Tuesday, August 12, 2008

No Matter What, Crow Will NOT Be Overpaid

In a recent comment I referred to the draft system as a kind of legal collusion. I didn't explain what I meant, and thankfully no nit-picky lawyers were on the site to tell me how wrong I was using that term in that context.

But today Baseball Prospectus's Joe Sheehan wrote the column I would have if I had time and knowledge.

His basic point is that teams have an incredible amount of artificial leverage over their draft picks in negotiations based on the simple fact that the player can only negotiate with one team. Once they're drafted, that team owns their rights, and they can either sign or find another line of work for a year. They can't shop their services to the highest bidder like a hot shot lawyer or MBA grad straight out of school could. The fancy Econ 101 word is monopsony--a market with only one buyer, which drives the prices way down (as opposed to a monopoly, where there's only one seller, which drives prices way up).

In a free market, which is essentially what baseball had in the first half of the 20th Century before Branch Rickey invented the farm system, there would be no draft and teams would just have to bid on amateur players like they do free agents. Imagine what a guy like Crow could get if the Nationals had to bid against the Yankees-Red Sox axis of evil to get him. It wouldn't be tens of millions, but $4-5 million wouldn't even be part of the conversation.

So when you hear Bowden say (and I don't mean to single him out on this, every team talks this way), "We continue to have dialog with Alan Hendricks regarding Crow...But we are not going to give out Major League contracts [to Draft picks]," it's nonsense. He's drawing an arbitrary line between major league players and prospects that has nothing to do with Crow's real value to the team.

Crow's potential and talent has enormous value in real dollars. But because of the fact that amateur baseball players in the U.S. have essentially no rights,
he's not going to get even a fraction of that value until he's earned 3 seasons of service time and qualifies for arbitration. He won't really get his fair market value till he's going into season 7 as a free agent.

Look at the money that gets handed out in the DR for teenagers. You're telling me that a 16-year-old Dominican kid was worth $1.6 million, and a fat, diabetic, fat, below-average-when-healthy, fat DH playing 1B is worth $10m, but a 21-year-old college junior pitcher with the best fastball in all of college baseball according to BA and three MLB-quality pitches right now isn't "worth" $5 million? And you're buying the right to pay him the league-minimum for his first three full seasons in MLB? That's just nutso.

The difference between Smiley and Meat and Crow is that the DR is a free market. FA is a free market. The draft isn't. The Nationals could pay double slot on every first-round pick from here till the end of time, and they'd be getting a bargain.

I don't blame the team for negotiating down to the wire and using all their leverage to save money. There's really no reason not to. But don't believe for one second that there's any scenario in the world that involved the Nationals paying more than they "should." Compared to what Crow would get in anything resembling a free market, he's getting robbed no matter what he gets.

And that's why I've thought all along that it makes no sense that the team would be so cheap that they'd let him walk. They won't let him walk because they're cheap, hard-assed businessmen. They have to know that they're taking the kid to the cleaners at $5 million.

Finally, don't get me wrong. From a distant, moral point of view, pro athletes all make ridiculous salaries. If we paid people according to the value of their work to society, then teachers, trash collectors, and firemen would make millions and athletes would play for tips. But we're not talking about what's right, we're talking about what's fair in the context of a capitalist system where there's huge amounts of money being made from the talent that's being bought and sold.


Sal said...

You know, I really don't like this Crow kid. He thinks he should get paid more than Zimmerman and Detwiler, who were both picked earlier than he was. I wouldn't be too upset if he wasn't signed and we get 2 of the top 10 picks next year cause this is not the kind of kid I'd look forward to rooting for.

Steven said...

Why begrudge him trying to get the best deal he can? He will have no negotiating leverage for the next six years.

Why shouldn't he drive a hard bargain? Would you really do any different in his place?

Steven said...

And by the way, how do you know what Crow wants? It's all unnamed sources with the team leaking this crap, negotiating in public. Seeing the way this team treats its players, and they way they've gone to war with Crow before he even joined the team, well, if I was Crow I'd be wondering whether this is a franchise I want to be a part of.

Dave Nichols said...

that's a well thought out and nicely articulated piece of writing.

i do antitrust litigation for aliving, dealing with issues like this every day. MLB is a congerssionally-sanction monopoly that enjoys protection that no other business in the country does. it's why congress was the correct forum to have the steroid hearings, because it's the only governing body that is over the MLB.

but your points about the athletes in the marketplace are spot-on. the Nats don't have to cave in to Crow, and Crow and his agent will face teh same next year if the Nats don't give him the major league contract, which is what this now is apparently all this is about.

Bad management to give out major league contracts, ask our direct neighbors to the north about those. this time it's not about the money, it's about the type of contract, and the Nats (read: Stan Kasten) is right on this one.

the causal fan won't be able to really grasp the concept, but the educated fan should know what this negotiation is about, so they know which is the appropriate party to blame. this time, it's the player.

that being said, i still think he signs.

Hendo said...

This whole conversation is far more nuanced and reasoned than any other on the subject that I've seen in the Natmosphere.

Including any that I might concoct, which is why I'm leaving it to others to do the concocting. There is always a chance I might learn something (assuming that shutting up, listening and learning are old players' skills ;^D )

Section 222 said...

Excellent post. It's frustrating to hear people blame the kid (or his agent) when all he's trying to do is get the best deal he can under a totally stacked system. If he's successful as a pitcher, the Lerners stand to make millions off his labor and he has no leverage to command anything near the salary he deserves for many years. I hope the Nats come up with enough to make him think it's worth signing with us, but if he walks and rolls the dice on performing well and being drafted higher next year, more power to him.

Thanks for telling it like it is.

Sean Hogan said...

"If we paid people according to the value of their work to society, then teachers, trash collectors, and firemen would make millions and athletes would play for tips."

And Fail-ipe would starve.

Nice work once again. Not sure that I agree totally with what you're trying to say (since, realistically, players are worth more, but they will always be indentured servants for their first 6 years, so it's tricky taking that into account). But nonetheless, Fire Jim Bowden is a daily must-read now.

Anonymous said...

First visit.

Great discussion of Crow's situation.

I posted the below on NJ and NFA.

I think we may be judging Crow entirely by hearsay. JB and unnamed sources attribute various statements or positions to him but we hear nothing directly from either him or his agent. I'm not willing to judge him entirely on the statements of others. I am not a JB hater, but I think we can all agree JB would not cause Diogenese the slightest pause.

I am going to withhold judgement until he either signs (please!) or tells his side of the story.

As for the rest of the draft, I'm pleased with the signing of 2-10 but am a little disappointed with 11, 14, 15 & 20 plus my pipe dream of Silverstein. I consol myself that they may be waiting until the last minute because (I'm begging here) they are willing to go way over slot and want to hide that fact.

Oh, well, so far so good.

Let's play two!

Anonymous said...

To all:
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10:14 Anonymous was


Anonymous said...

A bargain? Maybe. Still TINSAAP.

I'll bet the A's thought they had a "bargain" when they signed a can't miss prospect named Todd Van Poppel.

How about Brien Taylor? The next Sandy Koufax . . . how'd that work out?

If Crow becomes an above average starter, then he would be underpaid.

But what are the chances he will become that? A damn sight less than 100%. The question is: how much of a risk premium do the Nats (and Crow) have to pay?

It's not as cut and dried as you make it out to be.

Mike said...

I don't think Steven is talking about what he'll be going forward at all with this post. I think he's talking about what Crow's value would be on the open market right now if there was no draft versus the Nationals holding his rights for a year. That Crow could be a bust is not relevant to his value right now. If the Nats sign him, they will have essentially bought a lottery ticket, one that would have cost a lot more if all of the teams were competing for the right to buy that.

Steve Shoup said...

Another first rate post, I do agree that MLB does hold all the cards, esp. since they put the compensation pick into the CBA 2 years ago and the signing deadline(though that benefits both parties). And I completely agree that the Nats need to buck up some b/c they honestly can't afford not to. Its not as if he's asking for 8 million, I'd hold the line at $5 mil though b/c beyond that I do feel thats a little much. Where I disagree is that Crow is losing out or any that that its unfair to him b/c he will make a 7 figure payday before even throwing one Minor league pitch, much less one pitch in DC. I think the signing bonuses for players are fair, look at the NFL where Jake Long gets $65 million for never playing a snap in the NFL and players like Faneca who go to multiple Pro Bowls get half that. minor league contracts aren't the best pay day but they are fair, the team pays for alot of expenses and your still talking like 60K a year.

I really think overall the system is fine. Da Meat maybe it was a bad contract but he at least has shown he can hit ML pitching which is something most people can't do (ex. see current Nats roster), staying healthy is another issue but at least he belongs in the majors. Crow is a great prospect but he is not the end all be all. He may never make the majors or just be a solid player, or maybe he will be a 15 game winner for a dozen years. 3-4 million is a pretty solid investment and a nice little chunk of change for a 21 year old. Also my last point for why I favor the MLB system and the 0-3 making league minimum, one the $400K those players make is a good income and without this system 2 things would happen:

1. Small market teams would cease to exist, sure now given the ability to have cheap talent teams like the Rays and Twins can compete, but if they weren't able to give out minimum contacts to their young players or less contracts to guys they sign longterm b/c its based on when they hit FA (Longoria, Shields, Kaz) they could never compete, and mid market teams like the Brewers couldn't compete either if they had to shell out 10 million a year for Hart, and $20 mill for Fielder b/c thats what these guys would get on the open market. It would be an 8 team sport, and everyone else would be just fodder.

2. ticket prices would SKY ROCKET, if teams couldn't fill out there roster with cheap talent and any solid big league player was making the $5 mil we gave LoDuca than the minimum payroll would need to be $100 million and maximum would be $500 million. That burden would be given to us fans.

Steven said...

@Dave: my understanding is that MLB's anti-trust exemption stems from a pretty specious Supreme Court ruling decades ago that found that MLB isn't interstate commerce under anti-trust laws, that essentially a ballgame isn't an interstate business. Seems like if there was ever a serious effort to challenge that in today's game that the exemption wouldn't hold up, but that no one who has standing has ever brought a suit that went that far. Congress should repeal the exemption, though, clearly. A post for another time, but just one consequence of the exemption is that DC didn't have a team for 30 years, which almost surely wouldn't have happened otherwise.

@anon (the one who says "there's no such thing as a pitching prospect ("TNSTAAPP" for the uninitiated)--I don't disagree there's risk, and he could flop totally, but that's true of all athletes. In a free market, teams would bid on talent and potential. There's no guarantee that the investments would all pan out, but Crow would certainly get more if he wasn't forced to negotiate from his knees. His potential and as yet unrealized talent would be priced by the free market far above a single $5m payment.

@shoup--there would be flaws to any system, and your points are well taken. I'm just saying there's no reason for people to be down on Crow. Anyone else would do the same in his situation.

Thanks for the kind words everyone else. The comments are fun.

Steve Shoup said...

I don't want you to think I disagree with you about Crow, He should get the best 'possible' deal, key word being possible. If he wants to go back to college try again next year all the power to him, thats his choice. Though i'd ask him to look at Wade Townsend and see how that worked out for him. My point is i believe the system is fair, fair to the players, fair to the fans, and fair to the team ( the one caveat being the international signings that are free agent signings and don't have as many rules and restrictions). I just feel Crow is a bit unreasonable and it seemed like John Manuel confirmed that as well as other baseball sources in saying Crow's value isn't gonna get higher by going back to school, so he will come off his horse some and sign before the deadline.

Anonymous said...

Why anybody is blaming anybody for anything at this point in time is beyond me. We don't know what Crow has really asked for. The deadline hasn't passed. Nobody has done anything wrong yet.

Regardless of baseball's monopsony, the market for Crow hasn't been set and won't be set until the other college players, from Alvarez to Fields, start to sign.

The analogy with Da Meat Hook is imperfect since he had a track record. Crow does not have a very long one, and none at all at any level of professional ball. Smiley got paid what he got paid for other reasons, such as the Nats establishing a beachhead in the DR. The top 10 picks in the draft seem to be able to negotiate somewhat fair deals (see what Wieters got last year). Below that when they pretty much strictly stay within slotting (which the Nats don't do) you really see the power of the monopsony. I have no doubt that 1) Crow will sign (at the risk of whistling past the graveyard) and 2) he will sign for much more than Smiley, more than Detwiler and possibly as much as Zimmerman.

Would the Sox or Yankees pay more in a free market? Of course. But the argument about the results of a monopsony have to be tempered with rules of competition. Should the NCAA remove limits on the number of scholarships it offers? If they did remove it, would Michigan and Ohio State sign 100 football recruits each year such that Indiana and Minnesota would have trouble keeping within 7 touchdowns of them? It is in the Yankees and Red Sox best interest to have some competition else they become the Globetrotters compared to the Washington Generals. Bad analogy, eh?

Anonymous said...

I really don't think that getting rid of the draft would have any effect on prices. Teams already try to maximize profit and charge as much as the market will bear. The price of a ticket will not go down if Crow doesn't sign nor will it go up if he signs above slot. I also don't think that it would mean the demise of the small market, every team still wants to profit- the Yankees and Red Sox would not sign the 50 best players between them. Look at international signings, the record for biggest bonus paid is held by the A's. A lot of prospects would probably be reticent to sign with a team that was too loaded, and may choose to sign with a small market so that the could get the the majors faster,

OleShu said...

@Dave and @Steven: Just a thought on the anti-trust exemption. Having reviewed the relevant case law dealing with professional sports, I am unconvinced that the anti-trust exemption means (or should mean) anything. MLB is is the business of entertainment and is one of a number of purveyors of this good. Do we complain when other professions offer low salaries as barriers to entry? No. And the reason that a team doesn't lose their draft pick if the player refuses to sign is because, without such protection, players could hold franchises hostage. And this is supported by the fact that the NBA and NFL continue with the same structure as MLB, but do so without the exemption.

As for the market value, we operate on the world market. See the defections from the NBA to Europe as an example. Nothing stops Crow from signing with any professional baseball team -- be that MLB, the Independent League, or in a foreign country. If draft picks exercised these options (instead of signing), perhaps this would improve their ability to negotiate higher signing bonuses.

But say that my dream job is working for ESPN. There aren't many other all-day, everyday sports networks, and that's where I want to work. If ESPN knows that it is my preference (to CNN or a local sports broadcast), they might offer me less than market value KNOWING THAT I WOULD WILLINGLY TAKE LESS TO WORK FOR THEM. The same logic applies.

Steven said...

@Oleshoe--Crow can only sign with the Nationals until next year. He can't sign with another MLB team. That's the difference. It would be like if you wanted to go on ESPN but CNN drafted you and so you couldn't work for ESPN.

Whether this has anything to do with the anti-trust exemption directly, I don't really know, other than that the farm system couldn't exist as we know it without the anti-trust exemption, so that would force MLB to really change their whole player management system. The draft could probably still exist, but as you say players would have more leverage.

Anyway, I'm not a lawyer so I'm sure I'm getting half this stuff wrong.