Last week, Francisco Lindor’s comments regarding analytics in baseball created a major discussion piece around the game. Lindor claimed that analytics weren’t in the best interest of players and that it was preventing players from being paid. This led to many other players commenting on what their beliefs were on the role of analytics in the game, one most notably being Gerrit Cole. Cole mentioned how analytics have helped him and how the Yankees have used analytics to help players develop.
However one quote from this interview really stood out to me, “I just think that teams are looking at WAR and everything, and player value on kind of a bell curve, right? So you get paid for your peak, you get paid a premium for the peak and then maybe you know you overpay towards the end, but the surplus value at the beginning is so high so it makes sense when you balance your roster that you’re getting adequate value for your payroll.” Cole said. This is an interesting concept and one that maybe a lot of people not familiar with the economics of the game overlook. We see this concept of surplus value and it really determines how a team can construct its roster and dictates a lot of transactions across the game. This method was made popular by the movie Moneyball, where we saw the Oakland A’s replace stars who were becoming free agents with undervalued players to maximize the value of their payroll.
Surplus Value is an economic concept that can be broken down as the excess value produced by the labor of workers over the price that they are paid. In baseball terms it’s essentially the value of a player subtracted by the salary that the player makes in a given season. So to determine surplus value in baseball we need to find out how to measure value produced by a player. Gerrit Cole mentioned WAR, or wins above replacement, which is the most comparable statistic currently. WAR is a value statistic that includes a player’s contributions offensively, defensively, on the base paths, and on the pitcher’s mound and we are able to use this to compare players with different skill sets and get an overall idea of each of their contributions to their team. In the table below we can see how WAR is valued by major league teams.
We can see that during the regular season one WAR is worth between 4–5 million dollars but this is not how much WAR costs to acquire. This is because that there are so many players in the MLB that aren’t freely available to acquire. The way the free agent system is set is that a team has control of a player for 6 seasons. The first 3 seasons the team may renew that player’s contract with adjustments to performance bonuses but after those three seasons a player is eligible for arbitration. During arbitration the player and the team each go to an arbitrator and present their case with what they believe to be the player’s fair wage for the upcoming season. This is where most players feel that teams use analytics against them in order to not have to pay them what they’re asking for, however most teams reach agreements with players before arbitration. After 3 years of arbitration the player is then eligible for free agency where he can go on the open market. To find how much it costs a team to add one WAR on the free agent market I’ve calculated the WAR totals and contract totals for free agents over the past two off-seasons (2019 being the off-season after the 2019 season and 2020 being the most recent off-season).
The WAR totals are generated based on the projected WAR totals over the life of a contract. This step is included because we have to apply aging of players. Players who sign long term deals are going to perform at a higher value at the beginning than at the end of the deal, meaning that the value teams get out of these deals is much higher at the beginning and we must account for that. In order to project these WAR totals we can apply an aging curve over the length of that player’s contract. Once that is applied we can see that the average cost to acquire one WAR is around 8 million dollars. The 2020 season was much lower due to the financial landscape of baseball brought on by the pandemic.
To find the surplus value of every player at the major league level we can take their 2021 projected WAR total and multiply it by 8 million, and then subtract that number from their actual salary. This gives us the value created or lost by that player given their contract for the 2021 season. Below is a scatter plot of the top ten and bottom ten in terms of projected surplus value:
From this graph it is clear what kind of players teams are able to get surplus value out of and which kind of players teams lose surplus value on. In the top tier there are a lot of young players on team friendly deals and players who are set to begin large extensions. Teams are able to control how much these young players make in their first few years with the team, meaning they are able to get the most value for them. In the bottom tier we see a lot of aging sluggers past their prime. These players signed huge deals years ago and now are in the twilight of their careers. This is why I said we must account for aging when looking at players who signed long deals because the surplus value on the front end is generally much higher than on the back end.
How does this impact team building though? Some teams can afford to pay a player at lesser surplus values than others. Teams like the Yankees and Dodgers who have large payrolls can be more competitive in free agency and not have to worry about deals that could result in little to no surplus value. However as seen recently, teams like the A’s and Rays must constantly be changing their roster as players approach free agency and as they lose surplus value due to them being a small market team.
To clarify the groups in the bar graph a pre-prime player is under 28, prime is 28-30 and post-prime is above 30. Most teams get the most value out of their roster from pre-prime players. We notice a significant drop off in players surplus value once they enter their post-prime. This is because most players enter free agency at this point and receive contracts that result in little to no surplus value for teams as they receive close to their market values in most cases. This is why it is crucial for small market teams to capitalize on players who are pre-prime. These are the players that teams can get the most value from without having to pay a high premium. From the scatter plot we can see tiers of teams form. In the top right we have high payroll high value teams. These teams like the Dodgers and Yankees have the highest payrolls in the game and still get good value out of them in order to be at the top of the league year after year. In the bottom right we have teams with high payrolls but lower surplus values. These are teams that have older rosters that contend for playoffs each season but wouldn’t be considered teams that are World Series favorites. In the bottom left are rebuild teams. These teams have low payrolls and low value due to their rosters being unproven and up and coming. These are the teams that in a few years we may see shift into the upper quadrants as we see their prospects develop and generate more value. Lastly, we have the top left quadrant which are the most efficient teams. These are mostly small market teams that are able to compete with the top of the league due to the value they are able to get from their roster.
It’s no surprise to see the Rays leading the league in terms of roster value. They have built their roster on young pieces that return high amounts of surplus value. This concept of surplus value and maximizing the value of your roster has dictated a lot of transactions from the Rays. In recent seasons they’ve traded guys like Tommy Pham, Chris Archer, and Blake Snell for younger, more controllable pieces that have resulted in higher surplus values than one player would have given them. Same goes for the A’s and Indians, we have seen them make similar deals. For small market teams to compete this is the blueprint. You must maximize the value out of players while they are under team control, and then flip them for more controllable pieces once they reach their highest value and their surplus value starts to decrease.
While this has been a proven method, with the Rays reaching the World Series last year with their young, talented roster and the A’s and Brewers having been playoff teams over the past couple of seasons, this blueprint for success isn’t necessarily always successful. When trading away top talent you have to hit on the returns you get for these players or else your team is left in a bad spot. A recent example of this is the Oakland A’s with Josh Donaldson during the 2014/2015 offseason. The Blue Jays sent the A’s Brett Lawrie, Sean Nolin, Franklin Barreto, and Kendall Graveman. None of these four players are still with the A’s and contributed a total of 3.6 WAR, while Donaldson went on to win an MVP. The Athletics then missed the playoffs the next three seasons and finished in last place in the division each of those years. For these teams sometimes it’s better to acquire multiple mid-level prospects instead of going for the home run and acquiring one top prospect. That’s the risk/reward that it takes to compete as a small market team and why we see teams like the Rays and A’s be front runners when it comes to analytics and new ways to develop players.
So to bring this back to Cole’s quote, he is on to something. We can see that teams are getting the most value from players early in their careers. That paired with the recent youth movement across the league, teams are more keen to go younger and get players that they are able to get the most value out of. This is the edge that small market teams are after and in return has sent ripple effects throughout the league. More teams look to become as efficient as possible with their payrolls and that has led to push back from the players and agents. With various tactics used by front offices that may not seem good for the game, like service time manipulation and delayed free agent markets, this is something to keep an eye on as we enter the season and the next collective bargaining agreement negotiations to see if any changes are made.
-Projections from FanGraphs, Salary information from Spotrac