Peabody: Life, Friends Baseball

All winter long the off season has been punctuated with discussion about the two huge long term deals signed by Albert Pujols and Prince Fielder, the latter to the consternation of many Mariner fans.

There have been expository essays that purport to say there is or is not a correlation between spending a lot on salaries and winning baseball. Then we have read about the inability for the Mariners to spend on salary this winter or we’ve recently read about how they already rich owners of the Mariners are to get an enormous windfall payment in several years. There has been one piece on how the Mariners might be positioning themselves for a sale of the franchise. Big scatter pattern.

One of the underlying assumptions about writing about a major league teams is that they are competing to win a championship. Or if not that immediately, doing interim things towards competing for a championship such as developing players. That assumption maybe needs to be challenged.

It is like this, most teams need to survive financially. Profits are a function of revenue exceeding costs. Their sources of revenue are ticket sales, revenue from tv-radio deals and beer and hot dog sales. Their primary expenses are player salaries, coaches salaries and executive salaries and beer and hot dogs, interest on debt, that sort of thing.

Revenue increases when you have a good team. Even more comes in when you are in the play offs and even more when you make it to the World Series…Good to great teams generate a lot of revenue and generally are profitable.

In recent times teams that spend a lot on players pay a luxury tax that gets distributed to the teams that spend less.

That was sort of a primer and sorry if it seems pedantic or patronizing.

The criticism of the two large deals is centered about the back end of their deals being heavily back-loaded financially when their skills are eroding. Many analysts have this in mind when they say the deals are bad.

To which many writers, fans and Mike Scioscia and Jim Leyland say talk to me after we’ve won several World Series, who cares what we’re paying Albert when he’s 64, with apologies to Paul McCartney.

So if you have any kind of financial background then you might ask well what is the present value of the payments on the back five years in those deals anyway? It is way in the future!

Since interest rates are near zero, unless you have a credit card, the net present value of those dollars far away is mostly like a dollar today…so that does not capture what is going on, those dollars are real.

So I said why would a sane business man sign a deal with a player that is worth hundreds of millions of dollars all other things equal? When the average career of a player is five and half years, why do that? Well Albert Pujols and Prince Fielder are not average players, but still it would seem as a steward of the franchise’s money that the actions are aggressive. Maybe beyond aggressive.

It would be trite to use the phrase other people’s money in this context, but over the last twenty years the duration of a job as a general manager in the major leagues is just under seven years. There are examples for certain teams that exceed that. But not very many.

General managers have an horizon that is probably at the same seven year window or maybe less by a year…given that most of those guys had a last year on the hot seat so maybe less than that by a year.

In your last year you’re not going to sign Albert.

I am rambling a bit here but just to lay out some more stuff, since 1990 ignoring interim managers for less than 1/2 a season there have been 185 managers and with the same exceptions 122 general managers. In general, managers get fired more often than general managers. If a manager is fired it suggests that the general manager is not just displeased with the manager’s performance, but he uses the act of firing the manager to deflect scrutiny and criticism of his own performance.

This is not rocket science. The way to assess a general manager’s performance is the presence of good players throughout the organization. Managers survive directly, by win loss as does ultimately the general manager.

Although this is circular, the manager can not win without good players. Some even suggest that the manager has no value add and that is all on the general manager. I am going to leave that one alone, but it is probably a simplistic assessment.

A manager needs to win very soon or he is gone, a general manager needs to get a team trending upward very soon. A winning general manager wants to stay that way but despite any past triumphs his horizon on the margin is the same as Jack Zduriencik’s at the bottom looking up. That is if he wants to stay there on top, for at least another five years, he will sign Albert Puhols to a ten year deal. He has almost no personal concern or worry for years beyond the next five years.

I know that that I said just under seven years and i took away one year which is less than six years, so I rounded down to five.

The phrase that I want to trot is a play on the phrase net present value. A general manager has got to have some sense of the net baseball value, which is a time measured tool. In simpler terms something great happening five years from now has very small value. The GM is selling to his president and owners a virtual tool a vision of the future as it were if he’s pitching five years.

In even more prosaic terms Albert hitting 35 bombs and driving in 150 rbis in each of the next two years is sweet music to a GM and a couple of World Series visits if it all breaks free the right way then maybe he’s in the Hall of Fame.

Pat Gillick laid waste to several team’s systems but did get the breaks and the World Series wins and the Hall of fame.

Looking over the landscape of the past twenty some years there are hundreds of men that have been general managers and managers in the major leagues. It is inescapable to observe that some teams have not had much success, if you measure playoffs and league championships and World Series as success. That those teams, excepting the mismanaged Dodgers, have been profitable is an understatement. There value at sale is certainly in excess of what their current net worth is as they sell at fairly large multiples.

So as a business they all succeed and survive, but some rarely win. Their product is a daily event watched in person and on television and listened to on the radio. There is a disconnect between the object of the players and manager, which is to win and the goal of the business, which is profitability. World Series winners are awash in financial rewards which rewards the risk takers of teams that try to actually win.

In the last twelve years the Cardinals have been in three World Series and triumphed in two. They have spent less on salaries than the Mariners during that period and far less than the Yankees who were in four series and won two.

Long term contracts are great deals for teams if they win the full deal. If they win a lot but not the full deal, they probably still make out.

This entry was posted on Friday, February 10th, 2012 at 5:11 pm by terrybenish and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.