March 14, 2011

Ahead in the Count

Battle for the Beltway

by Matt Swartz

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This past month, I moved back up I-95 from Washington to Philadelphia, where I’d spent all but the previous eighteen months of my life. There has been only one major-league franchise in the City of Brotherly Love since the Athletics forsook Philly in 1955, but as I discovered during my sojourn in the District, many baseball fans in the DC area have been torn between the Baltimore Orioles, for whom many of them grew up cheering, and the Washington Nationals, who emigrated from Montreal in 2005. Neither team has been good during their years of geographic coexistence, and the metropolitan area has not seen a playoff game since 1997, but both teams have slowly begun to develop the young talent necessary to compete. Although animosity stemming from Orioles owner Peter Angelos’ opposition to a Washington franchise has cost the O’s some fans, many in the DC area have yet to determine their allegiance.

However, short-sighted moves have plagued both franchises in recent years. Many rebuilding teams get sidetracked with moves that serve only to move them from 65 to 70 wins, but in the Baltimore-Washington area, these transactions can be particularly costly. When the Phillies spun their wheels making short-term-oriented moves in the mid-1990s, there was nowhere else for Philadelphians to turn. While it took over a decade for the team to return to the playoffs, Phillies fans were ready to jump back on the bandwagon when their club proved successful. The Nationals and Orioles do not have this luxury—if one starts to succeed, the other might very well lose some portion of its potential fan base. With two teams fighting over one market, plenty of spoils await the first to succeed, but paradoxically, the one that sucks up some losing now might stand to gain the most in the long run.

Since repeated last-place finishes are not good for job security and the fruits of a slow rebuilding process may not go to the patient general manager who sacrificed small improvements in the standings for a future pennant, GMs of weak teams are naturally tempted to splurge on the free-agent market to improve their rosters, even when they know that quick patches will not help them make the playoffs. However, the owners of those teams would be better served by employing GMs who stay the course and build real contenders without succumbing to the temptation of counterproductive short-term improvements. The real money in baseball comes from the revenue generated by putting a team in the playoffs. This has been demonstrated empirically many times, and clubs generally behave in a manner consistent with those findings. Most of the money spent on free agents is dispensed by teams on the cusp of making the playoffs, and teams that are close to contention generally increase their spending in pursuit of these potential gains in revenue.

In recent years, both the Nationals and Orioles have been prone to moves intended only to keep them out of the cellar, with little hope of additional upside. After finishing in last place with the second-worst bullpen ERA in the American League in 2009 (with 22 blown saves to match), the Orioles signed Mike Gonzalez to a two-year deal. The $12 million price tag was not the only cost, though the cash could have been better utilized at a point when they might have had enough talent that further spending could conceivably have brought their fans a division title. The additional cost was the 53^rd pick in the 2010 draft that the Orioles surrendered to the Braves. This pick is generally worth about two wins, because the player drafted will produce without being paid at a market rate until he accumulates six years of service time. Even with Gonzalez in Orioles orange, the team again finished second-to-last in the AL in bullpen ERA the following season.

No team can compete without young talent. In an article last season, I broke down how much WARP came from players with different amounts of service time. Only a third of all wins were generated by players who had reached free agency, and only the Yankees would have reached .500 with just these players and replacement-level players filling out the rest of the roster—in fact, only five teams per year from 2007-09 had enough AM WARP (or “Auction Market” WARP) to avoid 100 losses with only replacement-level players filling out their other roster spots. Every other team in the league needed a substantial contribution from players it drafted, so every time a team like the Orioles signs a Type-A free agent, it surrenders a couple of wins from its next competitive team.

The Gonzalez deal was not an isolated incident. The Orioles lost their second- and third-round picks in 2007 after signing Danys Baez and Chad Bradford, respectively, and their second-round pick in 2006 after signing Ramon Hernandez. Brian Roberts would have been a Type-A free agent after the 2009 season and could have netted the Orioles two draft picks (including a sandwich pick), but instead they signed him to an extension before he reached free agency. Melvin Mora would have been a Type-A free agent after the 2006 season and could have netted the Orioles two picks as well, but they signed him to a three-year extension. That adds up to eight picks in five years that could have turned into productive youngsters alongside Adam Jones, Matt Wieters, Nick Markakis & Co. on the next contending Orioles team.

The Nationals are guilty of the same tactics. This offseason, they handed Jayson Werth a seven-year, $126 million deal, in the process surrendering the 66^th pick in the draft. Not only could that pick have generated multiple wins in the future, but seven-year contracts are usually worthwhile only for competitive teams because players signed to such deals are generally worth more than their salaries over the first halves of the deals and less on the back ends. Striking a Faustian bargain in exchange for savings over the first half of a deal makes sense for a team that's putting together the pieces of a championship contender, but the Nationals have signed up for a likely overpay during the period when they might hope to be competitive.

General Manager Mike Rizzo has defended the deal on the grounds that he’s making Washington a palatable destination for future free agents by showing a commitment to winning, but actually winning would serve the same purpose. If the Nationals develop a core of young talent built around Ryan Zimmerman, Stephen Strasburg, and Bryce Harper and begin to push towards .500, free agents will take notice. My article last year also showed that many teams enjoyed sufficient contributions from their pre-free agency players to approach .500, but required free agents to get past that point. Setting a rebuilding team back by forgoing draft picks that could turn into young talent and tying up funds that could be budgeted more effectively elsewhere isn’t likely to make free agents feel warm and fuzzy inside. If a move like signing Werth had made it easier to lure other potential talent to DC, that could have changed the calculus, but the Nationals still failed to lure a top starter as they intended to do this offseason, despite the early inking of their new right fielder. The hypothetical cost they should have considered was not the need to overpay for free agents in the future, but the pair of wins they cost themselves on average by surrendering an early second-round pick.

More minor moves have also set these teams back this offseason. The Orioles spent $8 million on Vladimir Guerrero (after signing Miguel Tejada to a $6 million deal last winter). The Nationals signed Jason Marquis to a two-year, $15 million deal for 2010-11, and Adam LaRoche to a two-year, $16 million deal for 2011-12. None of these moves pushed the team in question into contention. If anything, such acquisitions only weakened their draft positions, making it that much more difficult to compete in the future. Moving down in the draft is not as costly as surrendering a pick altogether, but Vladimir Guerrero and Adam LaRoche are not going to turn their divisions upside down. With Balitmore projected by PECOTA to reach .500 for the first time in 15 years, one might argue that the Orioles were wise to import veterans, but worshipping the Golden Half is no way to build an enduring winner. Without Guerrero and Lee, the Orioles would be projected to go 77-85, which amounts to the difference between a 50 percent chance and a 30 percent chance of reaching .500. And even with the pair of signings, they have just an eight percent chance of reaching the playoffs.

This is not to say that the Orioles—or any team, for that matter—should tank the season entirely. The O’s should be applauded for moves with multi-year implications, like trading for Mark Reynolds, who is just entering his prime at 27, with four more years under team control. He could be a part of the next contending Orioles team that retakes a fan base flirting with the Nationals. The issue that Orioles fans should have with management is when a player is signed that pushes the team toward .500 in 2011 while detracting from its ability to compete in 2013 or 2014. If the team is going to try to follow its market companion’s plan to “show a commitment to winning,” moves such as trading for Reynolds represent the best way to do that.

Since Washington entered the market, neither team has fared well when signing free agents. The following table breaks down the cost in dollars and draft picks and the wins added by each free agent recently signed from outside either organization and paid more than $5 million. (Thus, it does not include extending one’s own potential Type-A free agents, which carries a higher cost in draft picks because teams forgo a sandwich pick on top of a pick transferred directly from the player’s would-be employer.)

So far, these acquisitions have combined to amass 31.4 WARP at a price of $186.1 million and about twelve wins’ worth of draft picks worth another $60 million. Those twelve wins in the future could easily generate a playoff appearance that would add more revenue than the 31 wins added to bad teams (especially when supplemented with $186 million of spending money).

Nate Silver investigated whether revenues of teams in the same geographic market correlate with each other and actually found some evidence of a positive relationship in Los Angeles and New York to go along with neutral relationships in Chicago and the Bay Area. However, the most compelling reason he cited was the substitution effect, whereby baseball fans cannot find tickets to sold-out games in one stadium and choose to visit the other. This is not a problem in Washington or Baltimore, where neither stadium regularly approaches full capacity.

Additionally, each of the four markets that Silver looked at has housed at least one good team (and often two). There is no precedent for a market with two teams failing to finish over .500 for six years in a row. The closest has been Chicago, where both teams finished under .500 three years in a row from 1986-88, and the Bay Area in 1983-85 and 1994-96—and many of those teams flirted with .500. There has never been a market featuring a pair of teams as consistently outmatched as the Nationals and Orioles. In the other four two-team markets, there has been only one non-strike season in which both teams failed to win 70 games (Chicago in 1949). That has been the case for three years running in the Baltimore-Washington market, wherein fans are up for grabs to an unprecedented degree.

While signings such as those listed above may attract a few fans in the short run, both of these teams have struggled to fill their stadiums even halfway in recent years. The Nationals played at only 54 percent capacity in 2010, and the Orioles checked in at only 44 percent capacity. The number of fans that either team has stolen from the other by pursuing its recent short-sighted strategy pales in comparison to the gains that either could realize from putting together a contender. In the last decade, the two World Series winners with the largest spikes in attendance from the year before their championship to the year after were the Angels and the White Sox, both of whom hail from competitive two-team markets: the Angels saw their attendance increase from 24,703 per game in 2001 to 37,330 in 2003, while the White Sox saw their attendance increase from 23,834 in 2004 to 36,511 in 2006.

It is also worth noting that teams in northeastern urban markets of equivalent size, such as the Phillies and Red Sox, sell tickets at nearly twice the price that the Nationals and Orioles charge, which means that if they sell twice as many tickets, they can quadruple the less popular teams’ revenue from attendance alone. That is the upside to putting together a championship contender. The downside is causing some fans to doubt your commitment to winning, but even the Pirates and Marlins—two teams whose meager spending has raised eyebrows—have averaged roughly 19,000 fans per game over the last two years, only slightly fewer than the 22,000 fans that both the Nationals and Orioles have drawn on average over the same period. The perils of potentially appearing apathetic until rebuilding comes to fruition don’t figure to harm either team dramatically, but the benefits could be on the order of a four-fold increase in revenue. The patient approach is not fool-proof, and the extra picks could flame out, but historically there has been greater economic upside to playing for the future than prematurely outbidding teams willing to pay a premium to win now.

Winning is how baseball teams generate significant increases in revenue, and building with draft picks is the best way to jumpstart that process. Free agents can supplement a homegrown core, but I have shown before that free agents signed from other teams tend to age very poorly, which makes awarding multi-year deals to outside free agents a poor means of building for the future. That’s not to say that the Orioles and Nationals should start trading away potential contributors to future contenders like Markakis and Zimmerman, but they should not be outbidding teams for decaying assets on the basis of the publicity that derives from making a show of attempting to win.

Some teams do not suffer from a fundamental misunderstanding of the importance of draft picks. The Rays have ten of the first 75 picks in the 2011 draft all to themselves, and those picks represent significant expected value in the future: approximately 21 wins above cost, according to my WARP-based interpretation of Sky Andrecheck’s Draft Pick Value Calculator, and 17 wins added above the value of the two turns they would get without draft-pick compensation. The Nationals and Orioles may be costing themselves only two wins at a time, but money allocated toward making the present just a little less awful is not in the best interest of the fans. While the Rays aren’t rebuilding in the traditional sense, a strategy aimed at adding draft picks and international free agents is what gives a team a solid NM WARP base to which it can add free-agent talent later. Is there risk associated with draft picks? Of course, but the range of potential outcomes extends in both directions. The Rays could draft well and end up with 35 wins from these picks, or they could end up with seven. The Orioles and Nationals can expect approximately two wins per pick, but each pick could be a potential bust (picks from the first two rounds make the majors about 50 percent of the time) or an all-star waiting in the wings.

Fans may claim that they enjoy seeing a 70-win team more than a 65-win team and that that difference justifies short-term-oriented signings, but they show with their wallets that they don’t pay much more for the privilege; the cash really starts to flow only when teams reach playoff contention, and in this market, playoff contenders have been few and far between. Neither MLB team has been successful for a long time. The NBA’s Washington Wizards and the NFL’s Washington Redskins aren’t strong either, and while the Washington Capitals are decent, the NHL is an afterthought for most American fans. In Baltimore, the Ravens have been good, but they’re the only other sports franchise in town. The area I leave behind is full of fans looking for a team on which to lavish money. Unlike other franchises that apply self-defeating roster band-aids, these two teams are in direct competition for the affections of the local fans. The first to sacrifice the present and make a real investment in the future could make inroads that the other may never erase.

Matt Swartz is an author of Baseball Prospectus. 
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