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Free agents: Stop worrying about the money

The instinct is to question free agent contracts on the basis of duration and salaries, but the game's new economics require a new approach.

Bob DeChiara-USA TODAY Sports

Christmas has come early this offseason for several free agents who signed their contracts before they even got their Thanksgiving turkeys out of the freezer. Instead of spending the next several weeks (or months) with the nagging reminder that they have no idea what city to forward their mail to next season, eight of this year's top free agents can sit back and eat their cranberry sauce and mashed potatoes unencumbered by uncertainty. Their fates have been determined.

If it seems like free agent signings are happening at a much earlier than usual, it's because they are. At this point last year, just one of the consensus top ten free agents -- B.J. Upton (try saying "top free agent B.J. Upton" without laughing now that you have the benefit of hindsight) -- had signed a contract. This year, once again only one of the top ten players has signed, with Brian McCann signing a five-year, $85 million deal with the Yankees on Saturday, but other free agents are flying off the shelves as teams rush to finish their shopping early. Of the top 30 free agents this offseason, eight have signed deals; at this point last year, just four had signed. By the end of last November, seven players had signed deals, and three of them (Hiroki Kuroda, Mariano Rivera, and Jeremy Guthrie) had re-signed with the same team. Aside from Carlos Ruiz, who will remain with the Phillies, all of this year's signees have lit out for new teams.

There is no Biblically-sanctioned way for the offseason to proceed, but if it feels to you like the pace is off, that the deals we've seen are more typically consummated during or in the immediate wake of the winter meetings, you are not alone. Perhaps the influx of signings is just a coincidence. It could be part of a conspiracy by general managers who are so excited by the prospect of December in Orlando that they are turning in their work early because they would rather don Mickey Mouse ears and ride Space Mountain than handle negotiations. The truth, though, is the opposite of a conspiracy, a spontaneous outpouring of surprisingly rational exuberance inspired by the game's ever-increasing wealth and the way it has deformed our traditional understanding of the game's competitive ecology.

It's natural to have a gut reaction to every free agent signing; it's also natural to want to share that opinion with others. Given the astronomical amounts of money involved, the temptation to engage in furious finger-wagging and head-shaking while shouting, "THAT'S TOO MUCH MONEY! Soooo much money" and they don't have to look far to find people that agree with them. There is something about a baseball contract that weaves a pernicious magic that turns otherwise calm and balanced people in whiny, screeching scolds who roam the back alleys of the Internet prophesying the end of days. But it's a broken-record response not rooted in reality. The current state of the game is far more complex than a simple binary response -- good bargain/overpaid -- allows for.

While general managers no doubt appreciate those warnings of looming Ryan Howard or Barry Zito-style contract disaster that they are somehow too blind to see, they are working within a looser set of financial boundaries than any time in the history of the game.

Organizations will sometimes make terrible free agent signings not because they are inept, but because they are dealing with imperfect information. While some front offices are undoubtedly smarter than others, there's an erroneous leap in analysis that equates skyrocketing salaries with a lack of due diligence. If it seems like players are getting too much money, it's because dollars aren't the right barometer for determining a player's value; the conditions of free agency have changed, and looking at every signing through the narrow scope of Benjamins-tinted glasses doesn't adequately contextualize how decisions are being made.

Joe Sheehan recently noted that one of the first things he learned about baseball was that the money mattered because of opportunity cost. Teams had finite budgets, and signing Player A meant that they couldn't sign Player B and that, "this was particularly relevant in judging the efficacy of long-term contracts, which generally included higher salaries as players aged." It's the way that everyone learned to evaluate players traditionally: looking at salary, their performance, and the years on the contract. Sheehan, however, hypothesizes that because of the improving cash position of baseball organizations who are getting wealthier from a variety of sources (new local television deals, national television deals, revenue sharing, and operating income) that basing an evaluation that the money spent on players when judging good and bad contracts is irrelevant.

Mccann_mediumBrian McCann ( Kevin C. Cox )

By Sheehan's calculations, there is roughly $525 million:

"burning holes in 30 pockets right now, money that can be banked as profit, as in Houston and Miami; used to pay down debts generated outside of baseball, as in Queens; or thrown at ballplayers. Teams can say anything they want about what they can and cannot afford, but merely looking at revenues, it's clear that MLB teams aren't coming close to spending what they can reasonably spend on payroll. This doesn't even factor in the ability to borrow against ever-rising franchise values (or RSN values) to generate cash. At least ten teams are estimated by Bloomberg to be worth more than a billion dollars."

Given the somewhat recent of influx of cash from television deals that could bring roughly $25 million to each team per season thanks to the ESPN, FOX, and TBS deals that cover 2014 to 2021, teams have seemingly grown money trees overnight. Because of the cash, teams can be concerned with two numbers when considering free agents: the team budget and the luxury tax, both of which are fungible. A team's budget for player salaries may seem like a concrete thing, but it's just an arbitrary number, an ideal target. For some teams that number may be $80 million and for others it may be $180 million, but it's important that we don't confuse what a team is willing to spend and what they are capable of spending. There are plenty of good reasons for teams to budget and forecast their expenses appropriately, but a lot of spending decisions aren't based solely on the budget, but also how competitive their team will be. In situations where teams perceive their chances as a free-agent signing away, they might opt to exceed their budgets or even the luxury tax to sign players (and they should). If the marginal cost of winning is, say, $15 million per season for additional help and it's the difference between playing or vacationing in October, most owners would be convinced to open the vault.

If money has paradoxically little value when it comes to evaluating free agent contracts, it still speaks loudly for the recipients of those contracts themselves.  Between the increasing tendency of teams to buy out a player's early free agent years, thus preventing some of the best from ever reaching the market and the perpetual shortage of good players at positions like shortstop and catcher, the competition for free agents has intensified.

Add to this the fact that all teams have more money, thus putting almost everyone on equal footing. Teams don't have identical payrolls and cash, but there's enough money in every organization now that all teams are in the same position to spend the same sum of money on any given player. This is the real explanation for why so many signings (including players who sign contract extensions and don't ever hit the free agent market) are happening early. Players at the very top of the market like Robinson Cano will probably always take longer to sign, since the $30 million per season asking price is going to take a very special buyer, but players like Jhonny Peralta (who just signed a four-year, $52 million contract with the Cardinals) are far more susceptible to being the subject of an impulse buy. In evaluating deals, the biggest obstacle now is that we have the price of a win set too inflexibly in our minds, when really the salaries can be scaled up exponentially to match the new influx of money without ill effects. Think of it as a loose application of Parkinson's law; expenses rise in lockstep with income. Is it really a big deal if Peralta is earning five percent more than most expected if the pie itself is 25 percent larger than it used to be?

Cano_medium Robinson Cano(Jonathan Daniel )

If we focus less on money, it's logical that a player is worth more to a playoff team than he might be to the Astros. A team like the Cardinals, who have a cheap rotation and are at the peak of their win cycle, can spend money in other areas -- like signing Peralta -- because even if they are overpaying in a general sense, in a specific sense, he's still within their means and could turn one of their weakest positions into an asset. In addition, Peralta also didn't receive a qualifying offer from Detroit, which means that the Cardinals won't have to give up a draft pick, which could prove valuable to a team that has a great track record for identifying and developing young talent.

Add to this new financial parity the additional pressure of positional scarcity and you have a recipe for teams trying to jump out or get shut out. For positions like catcher (where there are two good options and two others considerably overvalued) and third base (where the average free agent is 35 years old, and Juan Uribe is at the top of his class), it's buy now or be subjected to another season of replacement-level mediocrity instead. The fear of missing out on elite talent is forcing teams to try to strike a deal while the other teams are still sleeping. Even if it requires what some would traditionally consider "overspending" in terms of dollars or years to work out a deal, with a thin pool of talent, sometimes it's necessary to contextualize roster augmentation in terms of production and output instead of what it took to sign them.

It's rare to think of the organizations themselves as more progressive than the people evaluating them, but that's becoming the case with money. That's partly because it's difficult to fully comprehend a team's operating budget without taking a look at the financial statements, but even though it's difficult to pin exact dollar amounts on operating budgets, it's safe to take it on faith that most teams have enough money and thus we should stop sweating it, especially when it appears that so many of the organization have already. Of course there's a limit to all of this; we've seen teams end up in dire financial straits through mismanagement and ineptitude, but the money that teams have to spend is going to continue to grow as long as the sources of income like television deals and revenue sharing continue to multiply.

One of the really depressing developments of post-strike baseball is that the owners have made the sport of contract-watching as much a part of baseball as the game itself. Thus far, they've been successful in their brainwashing, in convincing people that these arbitrary spending limits are real, that opportunity cost is still tied to the dollars, and that worrying about the checkbook of others is the only gauge of a team's chances. It's time for us to stop being so gullible. All of the money in the game means we can look at free agent signings and trades as baseball moves first and financial moves second. Teams can afford it. They may continue to try to convince you otherwise, but it's your responsibility as a fan not to fall for it.

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