Hot Stove Myths, Again

Free agents have now hit the open market. Welcome to the hot stove league!

A year ago, I posted a list of “hot stove myths.” I have since expanded on why these commonly-stated beliefs are mistaken in my new book Hot Stove Economics. As the hot stove season kicks off—and because it seemed to really piss a few people off the last time—I thought I’d repost with a few updates and links to further explanations.

GMs can buy low and sell high — So, let me get this straight: you think you know when a player is playing above or below his true ability—usually due to a small sample or by using a SGT-approved metric instead of a mainstream statistic—but guys who make a living in baseball completely miss it. For this to work, the GM on the other team has to be a colossal moron. GMs have made mistakes in the past and will make mistakes again, but they’re not dumb enough to act on a meaningless hot/cold streak. You can’t sell high or buy low and profit financially because all GMs understand these things. You don’t have to wait for a guy to get hot to sell him, nor dump him before he gets cold. In addition, the key knowledge of when the peak or trough is doesn’t exist, except in the mind of message board posters. Fluctuations in performance create uncertainty, which affect the price that GMs are willing to pay. (See Chapter 6.)

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—even union leader Marvin Miller believed this to be the case. Players act as substitutes and thus a team can pit the players against one another to keep salaries down. The problem with this idea 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, if there are four good shortstops on the market this means that there are also four openings on teams. The increased supply of players is counteracted by the increased demand by teams needing replacements. (In Chapter 5, I look at the free-agent markets leading up to the 2007, 2008, and 2009 seasons to examine how the size of the pool affected salaries of free agents. It turned out that the impact of the size of the talent pool was not statistically significant.)

Every trade has a winner and a loser — Swapping resources only takes place if both parties are made better off. Therefore, when we observe trades taking place, it’s likely that both parties are doing so because they expect to improve their teams (see the weak axiom of revealed preference, or as I call it: “the useful WARP“). Mistakes happen, but as a general rule, all parties to trades are winners. Who says economists aren’t touchy-feely? (See Chapter 1.).

Players peak at 27 and old players are worthlessMy estimates indicate that players peak at 29–30. And just because a guy is past his peak doesn’t mean he’s not valuable. The aging process is gradual, more like the Minneapolis Metrodome than an Egyptian pyramid. If a guy was good last year, even if he’s in his mid-30s, he’ll probably be good next year. Now, the older he gets the more dangerous long-run contracts get, but one- and two-year deals are fine. (See Chapter 3 for a discussion of the flaws in the studies that produced this myth and an explanation my study.)

Other myths in Hot Stove Economics:
Some Players are Clutch — Sorry, folks. Clutch performance is not an identifiable skill that should be valued.
Replacement Players are Cheap and Abundant — Why do you think that a third of the league is composed of “below replacement” players?
Player Salaries Raise Prices at the Gate — The causation is backwards. Sports are normal goods. Prices have risen with consumer demand in a wealthy economy, which has made players more valuable.
College Players are Better Draft Bets than High School Players — The college talent pool may be more certain, but it’s also shallower than the high school ranks.

10 Responses “Hot Stove Myths, Again”

  1. Jose says:

    I’ve yet to read your book, Mr. Bradbury, because I’m still knee deep in the Baseball Prospectus book. But I might pick it up anyway for my upcoming flight.

    I’d probably get this answer from the book, but wouldn’t demand generally be less than supply? I would think, usually, a free agent is a free agent because the team already has a replacement in mind. This isn’t always the case, as a lot of times players are doing their due diligence. But how does that change when a rookie is pushing a veteran out?

    For example, if Bengie hadn’t gotten traded, Posey would almost certainly pushed him out anyway at the end of the year. In this sense, since supply is not necessarily 1:1 with demand, wouldn’t this drive player salaries down?

  2. JC says:

    The Molina-Posey situation is a good one to examine. It actually demonstrates that the labor market as a whole affected the allocation of catchers. The free-agent market didn’t even come into play.

  3. Sky says:

    I don’t think this quote is a fair assessment:

    “Replacement Players are Cheap and Abundant — Why do you think that a third of the league is composed of “below replacement” players?”

    One, it’s more representative to say that about 15% of plate appearances come from players who performed worse than replacement level (as you note in your book.)

    Two, because there are so many players with talent levels near replacement level, there are bound to be MANY who underperform their talent level. In other words, while their production (in very limited playing time) is below replacement level, our best estimate of their actual talent level is NOT below replacement level.

    Any thoughts on those, especially the second?

  4. SF Braves Fan says:

    I have to agree with Jose’s post here. The free agent market may not have come into play with Molina-Posey, but it does in many other cases. To pose a few recent examples from the team I follow most closely, Derek Lee and Eric Hinske are both now free agents because the Braves have Freddie Freeman projected as their 1st baseman next year. They may re-sign Hinske as a backup, but Lee is going to the market without opening up another spot. The same goes for setup man Takashi Saito, as Jonny Venters has taken over the spot. Had Billy Wagner not decided to retire after a stellar year, the same would be true of him, as Craig Kimbrel has taken over the closer role from inside the organization. This may not happen in the majority of free agency cases, but it isn’t that uncommon either.

  5. JC says:

    For further clarification, see here (or read the book :-) ). Also, when I tested the theory empirically, the number of free agents at a position did not have a significant impact on free-agent salaries.

  6. pft says:

    “Clutch performance is not an identifiable skill that should be valued.”

    I am not sure what this means. You mean it is a skill that some players may have but it is not identifiable statistically due to SSS.

    If clutch does exist it should be valued. My observations of David Ortiz from 2003-2007 suggest he had it, and this can be detected statistically (just look at his OPS in high lev situations on B-Ref). Since 2008, he appears to have lost this skill primarily due to his skill in hitting LHP’ers have deteriorated with age.

  7. JC says:

    I’m not sure how you run a test for clutch skill on one person. Due to random variation and sample size a certain number of individuals will perform above or below their non-clutch performances. The identification of clutch requires a consistent pattern of clutch performance across many players over time. I have conducted such analysis using the appropriate statistical tests, which are reported in the book, and I find no evidence of clutch performance. My results mirror the results of other researchers.

  8. JC says:

    I don’t recall writing that replacement players take 15% of all plate appearances. And if I had, I’m not sure why it would be more representative or fairer than what I wrote above. I did write that 16% of players supposedly cost their teams $1 million or more, which was in anticipation of the argument that the negative values could be explained by expected natural deviations in performance from replacement players (p. 96).

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