Archive for January, 2010

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.

Steroids and Expansion

In a recent post, I briefly discussed the possibility of expansion being a contributor to the rise in home runs. It’s based on the work of Stephen Jay Gould, who posited that as talent became less (more) disperse, excellent achievements became less (more) likely to occur. Since home run hitters tend to be baseball’s best hitters, there improvement should be expected as pitching talent becomes more disperse. Expansion is one cause of talent dispersion.

Reader Shek sent me this excellent graph (actually, he sent me his beautifully crisp Stata code to recreate it) of home run rates and the number of teams per season.

HR and Expansion

The rise in home runs does seem to move with expansion in the 1990s and possibly the late-1960s, but the relationship is hardly airtight, nor necessarily causal. And even in the 1990s, it’s difficult to know if the corresponding spikes are noise or real effects.

But, expansion isn’t the only cause of dispersion. In Chapter 8 of The Baseball Economist, I discuss how league dispersion has changed over time, by measuring the variation in performance across players. With and without expansion, the difference between the best and worst for pitchers and hitters has fluctuated quite a bit with time, as the graph below reports.

Dispersion by Decade

The 1990s and 2000s are two of the most disperse decades for pitchers in the history of baseball, while there were many good pitchers who excelled, there were also many bad pitchers for batters to feast on. However, during other past expansions, pitching quality was relatively compact. So, it should be no surprise that recent expansions felt more of an effect than past expansions. But still, this is not proof, just evidence that fits with a theory that is very difficult to test.

Thanks to Shek for passing the graph along.

A’s Sign Sheets and Padres Sign Garland

Yesterday, the Oakland A’s agreed to terms with Ben Sheets and the San Diego Padres landed Jon Garland. Here are my thoughts on these deals.

Sheets received a one-year $10 million contract, with $2 million in incentives. I think this is way too high. I have Sheets valued at about $9 million in 2010. I’m completely ignoring his missed 2009, but I am taking into account that he hasn’t been a paragon of health for most of his career. Furthermore, anyone coming back from serious surgery poses some sort of additional risk that I’m not even accounting for. No word yet on what the incentives are, but unless they’re based on Cy Young votes or some other difficult-to-achieve honor—even an All-Star appearance is too low a threshold—I doubt he’ll be worth $12 million. Only once in his career (2004) was he ever worth that kind of money.

On the other hand, I like the Garland deal, which is a one-year, $5.3 million contract with an $6.75 million option for 2011. $600,000 of the guaranteed portion of the deal is a buyout—of which he only gets half if he declines the option—so the potential two-year total comes to $11.45 million. I have Garland valued at around $7.5 million next year. It’s a good deal for the Padres. If he pitches like he has, he’ll be on a good contract. If he pitches lights out, you get a good deal for one year and he bolts. If he pitches poorly, you can cut ties.

What Caused the “Steroid” Era?

With Mark McGwire’s recent admission that he used steroids throughout the 1990s, there has been a resurgence of chatter regarding how to view the performances of the past 15–20 years. But, I think it’s wrong to attribute most of the high home run rates of this time-frame to steroid use. The connection that many people want to make is understandable. We have evidence that many players were using steroids during this era, and steroids have been shown to increase strength and power; therefore, it should follow that home run rates should rise accordingly. (And let me make this clear before I move to the next step: I believe wholeheartedly that steroids are effective ergogenic aids to baseball players—it’s growth hormone that does nothing.) However, I do not think steroids are the main cause of the dramatic rise in offense (particularly the home run) in the 1990s–2000s.

Why do I think this? Take a look at the following graphs. The first maps home runs per game from 1921 — 2009.

HR/G

It’s clear that the present era is different from the past, but I also think it’s interesting how quickly it changed and did not change. In 1993, home runs per game jumped by 23%, and in 1994 they jumped 16%. Since that time, the average absolute change in home run rates has averaged about 5% and maxed out at 9%. Home run rates rose, then plateaued. The graph below zeros in on home runs per game since the 1990s.

HR/G 90s

If steroids were the cause of the steroid era, then we should have gradually seen them enter the game. A few players use and then others slowly adopt their technique. But that’s not what we observe. Almost overnight, home runs jumped. If you want to believe home runs are largely responsible for the change then you have to believe that players all got together in 1992 and 1993 and said, “hey, it’s juice time.”

But even more convincing in my mind is the fact that the home runs haven’t gone away with steroid testing. In 2005 (marked by a vertical line on each graph), Major League Baseball began drug testing with suspensions, and the home runs didn’t go away. You might be able to look at the graphs and identify a slight decline—it’s difficult to separate the noise from real changes with so few observations—but it’s clear that home runs aren’t close to their pre-1993 level. Yes, tests are imperfect and can be beaten, but the dramatic change in enforcement—from no monitoring or punishment to strict monitoring with punishment—ought to yield more substantial declines. Do I think steroid testing has taken away some power from its users? Absolutely, and it barely shows up in the aggregate data. In my mind, the rise must be attributable to something else. And if you think Ken Griffey had two seasons of 56 home runs without the help of steroids, then it would be useful to have an alternate theory.

So, if steroids aren’t the cause, then what is? I have a few theories.

1. MLB changed the ball. I have little doubt that the league allowed (or introduced) a lively ball into the league. This would have the effect of boosting home runs for all players. Certainly, I can’t prove this, but there have been whispers about it for years. This theory explains the dramatic rise in home runs and the lack of decline after testing.

2. Expansion. Baseball expanded by two teams in 1993 and two more in 1998. As I have detailed before (see here and here), as talent became diluted, excellent performances began to happen as the very best (hitters and pitchers) were able to take advantage of the very worst. The abrupt change in home runs fits exactly with the timing of expansion. Joe Posnanski also discussed the the possible influence of expansion (as well as a few other explanations) in a recent column.

3. New stadiums. Smaller parks and home-run alleys may have caused more home runs to fly out of the ball park. While, on balance several new stadiums are home-run-friendly (Colorado) others have dampened home runs (San Diego). Given the dramatic spike in home runs, I don’t believe this could have had more than a minor effect on home runs, and the effect would occur gradually.

4. Bats. Bat technology has certainly changed since I was a kid, when nearly every player used an ash bat made by Louisville Slugger. Maple bats, hardened with shellac, with tiny handles are the new weapon of choice for batters. Again, I think this fails to explain the home run spike in the early-1990s, because they trickled into the game. It could be a contributor, but it’s not sufficient on its own.

5. Strike zone. It’s possible that the league redefined the strike zone into a more-compact area to increase offense. However, recent attempts to expand the zone (with the help of computer monitoring) haven’t dampened offense.

There may be a few explanations that I have missed, and I’m open to others. But if you have another hypothesis, it must be able to explain the near-instant rise and subsequent plateauing of home run rates. I believe steroids fail this test miserably. I’m fine with the “home run era,” but in my mind steroids can only explain a very small part of why home runs increased during this time period.

Incentives for Getting Economic Impact Studies Right

Craig Depken links to an interesting article on the economic impact of the Super Bowl at Division of Labour. It’s your usual discussion of economic benefit claims with private consulting firms claiming $100s of millions in benefits, with economists arguing these numbers are grossly exaggerated. Interestingly enough, the consulting firm hired to do one of the studies discussed refused to comment.

But Craig highlights a quote that really sticks out to me.

Advocates of the Super Bowl as an economic engine dismiss its academic skeptics as using complicated formulas to obscure the obvious. And they note that the reports bashing NFL figures bring the professors coveted media coverage as the big game approaches.

“It’s dangerous to say these games don’t generate economic impact,” said Robert Canton, a director in PricewaterhouseCoopers’ Hospitality and Leisure practice who focuses on sports and tourism.

“It’s not logical,” he added.

So, let me get this straight. Professional teams that earn billions of dollars of public subsidies based on the notion that the sports events and venues generate otherwise uncapturable benefits are honest brokers of the truth, while academic economists can’t be trusted because they’re glory hounds. That’s the kind of logic that brings us multipliers of five.

Worst Economic Impact Projection Ever

Yesterday, I received a call from a reporter working on a story regarding the economic impact of a minor league baseball team. These calls have become rather routine, but yesterday’s call was a bit more interesting.

The reporter, Louis Llovio, was checking into a claim made by Richmond Flying Squirrels executives that the team would generate as much as $40 million a year in economic impact to the community. I’m accustomed to exaggerated claims of non-existent benefits, but $40 million is outrageous. To put this in perspective, that’s more than double the $15 million that Gwinnett County officials claimed the Gwinnett Braves would generate, and I’ve been quite clear about that number being a farce.

Here is my response.

“That is so laughable I don’t know what to do,” he said of the prediction of $40 million in annual economic impact.

Bradbury said economic-impact studies are based on faulty assumptions.

Those projections “assume people are spending money they wouldn’t otherwise be spending” on movies, dinner or other forms of entertainment, he said.

“What the fans are doing is relocating money from other entertainment” to the baseball team, he said.

That means the money is already in the local economy and would have stayed there regardless of a sports team.

He also said that most minor-league players don’t live in the area and their salaries are relatively low, so they don’t pump much into a local economy.

No sweat. Almost as if it came from a can, time to say good-byes and move on. But, I couldn’t hang up without asking how the executives justified this estimate, and I heard the following.

That figure, he said, is based on a Minor League Baseball formula that takes the amount of revenue generated by the organization and multiplies it by five.

At which point I literally bent over double laughing. Count gross spending as net new spending and multiply it by five! I asked for clarification, “Did you say ‘five?’” No wonder. $8 million is ridiculous enough without a multiplier of five. I’ve seen a lot of PR studies that use multipliers greater than one (for which there is no empirical justification) and most are less than two—even Gwinnett used 1.7—but five? Wow! As the kids would say, ROTFLMAO.

If the Flying Squirrels are angling for a new publicly-funded stadium, such claims aren’t going to build much trust with the public. They wouldn’t stand for it with the Braves, and I don’t expect them to start now.

Mariners Lock Up King Felix

As Keith Law broke the story last night, the Seattle Mariners have reached an agreement with Felix Hernandez for an extension. Rumors have the contract in the $80 million range for the next five years. If this is true, then I think the Mariners overpaid.

Felix Hernandez is a good pitcher, and his 2009 was excellent. Based on last year’s performance alone (as I used for Josh Johnson), I have him worth about $89 million over the next five years. However, he’s still got two more years of arbitration where he’d likely get less than his worth. The M’s don’t appear to be getting much of a discount for signing him early. And, while his previous performances were good, I suspect that he’s not quite as good as his 2009, which whittles away some of his expected worth. But, it’s the Mariners’ risk to take, and they may feel that he’s every bit as good as his 2009.

But, I think this also gets to the heart of something I’m doing with my estimation of player’s worth. I’m not using a hedonic pricing model—estimating value from market prices. For example, when you buy a house, your lender will use a hedonic model to estimate the value of your home. Using characteristics such square footage, amenities, school zone, etc. the model spits out a projected worth of your new home based on the market prices for other homes in the area. As we’ve recently learned, when these models go bad, we get a bubble, and the pop can be dramatic. If I was to use a hedonic model, I think the Hernandez contract would look better.

Instead of using market prices, my model uses a fundamental value approach, which relies on revenue data to estimate how performance is associated with revenue generation for clubs. What teams are paying for certain player qualities never enters my model. Such models have the weakness of having to rely on financial information that isn’t known with a high degree of certainty, but fundamental value estimates have the advantage of being able to spot bargains and bubbles in market prices. Right now, I believe that teams are paying too much for pitching. It’s not by a huge amount, but enough to cause me to keep on eye out for a crash.

Hernandez is a good pitcher who is valuable, but I think the M’s would have been wise to hold out for a better deal. Buying out a player before he becomes a free agent should be done to receive a discount on a future contract, and I don’t think the Mariners got big enough discount to commit to this deal.

Marlins Add Payroll

Last week, the Marlins reached an agreement to increase payroll, largely thanks to a provision in the Collective Bargaining Agreement that I previously thought was unenforceable.

A principal objective of the Revenue Sharing Plan is to promote the growth of the Game and the industry on an individual Club and on an aggregate basis. Accordingly, each Club shall use its revenue sharing receipts (from the Base Plan, the Central Fund Component and the Commissioner’s Discretionary Fund) in an effort to improve its performance on the field. Each Payee Club, no later than April 1, shall report on the performance-related uses to which it put its revenue sharing receipts in the preceding Revenue Sharing Year. Consistent with his authority under the Major League Constitution, the Commissioner may impose penalties on any Club that violates this obligation (p. 112).

The team quickly responded by signing Josh Johnson to a four-year, $39 million deal. Just yesterdayDan Uggla and the Marlins avoided arbitration with a one-year $7.8 million contract.

I estimate Uggla to be worth $10 million next year. If Johnson was as healthy and good as he was in 2009, I estimate him to be worth $55 million over the next four years. Both these players appear to be worth more than what they will receive; however, I think the push of the settlement nudged these deals upwards.

I don’t think Uggla would have gotten that much in arbitration, and it probably would have been worth the gamble of going to arbitration and losing. The difference between the salary he got and what they might have lost is too small to worry about for most teams. But, I think the Marlins hoped to guarantee Uggla’s trade value. As it stands, he’s worth about $2 million in prospects to the Marlins ($10 million value — $7.8 million salary). Trading him with his arbitration obligation undetermined may induce uncertainty that lowers the value of potential prospects they want to receive. After all, the Marlins appear to be very good at identifying good young talent in other organizations.

Johnson, on the other hand, really got a good deal. 2009 was really his first full year of durable and excellent performance. If he repeats that and ages normally, his contract is about dead-on, given his service time. I think performance uncertainty would prevent the Marlins from signing this deal under normal circumstances.

Despite the cries about the Marlins low payroll, they haven’t just sat back and collected revenue sharing money while fielding an awful team. The Marlins are competitive almost every year. Even with all the buzz surrounding the Braves late-season run, the Marlins actually finished ahead of the Braves in the standings. The Marlins may not spend a lot on payroll, but what they do spend, they spend it wisely. They appear to have an excellent scouting department that is capable of spotting good talent. Even after developing players on the farm, they are able to trade them away as high-dollar players for more good prospects. That’s why I think it’s funny that the Marlins are the ones getting busted by the CBA provision. The goal was to preserve competitive balance, and the Marlins have pulled their weight. But, that doesn’t mean I don’t support the CBA provision. To the contrary, if revenue sharing is to exist it has to be enforced. It’s enforcement may be imperfect, but it provides an incentive to be more than a welfare recipient.

What Will Tim Lincecum Get In Arbitration?

Baseball Prospectus is running a contest to guess what Tim Lincecum will ask for in arbitration. The prize is a BP gift subscription.

What’s my guess? I think Lincecum will be worth about $18 million next season based on past performance. In most arbitration hearings, players are compared according to service time. However, the special performance clause in the CBA allows exceptional players to compare themselves to the entire league, not just to players with similar service. If there was ever a case for exercising this clause, this is it. Back-to-back Cy Youngs, are you kidding me? Throw service time out the window.

I think Lincecum will win $18 million, hands down, but that’s a different question as to what he should offer. The arbitration panel picks the offer (the team’s or the player’s) that they believe to be most correct. If the Giants propose $12 million and Lincecum goes $18, Lincecum wins. But, he also could win if he goes as high as $24! To suggest $18 million would be to leave possibly $6 million on the table. Now, I don’t think the Giants will go that low—they will go under $18 though—so, I wouldn’t recommend $24 million, but I think Lincecum will ask for more than $18. How much more has to do with factors that I know nothing about. Have the parties discussed figures for a long-run contract? I suspect they both know something about what the other party might offer.

So, I’ll guess $20 million, but I suspect that the parties will reach agreement before a hearing, possibly on a long-term deal. The difference between arbitration awards (say $15–$20 million) is small compared the potential gains that Lincecum will expect to receive over the long haul, as his value escalates with baseball revenue and player salaries. He is likely to give up a few million a year as insurance to guarantee him $100 million over the next few years of his career. I look for the Giants to offer a long-run deal that Lincecum might find attractive rather than risk going year-to-year with him.

Tigers Sign Valverde

The Detroit Tigers picked up a closer yesterday, signing Jose Valverde to a two-year $14 million contract, with a $9 million club option for a third year.

I’ll keep it short and sweet: I don’t like this deal for the Tigers. I have Valverde worth a total of $9 million for two years. If the Tigers were a better club, it might make sense to pay a little more and there was stiff competition for his services, but this is too much. I doubt Valverde would have gotten this much from anyone else. The good news is that I don’t see any way that the Tigers pick up the third year.

I generally like the Tigers’ moves, so I am a bit surprised to see them make it.