02 February 2010
For the most part, owners of MLB teams are very wealthy individuals. Quite a few owners, in fact, possess hundreds of millions of dollars in addition to what they have invested in the team. They could buy up an entire roster of free agents, if they wanted. Because of this wealth, millions of fans become frustrated when a free agent they feel could have helped the club signs with another team. For just a few million dollars, some fans reason, the owner could have improved his team.
Simply improving a team, though, isn’t the only objective for an owner. Baseball is a business, where fortunes are both won and lost. Successful owners make money through their team and re-invest that money to further improve the team.
An owner’s purpose is not to simply win games. If a free agent can bring a team three additional wins, but cost more money than he brings in, very few owners would make the signing.
Based on data provided by the Cleveland Indians of the late 1990s, Nate Silver found in “Baseball Between the Numbers” that one additional win is worth about $1,196,000. This means that a free agent who is expected to increase your teams’ win total by three should be paid just over $3.5 million. This obviously isn’t the case. On the free agent market, teams have paid anywhere between $4 and $5 million per win because of limited supply, pressure brought about by the start of the season, and millions of fans screaming for a move.
Clearly, unless a team has bottomless pockets, the only fiscally reasonable way to build a team is internally. After reaching the major leagues, most players are under team control for six years before they become a free agent. Because of this, very few free agents are under the age of 28, and almost all are being paid based on past performances, not future potential.
Now, it’s important to realize that the $1.196 million figure I presented above is an average. It will not be the same for all teams. For example, a team on the brink of the playoffs would value a talented free agent much higher than a team that is expected to lose 100 games.
For this reason, accurately evaluating a team is the most important aspect of an owner’s job description. If an owner estimates that his team is capable of winning 85 games next season, he will probably pay more than most other teams on a free agent that could provide him with two or three additional wins. The increase in playoff probability alone would make the extra money spent moot.
Conversely, a team that is expected to win just 65 games will need a lot of help in order to have a chance at postseason play. They wouldn’t want to spend any more than market value for a free agent. If an owner either overestimates or underestimates his teams’ ability, though, he or she could be on the hook for millions of “wasted” dollars.
As a fan, we should remember this before cursing Bill Smith and the team’s ownership for sitting on their hands. If you were put in their position, there’s a good chance you’d be doing the same thing.
They just don’t want to waste money.