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Most in the baseball media have declared management as the winner in the sport’s latest round of labor negotiations. Over the last two days, I’ve portrayed the outcome as a split decision by illustrating how the new CBA will do little to change the prevailing trends in the game. But, that begs the question: is the status quo good for the players?

Rise in Luxury Tax Threshold, 2003-2021

lux-tax-history

Source: MLB

The first step toward answering that question is to consider the history of the current luxury tax system, which dates back to 2003. Since then, three new agreements have amended the structure, resulting in a rising threshold, but decreasing capacity as a percentage of revenue. This latter trend has been cited as a failure by the MLBPA, but that criticism is baseless. The reason why luxury tax capacity compared to revenue has declined is because the sport’s business fundamentals have improved dramatically, not because the threshold has limited salary growth. After all, in 2015, the last year for which there are official numbers, there was a $1.3 billion gap between capacity and actual player compensation, so even if the new CBA provided for no increase in threshold, there would still be plenty of room for salary growth. However, the new agreement does call for an 11% bump in the tax trigger over the next five years, which is double the rise that resulted in the previous accord. So, even if big spenders like the Yankees and Dodgers are deterred from spending more, the other 28 teams have more than enough room to pick up the slack.

Luxury Tax Capacity as a Percentage of Net Revenue, 2003-2015
net-rev-vs-lux-tax-cap
Note: Revenue is net of stadium debt service.
Source: MLB, Forbes (net revenue)
Continue Reading »

Was the CBA process hijacked from the players? Are payrolls likely to stagnate? And, is the deal so one-sided that the seeds of future discord have already been sewn? All of these assessments are based on the premise that the new CBA will discourage spending, but is that true?

As illustrated yesterday, the additional penalties imposed by the new luxury tax scheme are likely to only effect two teams: the Yankees and Dodgers. Even if other teams exceed the new thresholds, none are habitual offenders and all are unlikely to spend at levels that wouldn’t trigger the new surcharges. So, any analysis of the new system’s dampening effect should center on how it will influence the Yankees’ and Dodgers’ willingness to spend.

Comparative Tax and Rate for Hypothetical Payrolls (chart and graph), 2016-2021
comparative-tax

comp-tax-chart

Note: Assumes payroll is taxed at the maximum rate and surcharge (i.e., applies to habitual offenders). Green shading in the chart indicates where total tax is lower than would have been under 2016 rules.
Source: Proprietary

The new CBA will impose more stringent tax rates on habitual big spenders, but these gaudy percentages look more imposing when divorced from the proper context. As illustrated above, in dollar terms, the tax paid out on a commensurate payroll will gradually decrease over the agreement’s five year term. And, for  payrolls around $265mn or lower, the fine levied will be less from 2019 forward than it would have been under the 2016 rules. In other words, the new surcharges will only have a significant impact on sustained payrolls approaching $300 million. Continue Reading »

Major league baseball owners and players continued their impressive streak of labor peace by tentatively agreeing to a new five-year collective bargaining agreement. Although the final agreement has not been drafted, not to mention ratified, enough details have emerged to allow for an early analysis. So far, the conventional wisdom is the owners were the clear winner, but a closer examination suggests both sides did well, with the only losers being international amateur free agents.

According to reports, the tentative CBA contains some interesting changes, such as a 10-day disabled list, revised free agent compensation rules, and a new system for determining home field advantage in the World Series. However, the most consequential part of the agreement concerns adjustments to the luxury tax structure and revenue sharing system.

Rise in Luxury Tax Threshold, 2003-2021
lux-tax-historySource: MLB

Starting in 2017, the luxury tax threshold will rise 3.2% to $195 million and then gradually climb to $210 million when the deal expires in 2021. Some have portrayed this modest increase as evidence of the MLBPA caving into ownership demands, but the 11.1% increase over the span of deal nearly doubles the 6.5% rise between 2011 and 2016. Not coincidentally, if you take Forbes revenue estimates for the industry (and assume 2016 growth mirrors 2015), then the 30% increase during the just-expired CBA would also be double the 15% bump that occurred during the preceding deal. Is that a coincidence? Perhaps, but the symmetry suggests the revised thresholds are fair to both sides.

Tax Rate Snapshots

lux-tax-snapshots

Another reason the owners have been hailed as victors is the introduction of new surcharges that will be levied against extreme luxury tax offenders. In addition to an escalating tax rate, which climbs from 20% to 30% to 50% for repeat violations, teams will also be slapped with an additional 12% tax on payroll that is  $20-$40 million over the limit and a 40% surcharge for going beyond $40 million (rising to 42% for consecutive violations). Although this has been portrayed as a maximum rate of 92%, the surtaxes only apply to defined overages, meaning a team would have to maintain a payroll of approximately $350 million for three years to end up paying an effective tax rate that high. Still, a habitual offender like the Yankees would end up paying a 69% tax on a $250 million payroll in 2017 (see above), so the introduction of these surcharges is not inconsequential. However, under reasonable assumptions, they are likely to only apply to the Yankees and Dodgers.

2015 AAV Payrolls Compared to 2017 and 2021 Luxury Tax Thresholds
lux-tax-deficit

Note: Based on Average annual value of contracts plus pro-rated items, earned bonuses, and defined benefits of $12,626,624.
Source: MLB releases published by AP (2016 payrolls have not yet been released)

Aside from New York and Los Angeles, there are only two other teams within arms distance of the new threshold, which means 26 other teams are unlikely to approach the penalty. It’s hard to argue that the new scheme represents a quasi-cap when it is only relevant to four teams, and only two in a significant way. Though it is possible that other clubs will be deterred from becoming big spenders over the next five years, most would have had to increase spending significantly just to approach the luxury tax trigger (as illustrated in the chart above). So, even if other clubs pull up short of the new thresholds, the overall increase in their spending would still be a boon to the players.

The new luxury tax system isn’t as onerous as it seems, and certainly doesn’t rise to the level of a de facto cap for all but the Yankees and Dodgers. And, even for those teams, there is mitigation in the form of a revised revenue sharing system. According to reports, the owners have agreed to scrap the supplemental component of the revenue sharing system that used a series of performance factors to increase the shared pool from 34% of local revenues to 48%. And, which teams would have been expected to pay into that supplemental plan? The same big market teams that could run afoul of the stepped up luxury tax regime.

Using estimates I calculated in 2013, the elimination of this plan could result in a $20 million savings to the Yankees. That’s a highly speculative number, but without the supplemental scheme, several big market teams are assured of paying less into the revenue sharing pot. And, if, for example, the $20 million estimate for the Yankees is accurate, it would offset the increased luxury tax and lower the effective tax rate on the $250 million payroll illustrated above to only 33%. That would be a significant discount from the just expired system, which means a team like the Yankees would actually be afforded extra cushion under the new agreement, assuming they want to spend the savings instead of bank it as profit.

Unfortunately, not everyone was a winner in the new CBA. Foreign born amateurs bore the brunt of compromise as the players agreed to a hard cap on international signings in exchange for eschewing an international draft. Adding insult to injury, the new CBA also extended these rules to more players by increasing the eligible age from 23 to 25, leaving talented foreigners with little leverage when it comes time to negotiate a new deal. Full details have not yet been released, and it’s important not to extrapolate too much before the ink has dried, but it’s likely that international amateurs will end up paying the price for the MLBPA’s and owners’ continued good fortune.

All data is updated as of the end of the 2016 World Series.

One of baseball’s most often repeated axioms states that, although home runs work just fine in the regular season, once the calendar turns to October, small ball becomes a more effective method for scoring runs. This mantra is proclaimed with such certainty that all who hear it seem to unquestionably accept its infallibility. Unfortunately, since the dawn of the wild card era, history has suggested otherwise (though home runs have declined in the post season since 1995, runs scored by other means have dropped more significantly). So, as a service to those home run fanatics who refuse to accept the short comings of the long ball in the post season, the Captain’s Blog Presents the 2016 Long/Small Ball Meter, which will not only keep a running breakdown of how runs are scored this postseason, but also present that data in a historical context.

Current Season Data

Long/Small Ball Meter: Regular Season vs. Postseason, 2016

2016-meterb
Note: Long/Small Ball Meter compares the rate of runs scored via the home run to all other means. Regular season data is for playoff teams only.  Averages are per team per game.
Source: Baseball-reference.com

Long Ball vs. Small Ball Tactics: Regular Season vs. Postseason, 2016
2016-event-compb
Note: Averages are per team per game.
Source: Baseball-reference.com

Continue Reading »

Sometimes, it’s better to be lucky than good. Or, in the case of the 2016 Texas Rangers, it’s even better to be good at getting lucky.

2016 Pythagorean Differential (Actual minus Expected Winning Percentage)
luck-chart
Source: Baseball-reference.com data, proprietary calculations

Based on run differential, the Rangers should have been a .500 team, not the 95-win juggernaut that ran away with the AL West. However, thanks to a record setting winning percentage of 76.6% in one-run games, the team managed 13 more victories than expected. The result was the third highest Pythagorean differential in major league history (and second highest in a non-strike shortened season), and lots of confused baseball fans left scratching their heads trying to figure out just how they did it.

Ten Highest Pythagorean Differentials, 1901-2016
10-lucky
Note: Excludes seasons shortened by labor disputes. RS% is R/G vs. League Average. RA% is RA/G vs. League Average.
Source: Baseball-reference.com and fangraphs.com data, proprietary calculations

A strong bullpen is one way teams manage to overplay their hand, but the Rangers can’t make that claim. Texas’ relievers posted an ERA of 4.40 and fWAR of 1.7, both in the bottom third of the major leagues, so a shutdown bullpen wasn’t the backbone of the team’s overachievement. But, maybe that shouldn’t be a surprise. When you look at the top-10 teams in terms of Pythagorean differential, a strong bullpen hasn’t necessarily been a hallmark.

Another way for a team to exceed the sum of its parts is to leverage the one thing it does particularly well. Like the 2004 Yankees and 1954 Dodgers, for example, who outscored the league by over 10%. Unfortunately, the Rangers come up short in that regard as well. On a park adjusted basis, the team’s offense and pitching staff were both under par, while in unadjusted terms, its modest advantage at the plate was surrendered on the mound. Continue Reading »

What’s wrong with Dellin Betances? After another meltdown, that question has been echoing throughout the Yankee Universe, but it’s really no mystery. Betances has been the victim of his own success, and the Yankees’ over-dependence on him.

The knee jerk reaction to Betances’ late season struggles has been to question his mental makeup. Maybe he doesn’t have what it takes to pitch in the ninth inning, some have asked? Others have suggested the big righty’s inability to hold runners and throw to bases are cause for blame. These are both plausible theories, but only if you ignore the evidence.

Betances has always been slow to the plate. His difficulty throwing to bases is also well established. Before this month, however, neither of those deficiencies mattered much. Opposing hitters had a hard enough time simply making contact, much less reaching base. So, what changed? Was it the pressure of the ninth inning?

In his first 14 games since being named the closer, Betances converted nine of 10 save opportunities, and did so in spectacular fashion. His 0.57 ERA with 25 strikeouts and only five walks doesn’t exactly resemble a pitcher battling jitters in the final frame. If Betances’ struggles are really rooted in an inability to handle the closer’s role, it seems a little curious that it took over a month for this shortcoming to manifest.

Before and After: Betances’ Performance Since Become Closer on Aug. 1
betances-split
Note: After period begins with 40-pitch outing on September 6, the first time in his career that Betances pitched on three straight days.
Source: Baseball-reference.com

The only thing that has changed with Betances over the last few weeks is how the Yankees have used him. Since becoming manager, one of Joe Girardi’s cardinal rules has been to avoid using a reliever on three straight days. There are always exceptions, but this steadfast belief has given Girardi a well-deserved reputation for deftly managing the bullpen. And that’s what makes his recent use of Betances particularly baffling.

Before this month, Betances had never pitched on three straight days. Now, he has done it twice. On the first occasion, the hard throwing right hander was brought into a game with a three-run lead and then allowed to throw a near career-high 40 pitches. A high leverage situation might have justified making an exception to the three-day rule, but the Yankees had more than enough cushion to back off. Instead, they wound up pushing Betances to the limit. And then, 10 days later, they did it again. Instead of learning from his mistake, Girardi doubled down by bringing the righty into another low leverage save opportunity. With one out, no men on, and another three-run lead, Girardi hit the gas, and Betances crashed once again. Continue Reading »

Despite providing instant gratification, debilitating long-term deals have forced the Yankees into a prolonged period of mediocrity. That’s the argument the organization has used to explain its relative underinvestment in the team, and which many fans and most in the media have adopted as infallible, conventional wisdom. Unfortunately, all of the available evidence contradicts that claim, with the latest rebuttal coming most emphatically from C.C. Sabathia.

After two seasons plagued by injury and poor performance in 2014 and 2015, Sabathia’s contract became a focal point for those who argue that long-term deals are detrimental to long-term success. It was expected that the Yankees would have to throw good money after bad and shell out another $50 million to the big lefty without getting anything back in return. Instead, what they ended up getting was their money’s worth.

Sabathia’s fWAR heading into his last start of the season is 2.5, which seems modest, until you realize it ranks among the top 60 in the majors and stands above such names such as Zack Greinke, Jeff Samardzija, and Jordan Zimmerman. Why is that trio relevant? Before getting back to that question, it’s worth noting fangraphs.com values Sabathia’s contribution at around $20 million, which isn’t the black hole most expected from the Yankees’ $25 million investment.

WAR-Based Evaluation of C.C. Sabathia’s Contract
sabathia-contract
Source: fangraphs.com

Over the course of his Yankees’ tenure, which includes a seven-year deal signed in 2009 as well as two years added as part of an extension, Sabathia has provided the Yankees with $197 million worth of value in the regular season alone. In return, the Bronx Bombers have paid the lefty $186 million. Even before considering his post season contribution, the Yankees have come out ahead. Throwing in a championship for good measure only sweetens the deal.

Several common mistakes are made when fans and media evaluate long-term deals. The most obvious one occurs when they ignore the cumulative value provided and only focus on the backend. As it turns out, Sabathia has managed to justify his expense in the waning years of the deal, but even if he had struggled this year, the overall value of his contract would have been commensurate with the cost.

C.C. Sabathia’s Extension Compared to 2016 Free Agent Deals

cc-comp

Note: Samardzija’s 2016 salary includes signing bonus.
Source: fangraphs.com

The second mistake results from ignoring the inflationary pressure on baseball salaries and the inevitable need for teams to fill out their roster. And that brings us back to the trio mentioned above. Had the Yankees not extended Sabathia’s deal in 2011, they would have been on the market for a veteran starter this past winter, and the likes of Greinke, Samardzija, and Zimmerman would have headed the list. It took over $400 million in commitments to secure those three pitchers, which makes the final two years tacked on to Sabathia’s contract more than a reasonable alternative.

Conventional wisdom was wrong about Alex Rodriguez. It was wrong about Mark Teixeiria. And, now it’s been proven wrong about C.C. Sabathia. The Yankees’ demise hasn’t been the result of too many expensive, long-term deals. The problem has been having too few. Who knows? With more bad contracts like those signed by Robinson Cano and Max Scherzer, the Yankees’ could be proving the conventional wisdom wrong instead of wallowing in its ignorance.

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