Thursday, November 27, 2008

Mid-Market Economic Impact Thoughts

The following is something that was posted on Padres front-office staffer, Paul DePodesta's blog: http://itmightbedangerous.blogspot.com/



Paul,

Thank you for this bit of information, this may be the most insight into a baseball operations plan that I have ever read. I'm actually kind of shocked that there are only 23 comments.

My comment is going to bring us to current issues in collective bargaining. With the San Diego Padres operating income reaching $167 million at the conclusion to the 2007 season (Forbes), it puts the Padres 18th overall in total team revenue, 16 million below the league average (c. 183M). I have seen signs of concern for mid-market teams in the form that you point out in this discussion. The Padres have enough resources to field competitive teams and also develop top prospects; however it requires specific micro-management of talent, not to mention some surprises in player development. The team endured a tough 2008 season at the major league level because these efforts were spread too thin.

I worry that the 2001 and 2006 Basic Agreement's have changed the economic landscape of the game so drastically for large market and small market teams and their business plans so that medium market teams may be the most negatively affected by the new spending trends. For those who do not know, the 2001 agreement created meaningful luxury taxation on payroll dollars spent above a particular tax threshold of 49% on each additional dollar spent on player contracts. It also increased revenue sharing from a previous 20% to 34%, which meant that 34% of all local revenues from each team were put into a fund with the Office of the Commissioner and re-distributed back to teams evenly. This effectively gave a significant amount of money back to the small market teams to be able to compete in the increasingly polarized baseball economic climate, but had little effect on mid-market franchises. The small market teams of Tampa Bay, Milwaukee and Florida most notably have used these funds to re-invest into their minor league systems and have seen the fourth stage of this plan realized in the production of championship caliber players. Large market teams have also begun to adapt to the economic system distributing their wealth to major league talent and also developing minor league assets.

A significant problem that happened with the 2006 Basic Agreement is that the tax threshold will be increased significantly throughout the term of the agreement (through 2011) from around 135 million to over 170 million by 2011. Also, the percentage of revenue shared was dropped from 34% to 31%. This means that large market teams have the ability to spend greater amounts of money before being hit with a luxury tax and also the amount of money distributed to each team decreased by 3%. In 2007, this 3% drop in revenue sharing meant nearly $500,000 was lost for the Padres under the 31%. Sure, in a game that is about to see at least two players sign contracts in excess to $20 million per season, $500K isn’t much. However, it can go a long way to develop talent if you take a look at the facilities that teams have built in Latin America and the Caribbean Islands.

The problem that I forecast for mid-market teams is that their revenue sharing dollars really do not change that much and they are forced to effectively spread themselves thin in order to succeed. Small market and large market teams have been able to use their resources and develop successful business models through player development exclusively at the small market level or spending money and some player development at the large market level. The Padres and other mid-market teams will have the luxury to sign a few big contracts or retain a championship caliber player or two, but they also have to focus heavily on developing minor league talent with a large portion of their budget in order to be successful. Is this some of the sentiment that the Padres feel while being spread too thin?

While an unpopular statement, when word was spread that the Padres were considering a payroll of $40 million in 2009, it makes so much business sense. With a team comprised of level three developing talent, the Padres will enjoy significantly higher amounts of money to re-invest in their organization for future seasons to the tune of somewhere in the 30 million dollar amount. I believe that the Padres have done this before after Tony Gwynn retired they let the payroll decrease for 2002 and 2003, and then in 2004, they had the money and prospects to pay David Wells and also trade for Brian Giles. This business strategy resulted in two NL West Championships and one season that required 163 games to be played before a winner was determined from the NL West. I do fear however, that success for mid-market teams is going to follow in this load and re-load pattern now until new economic policy is developed in Major League Baseball.

Anyone’s thoughts?

Regards,

Dan Fisher
http://baseballecon.blogspot.com/

Wednesday, November 19, 2008

Coco Crisp (BOS) for Ramon Ramirez (KC)

Again, this is another example of Dayton Moore and the Kansas City Royals making aggressive moves to improve some of the weaknesses from the 2008 version of the club. Already this offseason, the Royals have moved two successful relievers from their bullpen to acquire useful parts. With this move, the Royals have picked up a ton of defensive range in the outfield because now the Royals can move David DeJesus back into left-field, where he is best suited and enjoy watching Crisp run down and make some incredible plays in a spacious Kauffman Stadium.

Crisp's time in Boston was forgettable, as he saw his offensive numbers decline from his days in Cleveland and eventually lost the starting job to Jacoby Ellsbury. Now in Kansas City, he will be granted one more chance at becoming a leadoff-type hitter and the Royals should be well rewarded with having a player who has something to prove. While I reference Crisp as being a leadoff-type it is because he does not have a lot of power and does have speed. His .331 career on base percentage does leave him a lot of room to improve with respect to patience. At 29 years old, that is probably not going to happen, but he will probably be the best option for Trey Hillman at this point. I do have some level of expectations that 2009 could be a surprising season for Crisp as he will be in a situation without nearly as much pressure and he can play his game again.

What this does to the Royals now is it makes Mark Teahen or Jose Guillen expendable. If Moore is able to make a trade to move one of those outfielders to acquire some bullpen help, where they are now weak after this and the Mike Jacobs trade we are looking at a 75-87 team that has successfully added power, defensive range and speed without really losing a whole lot. If they add another starter, this team really is starting to look competitive in a weak AL Central. Here is what the starting 9 and rotation currently project after the trade today:

Joe Buck / Miguel Olivo, C
Mike Jacobs, 1B
Alberto Castillo, 2B
Alex Gordon, 3B
Mike Aviles, SS
David DeJesus, LF
Coco Crisp, CF
Jose Guillen, RF* (or Mark Teahen)
Billy Butler, DH

Not to mention two fringe prospects (Kila Ka'aihue, Mitch Maier) and several other useful spare parts (Tony Pena Jr. - Defense; Ryan Shealy - Pinch Hitter (Power); Ross Gload - Pinch Hitter; Joey Gathright - Speed) available to provide the Royals with a fairly impressive bench.

Gil Meche, RH
Zach Greinke, RH
Luke Hochevar, RH
Brian Bannister, RH
Kyle Davies, RH

Righties aplenty, but with Meche and Greinke looking like a formidable 1-2 punch and three other promising younger pitchers, the Royals would benefit from adding a solid veteran to put some pressure on Hochevar, Bannister or Davies to take one of the last two spots in the rotation. Oliver Perez makes sense if the price is reasonable. Paul Byrd could provide some veteran leadership for one season as a lower tiered option.

I will continue to say it...watch this team in 2009. Their major weakness that I see right now is a projected low team on-base percentage, who knows what Moore will have up his sleeve next to solve that issue. Perhaps a catcher that can work a walk? Gregg Zaun? Keep an eye on the Royals.

Mike Mussina

Growing up a Red Sox fan, it would be easy to say good riddance when Mike Mussina retired earlier today because of the amount of respect he earned beating up on the Red Sox as a pitcher for the Orioles and Yankees for the better part of the last two decades. I have nothing but respect for a guy like Mussina, who likely solidified his place in Cooperstown this season, ending his career on the highest of high's, a 20-win season and a Gold Glove. While watching other aging great pitchers such as Greg Maddux, Randy Johnson, Tom Glavine, Curt Schilling, John Smoltz and Pedro Martinez may have careers that have provided baseball with more scintillating moments in one season than Mussina did in his entire career, yet they did not know when to walk away. Mussina's retirement from baseball after having arguably the best season of his career is so impressive and something that other greats will not be able to claim as their decision to keep pitching when their instincts kept them going as their bodies deteriorated made for some forgettable moments.

I have to admit that I have immediately gone to EBay to find a Mike Mussina t-shirt because when someone mentions the best pitchers of my time as a fan, Mike Mussina has risen to the top as a player with class that crossed the finish line with greater dignity than the likes of Maddux, Mussina, Johnson, Glavine, Schilling, Smoltz and Martinez.

Congratulations on a fantastic career to Mike Mussina.

Tuesday, November 18, 2008

Jeremy Affeldt to San Francisco

While the rumors swirl about how much the Yankees offered to CC Sabathia, the Giants came away with a very good deal yesterday. They locked up a left-handed reliever for two years at 8M. Better yet, he has had an ERA in the mid to low 3's the last two seasons pitching in Colorado and Cincinnati -- two of the most hitter friendly ballparks in the MLB. In past offseasons, Affeldt may have been looking at 3 years and 15M, but this does set a small standard that because of the economy, teams are hopefully not going to overpay on mid range talent. This contract will affect the totals given to other relievers like Joe Beimel, Kyle Farnsworth or Bob Howry.

Tuesday, November 11, 2008

Matt Holliday to the A's

As a baseball fan, you have to admire what the Oakland A's have been able to do in the last decade. They have loaded up on talent, and then reloaded, and now appear to be reloading once again to be a contender. In acquiring Matt Holliday, the A's pick up one of the games best pure hitters, in the final season of his arbitration years. This may be a risky move, but as many will point out, the A's will be well compensated with Holliday's offensive production for at least one season and if they were to lose him, he would give the A's two compensation draft picks. With plenty of money to spend this offseason, I doubt that the A's stop here as they look to build that team back to strike fear into the American League once again. With no real outstanding player in their lineup last season, the A's have been talking about bringing back Jason Giambi, though adding another contact heavy hitter would be the most beneficial to a team that hit just .242 in 2008. I argue that players like Bobby Abreu or Rafael Furcal would make a lot of sense for the A's as opposed to a low contact power guy in Jason Giambi. With Abreu and Furcal, the lineup would project to look something like this:

Ryan Sweeney, CF
Rafael Furcal, SS
Matt Holliday, LF
Jack Cust, DH
Bobby Abreu, RF
Eric Chavez, 3B
Kurt Suzuki, C
Daric Barton, 1B
Mark Ellis, 2B

While the order does tail off after Abreu, the first five hitters are going to get on base and drive each other in. With the expected development of Suzuki and Barton, the bottom of the order could be looking a lot different by mid-July as well. Abreu is the type of hitter that Beane has liked for so long -- he gets on base and will do a little bit of everything for Bob Geren and potentially get some reps at first-base if Barton or Travis Buck emerge as the talented hitters their 2007 seasons indicated. Furcal makes sense because he also can get on base and create some offense with his speed on the bases and more importantly, it gets Bobby Crosby's bat out of the lineup. Either way, the A's have already become the most intriguing team of the offseason after the big move to acquire Matt Holliday. With their talented young pitching, the addition of a couple veteran bats and potentially a back end of the bullpen reliever, the A's already project to be a contender in 2009.

Friday, November 7, 2008

Offseason Spending

With the season ending just over one week ago, Major League Baseball has already made some big announcement regarding its future with incoming President, Barack Obama's taxation plans. The taxation plan will tax higher incomes at an additional 4.5%, which makes a big difference on the millions of dollars that will be negotiated during the offseason on premiere players such as Manny Ramirez, CC Sabathia and Mark Texiera to name a few of the best available. Agents are already discussing the value of receiving signing bonuses at the beginning of the contract to beat out the 2009 tax plan. A move that could save a player anywhere from a couple thousand dollars to a couple hundred thousand. In addition to the projected tax increases effect, MLB commissioner Bud Selig warned General Managers this past week at the GM Meeting to be mindful of the state of the economy. It seems as though there are going to be some competing ideas about what is going to be spent this offseason.


Available Players by Position:
C: Rod Barajas, TOR; Henry Blanco, CHC; Johnny Estrada, WAS; option-Toby Hall, CHW; Adam Melhuse, TEX; option-Mike Redmond, MIN; Ivan Rodriguez, NYY; David Ross, BOS; Javier Valentin, CIN; Jason Varitek, BOS; Vance Wilson, DET; option-Gregg Zaun, TOR.


1B: Rich Aurillia, SF; Ben Broussard, NYY; Nomar Garciaparra, LAD; Jason Giambi, NYY; Wes Helms, PHI; Kevin Millar, BAL; Richie Sexson, NYY; Mark Teixeira, LAA; Frank Thomas, OAK; Daryle Ward, CHC

2B: Ray Durham, MIL; Marcus Giles, COL; Mark Grudzielanek, KC; Orlando Hudson, ARI; Jeff Kent, LAD; Felipe Lopez, STL; D'Angelo Jimenez, STL; Pablo Ozuma, LAD; Nick Punto, MIN; Jose Valentin, NYM; Jose Vidro, SEA.

3B: Casey Blake, LAD; option-Hank Blalock, TEX; Joe Crede, CWS; Morgan Ensberg, NYY; Greg Norton, ATL.

SS: Orlando Cabrera, CWS; Alex Cintron, BAL; Alex Cora, BOS; Craig Counsell, MIL; Adam Everett, MIN; Rafael Furcal, LAD; Cesar Izturis, STL; Ramon Martinez, LAD; Edgar Renteria, DET; Juan Uribe, CWS.

OF: Bobby Abreu, NYY; Moises Alou, NYM; option-Garrett Anderson, LAA; Rocco Baldelli, TB; Willie Bloomquist, SEA; Emil Brown, OAK; Pat Burrell, PHI; Endy Chavez, NYM; Adam Dunn, ARI; Jim Edmonds, CHC; Cliff Floyd, TB; option-Brian Giles, SD; Ken Griffey Jr., CHW; Raul Ibanez, SEA; Jaque Jones, FLA; Mark Kotsay, BOS; Rob Mackowiak, WAS; Kevin Mench, TOR; option-Jason Michaels, CLE; Craig Monroe, MIN; Jay Payton, BAL; Scott Podsednik, COL; Manny Ramirez, LAD; Juan Rivera, LAA: Rondell White, MIN.

SP: Kris Benson, PHI; A.J. Burnett, TOR; Paul Byrd, BOS; Ryan Dempster, CHC; Jon Garland, LAA; Tom Glavine, ATL; Mike Hampton, ATL; Orlando Hernandez, NYM; Jason Jennings, TEX; Randy Johnson, ARI; Esteban Loaiza, CHW; Braden Looper, STL; Derek Lowe, LAD; Pedro Martinez, NYM; Mike Mussina, NYY; Jamie Moyer, PHI; Mark Mulder, STL; Carl Pavano, NYY; Brad Penny, LAD; Odalis Perez, WAS; Oliver Perez, NYM; Andy Pettitte, NYY; Mark Prior, SD; Horacio Ramirez, CHW; C.C. Sabathia, MIL; Ben Sheets, MIL; option-John Smoltz, ATL; Julian Tavarez, ATL; Steve Trachsel, BAL; Brett Tomko, SD; Claudio Vargas, MIL; Randy Wolf, HOU.

RP: Jeremy Affeldt, CIN; Tony Armas Jr., PIT; Luis Ayala, WAS; Joe Beimel, LAD; Joe Borowski, CLE; Juan Cruz, ARI; Alan Embree, OAK; Scott Eyre, CHC; Kyle Farnsworth, DET; Casey Fossum, DET; Aaron Fultz, CLE; option-Tom Gordon, PHI; LaTroy Hawkins, HOU; Mark Hendrickson, LAD; Bobby Howry, CHC; Steve Kline, SF; Damaso Marte, NYY; Tom Martin, COL; Julio Mateo, PHI; Guillermo Mota, MIL; Will Ohman, CHC; Darren Oliver, LAA; John Parrish, SEA; Chris Reitsma, SEA; Dennys Reyes, MIN; Juan Rincon, CLE; Brian Shouse, MIL; Rafael Soriano, ATL; Jorge Sosa, NYM; Mike Stanton, CIN; Derrick Turnbow, MIL; Oscar Villarreal, ATL; David Weathers, CIN; Dave Williams, NYM; Matt Wise, NYM.

CP: Brian Fuentes, COL; Trevor Hoffman, SD; Jason Isringhausen, STL; Brandon Lyon, ARI; Francisco Rodriguez, LAA; option-Salomon Torres, MIL; Kerry Wood, CHC.
Note: Italics indicate players that I project to receive a minimum of $10M/per year.


As you will notice there are a lot of big names and big contracts that are coming from this group of free agents, perhaps the greatest class of talent since 2000 when Alex Rodriguez, Manny Ramirez, Mike Hampton, Mike Mussina and Darren Dreifort received noteworthy contracts, some that turned out well (Despite "Manny being Manny," Ramirez has been part of one of the most feared 3-4 combinations in the history of baseball and has won two World Series rings as a result, Mussina and Rodriguez have posted excellent numbers and raked in serious dollars) and others that have gone down as some of the worst in the history of baseball (Mike Hampton's time in Colorado was more than forgettable and the last two years of his contract that earned him near $35M, earned the Braves about 15 starts and Darren Dreifort, who started 26 games and appeared in 60 as a reliever during the remainder of his 5-year, $55M contract).

Already, it may be easy to forecast that the 2008-2009 offseason will give teams similar success with Scott Boras, agent for Manny Ramirez (42 years old at the end of the contract), reportedly looking for a six-year contract at $25M per year. If that kind of money is eventually given to a guy that would be 42 at the end of the contract, I may just turn to the NHL (no...never).

In all seriousness though, the NHL does have an excellent new team payroll system that requires teams and players to share team revenues. Player salaries cannot bulge to more than 54% of team revenue from the previous year, effectively creating a salary cap that is dependent on league success. Major League Baseball GM's and owners need to be mindful of this percentage as well as fans and corporate sponsors may become less willing to spend money to be in the stadium given the current economic crisis in the United States.

It will be a very interesting offseason as teams like the Yankees, Braves having as much as $80M in salaries coming off the books this year. Other large-market teams like the Dodgers, Mets and Red Sox promise to be contenders as well, driving up the market price on the elite and mid-range players. The way that money is spent in the next few months may be record-breaking as well as back-breaking for the future economic success of Major League Baseball.