THE BOOK--Playing The Percentages In Baseball

Saturday, January 12, 2008

Is Hanley Ramirez worth a 13 yr, 248 million$ deal, with only 2 years of service?

The NHL’s average team payroll, average team revenue, and average everything is about 50% that of MLB.  So, you can try to scale NHL salaries by simply doubling them to compare to MLB.  Alexader Ovechkin, who beat out Sidney Crosby for Rookie of the Year in his first year, and had a great second year last year, and is on his way to another great year this year, his third year, at the age of 22, signed a 13yr, 124 million$ contract.  In MLB lingo, that calls for a guy to get 248 million$.  For a guy not yet eligible for arbitration.

Chase Utley didn’t get anything close to this kind of deal, and neither did Joe Mauer.  Would you give it to Ramirez, or Ryan Zimmerman, or Jonathan Papelbon?  What is happening in the NHL is incredible.  They have one little rule that is different from MLB that is causing the young players to be locked up: after 3 years, you are a restricted free agent, meaning that any team can offer you a contract, but your existing team has a right to match.  On a no-match, your team gets compensated with a number of draft choices (and in the NHL, draft picks are more valuable than in MLB).  So, NHL teams have determined that young players have tremendous surplus value (they are way underpaid).  The Capitals, not willing to take a chance some team will make their Hanley Ramirez a cornerstone of its team, decided to treat him as a quasi-free agent.

The NHL’s distribution of payroll is far fairer than it is in MLB.  There is no gulf between the young players and the true free agents.  The net effect is that you don’t get into the situation MLB finds itself, to way overpay for the limited supply of questionable free agents.  However, it is this gulf in payroll disparity that allows small market teams to lock up their young players and keep their surplus value to themselves, to leverage.

Fascinating systems in both leagues.