January 4, 2010

Ahead in the Count

Service-Time Contracts and Wins, Part 1

by Matt Swartz

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In my last two columns, we discussed when rebuilding teams should sign free agents. Two weeks ago, I explained that teams with outside shots at competing could be doing themselves a favor to sign free agents who would be tradable for prospects at the trade deadline. Several insightful readers pointed out that signing free agents may be a way to work towards improving in the future. I investigated this claim in last week's column, in which I looked at how well free agents who signed multi-year deals performed in subsequent years of their deals. The overwhelming likelihood was that the biggest value from a free agent comes from the first year of their deal; in many cases, they declined considerably after the first year. Thus, the logical next question in my view is how winning teams are comprised. In this article, I grouped each type of player based on their service time-implied contract status, and checked how each team did at getting wins via each type of player.

Before we dig into the results, let's discuss how a baseball player's salary is determined. The rules of baseball contracts are quite unique. Players are initially drafted or signed by their first teams, and their teams then have the rights to their first six years of major-league service time before the players are then granted free agency. For roughly the first three years of a player's major-league career, their teams can pay them the league-minimum salary of a shade over $400,000. After that, they have either three years of major-league service time, or close enough to three years of service time while also being among the better players with similar service time, their teams can take them through the arbitration process. In the arbitration process, they receive salaries that are generally less than the salaries they would receive for one-year deals as free agents. Typically, during their first year of arbitration eligibility, players earn approximately 40-50 percent of what their salary would be through the auction process of free agency. In their second, third, and rare fourth years of arbitration eligibility, players earn between 60-70 percent of what their market salary would be if they were given one-year deals. Once they have accrued six years of service time, players are granted free agency after the season is over, unless they have agreed upon a contract with their teams.

Thus, there are three levels of service time that are relevant for contract status. Firstly, you can have between zero and three years of service time and receive something similar to the league-minimum salary. Secondly, you can have approximately three to six years of service time and receive higher salaries than the league minimum in most cases, but generally receive lower salaries than free agents receive for comparable performances. Thirdly, players can receive their market salaries. For this article, I did my best to group players into these groups and look at how each team did with each type of player. Of course, many players do not fit perfectly into one of these categories. Sometimes players are non-tendered and granted free agency, but if a player with less than five years of service time signs a one-year deal after being non-tendered, their teams still have the right to take them to arbitration the following season, so I group them with arbitration-eligible players. Players who accepted arbitration offers by their previous teams as free agents were still counted as free agents in my study because their choice to accept arbitration was based on their subsequent salaries being at least about as high as they would be as free agents. Players who signed minor-league contracts were still grouped based on their service time because I treated this as teams expecting those players to be worth this type of value (and presumably generating nearly zero wins on average).

Let's begin by listing every team in order of total WARP3 accumulated and breaking down how much they received from players with minimum-salary service time (M), arbitration-eligible service time (A), or free agent-eligible service time (F). I also separated out players who were from Japan or other Asian countries (J) who had less than six years of service time, because teams were still required to bid on these players through the posting process. These players required teams to pay market value, even if much of this market value was received by the posting Japanese team (i.e. Daisuke Matsuzaka was valued at $103 million for six years, but he only got $51 million of this, before even paying his agent anything). After these four categories, I lumped together non-market salaries (NM) from minimum-salary service time and arbitration-eligible service time players, and lumped together auction-market salaries (AM) comprised of free agency eligible service time and Japanese and other countries' players. Then, total WARP3 was listed (T).

Rk by Total WARP3     M    A    F    J   NM   AM   T
1.  Yankees          7.8 10.8 46.3  0.0 18.6 46.3 64.9
2.  Dodgers         15.8 13.6 31.5  0.2 29.4 31.7 61.1
3.  Cardinals        9.0 15.1 32.2  0.0 24.1 32.2 56.3
4.  Braves          19.1 19.3 15.5  2.1 38.4 17.6 56.0
5.  Red Sox         19.2 16.5 14.1  4.5 35.7 18.6 54.3
6.  Rockies         25.4 12.5 12.4  0.0 37.9 12.4 50.3
7.  Phillies         8.0 32.2  9.5  0.0 40.2  9.5 49.7
8.  Angels          19.2 12.7 16.2  0.0 31.9 16.2 48.1
9.  Rays            28.8 10.3  7.9  0.8 39.1  8.7 47.8
10. Twins           13.7 23.6  9.9  0.0 37.3  9.9 47.2
11. Cubs            20.9  0.3 19.0  5.0 21.2 24.0 45.2
12. Blue Jays        5.7 25.2 14.1  0.0 30.9 14.1 45.0
13. Giants          19.3  7.4 16.0  0.0 26.7 16.0 42.7
14. Rangers         20.8 13.5  8.3  0.0 34.3  8.3 42.6
15. White Sox       18.1  2.7 19.4  0.0 20.8 19.4 40.2
16. Brewers         10.9 17.0 11.9  0.0 27.9 11.9 39.8
17. Marlins         10.6 29.0  0.1  0.0 39.6  0.1 39.7
18. Mariners        15.5  7.5 14.0  2.4 23.0 16.4 39.4
19. Tigers           7.8 22.1  9.1  0.0 29.9  9.1 39.0
20. Athletics       26.4  6.4  4.2  0.0 32.8  4.2 37.0
21. Reds            19.5  7.1 10.0  0.0 26.6 10.0 36.6
22. Mets             5.4 13.0 16.9  0.0 18.4 16.9 35.3
23. Diamondbacks    19.5  9.3  6.1  0.0 28.8  6.1 34.9
24. Indians         13.8 13.1  5.5 -0.1 26.9  5.4 32.3
25. Astros           5.0  8.9 16.5  1.5 13.9 18.0 31.9
26. Orioles         16.3  4.8  6.7  1.1 21.1  7.8 28.9
27. Padres          14.5 13.8 -0.1  0.0 28.3 -0.1 28.2
28. Royals           9.4 16.1  1.5  0.0 25.5  1.5 27.0
29. Nationals        9.1  8.7  7.3  0.0 17.8  7.3 25.1
30. Pirates         10.5 10.3  2.6  0.0 20.8  2.6 23.4

Unsurprisingly, the best team in the league in 2009, the Yankees, had the highest total WARP3. However, despite the common perception in the last few years that the Yankees have improved by learning to build on young players, the Yankees had fewer WARP3 earned by players with less than six years of service time than every team in the league other than the Mets, Astros, and Nationals. The Yankees earned more of their WARP3 from free agency-eligible players than any team in the league, with a whopping total of 46.3 WARP3 from their free agents. That is more than the total WARP3 of 20 teams in the 30-team league. This was also nearly 50 percent more than the team that earned the second-most from free agents of any team in the league, the Cardinals, who received 32.2 WARP3 from free agents.

Let's have a detailed look at the rankings of teams by how much they received from free agents and foreign-born players who played in Japanese and other countries' leagues first.

Rk by Auction-Market  M    A    F    J   NM   AM   T 
1.  Yankees          7.8 10.8 46.3  0.0 18.6 46.3 64.9
2.  Cardinals        9.0 15.1 32.2  0.0 24.1 32.2 56.3
3.  Dodgers         15.8 13.6 31.5  0.2 29.4 31.7 61.1
4.  Cubs            20.9  0.3 19.0  5.0 21.2 24.0 45.2
5.  White Sox       18.1  2.7 19.4  0.0 20.8 19.4 40.2
6.  Red Sox         19.2 16.5 14.1  4.5 35.7 18.6 54.3
7.  Astros           5.0  8.9 16.5  1.5 13.9 18.0 31.9
8.  Braves          19.1 19.3 15.5  2.1 38.4 17.6 56.0
9.  Mets             5.4 13.0 16.9  0.0 18.4 16.9 35.3
10. Mariners        15.5  7.5 14.0  2.4 23.0 16.4 39.4
11. Angels          19.2 12.7 16.2  0.0 31.9 16.2 48.1
12. Giants          19.3  7.4 16.0  0.0 26.7 16.0 42.7
13. Blue Jays        5.7 25.2 14.1  0.0 30.9 14.1 45.0
14. Rockies         25.4 12.5 12.4  0.0 37.9 12.4 50.3
15. Brewers         10.9 17.0 11.9  0.0 27.9 11.9 39.8
16. Reds            19.5  7.1 10.0  0.0 26.6 10.0 36.6
17. Twins           13.7 23.6  9.9  0.0 37.3  9.9 47.2
18. Phillies         8.0 32.2  9.5  0.0 40.2  9.5 49.7
19. Tigers           7.8 22.1  9.1  0.0 29.9  9.1 39.0
20. Rays            28.8 10.3  7.9  0.8 39.1  8.7 47.8
21. Rangers         20.8 13.5  8.3  0.0 34.3  8.3 42.6
22. Orioles         16.3  4.8  6.7  1.1 21.1  7.8 28.9
23. Nationals        9.1  8.7  7.3  0.0 17.8  7.3 25.1
24. Diamondbacks    19.5  9.3  6.1  0.0 28.8  6.1 34.9
25. Indians         13.8 13.1  5.5 -0.1 26.9  5.4 32.3
26. Athletics       26.4  6.4  4.2  0.0 32.8  4.2 37.0
27. Pirates         10.5 10.3  2.6  0.0 20.8  2.6 23.4
28. Royals           9.4 16.1  1.5  0.0 25.5  1.5 27.0
29. Marlins         10.6 29.0  0.1  0.0 39.6  0.1 39.7
30. Padres          14.5 13.8 -0.1  0.0 28.3 -0.1 28.2

This list definitely looks similar to the overall win total list at the top, but many of the other top teams earned their wins from players not bid on through the free agency or posting processes. The Phillies, despite being among the top 10 in overall payroll and seventh in overall WARP3, were only 18^th in how many WARP3 they received from free agents. The Astros were somehow seventh, despite not being competitive at all this year.

Looking at the rankings by WARP3 totals of teams with non-market salaries, we see that these rankings look quite different.

Rk by Non-Market      M    A    F    J   NM   AM   T
1.  Phillies         8.0 32.2  9.5  0.0 40.2  9.5 49.7
2.  Marlins         10.6 29.0  0.1  0.0 39.6  0.1 39.7
3.  Rays            28.8 10.3  7.9  0.8 39.1  8.7 47.8
4.  Braves          19.1 19.3 15.5  2.1 38.4 17.6 56.0
5.  Rockies         25.4 12.5 12.4  0.0 37.9 12.4 50.3
6.  Twins           13.7 23.6  9.9  0.0 37.3  9.9 47.2
7.  Red Sox         19.2 16.5 14.1  4.5 35.7 18.6 54.3
8.  Rangers         20.8 13.5  8.3  0.0 34.3  8.3 42.6
9.  Athletics       26.4  6.4  4.2  0.0 32.8  4.2 37.0
10. Angels          19.2 12.7 16.2  0.0 31.9 16.2 48.1
11. Blue Jays        5.7 25.2 14.1  0.0 30.9 14.1 45.0
12. Tigers           7.8 22.1  9.1  0.0 29.9  9.1 39.0
13. Dodgers         15.8 13.6 31.5  0.2 29.4 31.7 61.1
14. Diamondbacks    19.5  9.3  6.1  0.0 28.8  6.1 34.9
15. Padres          14.5 13.8 -0.1  0.0 28.3 -0.1 28.2
16. Brewers         10.9 17.0 11.9  0.0 27.9 11.9 39.8
17. Indians         13.8 13.1  5.5 -0.1 26.9  5.4 32.3
18. Giants          19.3  7.4 16.0  0.0 26.7 16.0 42.7
19. Reds            19.5  7.1 10.0  0.0 26.6 10.0 36.6
20. Royals           9.4 16.1  1.5  0.0 25.5  1.5 27.0
21. Cardinals        9.0 15.1 32.2  0.0 24.1 32.2 56.3
22. Mariners        15.5  7.5 14.0  2.4 23.0 16.4 39.4
23. Cubs            20.9  0.3 19.0  5.0 21.2 24.0 45.2
24. Orioles         16.3  4.8  6.7  1.1 21.1  7.8 28.9
25. White Sox       18.1  2.7 19.4  0.0 20.8 19.4 40.2
26. Pirates         10.5 10.3  2.6  0.0 20.8  2.6 23.4
27. Yankees          7.8 10.8 46.3  0.0 18.6 46.3 64.9
28. Mets             5.4 13.0 16.9  0.0 18.4 16.9 35.3
29. Nationals        9.1  8.7  7.3  0.0 17.8  7.3 25.1
30. Astros           5.0  8.9 16.5  1.5 13.9 18.0 31.9

The Phillies led the league in this category, with a total of 40.2 wins from players with less than six years of service time. However, despite the Phillies' high total in this category, they were better than only five other teams in the league in WARP3 from players with less than three years of service time. If there was ever a team in a situation where their team was about to get much more expensive, it is the Phillies, who will see Joe Blanton and Jayson Werth reach six years of service time after 2010 and then Ryan Howard, Jimmy Rollins, and Shane Victorino will all do so one year later.

Interestingly, the second-, third-, and fourth-ranked teams in this category all fell out of playoff races despite putting up strong seasons. The Marlins showed that they did not believe it would be profitable to spend on free agents, even though it was clear that a few signings would have put them over the top. The Rays also were not free spenders, and clearly would have been closer to competitive had they done so. The Twins managed to sneak into the playoffs despite few WARP3 earned by players who had reached six years of service time because they got such a strong contribution from players with less than six years of service time.

The teams that are the most concerning are teams like the Astros, Nationals, and Pirates, who are all rebuilding and yet have a small foundation on which to build. The Pirates have taken steps to get young recently, tossing out the majority of their roster over the past couple seasons, but they are still far away, even though they are likely on the right track. However, the Astros continue to behave like a competitive team who need just a few more wins to get them over the hump despite having a small foundation on which to build. Even a very high salary total would not have made the Astros competitive.

The key to winning still seems to be having more money. The correlation between the percentage of WARP3 earned by players with at least six years of service time and total WARP3 received was +0.52 (and -0.52 naturally for the percentage earned by players with less than six years of service time). Even removing the anomalous Yankees from this data, the correlation still remains strong at +0.39. The correlation between total WARP3 earned by each of those two broad subgroups is -0.30, which means that teams are clearly specializing, but the fact that teams with more of their talent from players with less service time are doing relatively worse indicates that it is still better to be rich than clever at this stage. Perhaps no team has become a symbol of being cheap but clever than the Athletics, who were second only to the Rays in WARP3 accumulated by players with less than three years of service time. However, they still finished in last place in the AL West. Of course, the other three teams in their division were all in the top half in this category as well.

Overall, these tables should paint a better picture of how teams become winners and what needs to happen. Every winning team received at least some wins from their young players, and approximately two-thirds of all WARP3 were earned by players with less than six years of service time. However, this needs to be supplemented by free-agent talent at some stage to push most teams over the hump into the playoffs. Teams like the White Sox and Cubs did well with writing checks, but they received too little support from their systems, and teams like the Marlins and Rays were unable to put themselves into the playoffs despite a host of young talent. The lesson for rebuilding teams should be this: scout and develop with the best for several years and save your money; you will need it later.

Matt Swartz is an author of Baseball Prospectus. 
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