Baseball’s Free Agency

27 Dec

Baseball free-agent classes are determined to be strong or weak based on the quality of the players available in a given off-season. What is sometimes lost in this assessment is that there is not a direct correlation between the quality of players available and the marginal return that player provides. For example Albert Pujols is sure prove a more productive signing this off-season than Casey Kotchman, but at 26 million a season versus an estimated 5 million, not more valuable.

To relate this to a different market, stock-brokers have proven no more effective at picking stocks than random selection; what this proves is not that brokers are unintelligent but rather the markets that they are investing in are already running efficiently. Elite free-agent baseball players are already efficiently evaluated, or some would suggest overvalued. There is value to be had in both markets, but certain practices have to be employed. Humans are inherently risk averse, thus pushing the price of volatile stocks below their true value; this is one place brokers can prove better than random selection. Baseball GM’s can do the same thing by investing in injury prone pitchers with upside such as Erik Bedard, or players coming off of a bad season like Vladimir Guerrero.

Research by baseballprospectus.com suggests that even the top teams have multiple positions of weakness that can be addressed every off-season, making a team’s decision to invest all their money in one player unnecessary. The World Series champion St. Louis Cardinals lost Pujols production at first-base, and hope to be able to replace it by improving their production at shortstop (Rafeal Furcal) and outfield (Carlos Beltran), with two injury prone but high upside players.

An elite free-agent class can hypothetically bring down the cost of players. Theoretically, having multiple sellers of the same product in a marketplace will drive down the value of each seller. Teams have at times been able to exploit the market for the most fungible positions, relief- pitchers and designated hitters, by waiting until there are more players than positions available, and therefore no more player leverage. However, elite players who determine a free-agent class’s strength are transcendent talents, who are rarely viewed as interchangeable with their free-agent brethren. Pujols and Prince Fielder have very similar production and play the same position, and there has been little overlap between the teams that pursued them.

A strong free-agent class provides teams the ability to sign elite production players, albeit at a high cost with little chance for surplus return on investment. Teams would often spend more efficiently by addressing multiple needs with players viewed less favorably by the market. To fans, baseball may have strong and weak off-seasons; to teams, each off season should be a chance to fill multiple holes with below market commodities…and maybe the occasional gross overpay for an elite player to make a run at the playoffs.

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One Response to “Baseball’s Free Agency”

  1. the self-hating hipster December 27, 2011 at 10:29 pm #

    So this is why I use you as my fantasy baseball broker every season? And when does Elite Free Agents come out for Nintendo 3DS?

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