It’s been a long time since I’ve been able to write about baseball. I am thrilled to have the chance to post at BP again, and now that I’m back there are quite a few things I’m eager to bore you with my thoughts on. But the thing I’ve been most itching to write about might be a little surprising. It isn’t a new statistical model or a star player or my pride at having said before the playoffs started that the Royals would beat the Orioles in the ALCS. No, I want to talk about Ron Paul.
If you don’t spend much time in the more-inane corners of the internet, it might surprise you to learn that Ron Paul has a massive, semi-but-not-fully ironic cult following. Part of it is that the former Congressman’s libertarian-lite ideology resonates with young people whose outlooks on the world have been shaped by the relative freedom and anonymity of cyberspace; part of it is his eccentric public persona, which many find entertaining; and part of it is that once a meme gains momentum it snowballs in a Hegelian series of evolutions as people propagate it with varying (and often ambiguous) levels of irony.
The Ron Paul meme has spawned countless manifestations: for example, this version of the original Pokémon theme song rerecorded by the original singer with lyrics about Paul will either make your day or ruin your childhood, depending on your political views. The most popular memes involve “The Happening,” the apocalyptic day of reckoning when (for better or worse) the events Paul warned of would come true. Combine that sentiment with this clip from a Presidential debate Paul participated in and you’ve got the makings of a great .gif for whenever something you’re excited about is “happening.”
What does any of this have to do with baseball? Well, if you’ve read just about anything I’ve written in the last year or so, you’ll know that I think the biggest potential for comparative advantage in baseball today is increased investment in front office employees. In short, I have argued that MLB teams should significantly expand their baseball operations departments, be more active in competing for the best prospective employees, and be willing not to adhere to low industry standards for salaries when offering above-market wages would help them hire better candidates.
There’s a lot of work to be done on that front, and we are still far from seeing (what I would consider to be) economically rational demand in the non-player labor market. But at three different points already this offseason, a piece of news has broken that made this image run through my head:
At the risk of reading too much into a handful of data points, I think it’s worth taking a closer look at these white-collar offseason personnel moves and what they tell us about how teams are better understanding the value of their front office employees.
Andrew Friedman to the Dodgers
You knew this would be at the top of the list. This probably isn’t news to you, but shortly after their disappointing NLDS exit the Dodgers relieved Ned Colletti of his duties and lured longtime Rays GM Andrew Friedman to Los Angeles. I don’t know how much he was making in Tampa Bay, but surely the reported five-year, $35 million contract he signed with the Dodgers will pay him many multiples more.
The lede here is the money. Friedman isn’t just the highest-paid baseball operations executive in the history of the sport. His $7 million salary is almost double the then-record $3.7 million per-annum that Cubs President of Baseball Operations Theo Epstein has earned since he left for Chicago in 2011. Friedman will make more in 2015 than all but three players on the Rays’ 2014 roster made last season. And while I assume this is a mere coincidence, Friedman’s new salary is almost exactly equal to my most recent estimate for the price of a win on the free agent market.
I don’t know how much Friedman is worth. On a more basic level, I don’t know where Friedman ranks on the list of best GMs in the game, or how much better (if at all) he is at running a team than Colletti. However, I do think Friedman is one of the top GMs in baseball right now, and thus I do think that he is an improvement over his predecessor. If both of those suppositions are correct, then I have no doubt in my mind that Friedman will be worth his record-setting salary (and then some). And while such a move is not wholly unprecedented, that a team recognized the wisdom of breaking from industry standards and paying what it took to snatch an elite GM away from another team might signal a sea change in the way teams value their white-collar employees.
Beyond the money, the mere fact that a team decided to make a change at the helm is significant in the context of recent history. As Ben Lindbergh noted a few months ago, earlier this season we found ourselves in an unprecedented stretch of GM job stability, it having been almost three years since the last time a top executive had been removed from his position. Yet over the past few months we’ve seen major front office shakeups not just in Los Angeles but in Arizona, Atlanta, Colorado, San Diego, and of course Tampa Bay. It looks like teams are growing less patient with subpar status quos and becoming more proactive in ensuring that the right people are running the show. But the Dodgers’ case is especially noteworthy because they were coming off a generally successful season. That they replaced their GM even after winning 94 games shows how much importance they place on the process—and the guy who’s in charge of it.
I should note that this incident is somewhat ambiguous in what it means about the rationality of the non-player labor market. Unless there was another major side to the negotiations that was kept completely quiet (which sounds implausible to me), Friedman’s only choices this winter were staying in Tampa or going to Los Angeles. In a rational market, we would not have seen 28 of the 30 teams decline to enter the bidding for one of the best-reputed executives in baseball. This is a massive oversimplification of the situation and it relies on several unsafe assumptions, but the scuttlebutt at the time was that the Dodgers hired Friedman because he could win the same number of games as Colletti for, say, $50 million less. If that’s the case, then Magic Johnson & Co. are spending $7 million per year to save $50 million per year, good for an over-700-percent return on investment. That wouldn’t happen in a rational market.
Joe Maddon to the Cubs
In retrospect, one of the biggest things I regret from my earlier work on the undervaluation of front office personnel was my inattention to the field staff. Luckily for the quest for collective rationality, several teams didn’t make that mistake. Maddon reportedly sparked a bidding war for his services after he opted out of his contract with Tampa Bay (in a way that Friedman should have as well) before the Cubs snagged him on a five-year, $25 million deal to make him the highest-paid manager in baseball.
No one knows how much managers are worth. The variation in in-game strategy between MLB skippers is probably worth less than it feels like intuitively, but it certainly exists to some extent. Likely more important is a manager’s effect on team chemistry. Even most sabermetricians now seem to accept that team intangibles have some substantive effect on performance (once you spend enough time in the clubhouse, it’s hard not to), but at least in the public domain we’re still in the very early stages of figuring out just how much it matters.
However, there are two things we do know—or at least, that the baseball zeitgeist seems to believe without much dissent. The first is that a good manager can make his team significantly (if slightly) better. I have a hard time imagining that the good a manager can do is worth more than a couple games a season (though I also think it’s easier to make a negative impact than a positive one), but I know there are many smart people who would say that’s too conservative. The second thing is that Joe Maddon is an excellent manager. Whatever you think the scale is for how much good a manager can do, Maddon is almost certainly maxing it out. The Cubs put two and two together and made what appears to be a very wise investment.
As it presumably was with Friedman, the sticking point for many teams who otherwise might have been interested in hiring Maddon was that they already had incumbent managers. Indeed, many have criticized the Cubs for pursuing and signing Maddon when they already had Rick Renteria, who Chicago had given no indication was on the hot seat. There’s no two ways about this: What happened to Renteria sucks, and on a human level it’s a really crappy thing to do to a person.
But it seems eminently plausible that the difference between Maddon and Renteria is worth (at least) $5 million per season, and in that vein it’s a no-brainer as a baseball move and a business decision. The Cubs recognized that, and they saw a chance to add a valuable asset. I don’t know how many times in baseball history something like this has happened, but before these last few months there can’t be much precedent for a team forcing an incumbent employee out to make room for an external hire when the former had been doing at least an adequate job.
This story too is a double-edged sword in terms of what it means for the non-player labor market at large. A $5 million salary for a manager sounds like a hefty sum, but when teams are paying around $7 million (if not more) per win when they sign players in free agency, this deal looks like a real bargain. If, whether through his superior strategic decisions or his clubhouse presence, Maddon is worth even a win per year to Chicago, he’ll have more than earned his keep. If you believe that the difference a good manager makes is on the order of multiple wins per season, the Cubs wouldn’t have been able to sign Maddon for $5 million per year in a rational market because some other team(s) should have bid up his wages until the cost of hiring him corresponded to his value.
Less important but still relevant to the undervaluation of non-player employees is the criticism Chicago received for hiring Maddon while Renteria was still in the fold. Again, as a personal story, you can’t help but feel bad for Renteria and suspicious of his former employer. But this raises the question: Where was the sympathy for Wellington Castillo when the Cubs traded for Miguel Montero? Or the outcry that Chicago’s signing Jon Lester wasn’t fair to Dan Straily? Whatever it says about our humanity, we accept players being replaced by other players as the norm because we understand that they are differently skilled. Our collective failure to see the same factors at work here underscores our lack of appreciation for the heterogeneity of non-players’ talents.
[Some high-ranking executive] to the Blue Jays
Perhaps the most quietly interesting storyline to come out of the Winter Meetings last week was the Blue Jays’ search for a new team CEO. As of this writing we’ve heard that Dan Duquette, Terry Ryan, Kenny Williams, and Mike Rizzo have been on Toronto’s wish list; presumably there are still more potential candidates whose names have not yet been leaked, and by the time you read this we may have heard more about them. But no matter how this ends, I think the most interesting part of the story will remain the fact that the Blue Jays are engaging in this search at all.
I’ve argued for increased investments in front offices not just based on quality (i.e., Friedman and Maddon) but also on quantity. Aside from my belief that there would be plenty of non-redundant work for a large number of additional employees to do, I think there are substantial agglomeration effects to be gained from adding to the number of smart people in the room when discussions are had and decisions are made.
We don’t know the specifics of what the Blue Jays’ next head executive’s role will be or what his relationship with GM Alex Anthopoulos will be. What we do know is that the names on Toronto’s list are executives with substantial experience in baseball operations, which suggests that the job won’t just be business-oriented. If that’s the case, then it seems the Blue Jays are looking for a baseball heavyweight to be another voice in the room.
The Blue Jays aren’t the only team going down this road. The trend of expanding the baseball operations flowchart upward so that GM is no longer the top spot seems to be gaining steam across the league. It’s often hard to tell from the outside what the chain of command is, but in Arizona, GM Dave Stewart now works for Tony La Russa; in Los Angeles, Friedman has Stan Kasten above him and Josh Byrnes and Farhan Zaidi below; and in Atlanta, John Hart is reportedly mentoring (and keeping the seat warm for) GM-in-waiting John Coppolella while John Schuerholz outranks them both. That's not to mention slightly less recent examples Mark Shapiro and Kenny Williams, who were promoted to make room for internal rising stars, or the numerous former GMs and baseball luminaries with titles like “advisor” and “special assistant” who fill most teams’ front office rosters and make substantive contributions at the highest levels.
There’s nothing novel about experienced baseball guys hanging around the game to mentor the up-and-comers. The difference now is that baseball people seem to be rising to the sorts of positions that would otherwise go to executives with more traditional business backgrounds. As the next generation of baseball executives climbs through the ranks, teams are keeping more of them around at the top levels to accommodate both the experienced industry veterans and the rising stars. So long as this power-sharing is founded on good working relationships, there’s no reason why adding more seats at the table for smart people wouldn’t work to the team’s advantage.
Where do we go from here?
If the Friedman hiring, the Maddon signing, and the growth of upper-level baseball operations hires are indeed illustrative of a change in how teams are thinking about their non-player employees, then we’ve seen some good first steps toward collective rationality. The next question is how long it will take before the rest of the league catches on, particularly in appreciating the value of exceptional employees. That only the Dodgers were known to be seriously pursuing Friedman this winter, and that Maddon’s salary implies he is worth less than a win per year, suggest that most teams still cannot conceive of non-player employees as having significant individual values comparable to those of players. And as Michael Lewis wrote in Moneyball, “What begins as a failure of the imagination ends as a market inefficiency.”
Perhaps the bigger hurdle to overcome in the quest for collective rationality is applying these ideas to lower-level employees. We’ve seen certain teams increase their investments in the big-name hires, both in terms of increasing salaries and adding jobs. But what about the scouts, coaches, player developers, statistical analysts, department assistants, programmers, researchers, medical staff, and anyone else whose work directly affects the team on the field or the efficiency of the baseball operations department? If even the seemingly straightforward and solitary (but by no means easy) task of recommending when to challenge a call can have a substantial impact depending on the skill of the analyst and could be done better with more people working on it, why not work that is more collaborative and open-ended?
Yet to my knowledge no team has ever made a concerted effort to, say, invest in amassing an All-Star squad of the game’s best developmental pitching coaches. Or to bring on a team of statistical analysts to build as many models and answer as many questions about the game as possible—and then debate and critique each other’s results. In fact, the general consensus at the Winter Meetings seemed to be that there were fewer openings with teams than usual this year. So not much has changed on that front.
In the end, I think teams are increasingly appreciating the value of non-player employees. If you’re like me, you see that as a good thing. But there’s still a long way to go.
Thank you for reading
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In general, I agree with your point about teams needing to be open about widening the envelope on administrative hires and spending, but I don't think a linearization of $/win figures is correct.
http://sabr.org/latest/pollis-if-you-build-it-rethinking-market-major-league-baseball-front-office-personnel
Obviously your main point of getting more bang for your buck spending on front offices is still valid.
Three other things to consider:
1. The invisible-hand machinations that set the market for wins are more complicated that saying that there are X wins available and teams have Y dollars to spend. I explained my theory about how the cost of a win is derived here: http://www.baseballprospectus.com/article.php?articleid=23269
2. You can think about it in terms of pure dollar value instead of the cost of a win. So, for example, if the price of a win is P, the best GM in the game might expect to buy wins at .5 * P, while the worst might be paying 1.5 * P. (This same framework could apply to all player transactions.) In that case, the best GM who buys W wins is saving the team .5 * P * W over an average GM and P * W over the worst GM. The point isn't how many wins you're worth, it's how much money you have saved. In a rational, competitive market, teams would bid up the best GM's wage until his salary equals the money he saves.
3. For player developers and coaches, you could also say that they are producing wins, so not all of a player's production should be seen as solely his doing. Say that you've got a great pitching coach who can add +1 WAR to each starting pitcher he works with. So you sign a guy whose true-talent level is +2 WAR, and thanks to the coach he puts up a +3 WAR season. In that case you're getting a three-win player for the price of a two-win player, but a win of that value came from the coach.
Private industry, and in fact in many areas government as well, has flirted with this concept extensively. I now run my own company, with 14 full time employees and 5 or 6 contract guys who don't want to be pinned down to one boutique company in my field. I have a beer for fun now, instead of 6 out of necessity.
Prior to starting my own business, however, I worked for a large jurisdiction government agency involved in property taxes. I specialized in the valuation of commercial and industrial real estate, the money maker for local taxing bodies, and ran the office in that department, the highest paid and largest division because it is where the money was.
A change in elected officials led to a new philosophy, this one where high paid management is more essential to an office (and go ahead and employ this concept to a team, it works) than anything else. The next step in this philosophy, after finding good management, sort of blew my mind, because management tends to breed additional management, and this is a big possible downside to what is happening at least here with the Cubs from what I am hearing.
At one time prior to the change in elected officials , the office where I worked had an elected official and 7 department heads, of which I was one, and 275 employees. Our budget was around $30,000,000, and we did good work for what we had.
This new management breeds success philosophy took hold. Within two years there are 18 top deputies, 30 sub directors, and 40 plus more management. And a total of 473 employees to "present management's vision as it developed and implemented a much better product which ultimately serves the public better."
We went from an efficient organization of overworked but sound management to delivering a camel created by committee. The budget blew up, and the product effectively remained the same. What cost $30,000,000 now cost $60,000,000, and the product ultimately suffered because in reality it is the product on the field, not the product in the office, that mattered.
Sorry again for how long this has been, but I am starting to see a possibility that visionaries such as Theo Epstein may in fact be closet government agents, as it were. Sure, the Cubs have increased on field talent, but over time the voice of a Joe Maddon may in effect end up being just a sound in the creation of a camel, rather than the architect and spokesperson of a good team.
There are obviously big differences. I get that. I am ultimately skeptical, however, that any paradigm shift in the operations of a 150 year old sport will ultimately lead to success. I subscribe to Baseball Prospectus because I love sabermetrics and mathematical analysis. When I see a warning in an article that gory math details are coming I get a boner. That said, Ned Yost, a guy who not only doesn't understand sabermetrics but may in fact not have a working understanding of the game period came within one game, check that one run, of a world series title.
As for overpaying big names, my findings from my earlier research suggested that there exists huge variation in ability and value even among the extremely exclusive group of people with the experience and baseball savvy to become GMs. The replacement level for high-level executives among the group of baseball operations personnel and aspiring employees is obviously quite high, but that doesn't mean that the best ones can't be significantly better and more valuable than their peers.
That is a bold statement to make, yet you make it with such self-assurance that you must have empirical evidence to prove the point. Please share the factual evidence with us.
Thank you.
With regard to baseball executive talent we're not in the Bell tail. Because MLB is competing with the NFL, NBA, and every Fortune 500 company out there. So the differences are more nominal. And near-impossible to spot ahead of time, really.
I'm sure you're proud of your Senior Thesis, Lewie. And justifiably so. But if that's what you're citing as evidence, sorry, but you don't really have any.
Same goes for MLB. You don't know the next Andrew Friedman, or the next Joe Maddon. But when you see them, you hire them for whatever it takes. You hire Nick Saban because you know he's really good. Let Wisconsin and Michigan sift through the rubble to find the next star, the smart teams will just steal them away.
But fine, I'll change from "you really don't have any" to "you really have very little there at all".
Dude, there is nothing about that sentence that fits in comfortably with reality. And you began the post "With regard to baseball players." If that's what you're citing as evidence, you don't really have any, either.
2. "With ...", ???
It is amusing that a logical fallacy is the sharpest tool in your shed. At least you could have maintained a bit of your dignity if you would have admitted here that "I've got nuttin'."