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Friday, August 31, 2012

The economics behind that blockbuster deal

Some interesting thoughts about the mega deal.

As Dave Cameron mentioned in his synopsis of the deal, the Dodgers are grossly overpaying for players because the feeling is that now is the pivotal moment for the franchise. The Dodgers’ performance in 2012 and 2013 could be the difference between charting the path to a long-term stranglehold on the massive L.A. market or watching as the Angels surpass them in popularity, revenue, and on-field success. Similar thinking was responsible for the Marlins’ and Angels’ spending sprees this offseason, with the financial implications of their strategies still unclear.

Jim Furtado Posted: August 31, 2012 at 02:01 PM | 16 comment(s) Login to Bookmark
  Tags: dodgers, economics, red sox

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   1. phredbird Posted: August 31, 2012 at 02:36 PM (#4223841)
angels and marlins underachieved, so the gambles have not paid off.

with the angels, there's still time -- maybe.

we at btf and the blogosphere tend to look at these as overpays, but the owners keep doing it. are they really that dumb? they just feel like throwing money around because of elevated testosterone?
   2. bfan Posted: August 31, 2012 at 02:59 PM (#4223875)
I think there is a little bit of Bob Crandell's famous statement (former CEO of American Airlines), when he said "We are always at risk of what are stupidest competitor does". The point being that in any year, it only takes 1 owner, for 1 reason that year, to over-pay based upon current economics, and then that sets the market, for like (and superior players) in coming years.

Example- The Nationals said they over-paid for Jason Werth, to establish credibility in the FA market. That contract then becomes the standard for decent hitting OFs (and something to beat, for great hitting OFs). The Twins over-paid for Joe Mauer because he was a through the system home-town kid, and they had a new stadium and had to put a face on the franchise. That contract then becomes what Brian McCann and other catchers look at, in setting salary demands. The Red Sox over-paid for Carl Crawford because ...(I have no clue why the Red Sox over-paid for Carl Crawford; maybe they just wanted to hump the Rays and put a hole in that line-up?)
   3. Nasty Nate Posted: August 31, 2012 at 03:18 PM (#4223901)
The point being that in any year, it only takes 1 owner, for 1 reason that year, to over-pay based upon current economics, and then that sets the market, for like (and superior players) in coming years.


But it still takes another team willing to pay the market rate that was supposedly set by a big overpay. E.G. Vlad didn't get as good a deal as Manny Ramirez' when he it free agency.
   4. TVerik, the gum-snappin' hairdresser Posted: August 31, 2012 at 03:44 PM (#4223933)
The economics behind that blockbuster deal are as simple as simple can be - the Red Sox made the calculation that the organization would be better off with the minor prospects and salary relief then they would be with these three players contributing on the field. The Dodgers thought the opposite. And one can use money to procure goods and services.
   5. snapper (history's 42nd greatest monster) Posted: August 31, 2012 at 04:06 PM (#4223952)
And one can use money to procure goods and services.

Damn, now you tell me!!!!
   6. Darren Posted: August 31, 2012 at 04:07 PM (#4223953)
I'm sorta with phredbird, the more that I think about it. Revenues keep going waaay up and salaries have lagged. You can calculate that on average teams pay $5-6 mil/per win, but that doesn't tell us what they could pay and still be profitable. Maybe that number is more like $7 to $10 mil. Maybe not, but maybe?
   7. The Chronicles of Reddick Posted: August 31, 2012 at 06:13 PM (#4224063)
And one can use money to procure goods and services.


The story of my sex life.
   8. Walt Davis Posted: August 31, 2012 at 06:55 PM (#4224092)
And one can use money to procure goods and services.

Or you can give it to Darren Dreifort.
   9. Swedish Chef Posted: August 31, 2012 at 07:01 PM (#4224097)
Now that so few quality players hits free agency and opportunities to invest in talent internationally and in the draft have been curtailed, shouldn't we expect the price on talent that hits the FA market to go way up? That in turn should make the team-friendly early lockups unattractive.
   10. Darren Posted: August 31, 2012 at 08:05 PM (#4224117)
Agree with that too, Swedish chef, but I was saying that was going to happen 5-6 years ago. I thought the Torii Hunter deal was going to make the young players perk up their ears and wonder, 'If he can get 5/90 and he's just good, what can I get as a superstar?' But that generally hasn't happened for some reason. I guess the promise of tens of millions guaranteed is too attractive compared to chance to make something like 40% more.
   11. Walt Davis Posted: August 31, 2012 at 08:20 PM (#4224128)
#9/10 -- I raised this as well the other day. I think the agents/players really screwed this up. Everybody's locked up and now a ton more cash is coming in. Based on upcoming national TV deals, Rany threw out the number of $30 M extra per team. $30 M extra ... per team per season. $900 M. No player makes $30 M -- ARod, Pujols and Votto eventually will and I'm not sure there's anybody else over $25. There aren't 30 Pujols out there to spend money on. Even if they tried, there's no way the teams can spend $900 M more in 2013 ... or 2014 ... or 2015.

Sure, laughably, maybe Swisher will become a $22 M man. But that's one guy. Maybe there will be another half-dozen "overpaid" at an average of $18 per. We're only at $130 of that $900 M spent and we're already down to James Loney and Kelly Johnson on the FA list. And of course it's not like Swisher and these guys were making $0 before.

The vast majority of the new TV deal money is going into owners' pockets for at least the next 3-4 years. This is why a sorry franchise like the Padres can sell for $800 M (despite nearly being sold for only $500 M just 2-3 years ago).
   12. Tripon Posted: August 31, 2012 at 09:01 PM (#4224147)
It wasn't even $500, it was $250 million.
   13. Darren Posted: August 31, 2012 at 09:13 PM (#4224155)
Maybe the only way for the players to get a bigger piece is through their labor negotiations with MLB, because for each individual, it's going to be hard to hold out.
   14. Walt Davis Posted: August 31, 2012 at 10:23 PM (#4224193)
Darren, agreed althought that's why God created union solidarity. :-)

The league minimum has to go through the f'ing roof at this point with major raises for 2/3 year service time players. Or possibly move arb and FA eligibility up one year.

Or (gasp!) straight revenue sharing.

None of those will be easy and revenue sharing has been anathema to the Union up until now (well, since it goes hand-in-hand with salary cap).

Really, I tend to think Marvin Miller must be spinning in his barca lounger. There's now a pretty punitive luxury tax such that that the big boys are scrambing a bit to get under it so there's something pretty close to a salary cap. The remaining bits of the reserve system (which possibly Miller could have gotten rid of) are still there and being used effectively by teams. Draft and international draftee caps/slotting (which the Union decided wasn't really their concern from the get-go). And no obvious bank-busting FAs for a while. All while MLB revenues are apparently going through the roof.

I think the Union's been getting its butt kicked for a while now. I'm not sure they could have done a lot about it and there are worse things than getting your butt kicked to the tune of 10/$250 M but I don't see how they're going to keep up in terms of revenue share without some major overhaul of the system.
   15. Walt Davis Posted: September 01, 2012 at 04:43 AM (#4224284)
I think the Union's been getting its butt kicked for a while now.

OK, that's too strong I suppose. But it seems to me that MLB has won some nice concessions the last 2-3 negotiations without the Union getting much of anything in return. Again, while revenues have been going through the roof.
   16. God Posted: September 01, 2012 at 05:13 AM (#4224286)
Darren, agreed althought that's why God created union solidarity. :-)


I'm really starting to regret doing that for the umpires' union, though.

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