How Might Baseball’s New Market Impact the D-backs?

The last two posts here have focussed on extending Diamondbacks first baseman, Paul Goldschmidt. The first installment crunched the numbers to seek a reasonable figure, for both Goldy and the team, to keep the slugger in Arizona past 2019. The second installment discussed the problems with even a relatively team-friendly deal, notably paying a sum of money annually to make Zack Greinke go away in order to extend Goldschmidt. At the heart of the matter is a discussion of economics. The Diamondbacks seem poised to remain in the bottom third of the league in payroll despite some recent cash infusions. And, if you recall, this whole conversation started with a look at the potential contract offered to Eric Hosmer. To date, he has not yet signed like many other “marquee” free agents.

That last point, the free agents floating in the wind despite pitchers and catcher reporting in just a couple weeks, has created quite a stir. In general, teams shopping for players have shown a willingness to wait out the market. Justin Upton re-signed with the Angels early in the offseason, getting $106 million over five years. The next largest contract went to Carlos Santana at $60 million over three years. After that, Jay Bruce, Tyler Chatwood and Zack Cozart are your biggest earners getting $39, $38 and $38 million, respectively, on three-year deals. Still lingering are Hosmer, Jake Arrieta, Yu Darvish, J.D. Martinez, Lorenzo Cain and others. Of particular note, one report suggested that the Red Sox, who were considered an ideal landing spot for Martinez, offered the right fielder a 5-year, $100 million deal. Entering the winter, Martinez and his agent, Scott Boras, were seeking something more in the neighborhood of a seven or eight-year deal approaching $200 million. The gap between their expectations and the way the market has formed highlights the issue at hand: teams are no longer willing to ink big, long deals to free agents. Maybe that changes next winter when Clayton Kershaw, Manny Machado and Bryce Harper hit the market, but for now, we’re seeing a distinct change.

As Yahoo! Sports’ Jeff Passan wrote, some see this change as possible collusion among owners. If they all hold out together on guys like those listed above, they can collectively drive down prices and shorten commitments, decreasing their risk and increasing their reward in the process. There is probably some truth to this notion, though it would be awfully hard to prove. And if you choose to look at it another way, perhaps a younger, more savvy class of GMs has simply decided that they’re no longer willing to pay huge bucks for past performance, relying instead on their internal models to forecast and project what a player is worth rather than simply trying to negotiate prices with agents. I firmly believe this is a big component of what’s holding up this year’s free agent class. Teams have proprietary data on players, thanks to StatCast, that players and agents don’t have access to themselves. That data is informing teams’ decisions on player value while players and agents are stuck taking the usual route of basing their salary expectations on things like past performance and player comparisons. This is a problem, and one that does treat players unfairly. They’re flying somewhat blind here, especially when it comes to the information gap. Teams have the upper hand and players have no real recourse other than to sign for far below what we would normally consider “market value.”

But here’s the other side of the coin: do you really want your team signing 30-year old players to seven or eight year deals for $25 million per season? If your team is the Yankees (gross) or the Dodgers (grosser), that’s something the team can absorb even though the back end of that type of deal is almost surely going to be a poor value. If your team is the Diamondbacks (you are cool and good), that’s not even something you can consider. For a long, long time the SABR-oriented community has slammed these types of deals for being poor investments that strap a team down (think: Albert Pujols) over the long haul in order for a short-term upgrade. Zack Greinke’s deal has a chance to work out as a wash in terms of $/WAR, but even that’s not good enough for Arizona. They can’t afford to put a competitive team around him long term without continually finding value in unlikely places, hence the continual rumors of the team shopping him. We haven’t been in favor of these kinds of contracts for a long time now and the time has finally come that teams seem unwilling to dole them out. That’s bad for players and good for teams.

Now, I’m not going to argue that $100 million over five years isn’t a lot of money. But that’s not really the point. Teams have more money than ever thanks to exploding MLB revenues. They are owned by billionaires and those in the upper tier of the “1%.” The less they spend on players, the more money they make and hey, they’re already wealthy beyond our wildest dreams. And speaking of dreams, players have been sold one that’s quickly becoming outdated. Most players drafted or signed get a small signing bonus, less than $100,000 and as little as $1,000. They are paid very, very little throughout their minor league days until, if they’re lucky, they make it to AAA baseball and make something between $70,000 and $100,000 a year (some make more, many make less). Most don’t make it that far and have no financial security to show for it when they pack up their cleats. Should they make the majors, their wages are artificially suppressed thanks to six years of team control (three yeas at the league minimum and three more under arbitration). Should they be lucky enough, they are finally in line to hit the open market after those six years, something that Marvin Miller fought for back in the 70’s  and owners finally allowed though they surely didn’t like it. Owners wanted to artificially suppress salaries forever but the labor side eventually won and players have been paid what the free market — an American ideal — thinks they’re worth ever since (again, after having their signing bonus arbitrarily valued by MLB based on draft slots or being subject to international draft pool restrictions, being underpaid as minor leaguers and exhausting a team’s six years of control).

Even great players live the first eight or nine years of their professional baseball career earning a fraction of what they’re worth because baseball has put a structure in place to reduce their earnings and protect the pockets of ownership. Players accept this because they know that one day, if they’re good enough, they can hit the open market and finally get their fair payday. But as we’re seeing right before our very eyes, that future payday no longer exists like it did before. 5-years and $100 million for J.D. Martinez seems like a relative bargain. Who knows, maybe he and the other marquee free agents get even less. After all, these guys are going to be declining players, most likely, over the lives of their next deals. We used to believe that players got better until they were about 27-years old, held steady for a few years and slowly declined. Now we know that players (as whole group; there are always exceptions) don’t tend to get much better than when they debut, hold steady for a while if they’re lucky, and start declining sooner. That means that they’re at their best when they’re under team control and being paid well-below market rates. By the time they hit the open market, teams have wised-up and know they’re not going to get better. At best they’ll hold steady, but many will simply just begin declining from day one of their free agent contract. An increasing rate of injury is not helping. Again, we’re talking generally here about the whole pool of major league players.

So if this New Market is the new normal, the remedy, it might seem, would be to shift the earnings of players to their younger years. That might mean paying minor league players more (this should just happen anyways regardless of the larger system — there is a legitimate argument here for labor exploitation built on a flimsy legal defense on MLB’s behalf). That might mean raising the league minimum substantially. That might mean shortening the length of team control so players hit the open market sooner. Imagine if the average free agent were 26 instead of 29. That would surely incentivize teams to pay more for free agents and shift revenues back into the pockets of the players on the field — the guys the sport is built around.

But this model could be monumentally catastrophic to a team like the Diamondbacks. Arizona competes by capitalizing (and “capitolizing”) on young, cheap talent because they can’t spend like their peers. Imagine a scenario in which the league minimum doubles and there are only two years of arbitration. Paul Goldschmidt certainly wouldn’t have signed such a team-friendly deal so early in his career. Key pieces like A.J. Pollock and Patrick Corbin might be long gone, or if retained, way more expensive. Jake Lamb would be playing in his walk year in 2018 rather than being in the fold through 2020. Could the D-backs contend under this kind of structure? Maybe they could, but it would certainly alter things. And while that scenario is an extreme one, it does highlight the need of teams like Arizona to keep the current structure in place. They can sleep easy for now — the current CBA doesn’t expire until 2021 — and they might even benefit from the New Market in the meantime (J.D. Martinez seems kind of feasibly now since all we’re asking is for a little bit of some rich peoples’ money, right?).

There is trouble brewing. If the New Market is here to stay, there’s going to be a labor struggle. Players and their union aren’t going to take less money lying down while owners pad their pockets like never before (I’m looking at you, Mr. Jeter). After all, it’s the guys on the field the fans pay to see and these are the guys risking their physical livelihood every time they take the field. Our country’s financial system is built upon the ideals of a free market, and while there are certainly checks and balances on that system, baseball can only suppress wages so far before it simply becomes unfair. But significantly changing the system could have major ramifications for small and mid-market teams like the Diamondbacks, and this is the balance that MLB and the player’s union has to manage. They can’t create a system where only ten teams have a chance at winning even if we are in favor of ensuring players get a more equitable slice of the pie. They also can’t continue do decrease free agent salaries to the point where players choose to sit out in protest because, well, then there’d be no baseball and no one is making money. Again, the balance is a delicate one.

I don’t have an answer to the issue. I’ve been stewing on this for a few days now and felt like writing about it. The labor and revenue conundrum is going to come to a head. It’s sort of doing so already. How does it get resolved without a lockout in 2021? I’m not sure. Changes to the current system will impact the Diamondbacks’ model, but changes might need to happen if the New Market is here to stay. This is something to keep a very close eye on over the next few years as it has the potential to drastically alter the D-backs model for competition (in a vacuum, this isn’t necessarily a bad thing) as well as the larger structure of baseball as we know it. Cooler heads usually prevail when there’s this much money at stake, but sometimes they don’t. Let’s hope for the former.