Small Market Teams Can Find Major League Baseball Success
The current NBA Collective Bargaining Agreement creates an economic system that takes advantage of the poor (rookies) and the rich (superstars) and increases the wealth of the middle class. “In theory, above-max players and players on rookie contracts are the only players in the league that should be underpaid. Everyone else should be bid up to market in free agency,” (Pelton).
This system makes non-veterans (players playing on their rookie contracts) more valuable, as their production often surpasses their price. “Overall, these agreements [1995 and 1999 CBA’s] have tended to hurt non-veterans (players in their first four seasons), especially those non-veterans selected in the first round. The primary beneficiaries have been veterans selected in the first round. Prior to the 1995 and 1999 collective bargaining agreements, non-veterans selected in the first round were paid between 89 percent and 98 percent of their estimated productivity; by 2002-03 these players were being paid less than half their productivity,” (Rosenbaum). As an example, LeBron James, on the open market would command a max-salary deal, meaning he would have a starting salary at 25% of the salary cap or approximately $11 million/per year with 12.5% annual increases; however, while he finishes his rookie deal, he averages approximately $3 million a season. By this measure, James is one of the biggest bargains in the NBA (possibly in history). Similarly, while Tim Duncan makes a hefty contract ($15 million a year), on the open market one can only fathom how much Isaiah Thomas and the Knicks or Jerry Buss and the Lakers would throw his way, meaning he probably makes $10-15 million less than he would without a maximum salary cap in place.
Major League Baseball also has a Collective Bargaining Agreement, though they have no salary cap in place. MLB has some restraint on salaries, especially for the young. “The current CBA imposes a compensation structure that’s pretty straightforward:
� Clubs have renewal rights for all players with two years of experience or less, and those with 2-3 years experience who are in the bottom 83%of service time within that subcategory. The club can simply write out the contract, subject to the restriction of the league minimum, and the player has no recourse other than to sit out the season.
� For those players with 2.83-5.99 years of experience, (or thereabouts), the club has the option o offer the player arbitration, or to simply release the player to free agency. If the club chooses to offer arbitration, the player must either accept arbitration, or sign a deal with the club that holds his rights.
âÂ?¢ Players with six or more years of service time are free agents, and may offer their services to any club in MLB. Fun with the free market,” (Huckabay).
Similar to James’ value to the Cleveland Cavaliers because of his talent and cheap price tag, MLB’s CBA restricts young baseball players’ earnings and heightening their value to their clubs. “The St. Louis Cardinals have paid Albert Pujols $1.7 million over the last three seasons, during which he finished fourth, second and second in NL [National League] MVP voting,” (Pelton).
The Collective Bargaining Agreements, as illustrated above, are similar for non-veteran players and the middle class; non-veteran players are paid below market value, while veteran players enjoy free agency, which in theory means they make about what they are worth. The obvious differences-and they are huge-are the NBA’s individual maximum salary and team maximum salary.
Rosenbaum and Huckabay illustrate that “the sweet spot, in terms of return on your investment, is in the early years of a player’s career,” (Huckabay). The Oakland A’s turned this philosophy into unparalleled regular season success and became a model off efficiency for many other small market teams with limited payrolls. The A’s won the American League West in 2003 with the 23rd highest payroll in MLB; after the season, they lost Tejada, Foulke and Jose Guillen. Every time they lose a player, they have a replacement in AAA, or they deal to acquire a replacement that fits their system. Bobby Crosby replaced Tejada; Houston Street replaced Foulke’s hole which was patched for a half-season by Octavio Dotel.
In any sport, “the ideal player remains someone who contributes more than he costs in salary. Not only does he add to the bottom line, he gives the team salary cap flexibility and allows it to take on other contracts. The most obvious example remains draft picksâÂ?¦economically speaking, the most efficient team possible would be built around a superstar worth more than the NBA’s maximum salary for his experience level. He would be surrounded by several young players who could contribute while on their rookie contracts, and some well-placed veterans who provide experience and can fill the roster’s gaps,” (Pelton).
While winning remains the franchise’s goal, and the best way of increasing revenue, a franchise is a business and management makes decisions accordingly, with an eye on the bottom line as well as the win column. Therefore, maximizing the return on the investment is a goal of management, placing a heavy emphasis on the decision-making capabilities of the front office and scouts. “Good decision-making probably makes the most difference in the draft. In free agency, the players are developed, and their abilities are generally knownâÂ?¦In the draft, you can select Carlos Boozer in the second round. Or, you can take Nikoloz Tskitishvili in the lottery. You’ll never remove all the variability from the draft, but you can do a lot better. The other point worth making is that if the player you select is not going to blossom into a superstar, it’s critical to get value out of him during his rookie contract, when you’re paying him virtually nothing,” (Pelton).
Small market baseball teams face similar, self-imposed restraints, as it abides by a strict budget based on its revenue. A mistake made by these teams hinders its ability to move forward. While it does not limit salary cap flexibility, a mistake limits the money it spends on other players; the General Manager’s decisions, with his scouts, drive the club’s success or failure. If management overpays for the middle talent or misses on a draft pick, it reduces its ability to pay for a legit superstar.
One significant difference between the front offices of the efficient teams versus the inefficient teams is the use of the draft. Inefficient teams, especially in baseball, often speak of the draft as a crapshoot, as though they simply roll the dice and hope for the best. The efficient teams understand the draft’s importance in building their team and diligently work to make the draft work for them. “[Oakland A’s General Manager Billy] Beane looks to limit the element of chance by poring over a player’s statistics, drawing at least a small forecast of what could come. Many scouts and GMs tend to focus more on raw skills or potential. ‘With the first pick, it’s not so important to hit it big, but to not miss,’ Beane said. ‘We make sure when we draft our first-round kids, they’re going to play in the big leagues. When they get there, they may be better or worse than you thought, but you make sure they get there,” (Amick).
The ability to run teams more efficiently and maximize the use of draft picks allows successful franchises to remain successful regardless of financial restraints. “The market for baseball players was so inefficient, an the general grasp of sound baseball strategy so weak, that superior management could still run circles around taller piles of cash,” (Lewis).
In financial terms, these teams buy low and sell-short. They purchase stock in a so-so closer who increases his value in one season and allow him to leave at the height of his value, rather than re-signing him to a large, expensive extension, acquiring several early-round draft picks in the process. The A’s have a system to maximize the benefits of these picks, as they choose players with greater certainty, caring less about finding the next superstar, as about drafting players who will make it to the Big Leagues.
The A’s, labeled an aberration by those demanding a salary cap in baseball, are the inspiration for small market teams attempting to compete against the Yankees. They have a sound strategy for success, but one which does not equate with fan loyalty. Every year, Oakland watches a beloved player leave via free agency for more money. They use the draft picks gained to re-stock their talent pool through the minor leagues, but fans fail to follow these developments. They only see Jason Giambi in Yankee pinstripes.
However, they maximize the value of their players. They build around young superstars on their rookie contracts that make far less than their market value. They get five years of play at far below market value; these players, like Barry Zito, Tim Hudson and Mark Mulder, play through the prime of their careers (roughly 26-29 years old) while making far less than comparable player. This strategy allows the A’s to remain competitive year-in and year-out and it is a strategy some low budget teams are attempting to replicate.
In the end, salary cap or no salary cap, the successful teams boil down to the people in the organization, from a supportive owner, to a skilled front office, to the coaching staff and players. If one link in the chain is broken or defective, whether the GM does a poor job or the star player gets injured, the organization will falter. And, this, of course, is the beauty of sports and competition, the unknown, the thrill of victory and the agony of defeat.
