So, it seems that my post last week on hot stove myths created a bit of a stir. Since this is the case, I’ll devote a post to each of my contentions over the next few days. I’ll begin with the myth that is generating the strongest objections.
The number of free agents at a position affects the price of free agents at a position — It seems logical that more free agents at a position will mean more options for teams. Players act as substitutes and thus a team can pit the players against one another to keep salaries down. The problem with this is that the free agents have come from somewhere. A high number of players looking for new teams means that there is a corresponding number of openings that teams need to fill. For example, it there are four good shortstops on the market this means that there are also four openings on team. The increased supply of players is canceled out by the increased demand by teams needing replacements.
The chief argument against this being a myth is that teams who lose players to free agency do not have to replace them with free agents. Instead, teams can use in-house replacements—from the minors or shuffling the major-league roster—thus, removing available landing spots for free agents on the market. This is certainly true, but it has nothing to do with the number of free agents on the market.
Imagine two free agent markets for shortstops: one with five free agents and one with a single free agent. Let’s further assume that in each market one team replaces its departing shortstop internally. In the former market, there are five players looking to fill four holes. Someone will be left out of the mix, and thus players compete against one bidding down their wages. In the latter market, the free agent has the market all to himself, but no place to go. In a world where the number of free agents is the only factor that affects bargaining power, he should have a monopoly and extract maximum surplus from his employer. Instead, he’ll take the league minimum just to find a bench slot to stay in the league. The five-player market actually provides more bargaining power for players than the single-player market. We could play around with the assumptions all day—fill in all five slots, leave a single slot open in the single-free-agent market—but, the exercise reveals the number of free agents is not important here.
There are two sides to this market and they cannot be viewed separately. Every free agent on the market generates an opening on a major-league team—it has to. And though not every opening must be filled by a free agent, more openings certainly help free agents. If you were to ask a player-agent which market he would prefer to hit, one with a few or one with many suitors, I think the instinctive response would be the one with many openings, because teams would compete for his clients. But, the openings have the side effect of creating competition for his client. In the end, it doesn’t matter. The sides of the market are linked, and this link is rarely mentioned. Alone, the number of free agents or number of teams looking for a free agent seem to tell us something about the competitiveness of the market, when they really don’t.
This leads to my second point: prices for free agents are affected by scarcity in the entire baseball labor market, not just free agents, which is what is important for generating expectations about player salaries. For example, last season had one of the more-plentiful free-agent classes of top starting pitchers in recent years. In any given year C.C. Sabathia, Derek Lowe, or Adam Burnett could have been the top starter on the market, but they all happened to hit free agency at once—Burnett actually opted into the market. If you followed this market you know that the pitchers faced competition not just from each other, but from non-free agents. The Atlanta Braves wanted two of the three and went hard after Burnett and Lowe, landing only Lowe. But this wasn’t the Braves’ only outlet: they tried hard to acquire Jake Peavy and eventually landed Javier Vazquez through a trade. Though Peavy and Vazquez were not free agents, they were available substitutes that were just as important as C.C. Sabathia as competition. And so were many other starting pitchers who were discussed behind closed doors but never switched teams.
What is important for competitive effects on free-agent contracts is the overall scarcity of major-league talent. The free agent market does not exist on its own, rather it is one sector of the labor market where teams purchase their services from among many available substitutes. Top prospects and controlled veterans are just as relevant—though maybe less liquid—to the wages free agents can command as the number competitors offering their services through free agency. An offseason with many similar free agents will not yield lower wages any more than a market with one free agent will yield high wages.