Saturday, March 24, 2007

Quick thoughts on the Cubs

Looking back over my previous post, and thinking about the Sox rotation moving forward, I became very confused over the actions of the Cubs. While I understand the idea of a massively rising market in terms of players salaries and prices (making that Oswalt deal the Astros did even more spectacular, even before he added the apparently brilliant change-up), I am utterly at a loss that they are barely talking to Zambrano. They just threw a Brinks truck at Soriano, who is good but not great, and chucked a bunch of money at some equally mediocre (as in average) players, basically promising all of their satellite radio money to a bunch of guys that make for a good base behind stars but not the vangaurd of a team (save Lee). I think, with the way their team is currently constituted, they need to add another impact bat or two to the lineup for '08 plus another top-flight pitcher in addition to Zambrano. Of course, the only one out there next year with any track record (i.e. not a guy that does well this year in a contract season) is Zambrano. I don't care what he is asking, give it to him.

In a weird way, this is a buyer's market. This is because of all the sticker shock that most teams have had this winter at the deals given out. I don't think this is another year 2000 where everybody goes crazy and the market price will drift down for a few years. I think that, much like in the NFL, the rapid expansion of traditional revenues and new revenue streams will kick up the average salary values excessively. So, as long as you are locking down quality players, you can get someone locked down this year before the rest of the teams come to grips with the fact that the sticker prices are out the window.

Think of it like this, each team is getting something like $10mm in revenue from XM. That means that, on top of regular operating revenue, every team now has an extra $10mm in vault cash sitting around because there are very little expenses for the teams in relationship to the XM deal. Even if owners just pocketed half of that money or put it towards costs and minor league development, each team would apply about $5mm to their major league rosters. So, there is an extra $5mm per year available to spend on players, which we will assume makes it to the major league roster exclusively (which I think is still under the true value, but let's stick with this). So, on the 25 man roster, we would expect an average salary increase of about $200m per player.

However, there is a CBA in place that puts major cost controls on players in their 1st 3 years in the league, plus another 3 arbitration years that somewhat surpress salaries. So, basically, the first 6 years of salary for most players is at best at the league rate for talent (and usually much lower). The majority of players on the major league players fall into this category, as the median career length of the ML players is under 6 years (by a good margin). Also, there are the journeymen and minor league spring-training roster invitees that make low and league minimum-type salaries. So, all things considered, it would not be unreasonable to think that the $5mm per year will be spent almost entirely on the upper third of talent in the majors who are in their 7th year or beyond, and I'm willing to bet that is a conservative estimate. So, if you figure that money is now spread to about 5-8 players per roster (or $600m-$1mm per player).

Okay, so stars are probably going to be bid up by up to a million per year above regular. Doesn't seem too high, right? Well, that will only be the case once prices fully adjust and most teams realize this. In the short run, however, there are very few high quality players on the market, and each team has that $10mm sitting there. So, in the next 2-3 years, there is a surplus of cash for a limited number of players. As such, a smart team would bid a front-loaded contract.

What does this mean? Well, it means the Cubs should (should have?) used that money to lock down Lee (did) and Zambrano (maybe). So what is my point? Well, two things. First, giving Zambrano a contract for the same price as Zito's (remembering that it buys out an arbitration year) would be a good move. Second, the Royal's Meche contract still is probably not a good one because he isn't a top talent.

Short-term disparities in the market mean a smart team will lock-down a top talent.

Alright, spiralled off a bit there, but the point is: if Zambrano ends up anywhere but Wrigley next year, I will call it a poor example of Industrial Organization.


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