THE BOOK--Playing The Percentages In Baseball

Good article.

Sky is right on target.

I thought you couldn’t lose a top 15 pick, so the analysis regarding the Royals signing of Cruz is a little too harsh. But still, yeah...good article. I’m pleasantly surprised to see something like this in SI.

Devils advocate for a moment here.  Isn’t this system in place for a reason?  Wasn’t part of the reason to help protect or compensate smaller market teams for losing their players to richer or larger market teams?  I know not every Type A free agent comes from a small market team, but my guess is that most of them don’t “end up” with a small market team.  I think arguing against the existence of the Type A free agent compensation, is akin to arguing against the electoral college system in favor of a national popular vote winner take all.  The system(s) are there for a reason, to help give advantage and or significance to the little guy.  They are something that was negotiated on to come to a larger agreement on more than just this one issue.  No electoral college = small states don’t ratify.  No Type A compensation = small markets don’t ratify.  Yes, in all this the Type A free agent loses some of his value, but I assume the CBA that allows this was signed and ratified by both the owners and players association.  Wealthy teams are also able to easily circumvent the loss of a draft pick by going “out of slot” in the amatuer draft.  I think this issue is much more complex than made out to be in the article linked to, but it is a great topic for discussion.
vr, Xei

"Isn’t this system in place for a reason?  Wasn’t part of the reason to help protect or compensate smaller market teams for losing their players to richer or larger market teams?”

I think the system probably had pretty pure intentions along these lines.  But there doesn’t seem to be much of a market size bias regarding where the compensation picks actually end up.

There doesn’t seem to be much of an effect beyond depressing player salaries, and making marginal players more likely to re-sign with their original team

Couple of quick thoughts. 

Perhaps the categorizations should be based off of something like WAR (5/4/3).

I think you have to remember to take a look at this through the eyes of ALL the stakeholders.  The Type A free agent himself is just one of the stakeholders.  If you wipe out or change this compensation, you have to keep in mind the effects on all sides (player, team losing player, team signing player).

On top of this you have to look at the CBA as a whole.  Cherry picking one strange rule in the CBA without taking into account why it may be there can be a fools game.

ie - is it fair that the state of Louisiana gets $100M as a handout for Katrina cleanup as part of the proposed health care legislation?  No, of course not.  But it was included as part of negotiations to “help” get the bill passed (buying/bribing a much needed vote).  Perhaps something similar could be said for the CBA.  If you cherry pick and change things without taking into consideration the large picture, this could possibly lead to an inbalance.  I am not saying this is the case, as I wasn’t involved in the last CBA negotiations of course.  I’m just saying it needs to be taken into consideration.
vr, Xei

It might be okay if the ratings were determined in a halfway sane manner.

I was alway curious about these rankings - I thought they were weird. Thanks to Sky, I now know how moronic it all is.

Isn’t the player’s union supposed to protect the little guy? It seems like they just look out for the superstars and use the journeymen as cannon-fodder to protect the big salaries. Keeping the relievers separate from the starters just hurts the relievers and keeps less starters from being class A.

It doesn’t matter what the intent was… it’s what’s happening in practice.  It does zero for competitive balance.  And the other leagues show the obvious counterpoints to it all.  The end effect is that Orlando Hudson and his ilk get scr-wed.

Many other parts of the CBA “screw” players more than the Type A does.  Why cherry pick?
vr, Xei

I’m not cherry picking.  Why do you say I’m cherry picking.  It’s stupid, only MLB has it, and if you were to start over, they wouldn’t do it.

The original thinking behind it was that the owners were afraid that the big teams would gobble up all the free agents.  They knew that could happen because they had so much disposable income they were pocketing.  So, the small teams wanted some form of compensation to try to even it up.

The players didn’t think anything of it, and let the owners come up with the rankings.  The players didn’t care about that.  They just wanted to make sure that it wasn’t too restrictive.

Remember, this was the first time they tried it out, they were all testing the waters, and they were negotiating something brand new from the reserve clause.

Now?  You kidding me?  It would never have happened, with 20/20.  I’m shocked they don’t take it out of the CBA already, but the union will continue to use it as a bargaining point.  If they push on this, the owners will want something back.  So, the union will throw Orlando Hudson under the boss.  The players don’t care either, because it affects so few players, and so little.

The people bothered by it is people like me.

Compensation picks may have originated in part for competitive balance reasons, but they aren’t still in place at all for that reason.  As has been said, they don’t improve competitive balance in practice, and MLB knows they don’t (which they know because they commissioned a report on competitive balance in 2000 that concluded as much and recommended doing away with them altogether in order to improve competitive balance).  So competitive balance is not a reason for having them, only the repression of salaries for some players.

Lower budget teams are hurt in a few ways by the picks.  One, they are less inclined to offer arbitration to marginal free agents, and thus less likely to get any compensation.  If someone is likely due $10 million in arbitration, the Yankees don’t have an issue with paying that, but the Pirates often do.  So in that scenario, the Yankees would either retain their player or get draft pick compensation while the Pirates would get nothing.  Two, as Sky pointed out, the cost is significantly more impactful to the lower- to mid-tier Type As.  These are the free agents the lower budget teams are more likely to sign, so while the system does little to discourage high budget teams from chasing their top targets, it discourages lower budget teams from going after useful players on the free agent market.  Three, it pays out additional rewards to teams that trade for Type A free agents before free agency, which are usually higher budget teams (this is probably mitigated to some extent by increasing the trade value of such players to their old teams).  Four, it gives teams that sign more top free agents additional sandwich picks that push back the second round picks of lower budget teams.  Instead of an early second round pick being #30-35, it might be in the 50s.  The system reduces the value of early picks for teams that don’t build with top free agents about to leave.

It’s bad for the players, and it’s bad for competitive balance (and certainly not good for it, at least not in practice).  It’s good for some of the owners, but I agree that there’s no way they’d get it in if they were to start from scratch.

If the owners want a system that prevents domination by large market teams, all they need to do is dramatically increase the revenue sharing.  They could even, as part of revenue sharing, demand that teams have a minimum total salary to ensure that the revenue sharing was going towards competitive balance rather than enriching owners that choose to spend almost nothing on their club (though, given FLA overall win-loss and that they have two world championships in a very short time, it is hard to fault them too much).

Both of those things would go a long way to ensuring parity and would garner no push-back from the MLBPA.  Something tells me, however, that these are not thing being considered.

He does miss one point, which is that (unless the player is signed by another club before the arbitration deadline), the current team must offer arbitration and it must be declined before the compensation kicks in.  For a lot of these lower tier Type A guys, salary arbitration might be the best way for the player to maximize his salary, because of the “no splitting the difference, can’t mention club’s financial condition” method of arbitration.  So the clubs will not, in many cases, offer arbitration for fear the player will accept it.

Xeifrank is absolutely right that you’re missing something: that the draft is covered by the collective bargaining agreement at all.

The owners want a slotting system in the draft.  I’m sure they’d be happy to trade the unfair free-agent compensation rules for a slotting system.  But if there is no (unfair) free agent compensation system, two things happen:

1.  The owners have no leverage to trade for what they really want, and
2.  The draft itself could become illegal. If the draft is not covered in the CBA, draftees could probably argue that there is legally nothing to prevent them from becoming free agents.

Oh, and I should add one reason from the players’ union side:  if all amateur players become free agents, then the players face more competition for, and less leverage and control over, their compensation.

They’ll probably be forced to admit minor leaguers into the union, and they’d rather avoid that, because the minor leaguers outnumber the major leaguers, and they’d probably start voting themselves a bigger piece of the pie.

So the bottom line is, both sides have strong incentives to keep *some* form of free agent compensation in place.

I’m not a lawyer, but I don’t see how just because you conscript a third-party’s rights into your agreement that they are beholden to that agreement.

The draft is illegal, and I’m shocked at the various legal rulings that come out that don’t say that.  I haven’t read them, but I presume that the arguments hang by a thread that is about to be cut off.

In Europe, they don’t have drafts, right?  They have academies that players sign onto (as underage kids, which means their contracts are not even binding), and unless players go into hiding for a period of time (which they do), they just continue their agreement when they are adults.

***

Anyway, I don’t like the argument that just because the Union and owners explicitly note parts of the draft into their CBA that it makes it less illegal.

In the NBA and NFL, draftees aren’t third parties; the players become employees of the league and members of the union immediately.

Baseball wants drafts, too, obviously, but the fact that minor leaguers aren’t part of the players union complicates the legality of it immensely.

But neither side has to act as if the draft is illegal until somebody sues and it’s declared illegal.  Both sides have financial incentive to keep the status quo.

My point is, because of this legal argument, I doubt you’ll see the free agent compensation system disappear just because it doesn’t have any effect on competitive balance.  It’ll disappear when both sides are satisfied they’re both still getting their unfair share of the pie.

Nice article by Sky, I think he did a good job of explaining the major shortcoming of the compensation system - in what reality is Darren Oliver a Type A anything?

The system breaks down when the teams value the compensation awarded for a player to be too high compared to how they value the player himself. I believe most teams do a fair job of evaluating major league free agents these days - it’s the rating system that gets out of whack with reality and when it does, hurts the player.

Ken: interesting information about the draftees.

In the NHL, it’s not like that at all, which is why Eric Lindros was able to hold out like he did.

I’m surprised they could be part of the union without actually signing anything.

By “immediately” I meant upon signing a contract, not upon being drafted.

oic… that’s because they have no minor leagues then.

Two ideas have occurred to me to fix the small market problem.

First distinguish between owners that don’t spend much because the team operates in a metropolitan area too small go generate much revenue, from teams that don’t spend much because the owner has adopted a “low cost” business model (which usually means low revenue, fans just aren’t as interested in following teams with losing records).

Second, don’t put or keep teams in places that are really too small to generate sufficient revenue to field a competitive team.  The model for this is that imagine if baseball had 100% revenue sharing, but the commissioners office put the thirty teams in the cities where they would bring the greatest return to MLB as a whole.  Would they put the teams in some of the currently existing MLB cities?  Why should the other 29 owners subsidize a team in a place which will just not generate that much revenue for MLB as a whole.

I happen to think in most cases, small market teams are that way because of the owners, and there are only a couple of instances where the team’s location itself really limits its ability to generate revenue.  I quite honestly don’t think the size of the market has kept the Giants from winning a World Series since 1954, and that’s probably not the case with the Indians either.