The Latest CBA (2016)

Part 25 of our series on Important Moments in Team Building.  See introduction, and up-to-date list.

 

TroutTeam building today has become depressingly homogenized. Front offices seem to share much the same philosophies of player valuation, and their approach to team building, coupled with the terms of the current CBA, agreed to in December 2016, continued the pattern from the previous one of closing off many of the avenues used by teams to differentiate themselves. Four CBA items in particular have led to this state of affairs.

  1. Teams are now capped at what they can spend on international amateur players at a surprisingly low amount. Prior to this latest CBA a rebuilding club could emphasize international signings in a particular year, though they would then be limited in the next signing periods. In the 2016 signing period, for example, the Padres paid $35 million in bonuses to roughly 40 international amateur prospects. This ended up costing over $70 million because of the 100% tax for going so far over the spending guidelines and limited their bonuses during next two signing periods to just $300,000. Nevertheless, the Padres found a way concentrate all their resources into one year and land much more talent than they would have otherwise been able to secure. The current CBA closed this “loophole,” instituting a hard cap at $5.75 million (less for larger market teams).
  2. The hard cap covering the amateur draft of American, Canadian, and Puerto Rican players remained in place in this CBA. Teams are allocated a pool of money based on where their picks fall in the draft, and they are prohibited from exceeding this amount. Teams can still creatively try to sign a high pick at below his “slot value” so as to spend more to try and sign a later pick, but this is generally at the margins. The days of teams aggressively going after higher-risk signings with larger bonuses are effectively over—such as the Pirates outspending everyone else from 2007 to 2011 as they tried to rebuild their talent level.
  3. The luxury tax (technically termed the “competitive balance tax”) has also become more onerous. The penalties for exceeding the payroll threshold, particularly by large amounts over multiple consecutive years, are now more punitive, though the potential exposure has occasionally been overstressed this offseason. The luxury tax threshold for 2018 is $197 million. As the maximum exposure, if a team exceeds the threshold for three consecutive years and is at least $40 million over, their tax will be 95% on that portion above $40 million over (50% on the portion $0 – $20 million over and 62% for that portion $20 to $40 million over). A new penalty comes on line this year: any team that is $40 million over the threshold also sees its highest draft choice drop 10 positions (with the first six overall slots protected). Though these are not necessarily cost prohibitive amounts for the top revenue teams, much has been made of the Yankees and Dodgers, typically the two highest payroll teams, showing renewed concern this offseason about getting below the threshold so as to reset their consecutive year count. Neither team was as active in the free agency market as it often is.
  4. Revenue sharing has apparently begun to reach a point where it affects teams’ internal calculus on how competitive they need to be. With essentially the same overall revenue sharing percentage from the previous CBA, plus increasing revenues from national sources such as MLBAM and merchandizing, smaller market teams are receiving significant additional revenues in addition to their local sources.

CorreaWith the recent World Series championships of the Cubs and Astros, fans are also more tolerant of losing seasons if they believe in the front office. Both teams essentially tore themselves down to the studs and then rebuilt from scratch with young players acquired in trades or as high draft picks. That said, this is extremely difficult to execute on command.   And it is even harder today as more teams are apparently trying to execute this strategy simultaneously and the prospects available in return for veterans may be diminishing. The higher revenue sharing simply reduces the penalty for failure.

One of the maxims commonly heard today is that teams do not want to be in the middle of the pack; they are either competing to win championships or they are willing to sacrifice the present while hoping to rebuild with high draft picks. This binary approach may not be particularly valid right now, especially with the hard caps on the draft and international signings. Obviously, it is nice to be really good, but the idea that rebuilding from scratch is better than from a middle position is not convincing. Baseball is not like the NBA where a high draft pick can make a material difference quickly, and there is much less certainty over the ultimate value of a pick as well. Moreover, the amount of talent a 65-win team needs to add is enormous and fraught with risk as counted on players never develop as anticipated.

Moreover, there is a huge range of possible outcomes for any team in any given year. A team that looks like an 83-win team at the beginning of the year could win anywhere between 75 and 90 games just by the vagaries of fate: injuries, slumps, unforeseen player development, etc. Every year it seems we are surprised by how different the final standings are from the preseason predictions. Giving up on a middle of the pack team and accepting a number of losing seasons in the hope that it can be rebuilt into a contender with some slightly higher draft picks seems both unlikely and unnecessary. Instead, there seems to be a real opportunity to move in the opposite direction—witness the Brewers for 2018–make a few positive moves and give the team a legitimate shot at the postseason.

 

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The Theo Epstein Effect

Part 24 of our series on Important Moments in Team Building.  See introduction, and up-to-date list.

 

Perhaps Theo Epstein saved Moneyball. Because the book claimed mainstream front offices and traditional scouts were either unaware of or ignoring important realities—and did so in a highly polemic manner–many within baseball were dismissive and hoped the surprisingly popular reception and ensuing public debate would just fade away. And in fact it could have. The A’s under GM Billy Beane, the central character of the book, won over 100 games in each of the two years before the book’s release in 2003. But in 2004 and 2005, though still moderately successful, Oakland failed to make the playoffs. The traditionalists could have pointed to this backsliding as evidence that Oakland’s success was simply an aberration due to a trio of top starting pitchers and had nothing to do with Beane’s innovative approach.

theo-epsteinAnother team, however, was about to become the new face of analytics. Boston Red Sox principal owner John Henry made a fortune as a commodities trader by taking the emotional element out of trading decisions, and he recognized a similar opportunity to bring a more data-driven approach to baseball. Henry and CEO Larry Lucchino initially tried to hire Beane, but the GM eventually decided to remain in Oakland. After this rebuff, the two promoted 28-year-old Theo Epstein, a young Yale graduate who had come with Lucchino from San Diego, to general manager. For good measure they engaged Bill James, the godfather of the sabermetrics movement, as a consultant.

Epstein’s hire was extremely risky. If the team backslid the owners would be ridiculed both for their new-fangled embrace of analytics and the hiring of a 28-year-old to run this storied franchise. Epstein and the Red Sox, however, were not only successful, but succeeded beyond what anyone could have expected. Not only did the team win the World Series in 2004 for the first time since 1918, they repeated three years later. The Red Sox victories validated to nearly all observers the value of incorporating analytics into baseball operations. The dichotomy was never as stark as Moneyball author Michael Lewis drew it, but clearly there were valuable insights into team building that could be learned by delving into over 100 years of baseball data.

But the Moneyball approach was not the only lesson teams seemed to have learned. Everyone now wanted their own Theo Epstein, and the leadership of major league front offices has changed dramatically over the 15 years since his hiring. Acknowledging that all front offices in 2003 were run by men, and nearly all white men at that, within that group there was a surprising diversity of experience and background. A number had played major league baseball, others peaked in the minors, some only played in college, and a couple not at all. Some broke in through scouting, others through coaching, a few though other departments, and some after starting out in other professions. As to schooling, the GMs of 2002 came from a widely diverse group of colleges, many of which would not have been categorized as exclusive. Beane was a thoughtful ex-player who had gone to UC – San Diego during his offseasons; Epstein was a talented, energetic young man from an Ivy League school. As it turned out, Epstein became the ideal for the future of front offices, not Beane.

In 2003 only two other teams were led by Ivy League graduates. The Cleveland Indians, perhaps the other most analytically inclined team at the time, and the Baltimore Orioles. Baltimore’s case is a little misleading, however, as they had a bizarre dual-headed structure of two ex-major league pitchers, Jim Beattie and Mike Flanagan, running the front office; Beattie had gone to Dartmouth. Regardless of background, men generally had an opportunity prove their worth and move up the ladder—often jumping back and forth between organizations. For example, Gerry Hunsicker, the Astros GM who won the division four times and finished second four times from 1996 to 2004, starred at St. Joseph’s University and then went to Florida International University for a master’s in education where he was an assistant coach for the baseball team. He didn’t get into professional baseball until 1978, six years after graduating from St. Joes, when he joined the Astros, before moving to the Mets. He was 46 when named Houston’s GM.

2016-11-03T052932Z_1003068188_NOCID_RTRMADP_3_MLB-WORLD-SERIES-CHICAGO-CUBS-AT-CLEVELAND-INDIANSToday, of the 30 top baseball operations executives (identified somewhat subjectively), 13 now have degrees from Ivy League schools, while several others are from elite colleges like Amherst and Georgetown. Only two, Beane (a leftover from the pre-Epstein revolution) and Seattle’s Jerry Dipoto, played major league baseball.  Plus, several of the GMs that serve in organizations where they are not the senior baseball executive are themselves Ivy League grads. In another mirroring of the Epstein hire, 17 of the 30 were named to their position at age 40 or under. The past two seasons have only reinforced this model, as teams run by Epstein and other youngish front office execs have captured the four pennants. Baseball organizations are currently mainly run by very smart young men from elite schools with little professional baseball playing experience. This trend will likely continue for many years—until someone tries a new route, is successful, and another model for leading front offices emerges.