1. December 6, 2010 1:53 pm

The Nationals signed Jason Werth for what most baseball analysts believe is an overly generous amount (7 yrs, $126MM). I read that you valued Werth at this amount (approximately). Does your estimate take into account that the Nationals will likely be a cellar dweller these next few years and that any incremental gain from Werth isn’t worth what they’re paying (as incremental gains are worth more to a playoff team than a cellar dwellar)?

Matt: JC's valuation of Werth takes a different approach than both the MORP model I use and the model that Tango uses, though all three will get similar answers for most players. The real differences come from longer contracts, where JC's model of aging will differ enough from Tango's that the results will be different. As far as the unique value of Werth to the Nationals, there are two sides to this. On one hand, the most valuable portion of Werth's contract will come in the early part of the deal when the Nationals will not be competitive. On the other hand, there is a "splash effect" here that isn't accounted for. Washington is being reintroduced to Major League Baseball, and much of the city still needs to be convinced to go to the park. Their value for a big name player may be higher than other teams-- they certainly seem to think so, and they probably know their market better than I do. They certainly saw the effect of Stephen Strasburg on attendance when he pitched, so they probably know the value of Werth may have some similar components. I suspect the Nationals don't expect to be above average in 2011, and they probably know 2012 is a stretch too.

TANGO: JC's model presumes little aging, while I presume a great deal of aging. My presumptions are based on past historical data to that point in time (looking only at guys like Werth at his age). JC starts with a sample of players who played a long career, and then focuses on those players through Werth's age (but, since we know the players had a long career, it games the system). Furthermore, I build in a great deal of attrition (lost playing time), and JC doesn't build much of that in either.

2. December 6, 2010 2:02 pm

What’s the approximate dollar value of the first pick in the first round? My understanding is that baseball teams can’t trade draft picks in the amateur draft, but I was wondering what the first pick should/would fetch in an auction.

Matt: In an article in June, I found that the average first round pick generated 18 wins in his career. This means probably about 9 wins came before the player reached six years of service time. Given that the average first round pick isn't going to make the majors for about two years, the following six years need to be discounted to adjust for (a) regular time value of money (b) wins present value less in the future and (c) wins costing more in the future. If we combine those effects and call it a 4 percent discount, we get about 7.2 present-value wins, valued at $35 million.

TANGO: I think I came in at 6 wins for 6 years, but I don't remember now. Matt's estimate sounds reasonable.

3. December 6, 2010 2:05 pm

The Nationals signed Jason Werth to a contract that I feel is pretty overpriced. Using comps from last year and bumping up a few % b/c of inflation, I thought his going rate would have been closer to $13 million per year for a shorter contract. What do you think the Nats know that we don’t? Or do you know? Or is this a good example of a winner’s curse?

Matt: It could be the reasons I stated above or it could be the winner's curse. I think it's telling that the Phillies didn't arrange their payroll to sign him, since they have better knowledge of his health than the Nationals do.

TANGO: I think it's a hard contract to justify. In order to be fair, you'd have to think it would just as likely be a good value at 146MM$ as it would at 106MM$. Do you believe that?

4. December 6, 2010 2:23 pm

The highest paid managers get paid multiples less than the highest paid players. JC, do you come up with estimates on value of managers? More specifically, if you were the agent for the best manager in MLB (whomever you think that is), could you argue that manager pay should be doubled?

TANGO: There are two issues: (1) how do you evaluate a manager, and (2) how efficient is the feeder system? If you look at players, if a team is looking to fill a position, they have limited choices. It's not like they have the pick of a litter of 10 or 15 players. That's because the minor leagues does a good job of reducing our uncertainty of a player's talent level. But for managers, it's not like that at all. There's always going to be a huge uncertainty level, especially considering how alot of the manager's role is as a people-person. Then, it's how do you evaluate a manager, which is a chore unto itself. In the end, a manager is going to be considered similar to a role player, a bench player. If a team had a 10MM$ value in a player, with a 3MM$ contract, thereby a 7MM$ net asset value, would such a team trade that player away to get the best manager in baseball? It would seem that the market has spoken that it won't do that.

5. December 6, 2010 2:26 pm

The Royals have been horrible for years. Even though they imported Dayton Moore from the Braves, who was a highly respected exec, they have continued to be bad on the field and still the outlook looks pretty dismal.

So here’s my question: why do the Royals stink every year?

I’d like to hear your opinion on whether or not it’s a problem specific to KC (same owner) or some league-wide issue w/ teams w/ smaller payrolls.

Matt: A lot of teams do win with payrolls like the Royals, which is creeping into the $70-80MM range. Nevertheless, their production from pre-free agency players (what I call NM (non-market) talent) has been almost average in recent years, while their production from players who had reached free agency (what I call AM (auction market) talent) was where they fell behind the most. Their place in my "no turnover standings" went from 64-98 to 77-85 over 2007 to 2009 (I haven't checked 2010 yet), which is my measure of how well teams would have done if forced to keep all the players they drafted or signed as amateurs. So there is probably some element of the Royals gradually getting better at producing talent, as evidenced by their #1 farm system.

TANGO: Talent evaluation is hard sometimes. And sometimes, you are stuck at looking at things a certain way.

6. December 6, 2010 2:33 pm

Is Derek Jeter worth anywhere near what the Yankees ended up giving him?

Matt: To the Yankees, I bet. To any other team, I highly doubt it. He's worth a lot to the Yankees because of his fan appeal, but he wouldn't get that same allure in San Francisco. That deal was just about splitting the surplus value of the difference between the value of Jeter to the Yankees and Jeter to anywhere else.

TANGO: No.

7. December 6, 2010 2:46 pm

It appears that on-base percentage is understood by many/most organizations and being valued better than in the 1990s. It appears that over the past few years that teams are trying to quanitfy defense and taking that into account when signing players. Is there an obvious next thing that isn’t being properly valued well that could/should be?

Matt: I would say that interpreting information and uncertainty is still pretty poorly understood. I think that the discrepancies between how re-signed and newly signed players' performances per dollar really hints at informational frictions.

TANGO: Relief pitchers.

8. December 6, 2010 2:47 pm

I haven’t read your book yet (but will, as Santa bought it for me). When you value players, do you take into account league i.e. a player is worth something differently in the AL v. the NL? If so, how?

TANGO: You absolutely need to. A simple way is to just look at how the average AL team does when facing the average NL team. And in the past several years, the AL dominates the NL. As a rough rule of thumb, you should add 4 wins to each AL team and subtract 4 from each NL team. This is probably a conservative estimate. So, that works out to +/- 0.25 wins per starting player or starting pitcher.

9. December 6, 2010 2:48 pm

How should a college professor’s talent/value be calculated and quantified? Which metrics would you use? Do you bring these things up at your annual review?

Matt: I think that it depends a lot on the institution. Some schools value research, some value teaching, some value a mixture of the two.

TANGO: It's probably like valuing managers.

10. December 6, 2010 2:52 pm

I’m having more and more trouble nowadays discussing baseball w/ my cousin, as he’s the type who would hear the words “valuation model” and immediate attempt to dismiss any of the following points. I’m sure you encounter this too. How do you react to this?

Matt: I would avoid using the words "valuation model" then. Of course that's what people like us know we're calling it, but just don't call it that to your cousin. If you speak colloquially but logically, it's sometimes easier to reach people like that.

TANGO: No one wants to be educated about his hobby. Do you like it when people tell you how to drive?

11. December 6, 2010 2:54 pm

Not only do Billy Beane’s methods not work in the playoffs, but now apparently they haven’t worked since 2006 or so. Why do you think this is the case? Is the market too efficient nowadays? Would love to hear your $0.03.

Matt: I wonder how well the other 29 teams if their processes were spilled to the media like Beane's was. I'm not sure it would be as damaging as having Beane's methods spilled, but it would be bad. I think the A's still win more games than their payroll would suggest, so it's tough to call them a failure.

TANGO: Sh-t happens.

12. December 6, 2010 2:54 pm

Taking into account inflation, what do you consider the 5 most valuable players of all time?

TANGO: I'm not sure I understand the question.

13. December 6, 2010 2:55 pm

Can you walk us through what you think would happen to the competitive balance of MLB if an NFL-style salary structure (cap) was introduced? My belief is that the best teams today are the smartest, and that this would continue w/ or w/o a cap. Whattya say?

TANGO: If teams were forced to a ceiling, then teams like the Yanks or Redsox would have 50MM$ or 20MM$ to spend that they can't. They'd likely funnel that money through some other process so as to not impact payroll, but nowhere near enough to make up for it. They'd take a big hit in terms of wins.

14. December 6, 2010 2:59 pm

The Mets’ poor performance each of the past few years can’t be blamed on a low payroll, as they are almost always at the top of the list in terms of team payroll. They have to be at the top of your list of most poorly run franchises in Chapter 6, right? I haven’t read the book yet but had to ask.

Matt: Every teams makes a few bad signings, and the Mets heavily invested in 2006-2009 with the understanding that it would hurt them down the line. The problem was they didn't invest in health, and their assets depreciated. Sometimes the outcome is worse than the process should have yielded. They were not run well under Minaya but I don't know that they were run as incompetently as it seemed.

15. December 6, 2010 3:01 pm

If I ran the Pirates, then I would overspend on the international free agent market to make sure I signed some young players since as a low-payroll team, I can’t compete with the Yanks, Mets, etc to sign MLB free-agent talent. Do you think this would be a sound strategy for the Pirates? If not, then how would you try to compete with the bigger market teams.

Matt: For now, I'd bide my time and build. I don't think it's smart to open their checkbooks for free agents until they're at least an average team. This team is rebuilding from a level of really no talent in the system.

TANGO: I agree, free agents should be the final step in the puzzle, unless you are signing someone for one or two years.

16. December 6, 2010 3:04 pm

Given the new metrics that have gained in popularity in the past few years like FIP, WAR, and the like, which top players from previous generations would be deemed even more valuable today than in their heyday, and which would be cast aside by teams nowadays?

TANGO: Joe Morgan would probably get a huge boost, even though he won the MVP. It's sad that the sabermetric darling of all time is so not in bed with sabermetrics.

17. December 6, 2010 3:07 pm

I used to scratch my head at a lot of free-agent signings and say “I wonder what the heck that GM was thinking.” But then I thought about it and figured that owners often override decisions more than I might have thought of. An example of this is when the Mariners re-signed Kenji Johjima a few years back. How much owner meddling do you see? This might explain some of the crazy contracts that come out every once in a while.

TANGO: I'm not privvy to that.

18. December 6, 2010 3:08 pm

If your son was a baseball prospect, then would you recommend or demand that he hire Scott Boras as an agent?

No matter what people say about Boras and his exaggerations, when you see a crazy contract announced, more often than not he was the agent in the negotiation. Does he extract the most value for his clients, or is there another agent out there better at this than him?

Matt: I'm not sure. Boras has a lot of flameouts where he overplays his hand, and his clients end up taking bad deals a lot. He has a lot of big successes and a lot of big failures, which means he's really risking other people's money. If he insures his players, then sure, I'd want him to represent my side, and I think he might, but I'm not sure without that.

19. December 6, 2010 3:10 pm

Is Jeff Francouer worth 13 million dollars a year?

TANGO: Depends. Is today 2007?

20. December 6, 2010 3:12 pm

With sabermetric stats now becoming more main stream, do you see them eventually replacing the archaic AVG/HR/RBI as to what a player has accomplished?

TANGO: Oh god, I hope so. Batting average should be a nice little side number, to be used occasionally. You ALWAYS want to know a player's on base percentage.

21. December 6, 2010 3:26 pm

Is there any real evidence that dollars motivate athletic performance or do most athletes try their best regardless of salary? Aren’t good coaching, self esteem and other psychological motivators more effective than large piles of money?

Matt: Money sure motivates people pretty well. I'm sure other factors do too.

22. December 6, 2010 3:28 pm

Yes this is backwards looking, but what was your estimate of Barry Zito’s value before he signed his big contract with San Francisco a few years back?

TANGO: I think I had him pretty high, probably a 6yr / 80MM$ deal or something.

23. December 6, 2010 3:30 pm

What lessons from your research can compensation managers at non-sports related businesses learn about paying their employees? Obviously a huge and open-ended question, but I would like to hear your take. Thank you.

TANGO: Be consistent and reasonable.

24. December 6, 2010 3:38 pm

Every off-season there are a handful of deals that teams come to regret signing within a year or two into the contract (Vernon Wells, Carlos Lee, and I anticipate now Jason Werth). Why does this happen over and over again? Do teams never learn, or is this all part of the business (and inevitable)?

Matt: I would think half of deals turn out to be worse than expected and half of deals turn out to be better than expected. But very few of them are better than expected at the tail end up of the contract, so it's not what people focus on.

25. December 6, 2010 3:41 pm

Through your research, have you seen any trends of an optimal allocation of money throughout a baseball organziation (say X% of money on major league positional players, Y% on major league pitchers, Z% on signing minor league draft picks, etc)? I was curious to see if you saw any trends among the better organizations.

TANGO: The pitcher to non-pitcher ratio is pretty optimal right now in MLB. Teams spend way too much on free agents overall (i.e., they run up the cost unnecessarily), and could reallocate that money more efficiently in player development. Think Twins.

26. December 6, 2010 3:44 pm

To piggyback off my previous question, is there an optimal mix on payroll dollars spent on pitching v. hitting (at the major league level)?

TANGO: 4 parts nonpitchers, 3 parts pitchers.

27. December 6, 2010 3:49 pm

When teams that are out of the playoff hunt trade their stars as the trading deadline approaches, they often receive a handful of prospects back. I’m assuming that you have looked at and quantified the result of this type of deal many times. On average, do the #s show that the teams that trade their stars get enough value in return? Or is it the other way around, or is there nothing conclusive?

TANGO: It's a great question that deserves a better answer than I can provide.

28. December 6, 2010 3:53 pm

Is there any evidence “incentive” clauses act as effective incentive? Does a player whose contract says he’ll get another $X million dollars if he hits Y home runs any more likely to reach that mark than a player of similar ability without such a contract?

Matt: No, I think it's more of an issue of teams transferring some performance risk back to the players. You pay a guy $2 million if he wins the Cy Young, which you think he will do 10% of the time, rather than pay him $200K because you'd like to spend that money elsewhere if he's not Cy Young material that year.

29. December 6, 2010 3:53 pm

I feel that it is accepted belief nowadays that all closers are overpaid relative to the value they bring to their clubs. Have you looked into positional value? Which positions are most overpaid relative to value and which are most underpaid?

TANGO: MLB does a pretty good job, overall, at distributing money across positions. The relievers are overvalued though.

30. December 6, 2010 4:03 pm

fun theoretical exercise time…what do you think would happen if all players were made free agents every winter? what would happen to the salaries of the stars vis a vis the salaries of bench players? would the players “win” much more than owners, as i suspect?

Matt: I think that baseball's revenue structure is very unique in that there are huge increasing marginal returns to winning for teams on the playoff bubble. What that does is it means that most free agents are paid based on what the 85th-95th wins are worth to the highest bidders. These are big market teams that already have a lot of talent-- and that number is far more than the value of the 60th or 70th wins to small market teams. If teams did not have a large amount of free-ish talent and controlled talent already on their teams, allowing more players to be free agents might actually decrease the total amount spent on payroll. If Andrew McCutchen were a free agent, who would sign him? The Pirates would not be able to outbid the big market teams for him, because he is simply worth more to those teams right now. The Pirates hold onto him because they hope that he will be part of their next competitive club in several years, but for now, they would not be willing to pay him the market rate to just hold onto him for the short term. Very few players would sign with below average teams, especially from small markets, because those players would be worth more to big market teams who were already above average. The eventual equilibrium is that probably only 8 teams would be good and no one else would find it worthwhile to invest in players. Because only 8 catchers, 8 first basemen, etc. would start for these teams, there would be a smaller gap between the value of Albert Pujols versus the 9th best 1B in the league than versus the 31st best 1B in the league. Not only that, the gain from having Albert Pujols versus the 8th best 1B does not make a team that much more likely to win the World Series upon reaching the playoffs, so wins would be worth even less to teams than they are now because no one else would be on the playoff bubble. Free agents would not be valuable to many bad teams because many teams would struggle to even reach 70 wins. I think the current playoff system and state of revenue sharing really makes the current labor market structure the best. It provides players who do reach free agency with an extremely high salary because the value of a win is so high to the top teams due to the competitiveness of reaching the playoffs and the scarcity of players on the market. It's not fair to short-lived superstars who flame out before reaching free agency, but it makes the players on the aggregate more money than alternative market structures.

TANGO: If everyone was a free agent every year, then every player would get paid fairly, according to their expected potential. Teams will still spend an average of 90MM$ each, but now the small market teams won't be able to compete by finding "finds". The Twins extracted great value from Santana and Hunter. They couldn't do that any more. It's a benefit to the Twins and A's that this system exists.

31. December 6, 2010 4:05 pm

Have you noticed a correlation between the relative size of MLB player contracts and periods of economic downturn?

Matt: Yes, I found about a 5% decline baseball salaries during a period when the economy lost about 4% of its value, and maybe a 2% increase during the time that the economy recovered about that much. Entertainment is a "normal good," so it makes sense people spend more on it when they have more income.

32. December 6, 2010 4:05 pm

Owners of lower revenue teams such as the Pittsburgh Pirates have been accused of keeping large shares of revenue sharing funds instead of investing it in the team, thus making it a profitable business despite ineptitude on the field.

What is your take on the merits/drawbacks of a salary FLOOR that requires teams to spend a minimum amount on salaries at the major league level?

Matt: It would just make those teams spend exactly at the floor. The better thing to do would be to subsidize spending for those teams on a per dollar basis-- the issue is that they have lower marginal revenue per win than good teams, so you encourage spending by lowering the marginal cost with a per dollar subsidy so that they are not outbid by teams with higher marginal revenues per win.

33. December 6, 2010 4:21 pm

I can answer one of these with simplicity and certainty: the Royals suck because they draft like [crap]. Their first-rounder list from the past 15+ years is incredibly bad. Second, the few Johnny Damons, Carlos Beltrans, Jermaine Dyes they’ve produced have all been shipped away immediately come contract time. Cry small market all you want, but if the Twins can do it, so can KC (and Pittsburgh…which actually makes KC look only “mediocre”).

TANGO: The "few" Damons, Beltrans, and Dyes? That's a fantastic haul!

34. December 6, 2010 4:21 pm

What are some of the “cheapest” contracts out there today (among players who are eligible for free-agency i.e. not under the control of the club)? Which are the worst contracts out there today?

TANGO: It's hard to get a very below-average contract in free agency. The other 29 teams would sniff the discount and offer more. Orlando Hudson however has been a pretty good buy. As for worst contracts, you have your pick of the litter. I like to start with Carlos Lee, as he embodies the kind of player that saberists are not keen on, and his performance justifies our view.

35. December 6, 2010 5:02 pm

Since the values of players can be so easily quantifiable, as well as their salaries,baseball seems to give us many clear examples of where trade is not mutually beneficial, particularly after the benefit of hindsight. Doyle Alexander for John Smoltz; Bartolo Colon and Tim Drew for Grady Sizemore, Cliff Lee, Brandon Phillips, and Lee Stevens, Scott Kazmir for Victor Zambrano, Delino Deshields for Pedro Martinez come to mind. Was this because of Bad GMs, an absurdly high discount rate, or should these trades be judged relative to other options at the time?

Matt: I would say that you need to also judge based on information at the time. Any move can be judged as wasteful if it didn't yield revenue, but that doesn't mean it wasn't smart at the time.

36. December 6, 2010 5:09 pm

How do the marginal cost and marginal value (to the organization) of an additional projected win each change as a team’s projected wins increase? How much do these figures vary across franchises and their respective fan bases?

Matt: Teams don't appear to PAY less for wins when they have smaller fan bases or are further behind on the projected win curve, but that's because they are outbidding teams who are in the sweet spot of the win-revenue curve and/or from big markets. Small market teams and below average teams certainly pay for a lower quantity of these players, but they pay what it costs when they do buy those guys' services. Sometimes they are doing it because of a splash effect, sometimes they are doing it because they think the rest of the league is undervaluing the player, sometimes they do it because they just overestimated the player's talent, sometimes the player has a unique value to the town or is willing to take a discount. But the market is set by above average teams from big cities, and the prices are driven by that part of the demand curve even when they are signed by other teams.

37. December 6, 2010 5:11 pm

Is the old wives tale that a player significantly improves his stats in the last year of his contract true or just a fantasy?

TANGO: Significantly? Anyone who says he sees something significantly greater or less about something that is not very obvious is lying to you. I mean, we love to see some small indication that something is happening. The biggest thing we see is that there's a handedness split, but we all knew that already. That is about the extent that you will find anything that is significantly different. Otherwise, there's nothing significant.

38. December 6, 2010 5:17 pm

How would you compare Jayson Werth’s contract to Gil Meche’s deal for 5 yrs, $55m with the Royals?

TANGO: It's not a fair comparison (dollars values different, years, inflation rate, etc). Let's just say that you can construct a reasonable case that both players were overvalued by their teams by about 20MM$ or 30MM$ at the time they signed their deal. However, Meche had two pretty good years to start with, and so, his deal will end up being ok. You just never know.

39. December 6, 2010 5:55 pm

Ulysses,

If you look at the last 15 years then yes, their picks have been sub par, but looking at the last 6 years you will see they have done a fairly decent job at drafting serviceable ML talent.

2004: Billy Butler, JP Howell, Billy Buckner
2005: Alex Gordon
2006: Luke Hochevar
2007: Mike Moustakas, Danny Duffy
2008: Mike Montgomery, Eric , John Lamb
2009: Wil Myers, Christian Colon, Aaron CRow, Chris Dwyer

This latest crop of Minor Leaguers is very talented, and should provide KS with some great young talent for the next 4 years.

TANGO: Forecasting springs eternal.

40. December 6, 2010 7:20 pm

Does one side – player or management – clearly benefit in contracts with lots of performance incentives structured to increase in increments (that is, more per every 20 innings over 150, more per homerun over 20 etc.)? It seems that this is most common for veteran players. Does this suggest it’s more difficult to predict when a player’s skills will decline than it is to predict how he will improve?

Matt: I think this is really about shifting risk than it is about anything else. They ask the player to buy back some of the asset that they are buying.

41. December 6, 2010 7:33 pm

Would MLB be better off with fewer franchises?

Matt: I doubt it-- MLB is a really profitable as it is, and it's growing financially as it expands.

42. December 6, 2010 7:37 pm

have you read phil birnbaum’s critique yet? thoughts?

http://sabermetricresearch.blogspot.com/2010/12/hot-stove-economics-salary-model.html

TANGO: Phil is one of the best thinkers out there. Listen to just about everything he says, including the above link.

43. December 6, 2010 8:59 pm

Does the Winners curse exist in bidding for players(Either in Free agency(Money in contract) or via trades(Value of prospects given up)?

If so, for what sorts of players does the Winners curse exist for(By position, age, Statistics or attributes)

Matt: Absolutely. Re-signed players produce far more wins per dollar than newly signed players, and that must be a matter of information. I think that the winner's curse is going to exist most for pitchers (who are more subject to health risk) and for pitchers who have left teams that seemingly could have kept them but chose to let them free. Information may yet be the 'New Moneyball' as they say.

44. December 6, 2010 9:13 pm

What advice would you give to the CUBS organization to finally win the World Series

Matt: Let their contracts expire, and wait to be good. Build young, work on player development, invest in amateur scouting. They have been a team that has thrived on Auction Market talent and they went all in on the 2005-2009 era. It didn't work, but it was a good try and smart to invest in that time period when their core gave them a good shot. They have too many bad contracts and too little Arb-level talent to compete now, though.

45. December 6, 2010 10:02 pm

How insightful was the book “Moneyball” to the rest of baseball? It seems like it was a double edge sword – having both popularized Billy Beane’s Oakland A’s while having the unintended consequence of educating the rest of baseball on how to beat the A’s (and the rest of the MLB). Do you foresee the Mets having a similar renaissance in the coming years after the hiring some of the “Moneyball founding fathers”? Hope they don’t get too smart, at the expense of my Phillies!

TANGO: I think Moneyball gave focus to some facets. It was a catalyst for change, but did not really offer the blueprint for it.

46. December 6, 2010 10:30 pm

Freakonomics picked the wrong guy to ask questions of. JC is well known in the Sabermetric community as a guy who makes serious mistakes (especially in his evaluation of players’ worth), and is unwilling to admit same: Witness question number 19 above. The question about Jeff Francouer relates to JC’s awful evaluation of Francouer’s worth. If you want to ask questions of someone who really understands, google Tom Tango.

Matt: I learn a lot from reading JC, and I think being an economist gives him a unique perspective that helps his readers understand the game. He has a different model of player valuation, and it has some weaknesses that he always works to improve. Tango's has some weaknesses. Mine has some weaknesses. The saber community has demonized Bradbury for his disagreement on some issues (including some gray ones), but I think it's more interesting how different perspectives yield similar answers without attacking the people. JC is right a lot, and lot of his critics don't really have the information to pick a side but gang up anyway. That's not to say I always agree-- I'm a strong believer in the usefulness of replacement level towards valuation for example and I think he underestimates frictions and information at times (granted I think that about a lot of my fellow economists)-- but I like his approach and his thoughts on issues.

TANGO: Except for valuation of players, JC has some great stuff he's written. JC can and should be professorial on those things (most of Baseball Economist was a good read), and he should be a student with regards to valuation of players.

47. December 6, 2010 11:47 pm

In July, the Brewers provided a check list that will serve as a guide for better pitching development. The highlights: 1. Owns “plus” fastball velocity?; 2. Can throw a quality breaking pitch?; 3. Has “solid arm action and delivery”?; 4. Is 6-foot-2 or taller. A reliable starting rotation is something the Brewers have been lacking. (I look forward to reading Chapter 7 re: the “hefty lefty”). Are there Freakonomics/Money Ball type endeavors dedicated to the assessment of young pictures? An example, could the physiological construct of the picture’s shoulder, arm, elbow, wrist, hand size or release point be used to predict future success or even potential for injury.

TANGO: That's what we are all after.

48. December 7, 2010 2:28 am

In the late 1990s and early 2000s, free agent contracts greatly increased. In the past 5-6 years we’ve seen a small increase in salary inflation (average around 3% every year). My question is, whether you believe there is an obvious explanation for this or is it just market correction and random market fluctuation?

A possible explanation (and a question): Recently teams have begun locking up young players to extensions before they hit their arbitration years (see Dustin Pedroria, Ryan Zimmerman, Greinke). This provides certainty to players and teams. Most of the time, these deals buy out two years of the player’s free agency and give a club option for another. These contracts are normally signed at discount rates to the team (if the player turns out to be good). As a result, instead of players hitting the market after their arbitration years at age 27-30, they’re hitting it at 30-32, past their peak eyars 27-29. Thus, instead of signing a large 5-7 year deal, they are only getting 3-4 year deals. Do you think this affects salary inflation? And for the most part, who do you think gets the better end to player extensions for young elite players during or before their arbitration years?

Matt: I don't know that there really are enough player contracts buying out free agent years in advance that we can say. I do know that the team does better on average, but that the team also assumes some risk that the player owned. In that sense, it's not surprising. I'm not sure that it really affects the market too much, though if enough players did it, I'm not sure what direction it would take salary inflation. Salary inflation in recent years appears to be driven far more by economic circumstances than a market shift.

TANGO: Overall, the teams benefit. The prey on the one thing the players value highly: making their first 10 million dollars. The players want that security, and will give up alot for it. Yo have smart players like Tim Lincecum who will only sign away two years to get that security (at not much of a discount). Or Cole Hamels (who still will be arb eligible at the end of his deal). And then you have the opposite in Evan Longoria, who simply signed away an enormous amount of his value. When Longoria signed his deal, he became instantly untradeable, because a team would haev to give up its entire minor league operation to get Longoria. That's how good a deal the Rays signed. But, this is the MLBPA's doing. How the heck does Ovechkin sign a far better deal than all these MLB players? MLBPA always thinks about the free agents first, presuming when their tide goes up, everyone else benefits.

49. December 7, 2010 8:26 am

How do you think playoff expansion has impacted salaries? The clear example is the Red Sox, which now reliably hholds in the #2 payroll slot (well) behind the Yankees — would they have done this if there wasn’t a second playoff slot available to them, and does this dynamic seem to apply to other teams?

Matt: Playoff expansion has made the value of players skyrocket. The reason is that it has made the revenue associated with being a winning team much higher than the revenue associated with a losing team. The result is that the marginal value of a win has jumped tremendously.

50. December 7, 2010 8:27 am

Please ignore my previous post …

I would like to know about revenue sharing and luxury taxes? How well spent is it by minor markets and how much is it really going into the owner’s pocket?

Matt: It is a lump sum transfer, so it's not surprising that it doesn't curb spending. The luxury tax is a marginal tax, so it clearly has had a larger effect. Unsurprisingly, you rarely see teams go over the luxury tax but you see a lot of teams within 10-20% of it. The key is to have a tax or subsidy that effects teams decisions on the margins. Otherwise, they have the same marginal revenue and marginal cost as they did before the tax or subsidy was considered, so the net marginal effect remained negative or positive accordingly.

51. December 7, 2010 9:43 am

Compare and contrast the Cubs Vs Twins

TANGO: Twins are a model organization. The Cubs play in a model park.

52. December 7, 2010 9:53 am

Player salaries took a huge jump back around 2000-2001 and then leveled off a bit. Are the large pay outs to non-elites like Werth and Benoit just a correction to that curve and not as ridiculous as they appear at first blush, or are they simply panic money?

Matt: The leveling off seems to have been correlated with the economy. The dollars per win went up a lot in the mid-2000s and only started to taper off during the recession. I don't know that I would call Werth non-elite. He's a 4.5-win player who has been hidden in a sea of other more popular players with similar value. I think his contract might have been an overpay, but maybe not when you consider the splash effect. Benoit is a pitcher who has a very difficult to discern value, and it wouldn't surprise me if the Tigers really thought they had a good beat on his skill level.

53. December 7, 2010 10:00 am

Billy Beane has famously said that his doesn’t work in the playoffs ans says it’s just luck. But a good measure of his stuff is finding cheap wins. For example, improving the quality of your fourth and fifth starters is significantly cheaper than improving the quality of your top starter, and not giving away 20% of your games through terrible pitching makes a big difference during the regular season. But fifth starters don’t play in the post-season. Is this design what so confounded Beane, and does it imply Bill Smith should be improving the quality of his top starter?

TANGO: I'm confounded by the question.

54. December 7, 2010 10:01 am

In my previous post I put a couple words in angle brackets and they were hidden. Sorry.

TANGO: Still doesn't help me.

55. December 7, 2010 10:43 am

Haven’t read the book, but looking at the chapters names…isn’t this all work that’s already been done? Off the top of my head I can remember reading multiple articles on blogs across the internet on all of those very subjects. What’s so special about an economist just repeating all that work that’s already been done and putting it in a book?

Matt: We're all using models. No one can perfectly model the world. I find that it is helpful to use economic modeling and more traditional sabermetric modeling together, but seeing if different models give different answers is useful and shouldn't be viewed as redoing work. Nothing is perfectly solved yet.

TANGO: As an alternative, I would recommend JC's first book The Baseball Economist. That's a good read.

56. December 7, 2010 1:13 pm

What’s your take on the rest of the academic baseball blogsphere’s approach to the topics you discuss? Specifically Tom Tango’s ‘The Book’ blog, Fangraphs, Baseball Prospectus, etc. have critiqued your methodology and it would be great to get your side of the argument.

TANGO: The blogosphere is right.

57. December 7, 2010 3:04 pm

Why is this book not an ebook? Would have bought immediately, he said after checking Amazon, Barnes & Noble, etc. And bootlegs seem to be all over the net…..

Also…..there have been some excellent questions asked.

TANGO: All books should be ebooks.

58. December 7, 2010 4:28 pm

Can you explain how price ceilings/floors would not be beneficial for both players and competitive balance?

Matt: Is this supposed to mean salary ceilings and floors? If so, I think that might be helpful, but the team control in baseball of six years with three years at league minimum really do help competitive balance a lot. The difference between the best and worst football teams is far greater than the best and worst baseball teams when it comes to expected winning percentage.

59. December 7, 2010 6:37 pm

What will it take to get a salary cap in baseball?

TANGO: Why do we think we need a salary cap in baseball?

60. December 7, 2010 8:15 pm

As a high school and college baseball player and as a veteran of 15 years of high school and summer league umpiring, I reject the entire premise of this book–namely, that there should be a “market” for baseball “free agents.” Baseball is a game. Games are played by children. The best players remain “kids” to an advanced age, and they play the game because they love it. No dollar value may be attached to this mindset because the mindset itself is invaluable. Barry Bonds and Manny Ramirez got/get huge piles of money, but they were/are rotten teammates and their teams don’t win. Bradbury needs to find another topic–something that has to do with baseball.

Matt: I like waffles a lot. They are a great food. I don't think they should be bought or sold in a market because they they are just too uniquely valuable. What? You don't care? And my bizarre solution would just make people sell other foods instead? Oh. Well, then maybe I'm just preaching without knowing what I'm talking about. Nevermind. P.S. Manny has two rings. How many did you say you had won? Don't you know how to win?

61. December 8, 2010 4:06 am

Three questions…

1) Why do lower-echelon teams bother to plow money into low-WAR free agents (I’m thinking the Royals & Gil Meche, for example), instead of investing the money in non-player assets (i.e. better scouts, coaches, managers, instructors, etc.) that are more likely to help the team conend over the long term?

2) Given the low sucess rate of even the best prospects, why do GM’s continue to settle for packages of single-A and double-AA prospects when trading top players, instead of insisting on major-league ready players?

3) Do you think small-market teams would be helped by the creation of some sort of “franchise player” system (as in the NFL) that would allow them to keep a top player for more than six years?

3)

Matt: (1) I think that in many cases they think the player is undervalued and think they are likely to get a bargain or flip the player later. It's often smart to do that if you can identify assets. (2) A lot of those teams want to get more risky players rather than fewer players with more certainty. (3) Maybe but six years is a lot. I think that might be fair enough already. Small market teams use that to win all the time.

TANGO: I like the idea of the league subsidizing players you've groomed, though that may have unintended consequences.

62. December 8, 2010 9:09 am

Being part of the economics faculty universe myself, I’ve observed that in many fields/industries, uncertainty plays a signficant role in asset valuation and decision-making processes. This is particularly true in sports, where the axiom is that what’s on paper is almost irrelevant and the appeal is from not knowing what the outcome will be until the game (market) actually plays out. I’d love to hear your thoughts about how uncertainty plays a role in how baseball rosters are assembled.

Matt: I think that teams that are worse have the incentive to take on more risk because the downside isn't so bad for them as it is for other teams. Like anything else, I think that uncertainty has more value to some teams than others, and that will effect its allocation.

63. December 8, 2010 9:45 am

I work in investments, where my colleagues and competitors rationally look at data all of the time to make cool-headed decisions i.e. decisions based on analysis and not on emotion. However, when we start talking about baseball and contract values, I’m startled how often these data-driven people throw their valuation processes out the window and talk about emotion, the need to “win” the off-season, and the requirement to overpay for intangibles that even they admit they can’t even measure. Have you seen this also? What does this tell us about baseball and economics (and ourselves)?

Matt: Some people value the story. They like baseball movies, and they want their entertainment to act like their fiction.

TANGO: People lose all perspective when it comes to sports.

64. December 8, 2010 9:52 am

Are you privy to any contract negotiations? I’m wondering how the negotiations happen in practice, specifically what’s the *main* valuation method that teams lean on to determine the value of a player. On the whole, do teams rely on comps mostly (looking at similar recent players’ contracts and bumping up a few % every year since over MLB revenues to up a little every year)? Do any teams/agents rely *mostly( on modeling (using regressions)? I’m wondering how sophisticated (for the lack of a better word) negotiations are. I’ve heard of negotiations done in a bar over cocktails in years past and was wondering if this was the norm or the exception.

TANGO: The main valuation are comparable players. But, no, I'm not privvy.

65. December 8, 2010 9:57 am

I find the first-price sealed-bid auctions done every year or so for key Japanese free agents still under their teams’ control in Japan (think Ichiro and Daisuke Matsuzaka) to be fascinating. I’d love to hear what the other bids were. Is any of this information public? Have you any insight on these auctions? Has anyone (outside of MLB) studied this?

Matt: You do hear snippets of what teams offered in different circumstances, but there is no public data on all of the bids that I am aware of. What I find most interesting is how these auctions are structured. The fact that the Japanese team gets the money back if there is no contract really depresses the value players can extract from teams in deals, but helps the team get more. I think the "when to post" question is probably a really fascinating auction mechanism design question.

TANGO: There's something great that can be done here, in terms of putting in proper disincentives against teams that bid-to-block, such as forfeiting draft picks, etc. But, MLB does not have the incentive to bother with this.

66. December 8, 2010 10:01 am

MLB revenues go up every year, even during recessions. Should there be *more* expansion? Isn’t expanding the logical thing to do?

TANGO: What does logic have to do with this?

67. December 8, 2010 1:40 pm

Why are the Washington Nationals consistent losers?

Matt: They have had six years of building a franchise up from the bottom, and they look like they will take about eight or nine until they are a winning franchise. You can't build a team out of scratch and the Nats had a lot of work to do. They have done a lot right, and it should pay off eventually.

TANGO: Vive Les Expos!