Archive for January, 2009

Thanks to Penn State

I’d like to that the students and economic faculty (especially Clair Smith) for hosting my recent visit to Penn State. I had an enjoyable visit.

Here are links to the audio and slides (pdf) of my Tuesday evening talk, “Is CC Sabathia Worth $160 Million?” If you have trouble with the audio, copy the audio address and paste it using the “Open URL” option.

Super Bowl Squares Update

It’s that time of year where I’m bombarded with hits for people searching “super bowl squares.” I get the hits thanks to a classic post by Doug Drinen.

Doug now operates his own blog, where he has posted an update to his initial post. I encourage you to check it out if you want to win your party’s Super Bowl squares game.

Talk at Penn State

I will be giving a talk at Penn State on Tuesday, January 27 at 7pm in 108 Forum. The title of my presentation: “Is CC Sabathia Worth $160 Million?”

The talk is open, so if you live in the area and would like to attend, please feel free to do so.

I’m in the Hall of Fame

Er, well sort of…actually, not really at all.

The Hall of Fame’s Education Department conducted an interview with me that is now available online.

Here is an excerpt.

Of course people of a wide variety of backgrounds all over the world are baseball fans. How did you become a baseball fan?

My dad liked baseball. Though he didn’t watch it much, he used to tell me stories about playing Little League and going to Yankee Stadium. All the kids in my neighborhood played baseball, so I played too. It was one of the few sports where I was one of the better players, so that helped. Making my Little League All-Star team and having a multi-homer game are fond memories.

Your website studies baseball from an economist’s point of view. “Economy” and “baseball” don’t seem to collide in the same sentence. Does baseball tend to ignore the “common-sense” side of economics, or is baseball fairly level-headed?

The economic aspect that interests most observers is the size of the contracts that players earn. Players earn millions of dollars for the same reason that movie stars earn even more millions: many people are willing to devote a portion of their incomes to watch them perform. As the market for baseball has expanded, so have player salaries. Because few non-baseball players earn that type of money, it’s difficult to justify these high salaries. But, the salaries players earn are in line with the revenues they generate for their teams through ticket sales, concessions, advertising, etc.

Is Francoeur Worth $4 Million?

Jeff Francoeur and the Braves swapped arbitration figures yesterday, and there is a significant spread between their salary expectations.

Coming off a season during which he hit .239 with 11 homers and a .359 slugging percentage, Francoeur is asking the Braves for $3.95 million. The club has offered the 25-year-old right fielder a salary of $2.8 million.

Is Francoeur worth $4 million to the Braves? The quick answer is yes, absolutely, and it’s not even close. Despite all the flaws in his game and his failure to meet misplaced expectations, he’s still a major-league baseball player. Even during his awful 2008 season, his marginal revenue product (MRP) contribution for his play in the field was approximately $12 million. This may seem like a lot, but all major-league quality baseball players are valuable assets. During the first six years of service, the Collective Bargaining Agreement (CBA) limits player compensation, and that is why we can easily say that many players are worth more than they are being paid.

However, that is not really the relevant question here. We want to know what he can expect to get. After completing three years of service—I’m simplifying here, because the exact criteria are complicated—players are eligible for arbitration. Each team and player submits salary figures that represent options to an arbitration panel. After a brief hearing, the panel decides which side’s figure is most appropriate and the player is awarded that salary: there is no compromise. The no-compromise requirement is designed to encourage the parties to negotiate a solution, or risk the other party’s preferred outcome.

The criteria for determining a player’s worth are set out in the CBA.

(12) Criteria
(a) The criteria will be the quality of the Player’s contribution to his Club during the past season (including but not limited to his overall performance, special qualities of leadership and public appeal), the length and consistency of his career contribution, the record of the Player’s past compensation, comparative baseball salaries (see paragraph (13) below for confidential salary data), the existence of any physical or mental defects on the part of the Player, and the recent performance record of the Club including but not limited to its League standing and attendance as an indication of public acceptance (subject to the exclusion stated in subparagraph (b)(i) below). Any evidence may be submitted which is relevant to the above criteria, and the arbitration panel shall assign such weight to the evidence as shall appear appropriate under the circumstances. The arbitration panel shall, except for a Player with five or more years of Major League service, give particular attention, for comparative salary purposes, to the contracts of Players with Major League service not exceeding one annual service group above the Player’s annual service group. This shall not limit the ability of a Player or his representative, because of special accomplishment, to argue the equal relevance of salaries of Players without regard to service, and the arbitration panel shall give whatever weight to such argument as is deemed appropriate.
(b) Evidence of the following shall not be admissible:
(i) The financial position of the Player and the Club;
(ii) Press comments, testimonials or similar material bearing on the performance of either the Player or the Club, except that recognized annual Player awards for playing excellence shall not be excluded;
(iii) Offers made by either Player or Club prior to arbitration;
(iv) The cost to the parties of their representatives, attorneys,
etc.;
(v) Salaries in other sports or occupations.

The exact rules seem to place great emphasis on the most recent season; however, the “length and consistency” of career provision does open the door for mention of past performance. I don’t know the extent to which arbitrators are allowed to consider the quality of play from past seasons. Still, it seems that Francoeur’s bargaining position will suffer from having his worst season just prior to arbitration.

On his side is his 2007 Gold Glove Award. It is certainly a significant achievement that is eligible for consideration. However, once you bring up defense, his most-recent season is brought to light. And according Plus/Minus, 2008 was a poor defensive season for Francoeur: he made 17 fewer plays than the average right fielder, ranking him 30th in the league.

How about his “public appeal”? Jeff Francoeur has been the team’s most popular players for the past few seasons. Only recently have some fans turned on him; but even with that, he still remains popular. He’s a local boy who excelled when he was first called up, and fans still remember this. But how do you measure his popularity without resorting to press comments and testimonials, which are barred? Attendance likely isn’t going to help, as the team’s attendance fell by nearly eight percent last season. I’m not sure if marketing reports like a Q-Score are admissible, but if they are I think this information is going to have to carry the day if Francoeur is going to win his case.

I have done some analysis of player salaries during arbitration years, but I haven’t gone that in depth. In my book, I report that position players tend to receive 77 percent less than their estimated marginal revenue product during their fourth through sixth years of service (estimated). Based on his previous three-year average of his MRP ($13.78 million), that puts his expected salary at $3.17 million. Based on his past season alone, his expected salary is $2.84 million. The Braves appear to have the better offer on the table.

The estimates I present are rough, but I believe they are biased in Francoeur’s favor. I’m estimating his worth on the median difference in player salaries from their MRPs during four-to-six years of service. Francoeur is only entering his first arbitration hearing and therefore ought to be on the low side of this average.

If You Keep Saying It, Maybe It Will Come True

I’m as tired of writing about this as you are reading about it. But, I want to record every instance when the Gwinnett Commissioners declare that their stadium will generate economic benefits.

From today’s AJC:

“Our board was completely unanimous on baseball Jan. 15 of last year, and I think our board will be completely unanimous on baseball today,” said Commissioner Bert Nasuti, the project’s chief proponent.

Nasuti is betting the ballpark will help boost Gwinnett’s economy. Conventions, Sports & Leisure International, the consulting company hired to study the feasibility of bringing baseball to the county, said a $38 million ballpark would generate $6.3 million to $8 million in net new spending each year, create 130 to 170 jobs and generate between $267,000 and $342,000 a year in taxes.

“You don’t shut down economic development opportunities when times are bad,” Nasuti said. “That is when you look at economic development opportunities.”

I have demonstrated why these estimates are faulty.

A Challenge from the Commissioner

Gwinnett Board of Commissioners Chair Charles Bannister issued the following statement during his State of the County address yesterday.

The stadium is progressing nicely and is going to be a jewel in all of minor league baseball as well as a fun place to take the family close to home.

It would have been great to have sold the naming rights to the stadium by now, but corporations are doing the same thing we’re all doing – tightening our belts.

We’ve taken some hits from critics over our stadium, but that’s OK. I know I speak for my fellow commissioners when I say we’ll gladly take those hits and invite those critics to check back in a few years.

Let me be as clear as I can be about this: The Braves moving their Triple-A team to Gwinnett is good business for our county. The stadium is an economic development project that is a wise investment in our future, one that will benefit us tremendously over the long haul.

Don’t worry, I will check back. The question is will you be around, or sitting on a dock in Hall County? Again, I ask the County to find even one academic economist—more would be preferable given the overwhelming consensus among economists on my side—who is not being paid by the County or other affiliates with a stake in the project to state that this will boost the County’s economy, just one.

Instead, I guess we’ll just have to settle for Nigel Tufnel’s rhetorical strategy.

Atlanta Business Chronicle on the Gwinnett Stadium

This week’s issue of the Atlanta Business Chronicle contains its “Gwinnett Market Report”. The lead article is about the stadium, and I serve the role of critic. Here are some highlights from the article (subscription only).

“The general belief among economists is that there is no economic impact of these publicly financed stadiums,” Bradbury said. “We keep seeing that this will generate $15 million and that is a completely made up number. They are clearly going to have to raise taxes. They are not going to make their first bond payment [without the help of taxes] ; and it is not going to get any easier. ”

“This is a great deal for the Braves and the Gwinnett commissioners should be embarrassed,” Bradbury added. “I think if you called every economist in the state of Georgia at academic institutions, you would find it hard to find a single one that would say this is going to have economic benefits.”

I added the statement in brackets, because my implication wasn’t clear. The County has already made its first bond payment.

Stadium project manager Preston Williams defends the stadium.

“Sometimes I question whether building stadiums is about economic impact or keeping up with the Joneses, but in the minor league side of it you are not laying out $300 million or $400 million to try and get some benefit out of that,” he said. “In the case of minor league sports, there is just as much importance to have quality-of-life issues that people are proud of and enjoy going to.”

“It will more than pay its way before this is over.”

Could a stadium supporter provide at least one academic economist who is not being payed by the County to back up the claim that the stadium will generate net pecuniary benefits? Apparently the stadium is going to pay for itself because it’s going to pay for itself. I’m tired of hearing “these go to eleven” answers.

The Braves Get Lowe

Finally, a bit of positive news for Braves fans. The team has supposedly agreed to terms with Derek Lowe on a four-year $60 million contract.

The Braves didn’t appear to be interested in Lowe early in the offseason. Whether this was a plan of playing hard-to-get or a desperate reevaluation when the other options fell through is difficult to know….well, actually it isn’t. ;-) I feel that Lowe has been an under-appreciated pitcher. I estimate him to be the ninth most valuable pitcher over the past three seasons.

Over the next four seasons, I estimate Lowe to be worth $57 million, which is close to what he will receive from the Braves. The rotation is now looking like Lowe, Javier Vazquez, Jair Jurrjens, Kenshin Kawakami, and some combo of Charlie Morton, Jo-Jo Reyes, Jorge Campillo, and Tommy Hanson. Now, if the team can get an outfield bat, they may be in business.

Defending Mark McGwire

This will be short and simple.

For the third year in a row, Mark McGwire did not receive sufficient votes from the Baseball Writers Association of America (BBWAA) to be elected to the Hall of Fame. The explanation is simple: many writers feel that his performance was aided by performance-enhancing drugs. There are certainly several sources for accusations, but they have some credibility problems. Others point to his continued excellent performance into his thirties and his bulging biceps. McGwire fits the profile of a steroid user, and I wouldn’t be surprised if he admitted to using them. McGwire hasn’t helped his case by refusing to testify under oath before Congress; however, that is the advice that every lawyer would give to his client in these circumstances.

I don’t want to pick a fight regarding whether or not he used steroids. I don’t really care. My argument is simple. Let’s assume McGwire used hard-core anabolic steroids every day of his baseball career. He didn’t violate a single baseball rule. Mark McGwire played his last baseball game in 2001. It wasn’t until 2004 when anabolic steroids became a punishable offense despite the fact that serious doping regulations had been instituted in nearly all other sports. McGwire shouldn’t be excluded any more than any other player who drank amphetamine-laced coffee prior to its ban. He’s being barred from the Hall of Fame for doing something that people wish was against the rules but wasn’t.

I guess my mind hasn’t changed since last year.