for family participation may be greater in baseball than for other sports, because of higher costs of organization for baseball, relative to other sports. If there are changes in family structure that may hinder family support, then this could affect participation in baseball.

Below, I list two graphs of family characteristics by race. The first lists out-of-wedlock births by race; the second lists the percentage of 16-year-olds living with both parents. The marker labels indicate the average year at which youth in each cohort will make their major-league debut.





There is a noticeable difference in out-of-wedlock births for African-Americans beginning in 1965–1969, which includes players who will enter the majors in 1991. The out-of-wedlock birth rate is declining for both races, but there is a bigger drop-off for African-Americans. In terms of living with both parents at age 16, the decline doesn’t fit with the drop-off of African-Americans in the majors.

Differences in family structure might explain some of the difference in baseball participation, but this isn’t a very satisfying explanation all by itself. If I saw a similar divergence in sports club participation, then I might have some more confidence that family and community structure are the main problem—it still might be, I’m just not convinced, yet. Still, I think it highlights the potential importance of MLB’s RBI initiative (Reviving Baseball in Inner Cities), which promotes youth baseball for disadvantaged youth.

School Incentives
Baseball is supported at most middle and high schools, which ought to help make up for deficiencies in providing youth sports opportunities that are not supported outside of school. But I wonder: what incentives to coaches face? At most high schools, football is king, with basketball a close second. A coach who wants to keep his job will steer the best athletes to these sports. In addition, college recruiters have incentives for building strong relationships with high school coaches to encourage students to attend particular schools. In return, recruiters may offer favors to coaches—favors that MLB scouts cannot or will not offer in return.

This would explain the decline in baseball participation for African-Americans and whites, but I’m not sure it explains the disparity. It is possible that black youths are more likely to get a job than play baseball than whites, so that if when these sports fill up, whites go play baseball while African-Americans abandon athletics.

As a final note, I wonder why more African-American athletes chose to play football and basketball over baseball. With the minor leagues, the financial payoff is more certain and higher than the other sports, where you must work as an unpaid college athlete before earning a real paycheck. And if education is a concern, it shouldn’t be. MLB offers a scholarship program for any player who signs a minor league contract. You get a scholarship after your playing days are over. Why aren’t we seeing a movement of African-American talent towards the sport with the highest financial returns? I think this question is key to understanding the racial disparity in baseball.

There are just my thoughts on the issue. Nothing really jumps out at me as an obvious cause, nor do I think there is an easy solution. MLB’s current focus on providing support for youth leagues in the inner city is probably a good idea for promoting baseball to African-Americans.

Matt Morris and Sunk Costs

On Sunday, the Pittsburgh Pirates released veteran right-handed pitcher Matt Morris. This closes a book on one of the hardest-to-understand deals that I can remember. Just before last season’s trade deadline the Pirates sent reserve outfielder Rajai Davis to San Francisco for Morris, leaving the Pirates on the hook for Morris’s remaining salary: a prorated portion of his 2007 $9.5 million salary, $9.5 million in 2008, and a $1 million buyout of 2009. When the trade occurred Morris was a few days from turning 33 and his best days were clearly behind him. Why the Pirates at 42-62 felt it was a good idea to take on this contract was a mystery to everyone.

Morris’s 2008 season has been a disaster. In 22 1/3 innings of work he has given up six homers and seven walks, while striking out only nine batters, and posting a 9.67 ERA. The Pirates did what many have suggested and cut him.

The Pirates are still on the hook for the remainder of his contract, but it’s a sunk cost. Right? Well yes, and that is why I am not so sure that cutting Morris was the right move. His contract ought to be irrelevant to the team’s decision to keep him. What is relevant is the quality of pitching and the additional salary of his replacement.

The Pirates called up John Van Benschoten from Triple-A to take Morris’s spot on the roster. Phil Dumatrait is taking Morris’s spot in the rotation. Van Benschoten, a 28-year-old right-hander, has posted an unimpressive 44 strikeouts, 48 walks, and 7 home runs in 67 2/3 innings of work in his major-league career, and his minor-league numbers don’t indicate that he is a better pitcher than he has shown. Dumatrait is a 27-year-old lefty with a career major-league line of 22 strikeouts, 25 walks, and 8 home runs in 38 2/3 innings pitched. Yuck.

Though Morris has been awful this season—and it is possible that he is done—his recent history suggests that he is not this bad of a pitcher. And even if he is not what he once was, I think he is likely to be no worse than his replacements over the course of the season. In the past two seasons, he has averaged 4.84 strikeouts, 2.75 walks, and 0.88 home runs per nine innings for over 200 innings a season. It’s not ace material, but it was worth about $9 million per season in revenue to his teams.

So, instead of getting Matt-Morris-quality pitching for free—the contract is sunk—the Pirates have to pay other pitchers to cover those innings. And it doesn’t appear that the replacements offer any improvement over Morris. It’s the same reason I didn’t like the Frank Thomas release. In this instance, I believe the Pirates forgot about ignoring sunk costs and dropped him because of the size of his deal. The move looks smart, but it isn’t.

I think that a better move would have been to do what the Giants have done with Barry Zito: move him to the bullpen. This would have given him the opportunity to work out his recent problems to see if he was really as bad as he has pitched this season. Plus, because he wouldn’t have to pace himself like he does when he starts, he might be an effective reliever. If he turned out to be finished and the Pirates become contenders, then you can cut him. If he improved, he could help the team, or be shipped to a contender with the Pirates eating a smaller portion of his contract. At this point in the season, I don’t see how this is a smart move. And I will not be surprised if Morris pitches in the big leagues again this year with much better results.

The lesson here is that sunk costs don’t mean that cutting an underperforming is always good idea. Cutting a player who is no worse than his replacements actually increases your losses.

Simple Rules to Speed Up the Game

I have heard a good deal of chatter lately about rule changes for improving baseball. Stephen Dubner has a post on it at Freaknomics, and the comments reflect a common complaint about the way the game is played: it’s too long. I have never minded the pace of the game, but I admit things can get slow. I dare you to try and watch a Tivoed game without hitting the fast-forward button for anything but commercials.

I’ve seen numerous suggestions to speed up the game, and I think that many of them alter the play of the game in a way that I find unsatisfactory. Making players stay in the box between pitches, putting a time-limit on pitchers, limiting pitching changes, disallowing intentional walks or pickoff throws, etc. tamper with the game in a way that I don’t like. I’m not saying that baseball shouldn’t consider some of these options, but I think there are other areas where baseball could speed things up before changing rules that more directly impact the play of the game.

Here are my suggestions:

— Eliminate the eight-pitch warm-up for pitchers. When you step on the mound, start pitching. Warm up in the bullpen and play the game on the field. This changes the game by forcing managers to call the bullpen earlier (gasp!). This allows managers to make as many pitching changes as they want, but it speeds up the transition. The strategy involved in choosing relievers and pitch hitters is an enjoyable part of the game.

— Eliminate all arguing. Basketball and football don’t seem to have a problem with players and coaches arguing with referees. Yes, players and coaches complain in these sports, but it’s largely within the flow of the game. Arguments are quick, and the game continues. Those who carry on for more than a few seconds are tossed in basketball. In football, arguments rarely seem to happen. Umpires shouldn’t put up with it. If you don’t like the call, tough. If you keep barking about it, you’re gone. Managers and players who remain on the field after they have been tossed will receive suspensions and fines. Is it fun to watch arguments? A little, but I’d give it up to speed the game along. Legitimate problems with the umpires can be handled off the field by a review process.

— Eliminate unlimited time-outs. I have never understood why players and managers have all of these signs if they can just yell “time” and walk over to each other and say what they want to say. Give teams three time-outs or none—I prefer the latter—and put those signs to use. Do you really need to talk to your pitcher to see if he’s tired? Why not have an “I’m tired” signal? Are the pitcher and catcher confused about the signs? That’s their problem. I have a feeling players can adjust to this quickly.

There you have my simple rule changes. I can’t say how much time they would shave off the game, but at least these minimally interfere with how the game is played on the field. If you want to argue that all of these things are part of the game, then don’t complain about the game taking so long. I really don’t mind the length of the game. I would like to see these rule-changes implemented before baseball takes more drastic measures.

Is There Something Wrong with Tim Hudson?

On Saturday, Tim Hudson had a poor three-inning performance against the Mets. It was his second bad start of the season, and its similarity to the first bad start may be cause for concern. Hudson’s velocity was down in that game, which might indicate an injury.

The initial problem occurred in Hudson’s April 16 start against the Marlins, when he lasted only three innnings. According to the AJC, Hudson could get nothing on his pitches.

Hudson’s fastball velocity was down about 5 mph all night. He said he threw a pitch as hard as he could to Mike Jacobs in the third, and Jacobs scorched the mere 85-mph fastball to the right-field seats.

Hudson allowed six hits and four runs while looking nothing like the pitcher who entered with a .167 opponents’ average and National League-leading .181 opponents’ slugging percentage.

“I felt fine physically,” Hudson said. “Just one of those nights I went out there and just couldn’t get anything behind the ball. It was kind of a weird feeling. My heater [fastball] is normally a lot better than that. Just wasn’t coming out of my hand good, for whatever reason.”

Hudson (2-1) was weakened by flu symptoms last week in Colorado. That game was snowed out, and he rebounded to pitch eight scoreless innings of three-hit ball Friday in a win at Washington. Which made his Wednesday performance only more surprising.

“It wasn’t coming out [of his hand] really good tonight,” manager Bobby Cox said pulling Hudson after three innings. “I thought it might be a good time to give him a break. … His arm was kind of dead.”

The NL East-leading Marlins (9-5) took a rare opportunity to feast on Hudson, who was 4-0 with a 2.27 ERA in six previous starts at Dolphin Stadium.

“It could be some residual effects from the flu that’s just catching up to me, but I don’t know,” Hudson said. “I’m not one to make excuses like that. Just one of those things where consistently my heater was 84, 85, 86. That’s not gonna get it done, for me.”

But there was good news in his April 21 start against the Nationals, as he appeared to have regained his form. The AJC reported the following.

Tim Hudson’s velocity issues were fleeting, as was, apparently, the bad karma from the Braves’ recent road trip.

The Braves won their fifth game in a row Monday night, beating the Washington Nationals 7-3 behind 6 2/3 solid innings from Hudson, who bounced back from an oddly ineffective start.

Five days earlier, Hudson had topped out in the mid-80s from lingering effects of the flu. He was back throwing in his usual low 90s throughout the game Monday and working the Nationals into a familiar trance. He scattered 10 hits but allowed only two runs, to move to 7-1 with a 1.13 ERA in 11 career starts against them.

“Little more normal this time out,” said Hudson, now 3-1 with a 2.93 ERA. “It’s hard to put your finger on what the cause was last time. It must have been the effects of the flu bug finally catching up. It was nice to go up there today and look up there and see [velocity readings] with a 9 in front of it, instead of an 8.”

Hudson only recently realized he’d lost about five pounds while he was sick. That helped explain why he threw as hard as he could in Florida and came up with only 84 mph.

And this brings us to Saturday’s game against the Mets. The general impression was that Hudson’s poor showing was not a product of diminished velocity.

“I was missing with my location and they were hitting it,” said Hudson, who allowed four runs and seven hits in three innings, including three extra-base hits and two singles in the fateful third to give New York a 4-2 lead.

“I don’t know what to say. It was a tough inning. I gave up some hits.”

Hudson (3-2) gave up four runs and six hits in three innings April 16 at Florida, and afterward conceded that weight loss from a recent bout with flu symptoms might have contributed to that performance.

This time, he wouldn’t make any excuses and said he felt “great” physically. Unlike in the Florida game, the radar-gun readings on his fastball didn’t seem out of kilter Saturday, consistently in the 90-92 mph rage.

“He just couldn’t locate,” said manager Bobby Cox, who replaced Hudson after three innings. “He just could not hit his spots. I thought it was best to give him a breather. [The season] is a long haul.”

Asked again about Hudson’s health and whether he was sure the pitcher was not injured, Cox became perturbed and said, “He missed his spots. He’s fine.”

I happened to have followed most of the Braves games on MLB Gameday this year, which makes it easy to monitor pitch speeds. I was surprised to see this response, because I thought I had remembered Hudson’s pitch speeds on Saturday to be similar to the speeds in his April 16 outing in Florida. So, I opened up the Gameday archives and had a look.

Here are some summary statistics of Tim Hudson’s fastball speeds as recorded by MLB’s Gameday for the first three innings of his last three starts.

Start	4/16		4/21		4/26
Mean	88.81		90.58		88.53
Median	89		91		89
Mode	89		90		89
Min	85		85		84
Max	91		92		91

The April 16 and 26 pitch speeds are almost identical, while April 21 speeds were 1–2 MPH faster than the other two starts. Now, this doesn’t mean Hudson is injured—if he was, I would suspect that April 21 would have looked worse—but it does show that the starts on the 16th and 26th have more in common than has been reported.

For the Braves’ sake, I hope these are just normal blips that a pitcher has over the course of the season. According to Fangraphs, Hudson’s fastball velocity is down slightly (90.4) from last season (90.), but it is similar to his average from the previous three seasons (90.3). It’s too early to worry, but I will keep my eye on Hudson’s pitch speeds for the next few starts.

Leave ‘em in the Oven

From MLB.com:

Reds don’t want to rush Bailey, Bruce:Pitcher, outfielder developing, growing at Triple-A Louisville
By Mark Sheldon / MLB.com

CINCINNATI — Two-fifths of the Reds’ rotation hasn’t been getting it done. The offense has sputtered as some hitters have been slow to heat up.

Help is only a phone call away at Triple-A Louisville, where the organization’s top two prospects — pitcher Homer Bailey and outfielder Jay Bruce — just happen to be flourishing.

Manager Dusty Baker said on Thursday that promoting Bailey and Bruce was a consideration, but indicated it wasn’t the preferred one yet.

“The thing about it, though, is you don’t want to stunt their progress and growth,” Baker said. “It’s very tempting to think only of today vs. thinking what’s right for them and us in the long run, for years to come. A month can be worth years in terms of experience and confidence.”

I’m a fan of leaving guys in the minors. It conserves service time, and it gives players time to work on performance in a competitive environment without harming the big-league club. Now, it’s hard to know this, but I feel that the Braves have been too quick to bring guys up. Jeff Francoeur could have worked on pitch identification and stealing bases. Kyle Davies could have gained better command of his pitches. Maybe there is something to be gained from big-league experience at a young age, but I often wonder if these guys could have harnessed their natural abilities to a greater degree with a little more practice.

Like I said, we don’t have any way of knowing when is the optimal time to bring guys up, but I like the Reds approach, especially considering the state of the ballclub.

Reminder: SoSH Q&A, Today, 2pm

I will be answering questions at Sons of Sam Horn today from 2–3pm. You can see the thread here. Feel free to stop by and ask questions or just lurk. Right now, I’m working on my answers to several questions that have already been asked.

Was Dumping Frank Thomas a Good Idea?

On Sunday, the Toronto Blue Jays released veteran DH Frank Thomas. While many have attributed his benching and release to his slow start, the more likely reason for cutting Thomas was a vesting option in his contract that would guarantee him $10 million in 2009 if he collected 376 plate appearances in 2008.

Supposedly, the Jays asked Thomas to take a lesser off-the-bench role to keep the option from vesting. Thomas was not happy about this, and the Jays simply released him, eating the remaining portion of the $8 million that the team owes Thomas this season. While I understand that the team probably wishes that it had not agreed to the original contract, I’m not sure that cutting bait was the best remedy.

I estimate that Thomas was worth $9.9 million to the Jays in 2007, which is about what the Jays paid for his services in 2007 ($1 million signing bonus + $9.12 million). This was similar but less than Thomas’s 2006 estimated production with Oakland that would have been worth about $11.9 million in 2007. I don’t think anyone expects him to repeat 2006 again, but Thomas is still a good hitter. And even if he wouldn’t be worth the $10 million he would get next year if his option had vested, it’s likely that his production would not be too far below this value.

By simply cutting Thomas, the Jays must pay Thomas $7 million not to play. I don’t get this, because Thomas is still a productive hitter—the type of hitter the Jays will miss if injuries hit the team and the team has a shot at the playoffs. Either you sit down and explain to him the contract he agreed to—“hey, you agreed to this vesting option, so become a bench player or go on the restricted list and get zilch”—or you trade him to another team and eat a smaller portion of his contract.

Even if the option had vested, it wouldn’t have been a disaster given what it will cost to replace his production. Let’s say Thomas is a $7 million player in 2009. Isn’t it better to pay $3 million more than what you are getting in 2009 ($7 million — $10 million = –$3 million) than $7 million than what you are getting in 2008 ($0 — $7 million = –$7 million)?

One lesson from principles of microeconomics is that just because you are earning a loss doesn’t necessarily mean it’s a good idea to shut down production. As long as the revenues from production exceed the variable costs, you make money to cover a portion of your fixed sunk costs by continuing to operate. Shutting down increases your losses. If a player is producing more on the field than he costs to keep on the roster, then you should keep him on the roster. The Jays have just gone from a situation where they were getting Matt Stairs and Frank Thomas for $9 million (prorated salaries for the remainder of 2008 of $7 million and $2 million) to having only Matt Stairs for that same expenditure. I don’t see how this is an improvement.

This situation differs from the Russ Ortiz situation in 2006 with Arizona (Keith Law offers a nice summary). Ortiz was in the second year of a four-year, $33-million deal. In 2005 and 2006 he was worse than the options available to the team, and therefore it made sense to send Ortiz on his way. Though the Diamondbacks are still paying off the deal, Ortiz isn’t good enough to pitch on a major-league roster. Had Arizona continued to employ his services he would have made the team worse; therefore, cutting Ortiz was the right move. In Thomas’s case, several teams are interested in acquiring his services because he is better than available alternatives.

Of course, there is the possibility that the Jays think Thomas is done. It doesn’t look like it to me, but I’ve seen exactly zero of his at-bats this year. Maybe those reports of a slowing bat aren’t just front office propaganda. But, he would have to fall awfully far to be worth dumping.

The Economics of the Longoria Deal

The Tampa Bay Rays have just signed top prospect Evan Longoria to a long-term deal only a few games into his first major league season. The deal guarantees Longoria $17.5 million over six seasons, and it includes team options for three more years.

This deal is interesting in that it locks in his purely-reserved and arbitration-eligible years for a price that is similar to what Longoria would make if he signed a series of one-year contracts for the next six years. The Rays then have two sets of options. In the seventh year, the Rays can pick up his option for $7.5 million or terminate the deal with a $3-4 million buyout (depending on service time). The second option would pay Longoria $11 and $11.5 million for his eighth and ninth seasons, and includes a $1 million buyout.

What does each party get out of this deal? Longoria gets stability: if he suffers an injury or never develops into a quality major-league player, he still ends up a wealthy man. As for the Rays, it seems that Longoria’s rewards for good performance would have been capped by the CBA rules, but if he ends up not fulfilling his promise the Rays are now locked into his salary and cannot dump him. Longoria’s stability is the Rays liability.

The real deal for the Rays is in the options. If Longoria becomes a good player, he would command well more than $7.5 million on the free agent market. If MLB salaries continue to rise at a 10% annual rate, as they have over the past two decades, then in seven years player salaries will double. For example, if Longoria projects to be a $15-million player today, he could be a $30-million player in 2014 (gulp!). The point isn’t that he is that good of a player—I really don’t know what he will become—but that Longoria is going to have to be pretty bad not to be worth $7.5 million in 2014. Even the $11 and $11.5 million option may not be too pricey even if he becomes a sub-All-Star regular player.

If this is such a good deal for the Rays, why would Longoria agree to it? Professional athletes have most of their net worth tied up in a single asset: their athletic ability. Once that goes, the player’s main source of income disappears. Individuals tend to be risk averse, meaning that they are willing to sacrifice income to reduce risk. Just ask Marcus Giles about what it’s like to go from an All-Star to waiver wire fodder before he even finished his arbitration years. Thus, it’s not surprising to see a player trade away higher probabilistic income for lower guaranteed income.

But don’t the Rays face the same risks? What if he never lives up to his potential and is out of baseball in three years? Then the Rays are on the hook for a player whom they could have waived for free. This is true. But, unlike individuals, firms tend to be risk neutral, and price assets equal to their expected value. Baseball teams are firms that invest in many assets, many of which are players. Teams can diversify risk to minimize losses in a way that players cannot by investing in a bundle of assets. If a player stinks, he stinks; and there is not much he can do about it. Teams have many players. Some players signed to long-run contracts will exceed expectations while others will fail. On average, the successes and failures ought to average out.

By taking advantage of players’ risk aversion, teams can sign several players for less than their expected value and come out ahead in the long run. For example, assume we have two players who are expected to be worth $10 million/year for five years (total salaries of $100 million). Let’s say that one player ends up being worth $5 million/year, while the other is worth $15 million/year, the team still ends up getting $100 million in value. However, this is not where the big savings come in. Had the team gone year-to-year with the players, paying each of them their exact annual worth, the team does not save any money. Because players are willing to trade income for financial security, teams can sign players for less than their expected value. Therefore, the team in our example ought to be able to sign the players for less than $10 million per year each.

As an alternative to signing discounted deals, players could chose to protect their financial security by getting outside insurance, but I think that teams are the best position to insure players. Guaranteeing a player financial security creates an incentive for the insured player to slack off. Why work out or watch your weight when a relatively big payday is coming your way no matter what? Private insurance companies can include some contract provisions designed to limit shirking, but the cost of monitoring is high. Thus, third-party insurance suffers more from a moral hazard problem than teams.

Teams, on the other hand, are in a fantastic position to monitor and affect player behavior. It is probably quite difficult for any insurance agency to tell a player to get into shape. A manager can just say, “hey tubby, it’s time to lay off the patty melts and hit the weight room.” Also, trainers and medical professionals can quickly catch and report any misbehavior. Thus, the discount that teams are willing to offer players for stability are probably a better deal than available third-party insurance.

I have often wondered if some agents offer their clients insurance in order to negotiate better overall deals. Like teams, agents can diversify across many players.

Overall, I like the deal. From the team’s perspective, I might have waited a year or two before locking up Longoria, because free agency is still a while off and I expect the team still may have been able to get a similar discount in the future. Ryan Howard’s arbitration victory may have scared the team to act now, maybe it’s a gesture of good will to fans and players, or maybe it’s a discount that Longoria wouldn’t have accepted down the road.

Q&A at Sons of Sam Horn

I will be participating in a Q&A session at Sons of Sam Horn this Thursday at 2pm. Feel free to stop by and leave your questions in advance here. If you are not yet a member of SOSH, now is a good time to join.

As a brief aside, I hold a particular fondness for Sam Horn for a different reason than most of the Red Sox fans who dominate the website. During the summer of 1993, I regularly attended Charlotte Knights games that featured Sam Horn as the team’s first baseman. His towering shots were memorable. That Knights team included both Jim Thome and Manny Ramirez (for a short time), and it was a fun team to watch.

Gwinnett Ballpark Figures

Now that the deal is done, Tim Tucker and Jeremy Redmon break down the cost and income estimates of the Gwinnett Braves ballpark in the AJC. Here is a brief summary.

Gwinnett County leaders plan to tap a variety of sources to pay for a minor-league baseball stadium for the Atlanta Braves. But an AJC analysis shows some projected income amounts are so fluid that it’s difficult to know whether taxpayers will have to pay more than the $12 million they’ve already surrendered to the $45 million stadium.

The county borrowed $33 million this month, and it’s obligated to pay back an average of $2.59 million annually over the next 30 years, for a total of more than $77.5 million.

The county will get a portion of that money directly from the stadium. The rest will come from two related sources: a rental car tax imposed specifically for this ballpark, and county money, funneled through the Gwinnett Convention and Visitors Bureau.

Given the uncertain nature of some of these revenues, estimates show the county could end up with more than each average payment, or it could be significantly short.

Because the county is obligated to make the payments, county leaders would have to pay the shortfall out of the general budget. Though it’s likely the county can find any necessary money somewhere in an $856 million operating budget, county leaders promised Wall Street lenders that they would raise property taxes across the county if necessary.

Most of the money generated at the stadium — such as ticket sales and concessions — will go to the Braves organization, which is responsible for none of the debt.

Once again, we are reminded that county taxpayers are responsible for any shortfall in stadium revenue. There is no way the stadium revenue will cover the current debt, and I suspect that current construction estimates are too low.