Theories of baseball teams

[Note by FuquaManuel, 03/01/11 6:12 PM EST: Frontpaged for excellence. ]

Given that the Phillies evidently can support a payroll in the range of $140,000,000.00, it may be useful to consider how best to apply that money. Big money doesn't equal the ability to be stupid, but it gives a team more flexibility. Efficiency is an issue for all teams, and obtaining WAR on the cheap is the name of the game. 

[NOTE: I started this last year around playoff time, and just found the draft today.  Because of the "contracts" threads recently, I thought I would dust it off and kick it out there for some feedback.  The FA cost is probably a little low - find/replace 4.0 MM and use 4.5 MM.]


A team of replacement level players would be terrible -- usually you can figure that such a team would win maybe 48 games and lose 114. This would be an epically bad team, but it would only cost about $11,500,000.00 to field such a team. Admittedly, the Pirates spent $35M to field such a team this year, but that's just because they were trying not to be obvious about it.

For every 10 runs a player can create over a replacement player, a team gets about one extra "win" over a replacement level player. This extra "win" is called "WAR". The 3 kinds of WAR (land, air, and sea) include, in baseball, hitting, pitching, and fielding. Being better than a replacement player in any area can help your team get extra "wins".

Monitoring the WAR of a team's players can help to determine objectively how likely it is that a team will succeed over the course of a long season. Conventionally, 1 WAR is believed to be worth about $4.0 million on the open market. If a team gets 50 wins from replacement level players, to get to 95 wins using free agents, it should cost (95 wins - 50 wins from replacement) = 45 WAR needed * $4.0 Million dollars = $180,000,000.00.


Nobody in MLB spends $180,000,000.00 per year except the Yankees. So clearly, this WAR thing must be stupid, right? No. Not all WAR is "bought" on the open market. Much of it is bought through team-friendly contracts of players signed for below market deals or as a result of below-market contracts obtained from younger players who are not eligible for free agency. Arbitration and contracts signed by players when very young all lower the cost of WAR for MLB teams. Smart or lucky purchases of player services help as well. This is the classic Jayson Werth or Shane Victorino pick-up -- an immensely valuable player found in the Rule 5 scrap heap or the Aubrey Huff picked up as a tier 2 or tier 3 free agent.



Team payrolls in 2010 are here. You will notice that the Padres nearly made the playoffs with the 2nd lowest payroll in MLB at $38M. The Rangers were 27th in MLB at $55M and are in the World Series. The Giants have the 10th highest, but spent only $98M. Boy, the Phillies have been really dumb! They could make the World Series on a budget of half of what they are spending right now! In fact, this is a function of the Rangers, Padres, and Giants spending smartly, getting lucky, and developing young, good talent. Imagine what the Phillies could do with $140M if they did the same thing...


Teams do think of this. All teams try to do it. I have no special insight here.


The problems are that:

is that it is hard to (1) assess young players, and (2) develop them, and (3) have enough cheap, young players to make your team good. The other problem is that it seems that it is helpful to a team to be able to afford some veteran players for (1) stability and (2) predictability. It is hard for a team to generate more than a couple of legitimate MLB starters from minor leagues each year, and to have those players develop in "holes" that a team may have as older, more-expensive players "graduate" into free agency. This latter practice is what I call "Laddering".


For 2010, total MLB payroll was $2,730,000,000.00. We know that a replacement team costs $11,000,000 to field, and there are 30 teams. $330,000,000.00 is the cost of a replacement league. The marginal cost over that for MLB is 2,730M - 330M, or $2,400M. A replacement team wins 48 games a year. Since the average number of wins is 81 and there are 30 teams, there are (81 - 48) = 33 marginal wins per team (on average) times 30 teams, or 990 marginal wins in play. $2,400M / 990 marginal wins = $2,400,000 per marginal win on average. BUT...that is not for "market value" players -- that includes depressed salaries from young players locked up by contracts and arbitration. The free agent "market value" is $4.0, more or less. Why? Because it has been repeatedly stated, and I believe it. Maybe some other time, I can look at it, but not today.


A Marginal Win for the Padres this past year was a lot more important than a marginal win for the Pirates. The Padres missed the playoffs by one game, the Pirates by...well, they are the Pirates. I suspect the Padres would have paid well in excess of $4.0M for one more win this year, had they known they were on the cusp. Wins are subject not just to cost analysis by players, but also to questions of marginal utility to teams. A team like the Rangers, which blew away its division, would not benefit from adding extra wins (unless they think it helps them win a playoff title -- a topic for another day). They shouldn't pay for those extra wins.

Nobody possesses perfect knowledge at the start of the season, but general facts are known. The Pirates know they stink, and buying some extra wins from free agency is a waste. The Yankees know that a couple of extra wins may help them stave off Boston or Tampa. The strength of the division dictates to some extent what a team should do with its resources. Let us just say that the MLBPA would never, ever want the Yankees and the Red Sox to be sent to different divisions -- it would remove a major boost to the free agent market if neither team had to compete with the other for first place.



A pure "free agent" strategy would cost a team seeking to win 95 games a year something like $200M a year. Replacement players get you 48 wins with a cost of $11M. Marginal WAR of 47 would cost about $188M. This assumes you have no losses through injury, which most teams do. Just figure a player's WAR times the number of games missed and the cost of the WAR, and you have payroll losses. Figuring in those inefficiencies, a team probably needs to spend on the order of $210MM a year to "buy" 95 wins. Notably, this does not buy a title, given the nature of the playoffs. That is the most-expensive way to do it.


Teams can raise their own prospects. Raising and keeping costs an average of $2.4M for WAR, based on the league average. In theory, using a mix of home-grown players extended to contracts plus young arbitration players and maybe some reasonably-priced veterans, a team can spend about $113M (47 * $2.4 per WAR) plus $11M for replacement, and end up with 95 wins. Factor in some losses for injuries (10%, or about $12M or so, perhaps?) and the payroll for 95 wins is likely to be $136M. This is more or less where the Phillies are.


Teams who cannot go into the free agent market and buy their way to a title must farm.  Farmers let their crops grow and then harvest them, turning them into seed for new crops later.  Farmers have to be extremely selective and can only keep rare players.  

Think Florida and Hanley Ramirez, for instance.  Tampa Bay comes to mind here, as does Kansas City.  KC figures to turn its farm teams into actual wins pretty soon.  If a team (such as TB) can cost control a player (such as Longoria) by careful selection, they may be able to lock in WAR at below market rates and add pieces around the player that may be able to help win for longer periods than they otherwise could.  

While locking in a younger player to a long term contract is not free from risk, it may be less risky than doing it with a 31 year old player, given age and the second law of thermodynamics as applied to baseball.  This may feel like a "mixed" strategy, but it really isn't.  


If you can't farm and you have no money, you eat whatever crap you can find lying around on the ground.  I will get yelled at for calling this the Ed Wade strategy, since he presided over the "turning point" of the Phillies, but the example will convey the idea pretty well, I think.  If you are signing Pedro Feliz to solve a problem, then you have systemic issues.

While this strategy is not a great one, it can lead to the occasional 1993 Phillies team.  That and some timely PEDs, but hey -- flags fly forever, baby.


The Phillies turned from Scavenger (mid to late nineties) then to Farmer (Rollins, Burrell, Rolen, etc.), then to Mixed (signing Thome, getting the new park built), then ramped up to what I consider to be either a high-end Mixed or perhaps even Free Agent model.

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