Effectively Wild: A FanGraphs Baseball Podcast - Effectively Wild Episode 342: Should Teams Stop Spending?/Industry Theories About the Transaction Spree

Episode Date: December 5, 2013

Ben and Sam talk about the idea that trying to win is costing teams money, then discuss what the industry says about this week’s transaction activity.

to stop spending. Stop spending. Stop spending. Stop spending. That's what we want. Stop spending. Good morning and welcome to episode 342 of Effectively Wild, the daily podcast from Baseball Prospectus. I am Ben Lindberg, joined by Sam Miller. Not quite as much to talk about today. I guess this was kind of the refractory period after Tuesday. Paul Conurco and Kelly Johnson, pretty much the only signings today. So maybe we will circle back for a few minutes and talk about Hannigan and Gentry, as we said we might yesterday. But before we do that, I wanted to bring up a couple articles. The first one, did you read Neil DeMoss' article at Sports on Earth? I did. Okay, so we had Neil on a few weeks ago to talk about the Braves ballpark story,

and he wrote something totally unrelated for Sports on Earth yesterday about whether teams are getting bang for their buck on the free agent market. He kind of looked at it in, I guess, a different way than we typically do when we analyze free agent signings. What we are usually looking at is whether teams are spending efficiently relative to the market or relative to other teams. Are they getting as many wins out of how however much money they're spending as they should be? And and so that's what we do when we you know, when we look at like I wrote I wrote about Ellsbury yesterday and that signing. And I mentioned how how Brian Cashman always shows up at the bottom of these rankings, the bottom of these lists of the most efficient GMs, because he doesn't get the most bang for his buck, because he doesn't really have to, because the Yankees are sort of in a unique circumstance

and they have more money and they have more incentive to spend and more disincentive not to spend and all these various reasons why he shows up at the bottom of the list along with like Steve Phillips and and Buzzy Bavese and and then you have Friedman and Bean at the top of the list it doesn't necessarily mean that he is the worst and they are the best. It's different circumstances. So Neil kind of turned this on its head a little bit and wrote about whether it makes sense for teams to spend in light of how much revenue they receive in return for each additional win. they receive in return for each additional win. So if we look at sort of the impact on the bottom line of the team,

and he makes the case and he cites a few things that even if you sign a market rate contract, even if a team signs a free agent to what seems like a reasonable deal, what seems like a reasonable deal, it's actually not from a certain perspective that adding a win on the free agent market will not increase the team's revenue by the same amount that they're spending on this free agent. Am I explaining that right? Yeah. Basically, the way I read it is that every dollar you spend on a player is a dollar poorly spent from a business perspective. That no player brings in as much revenue as he is paid, even if he's really good. But I guess the way to square that is that you start with the idea that all these teams are incredibly profitable and they're just spending down their profits. And so they could all have $20 million payrolls and make maybe more profit, but that would be no fun, I guess. Of course, some of them insist that they're not profitable, right?

Or they have. Some of them, some. Some teams with $20 million payrolls. Yeah. Blind item. Team with $20 million payroll insists it's not profitable. Yeah. Well, he actually mentions that the Marlins and also the Twins and A's

are like the only ones who didn't fit into this group, right? When he, they're the only ones who have not been costing themselves money, I guess, on the free agent market. And he did this sort of analysis at Baseball Perspectives in an article in 2007. baseball prospectus in an article in 2007 and just it was like after nate silver did the uh his his marginal win curve for the uh for baseball between the numbers and and there was already this uh doug pappas did the marginal payroll over marginal wins and he kind of combined them and came up with this new metric um and it it showed sort of the same thing, that all these teams were costing themselves money by spending. It's very, I should probably read it again. I read it and it's...

I read it like three times. Yeah, well, I read it once and it was fascinating, but it was so counterintuitive that I don't quite know what to think about it and I feel like I must have misread it. So did you, kind of in relation to this though, did you read the Brian Costa piece today in the Wall Street Journal about the Yankees? No. So this seems to contradict

this, but I mean, it's a fascinating piece regardless, but the Yankees by, well, the Yankees basically made a hundred million dollars less in ticket sales last year than they did in 2010. And they made about $50 or $60 million, $60 million it looks like, less than in 2012. And that is entirely due to not making the post-season basically. So in ticket sales alone, and not even, it doesn't even seem like in next year's ticket sales, I mean just in ticket sales that they didn't sell in October and stadium suite licenses, it seems as though they lose $60 million. So if you're talking about the marginal win value from a business perspective of going from 88 to 93 for them, then that would seem to suggest that

there's definitely a profit. Yeah. And that's kind of the case I made in my article. And I was citing stuff from Vince Gennaro's book, Diamond Dollars, where he was looking at the Yankees specific wind curve, not just the generic one, because they are kind of a unique case because of their brand and their market size and their history of success. And he pointed out how much steeper their win curve is than a typical team and that it's much more sensitive to, you know, season to season success that, uh, if I can find the quote, uh, partly through their own marketing efforts and hype, the Yankees have inadvertently increased their financial penalty for not winning.

And the idea is that, uh, Yankees fans punish them more. If they don't make the playoffs, they stop showing up. And their ratings were down by like a third last season. And their attendance was down by, I think, 3,000 fans a game, a little bit over that, which was the sixth largest decline. And that was not, you know, it wasn't a terrible season. They won, what, 85, 86 games. And it was just a rare blip that they did not

make the playoffs. It wasn't like the third year of a drought or something. But yeah, for them, at least, that seems to be the case, and that's kind of why I made the case that for Ellsbury, which might seem like sort of an overpay for them. There's just so much. It seems like there's such a goldmine that they can cash in on if they can get those extra wins that push them into the playoffs. And Vince, in 2011, he had the postseason effect, he calls it. And he said that for the Yankees, if they miss the playoffs or they haven't been in the playoffs for any period of time,

the revenue that they gain from making the postseason a first time after that absence is $60 million. And then somewhat less than that, but still a lot for each consecutive postseason appearance. So the numbers are huge. Like once you start talking about either what they lost from not making the playoffs or what they could gain from making the playoffs, it makes, you know, an extra whatever 20 or million, 20 or $30 million for Ellsbury seem kind of insignificant. So I don't know how to square that with Neil's article. I like the... One thing that I like about Neil's article

is I like the idea that these teams aren't making business decisions with players. And, I mean, I don't mean that... Like, I guess they... I don't have a problem if they do. I mean, it's their right to, and everybody needs to run a business. But I just get the feeling that these teams are all... First of all, they're so profitable. I don't have a problem if they do. I mean, it's their right to, and everybody needs to run a business.

But I just get the feeling that these teams are all, first of all, they're so profitable, you know, over the long term, because the value of the franchise goes up, you know, constantly and way past inflation. And so they're just so, so profitable as it is in the long run. it is in the long run. But I like the idea that these are rich guys who have a hobby that we get to share and that they really want to win and that they don't really care that much about making money. It seems like they all are making money and so they don't have to be penny-pinching too much. But I sort of like the idea that they look at Johnny Peralta's value at $6 million a win or whatever, not in terms of how much revenue he brings in, but in terms of whether that's the best way

to spend the money within the bounds of the game, within sort of this kind of game within the game that has developed where the dollar per win is a key component of strategy. So it's sort of nice to think that they're all, I guess, if I'm reading Neil's piece right, I guess that what you take from this is that all these teams are making money and can afford to spend on players, you know, without having to stress too much about what it does to their bottom line. Doesn't it also seem like, I mean, what if you, what if you are an owner and you read Neil's article and you said, okay, we're not spending anymore. We're going to just maximize our revenue. I mean, it seems like maybe that would work for like a year, but then after that, wouldn't the, wouldn't your losses sort of snowball?

Because if you're known as the team that is not spending anything because it wants to maximize its revenue and it never pays any players, I mean, your brand value, your fan loyalty, your marketing, your attendance is just going to flatline. And at that point, I can't imagine that it would still be worth it to you. Right. Our entire relationship with the team is sort of based on this illusion that we're in this thing together, that we have some bond that doesn't actually exist. It's totally imaginary. But we have this idea that we're connected to the team and connected to the uniform and to the region. And anytime an owner starts behaving too explicitly in a kind of a non-fun way, it kills that illusion. So yeah, it wouldn't

surprise me at all if it became less fun and less profitable the more people quit being able to delude themselves into thinking that they were on the same side as the owner. On the other hand, I'm sure that the Washington football team is making plenty of money even though there's not a single person in Washington who likes their owner or thinks that their owner is anything less than an evil businessman. I'm probably wrong. You could probably survive for many generations before that catches up to you.

I will link to Neil's article in the BP podcast post if you want to go check it out yourself. Can we talk about the Yankees thing again? We talked about the Rockies finances a few days ago. It's sort of staggering just to see some

of the numbers alongside each other. So the Yankees made $300 million in ticket revenue this year. They made about $400 million in ticket revenue in 2010. They make $60 million just for making the playoffs, right? $60 million just for making the playoffs. The Rockies' entire revenue for the year in all areas, including money that they get from the league and the MLB, MLB Advanced Media stuff, all of it, all the revenue that they get is $170 million. So their entire revenue, the entire franchise's ability to make money is less than half of what the Yankees get in a typical year, in basically any year from tickets alone. And that doesn't even count all the other stuff.

It's crazy, the disparity. And yet we have parity. I know. Isn't that insane? The Yankees and the Rockies played the same number of playoff games this year. The Yankees and the Rockies played the same number of playoff games this year. The Rays make the playoffs every year. It's really weird.

It's a strange sport. So weird. Oh, Vince Gennaro is quoted in this one, too. Was Vince Gennaro quoted in the Neal DeMoss piece? No, he was quoted in mine. Oh, he was quoted in yours. Okay. Yeah yeah that's we talked about the the non-relationship between payroll and wins a couple times and when you when you see the yankees just

go out and you know sign so far two of the four and ultimately maybe three of the four best players available on the market um it's hard to figure how there is that lack of relationship. Mad Fientist So should this change the way that we evaluate free agent signings? I couldn't quite tell from reading Neil's piece if it should or not. If he's basically saying that the money in a real world sense isn't important, that it only becomes significant in the kind of gamesmanship sense. I mean, is that what he was saying? I couldn't quite get a read on how I'm supposed to read this.

Yeah, it seems like he's just sort of pointing out the irrationality of the whole system. I mean, the teams do have budgets. The budgets come from somewhere. Yes, they do. So where do the budgets come from? If they're not, I mean, they have to be tied to their club's actual finances in some way, right? Mm-hmm.

I would think so. Yeah. I don't know. I don't know that it changes anything. I mean, every team has committed to this idea that they're going to be spending on players. And if one team diverged from that, then I don't know how that would work out for them in the long term. And I don't know how that would work out for them in the long term. So I feel like we just kind of have to compare how efficiently each team is spending. But there's just so much, there's so many numbers that we don't really know.

Like we kind of have an estimate of them. We don't ever really have a firm grasp, I don't think, of how each move is affecting each team's bottom line or how much room any particular team has to maneuver before it starts losing money. We're just kind of feeling around in the dark a little bit with that. Did you read the Brown University undergraduate thesis? the Brown University undergraduate thesis? I opened it in the tab and I saw that it was like 70 pages long with many pages of graphs and references and regression equations.

My ambition is to read it. Yeah, I would like to read it. This is a paper that Neil cites in his article that was written by... Oh my gosh, Vince Gennaro is quoted yes three out of three out of four things we've talked about today yeah and this this uh study apparently sort of supports what neil was saying and the author now works for the race um so that's interesting oh Brian Cashman was thanked in this paper

yeah it looks like two well I don't know a couple of these names might be front office guys Michael Fishman uh huh okay and then I just wanted to mention that we if you're listening to this on Thursday there's an article up at BP

by Zachary Levine yesterday we were talking about If you're listening to this on Thursday, there's an article up at BP by Zachary Levine. Yesterday we were talking about, I mentioned that Kevin Goldstein had posted on Facebook that everyone in the industry was talking about why all this activity was happening on the trade market, on the free agent market. And around the same time, Zachary emailed me and asked whether there was anything I wanted him to write about for Thursday. So I suggested that he write about why all this stuff is happening, since apparently everyone is curious. And he did a poll the industry kind of piece. And he just sent out

this question. And I sent it out to some people just asking what theories they had about why we've seen all this activity, why everything seemed to happen all at once on Tuesday. And there were, I guess there were five sort of theories or responses. I'll just mention a couple and you can go read the rest of the article at BP. But one of the interesting ones was that there's no reason to wait anymore for the winter meetings, that GMs have now adjusted so much to the idea of communicating by text and email that in-person meetings are no longer really valued. It doesn't work the way it did in the Moneyball movie where you have to fly to Cleveland to trade for a left-handed reliever. You can just send a text. And that even when teams go to the winter meetings and they

set up in their little bunkers and suites, they text each other from there instead of just meeting. So in that case, why even wait? There's no reason to wait. Why not just do it? There's all this time. The free agency period starts sooner after the World Series. So everything is kind of bumped up in that way. Then there was also, there were thoughts, I think,

as we discussed about the influx of money into the market, that all this TV money is either making teams worried that there's just going to be a run on certain players or the market is going to be set really high and they're trying to kind of get in early and get some cost certainty, you know, by figuring out how much they've spent and how much they have left to spend.

One of the people responded, while everybody is talking about how much money is out there, which is certainly true, teams don't have unlimited funds. And I guess this is related to what we were just talking about. So cost certainty early in the offseason is a plus. Budgets are real as much as people seem to overlook that. So maybe GMs got back from Thanksgiving and wanted to look things over Monday but get deals done before the winter meetings as they expect more competition to drive prices up a little. Was it last year, though?

Wasn't last year a late developing market? That's my recollection. I mean, it seems like... Because of Michael Bourne and Kyle Loesch hanging around forever, but... Uh-huh. Just because it seems like these are trends that you could see having developed over the last three or four years, but if this is a one-year trend... at least one front office person was, uh, that it's just a fluke of the calendar this year, that the winter meetings are always on a Monday to Thursday and they're tied to Thanksgiving so that they come like two Mondays after that. And because Thanksgiving was at its latest possible

date this year, um, the winter meetings are being held later. And so this transaction apocalypse happened earlier because, and one front office person said to me, perhaps players, agents, and GM's body clock is still set for the time schedule of the first week in December. That's when we start making moves. That's a good one. I like that one. This one I's a good one i like that one this one i accept yeah that's uh i like that one too how amazing would it be if the rays sent the mariners like a like a trade proposal that was like david price for michael saunders but it was on snapchat and they knew that it would disappear in like 20 seconds or whatever it takes and the mariners are just freaking out like because they didn't get a screen grab uh right all right so um should we talk about ryan hannigan for a

what what yeah oh no no good no when else are we gonna have a chance all right fine i wrote about wrote about Ryan Hannigan. You can go read it. Have you ever Snapchatted? No, I never have. I haven't either. I don't know if 20 seconds is an appropriate time for that joke or not. I don't know how long a Snapchat lasts.

I don't know either, but it seems like it shouldn't last that long. 20 seconds seems too long. How long does a Snapchat last? Boy, the internet is not helping me here. I could vamp about Ryan Hannigan while you look. I'm going to go. Okay. All right, so we'll be back tomorrow with listener email show,

so send us some, please, at podcast at baseballperspectives.com.