Maybe free agency isn’t really broken, maybe it is our expectations?

As of this writing Manny Machado and Bryce Harper, the crown jewels of this years free agency crop, remain unsigned. This has generated appropriately expected amounts of internet vitriol of the free agency system and how teams are operating in it. We expect teams to be fighting each other for the rare opportunity to employ star level players in their prime years. Often do teams have a chance to sign star level players, but rarely do they get to do so when they are still 26 years old.

I want to first note, before we get too far, that I disagree with baseball’s free agency requirements. I’ve long since thought that the NHL’s version (27 years old or seven years of playing time) is the best model, though it would need to be modified for baseball (college hockey players have different draft rights and development paths than college baseball players). Teams having control of a player through an artificially manipulated service time system is incredibly not player friendly, and even when they are in the majors they go through a system which is designed to limit their salaries.

But I want to separate the free agency requirements and the actual market for players for this argument. What I’m going to ruminate on is the market itself, not the systematic requirements to reach that market. They don’t have to be mutually exclusive in regards to functionality.

A few weeks ago, Jared Diamond of the Wall Street Journal (or as we in the biz call it ”The Wall”) had a piece about the current state of free agency, in which Bruce Meyer (the MLBPA’s senior director for collective bargaining) said

“It’s become increasingly clear that some clubs are simply using the CBT as a justification for the historic and short-sighted inactivity in the free-agent market”

Sheryl Ring at FanGraphs spoke a little more about the system, the rumor mill, and how the CBT may be a de facto cap on salaries. I think we can all agree that it feels like players have been shut out the past two years, highlighted by the fact that arguably the best two free agents in at least a half decade are still unsigned. But let’s look a little deeper into that.

First, the collective idea is that this is a carry over from last year, where free agents didn’t get what they were expected. So to find that answer, let’s use FanGraphs top 25 crowdsourced contract estimates, compared to what the player actually received:

Of the group, 15 of these players (60%) missed their AAV estimates. That though sets the miss at $1 or more, when in reality missing the AAV by a $1M on a contract that’s 4+ years isn’t missing really at all. On a $100M deal, a $4M miss on AAV only represents 4% of the deal. I don’t think we’d be up in arms if Machado or Harper only signed for $288M instead of $300M (a 4% miss off the total estimate).

Really I think the argument should be for guys who missed by 10%+ of their expected AAV.

Under that criteria, seven of the 25 listed players missed their AAV by a considerable mark, meaning you could reason that ~30% of free agents last year didn’t get what they were expected to.

What I think is most telling there is that those who did miss, were not the top end guys expecting big paydays (relative to other players), except for Mike Moustakas, who I think we all after the fact wondered why we were expecting in the age of OBP why we expected a guy with a career .307 OBP was going to score $80M.

Jarrod Dyson missed by a whopping 25%, but even though I’ve pounded the table harder than anyone about his underrated value, I don’t think it’s crazy he didn’t land a $20M deal.

Neil Walker was probably a surprise, but his market was also held down by having severe back issues in 2016 and then hamstring issues in 2017.

Logan Morrison was expecting to finally cash in after a big year with the Rays, but his services went unwanted until the Twins picked him up. He did have a $9M vesting option that was contingent on 600 plate appearances that he didn’t ultimately reach.

Frazier, Nunez, Lucroy, all represent the middle class of free agents who were expecting a nice payday but didn’t quite get it.

But there are two points we can take away here.

The top end seems fine

Of the eleven players that were expecting $50M+ paydays, only Mike Moustakas didn’t get it. The average miss on AAV (excluding Moustakas) was $10,000 (which is about five games of pay). The average miss on total value was $2.6M, and that’s not $2.6M per year, but $2.6M total.

This has carried over into 2018 so far too.

AJ Pollock’s crowdsource estimate was 4 years and $58M. He received 4/$60M.

Nate Eovaldi was expected to get 3/$44.5M. He received 4/$68M.

Patrick Corbin was expected to get 5/$102M. He received 6/$140M.

Andrew McCutchen was estimated at 3/$42M. He received 3/$50M.

For players who signed for two or more years so far, only one player has received considerably less than expected (37-year old Ian Kinsler signed for 2/$8M instead of 2/$12M)

While we are still waiting to see what Machado and Harper will get, so far those high end free agents have continued to receive their paydays.

The middle market

The contagion seems to be most rampant in the middle market of players, those expecting to receive less than $50M but more than just a one-year backup role type contract. That’s the Moustakas level of player this year.

But I wonder if our expectations for a guy like Moustakas were too high last year?

2017 crowdsource estimate: 5 years, $80M

2018 crowdsource estimate: 3 years, $36M

Moustakas was actually better this year than last year (and also doesn’t have a qualifying offer hanging over his head), and yet, his total contract estimate has dropped by 55%. Meaning either he is supremely undervalued this year or our expectations last winter were too high. While at the start of last year it might have been easy to point to the former, it’s hard to do that now.

Which leads me to my next point...

Maybe we are all wrong with our valuations?

Hey, I admit I was in the camp that thought Moustakas was going to get a big payday, so I’m not trying to call anyone out. I’m trying to call us all out. Maybe we are just doing this all wrong. We are expecting these middle market guys to get bigger paydays than they are, while also expecting teams to continue to hand out 10-year, $200M+ deals to the top guys.

It’s clear that we have overestimated our expectations on those middle tier guys last year, and probably have continued to do so this year. The only way to fix that is to revise down our estimates. This then removes the idea that players will continue to get paid like they used to. Maybe that is a problem, and maybe those player should be doing that, but what’s been the history of fans response to that? The Royals paid Ian Kennedy $70M (a deal I was vehemently against at the time), giving a big payout to a middle tier free agent, and now we all hate that contract. Jay Bruce got 3/$39M from the Mets, and now he’s been traded twice by the Mets. Tyler Chatwood got 3/$38M and then walked more batters than he struck out. Ubaldo Jimenez got 4/$50M and now can hardly crack the Orioles bullpen. Kendrys Morales got 3/$33M and now can’t get off the Blue Jays bench.

It’s easy to cherry-pick the deals that went wrong, but also the list of middle tier free agents that got paid like such and worked out is not a long one I’d imagine. Sure there are some that ended up being good deals, but the risk/reward isn’t usually there for the middle tier guys.

Player A projected WAR: 5.0

Player B projected WAR: 3.0

If you give both players the same deal, say $50M, and they both fall off at a 40% rate (Player A drops to three wins, Player B drops to 1.8 wins), then you are paying Player A for Player B’s initial production. On the other hand, Player B is now an average or so player but making probably above average player money.

The middle tier player margin of safety just doesn’t appear to be wide enough to make it an attractive risk profile.

Teams are tanking...

While the idea of tanking may be a new-ish in that it’s received mainstream press, the percentage of teams below .500 isn’t at an all time high or anything. It’s actually right at the average overall rate.

There seems to be a cyclicality of this, where the league goes through a few year stretch of more above-.500 teams than below, then it reverts. There is a slight long-term incline of below-.500 teams, to where ~51% of teams now are below-.500.

But as of last year, ~51% of the league was below .500, similar to the early-90s, mid-80s, early-70s, and early 60s.

It not quite as easy to point to a below .500 team and say “oh they are tanking” but the idea that all the sudden teams are deciding not to be competitive doesn’t seem well founded.

While payroll and wins go somewhat hand-in-hand, the answer to the free agent market isn’t just to spend more money. If paying someone like Eric Sogard $10M a year is your solution, that isn’t the right answer. Giving more money to lower-quality free agents (no offense Eric) isn’t going to boost win totals and actually is likely to disconnect the payroll and wins correlation (which MLBPA would like to keep intact).

The elite level paydays...

While the top end guys are roughly getting the money they expect, a lot has been made of Harper and Machado (two players who are expected to get near-record level deals commensurate with their star quality and age) still sitting out there while their markets have seemingly gone from $400M to $350M to $300M to can they even get $250M?

While I think Harper and Machado will be worth $250M over the next ten years, can you really blame teams for not shelling out that large sum of money based on the track record of such deals?

This isn’t new information, I think we all can ramble off most of these sour deals off the top of our head. While free agency isn’t necessarily where you go to spend efficiently (particularly at the top end), teams have ended up paying basically double on aggregate of the cost of a win (yes, $/WAR isn’t linear), and that’s excluding Chris Davis’ deal which is just dead money at this point.

While some of those players who did receive $150M+ deals ended up being worth it (Sabathia, Teixeira, Scherzer and Lester so far), most of them probably won’t be (Ellsbury, Davis, Heyward, Greinke, Fielder, Pujols, and Cano).

So what is the answer?

I don’t know how you fix this, but I do think setting free agency earlier can help. Right now many players get one shot to make a big payday, and that shot doesn’t come until they are 29, 30, or 31 years old, where teams are hesitant to buy into their theoretical decline years. Letting them hit free agency earlier allows them perhaps an additional shot at a payday, but that is all wading into free agency requirements and not the market we are talking about here.

MLB payrolls as a percentage of league revenue has remained unchanged effectively, standing at ~50% year-over-year.

Instead, the MLBPA has allowed the commissioner’s “50 percent” assertion to stand. Asked to comment on the MLB data above, an MLBPA spokesman — after running the numbers by the union’s economists — confirmed that they’re “basically accurate.”

It’s not a lack of teams not paying out new revenue that comes in. Teams have continued to do that.

So maybe the answer lies with us. Maybe we need to reset our expectations on what free agents should get. We all just kinda bought into the idea that Bryce Harper has to be worth $400M+...

The same we all thought that Mike Moustakas was going to get an $80M deal or $184M for Jason Heyward makes sense or a dozen other contracts that we all thought a player would get a didn’t or did get and wasn’t worth it.

Maybe we are all just really bad at this kinda stuff and our expectations of what a player is worth, what a player should get, and what a team will pay are wrong. In a free market, the price of something is set by it’s demand for it at that value. If Bryce Harper went into free agency expecting $400M and we agreed with him on that, but the buyers in that market weren’t willing to pay that price...who is wrong? The buyers or the sellers?

I don’t mean this as some great defense for teams, Mike Moustakas deserved more than $6.5M he got and teams were dumb to pass up on that value (he was worth 3.5x that money). But the only thing that matters in the end is matching up expectations and reality, and when those two are disconnected, then one side is wrong. While every team would love to sign Harper for $10M, that’s poor expectations by a team. While Harper would love to sign for $600M, that’s poor expectations by the player. Both sides need to reconcile their missed expectations in that scenario. But in a more realistic scenario, where we expect Moustakas to get $80M and teams aren’t willing to pay much more than $10M for him, who needs to reconcile more? Does a team need to come up on their valuations? Does Moustakas and his agent need to go down? Do we as fans need to go down? Clearly someone is wrong, and the observable market says it is us that is wrong.

The answer is clearly not keeping the status quo. Teams are just not paying out middle level talent anymore like they did in the past. That means our expectations of them to do so are wrong. But this can be a self correction issue too. If players like Moustakas keep signing for $6.5M, teams will eventually start realizing this undervalued asset and arbitrage it away, bringing the price back up.

It’s also clear that teams are going to wait deeper into the year, and even though this seems like it’s impacting salaries, it might not be.

Total money spent in offseason (minimum of $5M total salary):

2019*: $1.995B

2018: $1.333B

2017: $1.338B

2016: $2.375B

2015: $1.605B

2014: $1.668

2013: $1.317B

2012: $1.145B

*Signed players + contract crowdsource estimates for unsigned

In the end, I just seems like the blame is solely being thrown onto the teams. They must be colluding together because they don’t want to sign these deals we expect them to! When it turn, it might also be an issue with our expectations as well.