Welcome to a small-market team’s worst nightmare
Imagine you’re the Tampa Bay Rays, and there’s a young superstar free agent like Bryce Harper — let’s call him “Bryce Harper” — available. You gather in a conference room and decide that, as a low-revenue team, you could comfortably afford to pay him $125 million for some number of years. Meanwhile, somebody in the front office has been assigned to study the Yankees’ operation, and the best estimate is that they can comfortably afford to pay him up to $250 million for those same years.
The best outcome, extremely unlikely as it is, would be Bryce Harper accepts your $125 million offer. Big news conference, MVP candidate in the heart of the order, what an exciting new era for Tampa Bay baseball! But the second-best outcome would be the Yankees signing him for $500 million. At that price, for those years, it could come back to bite them, and eat up some of their financial advantage over you. You’re in something close to a zero-sum contest with the Yankees. Bad for them is almost as good for you as good for you is.
The worst outcome is the Yankees signing him for $250 million.
Except, actually, the worst outcome is the Yankees signing him for $126 million.
This offseason has been bad for veteran players, who’ve found themselves — for the second year in a row, but even worse than last year — unable to shake loose owners’ record revenue. It has been bad for obsessed baseball consumers who don’t particularly like to see the sport shut itself down for four months of the year. And it might end up being very, very bad for small-market teams.
They might not be doomed. But they might be.
Baseball in the 1990s and early 2000s had some good things (compelling dynasties, records set, old Rickey Henderson) and some bad. One bad thing was a permanent second division of teams, who weren’t just bad but close to obsolete. The reverse negatives of those incredible Yankees and Braves runs were the Royals, who had 18 losing seasons out of 19; the Pirates, who had 20 losing seasons in a row; the expansion Rays, who lost at least 90 games in each of their first 10 seasons; the Brewers, who went 14 seasons without a winning record; and the Tigers, whose legendary 119-loss season was merely the 11th of 12 consecutive losing seasons.
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Besides increased revenue sharing, this stratification was eased in part by innovation. Innovation has a cycle: A small-market team, forced by financial restrictions to be creative, and free to be weird because of lowered expectations, tries something new. In the mid-1990s, for example, Cleveland signed its young stars (and even non-stars) to long extensions before those players were close to free agency. These extensions were very successful for Cleveland, and such extensions became a common tool for small-market teams who were willing to bear extra risk to avoid wading into the more expensive free-agent market.
These innovations aren’t just tactics, but shifts in philosophy, which is part of what makes them radical and powerful. Cleveland’s philosophical shift was turning the club — a rich corporation with a broad balance sheet, relative to the 23-year-old who is years away from his first big payday — into a sort of insurance company. The club can absorb risk, offering players a guaranteed fortune in exchange for years of club control and some earnings skimmed off the top. The Moneyball Athletics’ philosophical shift was valuing players’ flaws, because flaws were priced even more inefficiently in the market than skills were. The Process — losing a lot to win eventually — was a philosophical shift about how to define success.
But teams don’t get to play baseball games secretly. If an innovation works, it spreads, often first to the mid-market teams but eventually, always, to the rich teams. This decade, the Giants, Cubs, Angels, Nationals, Cardinals, Braves and Astros have all signed young stars to early extensions. That’s the cycle: The small-market teams were merely incubators all along, until the richer teams could not only neutralize the advantage but overwhelm it. The Phillies, a big-market team, last spring signed Scott Kingery to a nine-year deal (including options) before he’d ever appeared in the majors, the most aggressive extension ever.
Still, it was good for Cleveland while it lasted. As it was good for the A’s when they did Moneyball. As it was good for the Rays when they hired stathead baseball writers and quants for positions that had previously been held by ex-players, for the Pirates when they blew past draft slot recommendations, for the Rays when they made extreme defensive shifts routine, for the Royals when they branded “The Process” to make losing strategic, for the Rays when they used their relief pitchers to start games. But none of these innovations could last as monopolies, or even as advantages, forever.
The way any person — or any team — shops reflects a philosophy, driven partly by personal economics and partly by choice. A jar of mustard might be commonly available for $4. One person’s philosophy is anytime the mustard in front of them costs $3.99, it’s worth buying, and anytime it costs more than that it’s better to shop around. Another person’s is it’s better to have mustard than not have mustard, even if the store they’re at charges $5. And a third person’s is sometimes mustard goes on sale, and sometimes there are coupons, and some days a store will double coupons, and if you’re willing to wait long enough you can get mustard for darned near free. That person will buy mustard only when it’s at its absolute cheapest, even if it means going years without mustard.
Imagine, again, you’re the Rays. You figure there are a bunch of ways to get players, all with different levels of risk and reward. You have the folks in the analytics department do a study and they come back to you with this estimate of how much a “win” costs using each method:
Rule 5 picks who unexpectedly turn into stars: $1 million per win
Draft: $2 million
International free agents: $3 million
Trades for young players: $5 million
Free agents: $10 million
Trades for old players: $15 million
(These numbers are all completely made up.)
A win in the Rule 5 draft is cheapest, but it’s also the least available. A win in the draft is nearly the cheapest but it takes a bit of luck and a lot of waiting, and access to those wins is restricted by how often you get to draft. A win in free agency is expensive, but it’s almost always available. There are scores of free agents available every winter, and while a team can’t force a player to sign, it can take control of the situation by offering the most money.
The Rays, and other small-market teams, have in the past decade taken a strong philosophy into the free-agent market: They essentially never, ever pay retail. Some seasons they won’t win enough games because of this, but they’ve got a philosophy, and they don’t break it. It’s not that they don’t sign free agents unless they can get the expected cost per win down to $8 million, but that they basically won’t unless they can get the cost down to $2 million.
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In the past 10 years, the Rays have never signed a free agent for more than $21 million, and only once signed a player for more than two years. The Reds in that time have never signed a free agent for more than $21 million, not counting Aroldis Chapman‘s signing as a Cuban prospect. The A’s haven’t signed any domestic free agent for more than $30 million. The Pirates have signed only one free agent for more than $30 million — Francisco Liriano, for $39 million guaranteed. They hardly ever even pay $15 million for a player. In fact, all of the $15 million-plus contracts those four teams have given to free agents add up to $198 million — a bit less than the Red Sox guaranteed to David Price. (After the Rays had squeezed out all of Price’s inexpensive wins.)
Meanwhile, as those four teams combined have signed one free agent for more than $30 million, the Dodgers have signed eight, the Yankees nine, the Red Sox eight, the Cubs seven. “What you don’t do is what the Yankees do,” Billy Beane is quoted saying in “Moneyball.” “If we do what the Yankees do, we lose every time, because they’re doing it with three times more money than we are.”
The Yankees can afford to pay retail, but more important, the Yankees have traditionally had a different philosophy. The most important thing for them has been to get enough wins — at least 95 a year, enough to make the playoffs every time. If that means paying $10 million for one win, fine. If it means $12 million, maybe also fine. If it means giving an eight-year contract to somebody we all know darned well won’t be very good by Year 5, fine. Every analyst has said for years that these free agents are overpriced compared to young, cost-controlled players, but they’re available. Tomorrow would worry about itself.
This is what helps keep parity in the majors: Big-market teams and small-market teams, with different philosophies, playing different games. Both might be perfectly satisfied. A Plymouth Colt driver might consider a Mercedes wastefully extravagant, and a Mercedes driver might consider a Plymouth Colt rickety and unreliable, but each might end up perfectly happy with what they’ve got. They can share the road. The Rays and the Yankees have both had success.
In the past two offseasons, the market for free agents has bottomed out. There are plenty of possible explanations, but the simplest is there aren’t many buyers. The small-market teams remain mostly uninterested in paying retail, even slightly discounted retail. In addition, a revolving cohort of teams churn through the teardown-and-rebuild process, so they’re investing as little as possible in the present. Big-market teams aspired to get under the luxury tax threshold, and have more broadly adopted the small-market philosophy about free agents: better to pass up a win than to overpay for it. Few teams even try to build a championship core around free agents anymore. Simultaneously, young players are reaching their peaks earlier, before they reach free agency, reducing the demand for older players.
Last year, baseball salaries dropped for the first time in almost a decade. This year’s offseason has seen, from the players’ perspective, “a catastrophic decline in spending.” Four of the top five free agents remain unsigned, and while some free agents have gotten what was estimated for them — Patrick Corbin, Nathan Eovaldi and Andrew McCutchen among them — others are beginning to sign deals that are shockingly light: Yasmani Grandal for one year and $18 million (compared to MLB Trade Rumors’ $64 million estimate before the offseason); Nick Markakis for $6 million (against a $16 million estimate); and Nelson Cruz for $14 million (not $30 million).
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This could go to the small-market teams’ benefit. Grandal signed with the Brewers and Cruz signed with the Twins, both of which got bargains that might not have been available if the Yankees and Dodgers were still paying $7 for mustard.
But there’s reason to be concerned it won’t. In the NBA, for instance, salary restrictions keep the best players from making anywhere near their true market value. This has not, however, meant small markets have had equal access to the very best free agents. Rather, players who’ve found their earnings artificially capped have instead exercised their leverage to sign in the biggest markets, to get the most media exposure, to surround themselves with other stars, and to have the best chance of winning. If Bryce Harper’s $400 million asking price is forced down to $300 million, or $200 million, or even — extremely unlikely! — $125 million, he’s still probably not going to sign with the Rays, who aren’t as attractive as the Yankees for any number of other reasons. Instead, the Yankees might just get a deal.
Last year, the whole industry expected the Red Sox to sign J.D. Martinez, and they did — but with a hollowed-out market unable to put pressure on Boston’s opening offer, the Red Sox got him for two-thirds of what was expected. He was awesome, and the Red Sox won the World Series. This year, A.J. Pollock, J.A. Happ and Michael Brantley have all signed for less than was expected, by the Dodgers, Yankees and Astros — three existing superteams.
“If we do what the Yankees do, we lose every time,” Beane said, but it might also be true that if the Yankees do what the A’s do, the A’s will lose every time.
For the past decade, the innovation cycle has kept baseball interesting. Money has still correlated to success, but not as much as it historically has, and there has been no permanent second tier of teams. Since 2009, the worst team in baseball — Miami — has had a miserable .456 winning percentage. That’s bad, but it’s not actually that bad. In the decade from 1997 through 2006, there were six teams that were worse, five of them among the smallest markets in baseball.
This might not be doom for the small-market teams, and it’s very nice to remember that the Brewers and A’s made the playoffs last year. Markets are unpredictable and the dynamic I fear — where the rich teams use their social capital, instead of their literal capital, to hoard free agents at reduced prices — might not develop. Or, if it does, there might be some other innovation that comes unexpectedly and grants the small markets a few years’ advantage, followed by another, and followed by another.
But it might be doom, and it might be time for the small-market owners to reconsider their philosophy. They might, for instance, want to think about why they own and operate these teams. If it’s to find the baseball equivalent of Jackson Pollock paintings at garage sales, they’ll keep doing what they’re doing. But if it’s because they actually like baseball, and because they’re incredibly rich individuals with an incredibly fun (and resiliently profitable) hobby, they might want to start signing players. Even expensive ones. Maybe even budget-busting, profit-siphoning ones. It would be exciting. The team that signs Bryce Harper will probably get to go to his Hall of Fame induction ceremony, and he’ll probably wear that team’s hat. And if nothing else, it would force the rich teams to go back to playing the rich teams’ game.