Archive for Hot Stove Economics
Last night during Game 1 of the Braves-Giants NLDS, San Francisco fans jeered Atlanta Braves rookie Jason Heyward with the chant “Posey’s Better!” in reference to San Francisco’s Buster Posey being the superior rookie. Frankly, I thought it was kind of rude. Georgia gives you Posey, and you give us Rice-A-Roni. Thanks. There is no doubt that Posey is a phenomenal young baseball player, but let’s not sell Heyward short.
Instead of taunts, let’s look at the performances of the two players this season to see what they provided for their respective big-league this season.
Player Positions PA Batting Runs Def. Runs Saved Buster Posey C(73%)/1B 443 15.7 5 Jason Heyward RF 623 26.6 10
With the bat, Heyward produced more runs; with his glove he saved more runs; and he played 40% more than Posey. Simply put, Jason Heyward gave more value to his team than Buster Posey did in 2010, and it wasn’t really close. Using the method that I explain in my new book, I estimated that Heyward’s performance was worth approximately $14 million compared to Posey’s $9 million. Given that there has been so much discussion about who should be the NL Rookie of the Year, how is it that Heyward has such a big lead?
Then main difference between the two players is that Heyward played more. While the J-Hey Kid was taking an early lead in the Rookie of the Year sweepstakes, Posey was in Triple-A Fresno. And the value of runs is increasing, not linear, so the marginal runs added by Heyward were more valuable. Whether that’s Posey’s fault or nor, it’s still value that Posey didn’t contribute.
You might argue that Posey played the tougher position of catcher. Well, he did, part of the time. About three-fourths of his defensive innings were played at catcher, a tougher position than right field. But when he was first called up, he played first base, a less valuable position than right field. And while right field may be relatively less important than catcher, Jason Heyward played it excellently saving ten runs more than the average right fielder. Buster Posey wasn’t as good between his two positions.
Now, past aside, is Buster Posey better than Jason Heyward? An affirmative answer is certainly defensible. But, if you’re going to be jerks about it, this is the kind of analysis that you’re going to get from a bitter Braves fan. So, don’t be surprised if Turner Field welcomes Gerald Demp “Buster” Posey back to Georgia with a classic “GER-ald…GER-ald.” Nah, we’re too nice for that.
If your team didn’t make it to the playoffs, this is a tough time of year. You can’t watch your guys play, and your club can’t start making major moves to improve until after the World Series. But fret not, while your buddies rooting for teams still in the championship hunt are concentrating on the playoffs, you can bone up on the upcoming action in the hot stove league with my new book Hot Stove Economics: Understanding Baseball’s Second Season.
The final out of the World Series marks the beginning of baseball’s second season, when teams court free agents and orchestrate trades with the hope of building a championship contender. The real and anticipated transactions generate excitement among fans who discuss the merit of moves in the arena informally known as the “hot stove league.” In Hot Stove Economics, economist J.C. Bradbury answers the hot stove league’s most important question: what are baseball players worth? With in-depth analysis, Bradbury identifies the game’s best and worst contracts—revealing the bargains, duds, and players who are worth every penny they receive. From minor-league prospects to major-league MVPs, Bradbury examines how factors such as revenue growth, labor rules, and aging— even down to the month in which players are born—shape players’ worth and evaluates how well franchises manage their rosters. He broadly applies the principles of economics to baseball in a way that is both interesting and understandable to sports fanatics, team managers, armchair economists and students alike.
Table of Contents (The Preface and Chapter 2 are available online as free previews.):
PART I. GETTING STARTED
1 Why Johnny Estrada Is Worth Kevin Millwood: Valuing Players As Assets
Hot Stove Myth: Every Trade has a Winner and a Loser
3 A Career Guide From Little League To Retirement: Age And Success In Baseball
Hot Stove Myth: Players Peak at 27
PART II. TRANSLATING PERFORMANCE INTO DOLLARS
4 Putting A Dollar Sign On The Muscle: Valuing Players
Hot Stove Myth: Replacement Players are Cheap and Abundant
5 Deals, Duds, And Caveats: What Do The Estimates Reveal?
Hot Stove Myth: The Size of the Free-Agent Pool Affects Player Salaries
6 Winning On A Dime: The Best- And Worst-Managed Franchises Of The Decade
Hot Stove Myth: General Managers can Buy Low and Sell High
PART III. PROJECTING PERFORMANCE
7 Is C.C. Sabathia Worth $161 Million? Valuing Long-Run Contracts
Hot Stove Myth: Player Salaries Raise Prices at the Gate
8 You Don’t Need A Name To Be Traded: Valuing Minor-League Prospects
Hot Stove Myth: College Players are Better Draft Bets than High School Players
The book will be released tomorrow, and the e-book version is already available for purchase. There are links to the book’s pages of several online sellers on the right sidebar. You can get more news about the book on it’s Facebook page and by following me on Twitter.
During the offseason, I’ll be writing quite a bit on the topics discussed in the book as they apply to current events. If you have any topics relating to the book that you’d like me to write on, please let me know.
1) What traits or skills do MLB teams scout for, and what do they expect players to develop over time?
2) What traits/skills do teams avoid? How do they estimate injury risk, and do they do this well? Can they?
3) What pitches generate more injuries? It seems that pitchers who throw a curveball more often get injured more (think Ben Sheets, Chris Carpenter, Stephen Strasburg). Is this really the case, and if so, is it worth the risk?
I don’t know exactly what teams look for in players beyond the five tools, tall pitchers, and possibly the “good face.” Kevin Kerrane wrote a marvelous book on scouting in the 1980s Dollar Sign on the Muscle, which follows the lives of several scouts and discusses the characteristics they look for. While there is some agreement over what makes a baseball player good, different scouts and organizations have their own philosophies as to what characteristics mark future success.
I can’t comment on how to predict success based on personal observations (a technique one of my professors referred to as “ocular least squares”), but I have looked for makers for success in minor-league performance statistics. I report my results and explain my methods for predicting success in the Chapter 8 of Hot Stove Economics. I even put a dollar value on prospects using these characteristics.
The difficulty with picking out major-leaguers before they’re ripe is that while most future big-league players excel in the minors, many bad players do as well. Looking beyond the slash stats reveals some common characteristics of big-league players, and some of the stats I found useful for predicting major-league success aren’t necessarily stats that I find to be the most useful stats for evaluating players once they make it. For example, I rarely look at the batting averages and strikeout rates of major-league hitters, but I find that high batting averages and low strikeout rates are important predictors of major-league success. You can succeed in the big leagues with a low average and striking out a lot, but even players who struggle in these areas typically handled the bat much better in the minors. Also important are a player’s walk rate and isolated power. If you have patience and can hit the ball hard, you’re more likely to succeed in the majors that players who lack these skills. And you can’t look at minor-league performances without also accounting for age. A twenty-year-old who’s treading water in Triple-A may have more promise than some of the older guys having success at the level.
Another interesting finding was that the stats below High-A ball have no predictive power. At this level, predicting success requires personal observations of trained scouts.
As for how players skills develop, I’ve done some work looking at how major-league players improve and decline over their careers. For hitters, batting average and power peak in the mid-to-late-20s, but these skills see minimal improvement and decline. The ability to walk improves into the early-30s, but the age-range of peak performance is less than it is for batting average. Pitcher strikeout ability is at its greatest almost as soon as pitchers enter the league, but this ability doesn’t diminish as fast as other skills. Like hitters, pitchers improve in walking into their early-30s. This is likely the result of acquired knowledge that allows older players to succeed, even as their physical athletic skills are deteriorating.
As for identifying injuries, that’s something that is not well-understood outside of baseball. I would hope that teams are conducting their own internal analyses of injuries, but most of that knowledge is kept private. Baseball injury data is just starting to become available where we can look at factors that influence injuries. The research being done in sports medicine journals is good and is still developing. What I have found interesting is that the medical community seems to have a better grasp on youth injuries than it does on adult injuries. For example, I’ve got a study on my desk that looks at factors that impact elbow injuries among youth pitchers—arm fatigue and mechanics seem to matter, but curve balls don’t. Play tracking systems like Pitchf/x, and motion analysis technology like Dartfish should help us better predict and prevent injuries for all players.
Rob Neyer takes issue with the conclusions of my NY Times column on revenue sharing and competitive balance, in which I suggested MLB abandon revenue sharing for the purpose of aiding competitive balance.
I can’t say that I’m convinced, but then again I can’t say I’m objective, either. Because it makes me happy to see the rich giving to the poor. It makes me happy to see the Yankees and the Red Sox writing checks to the Rays and the Royals.
Also, Bradbury’s argument isn’t terribly convincing. Maybe competitive balance hasn’t improved with more revenue-sharing … but that doesn’t mean it wouldn’t be worse without revenue sharing. Bradbury points out that the balance has hovered around 1.8 — as measured by the Noll-Scully ratio — since the early ’90s … but can anyone prove that it wouldn’t be lower than 1.8 without revenue sharing?
Maybe someone can. Economists love to play around with models. But I haven’t yet seen a model that gets the Rays into the playoffs twice in three years without a little help. And I suspect they’re happy, this year at least, with Commissioner Robin Hood and his Merry Men.
Let me clarify a few things and extend my argument to possibly convince Rob and other skeptics that revenue sharing isn’t a useful policy instrument for manipulating competitive balance. 800 words isn’t a lot of space to make an argument, and the book chapter which contains much of my argument is too long to include here. Although, as the son of a newspaper editor, I have to admit that I have a soft spot for short policy pieces.
First, I am not opposed to revenue sharing, per se. As a collective profit-maximizing entity, MLB may find guaranteeing payments to all franchises, regardless the level of locally-generated revenue, is the optimal business strategy. By having teams in Pittsburgh, Miami, etc., MLB receives media attention and retains interest in baseball among potential fans in the area. Even if local receipts aren’t sufficient to keep the franchise in the black, the net benefit to the league is positive. Therefore, in order to encourage an owner to own and operate a franchise in the area, a subsidy may be required. I have no problem with such an arrangement, nor do I have a problem with owners pocketing such transfers.
Where I see the issue as problematic is when we tie revenue sharing to competitive balance. Below is a revenue function that I have estimated for an average MLB team, based solely on winning. The left-side of the function shows “the loss trap” bump that I highlight in the article, which is consistent with revenue sharing creating a disincentive to win. However, the bump is slight, and I don’t think it’s even necessary for explaining why revenue sharing hasn’t improved competitive balance (more on that in a moment). The fact that earnings are relatively flat until wins reach the mid-80s in wins means that there is very little incentive for poor-and-losing teams to invest any money into the club. Whether that money comes from transferred wealth or a pot at the end of the rainbow, investing the funds into a club doesn’t generate sufficient return to justify it. The Pirates and Marlins weren’t being excessively greedy, their behavior reflected a sound business decision. For a team like the Rays, however, putting that money into the club does make sense. The returns to winning are increasing, likely higher than alternative investments. It’s getting to that point that is the difficult part. If you’re in the loss trap, spending many millions of dollars to improve the club doesn’t help much. And revenue sharing doesn’t help you out.
Teams that have garnered success on small budgets in the recent past (e.g., Rays, Twins, Indians, A’s, and Marlins) haven’t used revenue sharing to get where they are. Instead, another baseball institution has served to give these teams a fighting chance: the reserve system that allow teams to pay players wages below their revenue-generating capability. The amateur draft gives every team in the league rights to valuable player-assets that teams can use to build winners. This mechanism is far more effective at promoting competitive balance and it lacks the disincentives of revenue sharing. Only teams who draft wisely and properly develop their players are rewarded.
Now, to Neyer’s second point. He argues that because competitive balance is no better than it was in the mid-1990s, when revenue-sharing for competitive balance purposes was first instituted, it doesn’t mean that measured imbalance wouldn’t have been worse without revenue sharing. This is certainly a possibility. The graph below shows the Noll-Sully measure of competitive imbalance from 1921-2009, smoothed with a lowess fit to map the trend.
The graph shows that competitive balance improved from the 1930s until leveling off in the late-1980s and early-1990s. Much of this improvement was likely a natural consequence of more high-quality talent becoming available to more clubs, the addition of the amateur draft in 1965 (the mechanism Branch Rickey felt was most important for leveling the financial playing field across teams), and other minor structural tweaks to the league. Why would the improving trend disappear just as revenue sharing came into existence? While I’m not certain that revenue sharing stopped the progress, I doubt it was instituted just in time to counteract a trend reversal.
In my view, if revenue sharing worked, there would be some evidence of it working over the past two decades that it’s been tried under various formats. How much longer are we supposed to give it, especially when what we observe is exactly what theory predicts we should observe? If we think it’s important to correct inherent differences in revenue potential across teams, I think revenue sharing is a poor tool for achieving that goal.
Here is my take in The New York Times.
Baseball’s revenue-sharing system was designed to increase the competitiveness of small-market teams that presumably lack the financial muscle to compete with wealthier franchises. Redistributing wealth would give poor teams more resources to improve their rosters, and richer clubs would have less money to extend their financial advantage. The cumulative effect would be to spread good players around the league to achieve a level of competitive balance where “every well-run club has a regularly recurring reasonable hope of reaching postseason play” — the standard put forth by the Commissioner’s Blue Ribbon Panel on Baseball Economics.
Despite the good intentions behind revenue sharing, doling out money to baseball’s have-nots has the unintended consequence of creating a disincentive to win. Though the correlation is not perfect, winning tends to attract fans, which increases local revenue. But a healthier bottom line means drawing less from the revenue-sharing pool. The quandary faced by poor-and-losing teams is that using the added wealth to improve their clubs increases local earnings, but these gains may be offset by reducing revenue-sharing payments.
A lengthier explanation is available in my upcoming book.
Buster Olney is reporting that Corey Hart and the Milwaukee Brewers have agreed to a three-year $26.5 million extension. The contract buys out two years of Hart’s free agency—a fact that is easy to find thanks to Baseball-Reference’s new service time data.
Hart is having the best year of his career and has been a solid player for most of his career. I estimate Hart to be worth approximately $33 million over the term of his deal. Given his year of arbitration coming off a good year, he would probably have been looking at a $7–9 million contract in 2011. With this deal, Hart gets some insurance and the Brewers get a small discount for two free-agent years near his peak.
Yesterday, the Philadelphia Phillies acquired Roy Oswalt for J.A. Happ, Anthony Gose, and Jonathan Villar from the Houston Astros. The general reaction of to the deal has been quite negative toward the return to Houston. Oswalt is an ace starter. Gose (whom the team immediately sent to Toronto for Brett Wallace) and Villar are low-minors prospects. How could Astros GM Ed Wade get so little in return?
It’s interesting that several years ago Ed Wade was on the other side of one of these supposed heists for the Phillies, acquiring Kevin Millwood for Johnny Estrada. It just so happens that the opening chapter of my book on valuing players Hot Stove Economics (forthcoming in October) is titled: “Why Johnny Estrada Is Worth Kevin Millwood: Valuing Players as Assets.” In the chapter, I explain how players so different in ability were swapped for each other without bringing stupidity into the equation. The difference was their salary requirements. While I can’t go into the details here, Millwood would receive $11 million the following year (which was way more than his expected worth), while Estrada would get less than $1 for two years of service before being traded for two relievers.
Now we have Oswalt, who is owed just under $25 million for the remainder of his contract (the Phillies are kicking in and extra million for the buyout of his option). The Phillies are winning team and thus value his performance much more than the Astros, because there are increasing returns to winning. I estimate his expected performance through 2011 is worth about $28 million to the Phillies—a little over $3 million more than his salary obligations. The Astros are also sending along $11 million, which seems excessive until you remember the prospects. A year ago, Happ was pitching decently in the majors, and considered untouchable commodity. He’s been injured, but injuries heal. Let’s assume that Happ pitched at his true performance last year for the Phillies. Based on the value of his performance, and his expected salary obligations (one more purely-reserved year and three arbitration years), I estimate he’s worth about $12 million (discounted present value of performance for four years under team control). But, his injury risk lowers his expected return somewhat. Then the other prospect come into the deal. They are at such a low level that I won’t try and project them from minor league stats (stats below high-A are close to useless), but they certainly have value.
My point here isn’t to calculate the exact value to see whom got the better end of this deal. I want to understand why this trade was made. And while a lot of people aren’t high on Ed Wade, he and his baseball people have some sense of what players are worth. I think the deal is defensible from the Astros perspective, especially considering that Oswalt has some post-season value to the Phillies that the Astros can’t capture without trading him to where his services are more highly valued.
Addendum: Bottom line, Osawlt is the superior player, but expensive. Happ and the other prospects are inferior, but cheap.
Buster Onley ($) has a piece this morning in which he discusses the potential free-agent valuePrince Fielder after his agent Scott Boras made some comparisons to Mark Teixeira. Olney points to the Fielder in the living room when making such comparisons, and notes that several MLB insiders feel his weight is going to prevent him from aging as gracefully as most players. Fielder is so heavy that it’s hard to know what to expect. I think he will ultimately be a DH, and this may keep him in the game longer.
Yet despite his weight, which many talent evaluators thought would keep him from excelling at all, he has been an elite and valuable hitter. If he ages like the average players (possibly a dubious assumption, but it’s hard to know what to expect) and signs a five-year deal (equivalent in length to Ryan Howard‘s extension) after the 2011 season, I estimate the value of the deal in total dollars paid out would be $104 million, or a little under $21 million per year. It’s not quite Teixeira money, but it’s in the neighborhood. Concerns about his weight, justified or not, will probably prevent him from signing a deal this long, but I guess we’ll just have to “weight” and see.
Jason Heyward has just played his 30th game in the big leagues, and oh what a start it has been. A local kid rising to meet exceptional expectations; it kind of reminds me of another young phenom.
Despite Heyward’s hot start, Francoeur’s beginning was arguably hotter. Francoeur had more homers, a higher average, a higher slugging percentage, and a higher OPS. Does this foretell a similar demise for Heyward (Francoeur currently has a .705 OPS for the Mets)? While I won’t be surprised if Heyward’s numbers fall some, there are some distinct differences between the two players.
The first difference is obvious: walks. At the same point in their major league careers, Heyward has 20 walks; Francoeur wouldn’t get his first walk until four games later, and it was intentional. Heyward has the plate discipline that Francoeur still lacks.
And more important are their minor-league performances. Francoeur had decent, but unimpressive, minor-league numbers. Heyward had a better minor-league career, absolutely destroying the Double-A. Analyzing minor-league stats is tricky, so below I use the markers I employ for predicting major-league success from minor-league performance (see my upcoming book for justification): walk rate, strikeout rate, and isolated power (age is also important). These stats are for their High-A and Double-A performances before they joined the big league team. (Stats below High-A do not predict success well. Heyward barely played in Triple-A, and I excluded Francoeur’s 2008 demotion.).
So, despite their similar hot starts, Braves fans shouldn’t worry about Heyward becoming Francoeur. On the surface, the players’ hot starts may appear similar, but their skill sets are quite different. Heyward is already better than Francoeur will ever be, and his future looks very bright.
The Phillies recent extension of Ryan Howard seems to be hated by everyone except Howard, his agent, and Jon Heyman. Keith Law commented, “If Howard is worth $25 million, Pujols is worth $50 million a year.”
So, how much is Albert Pujols worth if commands a salary in line with what Ryan Howard received? Yesterday, I estimated that Howard was worth about $19.5 million per year over the term of his contract, so $25 million is approximately 28% more than his projected worth. If Pujols signed a deal for the same timespan, I estimate that he would be worth $40 million per year. Thus, if Pujols received a premium similar to Howard’s, he would be worth $51 million per year, almost exactly what Law estimated.
This also speaks to how good a player Pujols is, and how much more valuable he is than Howard. Because the financial returns to winning are increasing, the marginal runs that players produce should command higher salaries on the free-agent market. I’m not sure Pujols will get the Howard premium, but whatever contract he receives will blow away Howard’s deal.