Talking Baseball

Your weekday baseball fix. Some days.

Posted by Dave on Friday, January 23, 2004

Please, Make It Abundantly Clear That You're An Econ. Major

If you weren't sure about it before, this post will make it pretty damn clear. Ben gave you all a bit of info last time around with his (ahem) shameless plug for The Phoenix - the school paper for Swarthmore (he's the editor, and damn proud (and he should be, that's quality stuff they put out, in large part because of him, I'm sure)); this time around, you get a bit of info about me. I go to Bates College (we like our liberal arts schools 'round this blog) and I'm an Economics major. Unabashedly, my dream job would be the GM of a major sports team (baseball, basketball, football - I love the big three). I've been into sports for just about my whole life. Actually, I've been into competition for longer. Games, sports, grades, whatever. Compete with me in something, I'll probably beat you (call me arrogant, but it's the truth). So, I was easily attracted to sports.

*Long interlude, during which I talk to Jon extensively about my subject material for today*

So, as always, I've been scouring Transaction Guy's website (check it out, it's really great...succinct, and he'll get every major transaction) looking for the latest outrage (Adrian Beltre for 5 million?! Don't get me started.) and the latest blessing (Joe Borowski? I'd pay him nearly 1 million more/year for the job he's been doing). But recently, I've been a bit confounded. I see a lot of signings, which, on the face don't make much sense to me. The names have whirred by in the past week: Jimmy Rollins, Francisco Cordero, Scott Williamson, Tony Armas Jr., Roy Oswalt, Rafael Furcal, and much much more. What do all these players have in common? You may have guessed it: They are all players that were scheduled for salary arbitration that avoided it by signing one-year deals just before they had their turn off the docket. Some of the signings were bad (as in, the GM will not get return on his investment): I'm not convinced Williamson is worth 3 million even after that sterling post-season - nor do I think that Jimmy Rollins is worth 2.4 million given any criteria. But most were good: Oswalt, though injured last year, still posted some stellar numbers that surely would merit more than 3.2 million. Same for Francisco Cordero, he certainly deserves a bit more than 2 million. I've saved the best (and the most (hah, or at least more) recognizable, for our less knowledgable readers) for last, however:

Alfonso Soriano: Man, he cannot hit good pitching (or, at least, good postseason pitching). But, holy crap, he sure does his fair share of bashing. He produces incredible offensive numbers at a remarkably unincredible offensive position and he's done it the past two seasons. We know the knocks on him, though...Can't walk worth a damn and he plays a crappy 2nd base. Still, 11th in Runs Created? That's some clout. And what's he getting paid next season for his status as Guerrero (that's not Wilton, trust me)Jr.? 5.4 million. You'd think there was some Secret Money (3 million, at least) Deferred clause. Ray Durham makes 6 million next season and 6.5 the next. 99% of Baseball Men (the other 1% get polled by Jayson Stark (check out last Monday's entry)) would agree that Soriano is more valuable...so why isn't he getting paid more?

Kip Wells: This guy, more than Aubrey Huff, more than Jaime Moyer, more than Matt Stairs is really Captain Underrated. "Who the hell is Kip Wells?" Well scroll down only 17 names in this chart and you'll find his name. That's right, he had the 17th best ERA in the entire MLB. He's got really solid peripherals too. He's 30th in MLB in K/9 at a very respectable 6.70 and he's something of a horse - nearly 200 IP last year. He's only getting better, too. His ERA has improved in each of the last three seasons (certainly a recipe for future success). What do you pay for one of the top pitchers in the MLB? 2.575 million! The Bucs, though they moronically think Jack Wilson is worth something, at least know what they have in Kip Wells: A pitcher who is vastly undervalued. Why might he be? The statistically unimportant (this is the reality, but certainly not the perception) fact that he has gone 32-34 in the last three years as a starter. "He's not a winner!" They say. "Give him a good freaking team." I say. Oh, just for comparison, check out the past two years from these two pitchers:
Pitcher #1:
198.1.........12...........14........3.59 (2002)
197.1.........10............9.........3.28 (2003)
Pitcher #2:
134.2.........13............5.........3.28 (2002)
208.1.........21............8.........4.02 (2003)
Scratch your head for awhile, tell me who's better. At the very least, you'll tell me: "Man, I really can't tell, they both look pretty good. That second guy can sure win ballgames, but that first guy seems more effective and durable. I can't tell, they're probably about equally effective." Fine, that's fine by me. Truth is, I think pitcher #1 is objectively better, but it doesn't matter. The market doesn't just think that pitcher #2 is better, they think he's about 8 million dollars better. It should come as no surprise that the first pitcher is Kip Wells. Second pitcher? Andy Pettitte. Yet more proof that you can't look anywhere else when anointing Captain Overrated.

Here's my point though: Why would the majority of these guys choose to sign? Why would they willingly take something decidedly below market value? It seems it makes much more sense for them to go to arbitration where a guy like Kip Wells could ask for 4 million (hey, that's only 6 million dollars fewer than a less effective Andy Pettitte) and actually receive it. Same for Soriano. He at least deserves Ray Durham money - if not a bit less than Bret Boone. The weirdest part is, it's not just the players that fear arbitration. The Cardinals (just a team that I've read about recently) is amongst a plethora of teams that prefer the Bubonic Plague to Salary Arbitration.

Just before I continue, I want to make it clear what's going on here (at least, clear enough for my purposes, Baseball Primer wrote a very informative article where I learned quite a bit more than I'll impart to you). A player goes to arbitration, and he has a figure in mind. The team also has a figure in mind. The arbitor decides where amidst that spectrum of numbers (endpoints included) the player's salary should be. That is then the player's salary for the coming year. None of this makes sense to me, however: Why not let an unbiased party decide what's fair? That way, both parties (the team, and the player) can go home happy. At least, it would seem to me, the players got what they deserved. But, both parties are petrified of arbitration. I've gotten a lot of theories: When I talked with Jon, he seemed to think that players may fear the potentially corrupt MLB. There have been rumors of collusion for some time - maybe the corruption has extended to the arbitors, he argues. This is at least somewhat plausible, but I don't buy into conspiracy theory very much - baseball's fabric would be significantly damaged if the supposed collusion had extended that far. Ben thought players might be afraid of having the perception of being money-grubbers. Let's be honest, though, don't they already have that? And doesn't everybody want what they're worth (even if it's way too much? If only we paid teachers 1/1000th as much...)? Well, all these people compromise early for one reason: They're risk averse, just like you and I.

What's risk aversion? The best way to understand risk aversion is to discuss insurance (in general). Let's say you own a house in a very nice neighborhood - one where crime is extremely low. Let's also suppose that you have many valuables in your house. Truthfully, it's not worth it for you to own insurance; they'll make you pay through the nose because they're insuring a lot of stuff - but the fact of the matter is that you're never likely to have a theft occur. You pay a risk premium in order to avoid the possibility of the theft, because, well, it would suck if all your stuff was stolen. Here's another example: Go around asking college students if they'd take a bet. Tossing a fair coin, if it's heads up, they win $1050 - but if it's tails, they lose $1000. No one would take the bet (even if they knew it was a fair game) because even though their expected value for the bet is +50 dollars, they could lose 1000 dollars. In fact, I doubt if I'd take the bet. The point is, everyone (or nearly everyone, people with gambling addictions don't apply) is risk averse. So, most everyone would rather have a sure thing than take a positive risk. This is the principal reason why players like Carlos Beltran (who I believe to be worth about 10 million, but he gladly took 9) and the Royals (they may fear that Carlos would get 11 in arbitration) avoid arbitration. In a negotiation, both parties know the result and, in a sense, each is "paying" for the increased information by not necessarily getting fair value. Generally, the players pay more to get that information because they're youngsters - everyone eligible for arbitration is between 4-6 years of major league service and they really haven't made the big bucks yet. They really would like to know that they're going to be comfortable financially for awhile. But, for the most part, they want to know the value of the contract, rather than risk the contract falling in a range of numbers (8-11 million, in Carlos' case). If you have any theories, I'd be thrilled to read them. E-mail me (us) with your thoughts (that's top-left of the screen, folks (which probably, as a result of this post, seems very, very far away)) and questions.

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