Hot Stove Myths

Let me debunk a few common myths about baseball's labor market as baseball's second season begins.

GMs can buy low and sell high -- So, let me get this straight: you think you know when a player is playing above or below his true ability--usually due to a small sample or by using a SGT-approved metric instead of a mainstream statistic--but guys who make a living in baseball completely miss it. For this to work, the GM on the other team has to be a colossal moron. GMs have made mistakes in the past and will make mistakes again, but they're not dumb enough to act on a meaningless hot/cold streak. You can't sell high or buy low and profit financially because all GMs understand these things. You don't have to wait for a guy to get hot to sell him, nor dump him before he gets cold. In addition, the key knowledge of when the peak or trough is doesn't exist, except in the mind of message board posters. Fluctuations in performance create uncertainty, which affect the price that GMs are willing to pay.

The number of free agents at a position affects the price of free agents at a position -- It seems logical that more free agents at a position will mean more options for teams. Players act as substitutes and thus a team can pit the players against one another to keep salaries down. The problem with this is that the free agents have come from somewhere. A high number of players looking for new teams means that there is a corresponding number of openings that teams need to fill. For example, it there are four good shortstops on the market this means that there are also four openings on team. The increased supply of players is canceled out by the increased demand by teams needing replacements.

Every trade has a winner and a loser -- Swapping resources only takes place if both parties are made better off. Therefore, when we observe trades taking place, it's likely that both parties are doing so because they expect to improve their teams (see the weak axiom of revealed preference, or as I call it: "the useful WARP"). Mistakes happen, but as a general rule, all parties to trades are winners. Who says economists aren't touchy-feely?

Players peak at 27 and old players are worthless -- Players peak at 29 -- 30. And just because a guy is past his peak doesn't mean he's not valuable. The aging process is gradual, more like the Minneapolis Metrodome than an Egyptian pyramid. If a guy was good last year, even if he's in his mid-30s, he'll probably be good next year. Now, the older he gets the more dangerous long-run contracts get, but one- and two-year deals are fine.

 

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Comments

[DaDawg]

With the dramatic reduction of PED usage, I would suspect that the peak age of player should move back down to 27 from the current 29-30. The reason this age is major item is that also the age where most elite players will enter the free agency market with more then six years of service time. A team will need to offer a long contract with rising pay scale to sign those elite 27 year olds and as you noted, long run contracts for post peak players carries more risk. I don't think most people say they are worthless, just a team carries a very high risk that the contract will turn into albatrosses before all is said and done.

[J.C. Bradbury - Huffpost Blogger]

Thanks for the comments. I wanted to let you know that I offer further explanations for the myths on my website.

http://www.sabernomics.com/sabernomics/index.php/2009/11/the-size-of-the-free-agent-pool-and-competition/

http://www.sabernomics.com/sabernomics/index.php/2009/11/are-general-managers-myopic/

http://www.sabernomics.com/sabernomics/index.php/2009/11/trades-is-are-mutually-beneficial/

[FirstGame72]

Mr. Bradbury,
Baseball/sports trades happen for a variety of reasons and it is naive to believe that Gm's/Owners/Coashes/Managers only make trades that they think will improve the overall "talent pool" on their team. There are many examples of teams obviously downgrading the quality of their franchise with a trade that is made for personal or "chemistry" reasons that fans are not privy to the details of.
Another example: Every sports fan can think of a trade in which their team made a "salary dump," getting rid of a great player simply to save the team money while throwing victories out the window.

[JJ22]

"For example, it there are four good shortstops on the market this means that there are also four openings on team. The increased supply of players is canceled out by the increased demand by teams needing replacements."

So we're going to completely discount the minor leagues then? The White Sox got rid of Orlando Cabrera last year but didn't sign a shortstop. Instead, they moved Alexei Ramirez to SS and replaced Ramirez at 2B with internal options. When Joe Crede left via free agency, the White Sox replaced him with Josh Fields and Gordon Beckham, both internal options. When A.J Pierzynski leaves after 2010, he'll be replaced by Tyler Flowers, an internal option.

Also, dismissing advanced statistics is irresponsible. I'm sure somebody else will give a full, well-deserved lecture on WAR, FIP, wOBA, etc.

[Nick Steiner]

"Swapping resources only takes place if both parties are made better off."

I assume that should read, "Swapping resources only takes place if both parties *believe* they are made better off.". GM's obviously don't have perfect judgment, and if their process is wrong (like using RBI's to value players) then they will systematically make moves that are less than optimal. Of course, you could say that there is a selection process, and GM's, by definition, have the best judgment out there... and I would point to Dayton Moore.