Monday, November 28, 2011

The New Inefficiencies: Scouting and Development

As many avid baseball fans are already aware, MLB has announced the signing of a new labor agreement that will govern baseball for the next five years. This new CBA extends baseball’s labor peace that reaches back to the 1994 strike, the longest such streak of the four major leagues after the NBA and NFL’s lockouts this year. The new CBA takes many significant steps forward. Players will be now be tested for Human Growth Hormone under the league’s PED policy, the ridiculous Elias rankings have been eliminated in favor of a system based on the salary teams are willing to offer arbitration candidates, and earlier deadlines will speed the offseason up and allow more time for free agency to play out as teams can more quickly evaluate their needs and potential solutions.

However, many analysts see the CBA as a step backwards for competitive balance, allowing large-market teams that can afford a large Major League payroll to prosper while teams with smaller payrolls now have less chances to make up the difference through intelligent resource allocation. By imposing a hard cap on international spending and creating a system that effectively amounts to a hard cap on the Amateur Draft, the new CBA means that small-market teams will find it much harder to make up their Major League payroll gap by signing and developing young talent.

Over the past couple years, several small-market teams have isolated draft and international spending as a market inefficiency that could allow them to compete with teams that can afford a larger major league payroll. Top draft spenders include the Pirates, Blue Jays, Nationals, and Royals, while the international market has been dominated by the larger-budget Mariners and Yankees with the Astros, Pirates, A’s, and Blue Jays just behind. These teams will no longer have the ability to outspend their competitors in these markets, so they’ll need to find new ways to stretch their dollars in order to compete with richer teams.

For these teams, the key to competing on a small payroll will always be an abundance of young, controllable talent. The Rays’ success, for example, relies on the production they get from players during their pre-arbitration and their arbitration-eligible seasons, as they are priced out of the market for elite free agent talent. Without an ability to spend big on amateurs to acquire that young, controllable talent, these teams will need to stretch the little money they are allowed in order to build their farm systems and produce cheap Major League talent.

If teams are no longer able to spend big in order to take advantage of the inefficiencies of the draft and international markets, they will need to find new ways to maximize the amateur talent they do acquire. For now, the focus of small-market teams will shift to their amateur scouting and player development.

With draft bonuses capped by the new system, teams are no longer charged with deciding whether a certain player is worth going “over slot” for, as the slot penalties go from a harsh tax on dollars spent over slot to the possibility of losing future draft picks. Now, teams will simply be looking to draft the best player available that they believe is ready to sign with a Major League organization. Since teams won’t be spending as much money on draft and international bonuses, they have the opportunity to reallocate some of this money toward their scouting department. With these additional resources, teams will give their scouts a better chance to properly evaluate amateur players, and the small-market teams hope that this will result in a continuous flow of talent to the big leagues.

Teams will also look to their player development staffs to get the most out of every draft pick. When a player is drafted, his team sets goals for his development and attempts to guide that player towards achieving those goals and becoming a big-league talent. In order to cull as many useful players from the draft and international market as possible, I believe teams will allocate more resources in researching player development and trying to optimize their system to get the most out of their amateur talent.

I believe this will also shift teams’ focus more towards younger players. For years, many have suggested that selecting high school players in the draft or signing younger international players may be an unnecessary risk, as due to their age and relative inexperience these players are unknown quantities. However, I’m currently researching data for another project that suggests that these players may not be exceptionally risky after all, and drafting them gives teams the ability to mold the player much more than they could an older prospect. By selecting young players with their limited amateur spending budgets and developing those players with the teams’ strategy in mind, small-market GMs will be continue to maximize the output of their spending on amateur talent even if that spending is now capped.

While MLB owners simply saw a place in the CBA where they could save some money, the draft and international spending caps actually act as a huge barrier to competitive balance. The new CBA removes a market inefficiency many teams saw as their avenue to compete with a smaller budget. Now that this inefficiency is no longer an option, small-market teams will look to improve their amateur scouting and player development systems. If they are unable to continue to produce a strong pipeline of MLB talent under the new spending constraints, this CBA will simply widen the gap between the rich and poor teams.

Wednesday, November 16, 2011

The Relief Market Goes Nuts

Last week, reports surfaced that the Phillies were nearing an agreement with representatives for their free agent closer, Ryan Madson. Madson’s deal was said to be for $44M over 4 years and pending only the approval of team CEO David Montgomery. Those reports either turned out to be inaccurate or Montgomery never put his stamp on the contract, because less than a week later the Phillies penned former Red Sox stopper Jonathan Papelbon to a four year deal that, at $50,000,058 is the largest total ever guaranteed to a reliever. At $12,500,014.5 per year, the contract’s average annual value falls short of only Mariano Rivera’s last two extensions. Including Papelbon and Rivera, eight of the top ten contracts for relievers in average annual value have been signed in the last four offseasons (now including 2012 with Papelbon). Teams engaged in a bidding war for late-inning arms have driven up the price of the market, to the point where I believe most clubs would be better served using arms they can develop or acquire through trades and allocating their free agent dollars elsewhere. Several factors combine to make it very tough to believe that going after the top relievers on the market remains a good investment.

Total Impact
Simply put, relievers don’t have the opportunity to influence games that players at other positions do. No reliever pitched more than Alfredo Aceves’ 93 innings in 2011, and the vast majority of relievers were in the 60-80 IP range. While most relievers on average are most effective than starters per inning pitched, the gap in total innings means they can’t produce close to the same value. National League Rookie of the Year Craig Kimbrel led all relievers with 3.2 WAR; the next lowest position-leading total was Mike Napoli’s 5.6 WAR, best among backstops last season.

Market Competition
Over the last few years, the market for elite relief pitchers has blown up to drastically overstate the value of these relievers. Last season, ten relievers signed contracts for more than $10 million in guaranteed money, led by Rafael Soriano’s $35 million deal. In addition, many of these relievers cost their new teams a draft pick as a result of being Type A free agents under the Elias free agent ranking system. Since relievers tend to receive shorter deals, many more of the relief pitchers that hit the free agent market are ranked in the top 20% or the 20% below that, the cutoffs for Type A and B free agency. As a result, seven of the relievers signed in 2010 cost their new team a selection in the 2011 Rule IV Draft, out of a total 17 Type A free agents that signed elsewhere. Teams’ spending on the last couple drafts suggest that they now value their draft picks much more highly, so this is an important consideration for any team looking to bring in a free agent.

Volatility in Production
Largely because they pitch fewer innings and therefore produce a much smaller sample of data, reliever production is much more volatile than the production of players at other positions. This manifests itself as teams have a very difficult time determining which relievers are worth signing to multiyear deals for large amounts of guaranteed money. Of the ten relief pitchers who signed for more than $10 million last offseason, only three (Mariano Rivera, Joaquin Benoit, and J.J. Putz) were among the top 30 WAR producers last season. The only relievers who appeared in the top 10 WAR producers in both 2010 and 2011 were Sean Marshall and John Axford, suggesting that it’s very difficult to accurately predict which relievers will produce consistently from year to year and which ones are likely to stumble.

For payroll-conscious teams, I believe there are three main options. First, develop young talent to populate the back of the bullpen. Complimenting Kimbrel with the dominant arms of Jonny Venters and Eric O’Flaherty, the Braves are the current poster child for this strategy. Second, teams can look to the trade market to acquire back-of-the-bullpen talent. Besides signing Putz to a $10 million deal, Diamondbacks GM Kevin Towers traded for David Hernandez and Kam Mickolio last offseason and Brad Ziegler at the trade deadline, meaning the turnaround of the Diamondbacks’ relief corps can at least partially be attributed to this strategy. Finally, teams can exploit the general over-reliance on save numbers and sign strong relievers with little or spotty closing experience, confident that their success in the seventh and eighth innings will carry over to ninth-inning duty. Before this season, Kyle Farnsworth had 27 career saves in 11 seasons, and only one since 2007. However, the Rays saw Farnsworth’s underlying numbers and identified a potential closer, signing him to a $3.25 million deal and solidifying their bullpen.

Overall, the Papelbon deal presents too much risk from a team perspective to be considered a shrewd move. From the unpredictability of reliever performance to the large money guaranteed to players who impact a relatively small number of at-bats, the market for the most effective free agent relievers has become so expensive that it essentially removes most of the potential value of signing these players because of the large chunk of a team’s payroll that signing would require. By using a creative solution to fill their closing role and using their free agent dollars on players at more impactful positions, teams maximize the value of their payroll and give themselves a better chance to contend.

Friday, November 4, 2011

Baseball’s Buffalo Bills: Where Do The Rangers Go From Here?

Over the last two seasons, the Texas Rangers have proven to be the cream of the crop in the AL West, winning the division twice. They’ve taken advantage of their resulting playoff berths to emerge as the victors of the American League both times. However, on each occasion, the team’s season ended on a sour note, as they watched a National League club celebrate the World Championship glory that Texas has yet to taste in its 51-year history. Like the Bills, who lost four consecutive Super Bowls in the early 90s, Texas is developing a nasty habit of bringing their ultimate goal within reach and then falling just short.

Complicating matters is the fact that ace CJ Wilson hits the free agent market this offseason. With CC Sabathia agreeing to terms with the Yankees on the day of his opt-out decision, Wilson is now firmly situated as the best starter on the market with MLB experience, and probably the best overall starter (depending on how you feel about Japanese sensation Yu Darvish). With a number of deep-pocketed teams looking for rotation help, Wilson’s price tag probably won’t appeal to Jon Daniels and the rest of the Rangers’ brass. Even if Wilson does fit into the Rangers’ plans for 2012, they’ll have to think long and hard about how giving out a big contract to their ace might limit their ability to hang on to other core players as the team’s young studs mature. With an arbitration class projected by Matt Swartz’s model to cost the team an imposing $30M, Texas will have some tough decisions to make.

I believe that they’ll probably decide to let Wilson walk, as there’s been talk that they don’t want to give him more than 5 years and $75M. Wilson might be a candidate for a nine-figure deal, so if those are really the Rangers’ budget constraints Wilson will almost certainly receive bigger offers. And the truth is, that’s fine. The Rangers don’t need Wilson, as they’ll be able to compete based on their young core and incredible aptitude for player development. Perhaps no team has ridden the Latin American prospect gravy train with more results than the Rangers. The fruits of that labor will soon begin to surface in Venezuelan starter Martin Perez and Cuban outfielder Leonys Martin, with others such as Jurickson Profar and Engel Beltre a little further off. All of these players were international signees, for which the credit goes to Jon Daniels’ exceptional web of scouts working to find talent in Latin America.

These players will join an already well established core. As I mentioned in my ALCS preview, no other team had five or more players who produced 20 runs or more, and the five that did for the Rangers; Mike Napoli, Ian Kinsler, Adrian Beltre, Michael Young, and Josh Hamilton; are all under Texas’ control for 2012. With these players in the fold, the Rangers’ powerful offense will only continue to improve as the team’s big-league and prospect talent matures.

The Rangers also have options to replace CJ Wilson. The aforementioned Perez struggled in 2011 at Triple-A, but his 3.98 FIP suggests his year wasn’t as bad as his 6.43 ERA would seem. If the Rangers decide Perez needs to spend some more time at Triple-A Round Rock (or even if they don’t), they could decide to convert Neftali Feliz into a starting role. While Feliz has been closing at the major league level for the last two seasons, he was a top prospect as a starter in 2009, and the Rangers’ rotation was full at the time, prompting the conversion into a short reliever. The Rangers’ success in converting Wilson and Alexi Ogando from the bullpen to the rotation could convince them to try it again with Feliz.

If the Rangers decide they want to make a splash, they could even consider going after Darvish, if he is posted for American teams to bid on. Daniels has gone to the trouble of making the trip to Japan in order to scout Darvish in person. He could deem Darvish a better investment than a big deal for his free agent ace, although as Dave Cameron has suggested the market for Darvish may overstate his true value to a team as a player who still has no experience in the best league in the world. I’d trust Darvish’s NPB stats as a better indication of his true skill level than, say, a prospect’s Triple-A numbers, but there’s still a talent gap between the top Japanese league and the Majors.

I think the Rangers have the talent and the player development processes in place to get over the hump in the near future and win the franchise’s first World Series. Though it won’t necessarily happen next year, the Rangers’ window of contention is wide open and will be for long enough that I’d be a little surprised if they don’t win a championship with at least a solid portion of their current core in place. Expect October baseball in Arlington to be a regular occurrence over the next half-decade. While they fell short in 2011 after coming a strike away on two separate occasions, they’re likely to taste postseason glory sooner rather than later.

Congratulations to the Cardinals’ organization on a magical year and a title that can only be described as equal parts improbable and incredible. With Albert Pujols hitting the market, they’ve got work to do, but whatever happens in those negotiations, flags fly forever. If this is the end of King Albert’s reign in St. Louis, they couldn’t have asked for a better conclusion.