John Fay, the Reds beat writer for the Cincinnati Enquirer, got me thinking yesterday.
He wrote about what the Washington Nationals’ enormous contract with Max Scherzer (7 years, $210 million) means for the Reds ability to sign Johnny Cueto to an extension.
Fay explained: (a) Cueto is a close enough comparison to Scherzer that the Reds pitcher can expect a deal in that range, (b) there’s no way the Reds are going to pay that much, even taking into account a possible hometown discount, and (c) the Reds will keep Cueto around for the first half of the 2015 to make a run at the division. If the Reds aren’t in contention in July, they’ll trade Cueto.
Fay is right about all of that. It’s important insight, but not controversial. It was Fay’s last sentence I found the most thought provoking. He wrote:
“The whole Cueto thing points up a flaw with the baseball business model (at least for small-market teams): The Reds find Cueto, spend the money to develop him, help turn him into a star and then watch him move out of their price range.”
Fay might have been talking about how unfair the system is to fans of those teams, like the Reds. Just when the good players from small-to-medium market organizations turn into stars, the system more or less ships them off to a big-market club. Fans would lose their close connection to their favorite players. That’s on point. It’s certainly how I felt about the Reds extending Homer Bailey.
But if John Fay meant that this system is unfair in terms of competitive balance, I don’t agree.
Teams have players under control for six major league seasons. That period lasts into a player’s late 20s, particularly for star players.* In the post-PED era, players peak in their mid-to-late 20s and enter meaningful decline in their early 30s.
*Joey Votto’s extension began at age 30 and continues to age 39. Brandon Phillips’ current extension began at age 32 and runs through age 37, but the one before that started at age 28. Homer Bailey’s extension runs from age 28 to 33.
In today’s system, teams start throwing piles of cash at players just at the time when they hit the decline phase of their careers. Mega-contracts essentially reward players for what they have already done, not what they are yet to accomplish. The vast majority of those deals will be busts.
When you put all that together, the current system may be unfair to the fans, who want to keep watching their homegrown players, but big-money contracts have become a force for parity in baseball. Not by design, but by effect nonetheless. Swollen contracts have kneecapped the Phillies, slowed down the Red Sox, sidelined the Yankees and strangled the Rangers.
The connection between payroll and payoff is at an all-time low. Brian MacPherson of the Providence Journal reported: “The correlation coefficient between payroll and wins this [2014] season (0.202) is even smaller than the correlation between the standings and the first letters of the cities in which teams play (0.24). In other words, you’d have a slightly better chance of predicting playoff participants simply by using alphabetical order than by using payroll numbers.”
In the past, pricy free agent contracts were a crucial edge that teams like the Yankees, Phillies and Red Sox enjoyed. Now, those contracts have far less (or negative) value.
Math and aging curves are undefeated.
Yet, when owners and general managers – folks who rise to their station because they are sharp at business – get the chance, they still spend money like a sailor on shore leave. That may have been the strategy for success in the PED era, but it isn’t any longer.
Other things equal, being able to spend more money helps. As my old debate coach used to say, whether you’re rich or poor, it’s good to have money. It would be absurd to claim there is a level playing field. The Yankees outspent the Reds by $1.5 billion on payroll in the previous decade. Even with the generous payroll increases that Bob Castellini has afforded the Reds, they will spend $140 million less on payroll this year than the Los Angeles Dodgers.
The best hope for small-to-medium payroll teams is to draft and develop their homegrown talent, enjoy those players through their mid-to-late 20s and then bid them farewell as they become stars, cash in and turn into bad contracts for one of the big-stack teams.
The optimal strategy from a baseball standpoint is to sign good players to short extensions while they are still in the middle of their initial six years of team control. Players would trade two or three years of free agency for earlier security. That extends team control through the player’s 20s, maybe early 30s. That’s what the Reds did with Jay Bruce and Cueto.
In Bruce’s first three years for the Reds (2008-10) he played for league minimum salary in his age 21-23 seasons. He then agreed to a six-year contract with the Reds, plus a seventh year option that covers his age 24-29 years. Even with his injury plagued 2014, Bruce has earned nearly all of the $51 million of his contract already, with two years to go. The Reds could easily earn $30 million in surplus value from that extension.
Johnny Cueto followed a similar path. He played for three years (2008-2010) for league minimum in his age 22-24 seasons. He signed a four-year, $27 million contract with a club option fifth year (2015) for $10 million, his age 25-29 seasons. The Reds have already earned more than $60 million in surplus value from that extension, with a year of Cueto to go.
It turns out the Max Schurzer contract says more about what the Reds should do with Devin Mesoraco than it does what they do with Johnny Cueto.
While it’s hard on fans to see their favorite players move on to other teams later in their careers, it’s generally the right baseball move to let it happen — a difficult strategy to execute when the owner is the team’s biggest fan.