Why Greed Among Players is Good for Competitive Balance

When choosing a career, one is sometimes told to not worry about the money, but to find a profession that he or she thoroughly enjoys. In free agency, players often follow the same principle by giving hometown discounts or taking less money to play for a specific team even though they could sign a larger contract elsewhere.

While this principle is commendable, what is the effect on competitive balance throughout the league? While some teams stand to benefit from players choosing to sign below market value deals with their club, this consequently means that every other team must pay significantly more money to acquire the same player. Despite the parallel issue of an imbalance in payroll between rich teams and poor teams, it would be best for competitive balance if players always accepted the most lucrative contract.

Let’s consider an example of this phenomenon outside of baseball. You and I are both building a new house and there is one building crew in town that is significantly better than the rest. We both want the services of this crew to work on our house, and would even be willing to pay above their standard rates for their immediate services, thus a bidding war develops between us. I am a middle class citizen and you are a member of the one percent, but I want to build my house so bad that I offer the crew a slightly higher rate than you. Despite this, the crew decides to take your lower offer and build your house first because you are friends with one of the builders.

The building crew has every right to choose which house they want to build, but the effect on me is significant. I offered a higher percentage of my total net worth and more total money to the building of this house, but still did not reign in the services of the preferred building crew. Instead, I'm left with the choice of hiring a lesser crew or spending the money elsewhere. No matter what I choose I will not be able to obtain the services of the desired building crew.

Welcome to the reality of the Arizona Diamondbacks.

Carlos Beltran

Carlos Beltran recently signed a three-year, $45-million contract with the New York Yankees. The Diamondbacks offered him three years and $48 million, but Beltran signed with New York because he rooted for the Yankees as a child and has always wanted to play in the Bronx.

As the chart below shows, the Diamondbacks had a payroll slightly below the median last season while the Yankees had the highest in the league.

We have already established that the Diamondbacks' offer was more lucrative than the Yankees' one, but New York still signed Beltran for three years. In a league where all payrolls are equal this is an issue, albeit a fairly minor one.

As the numbers show, payrolls are not the same in Major League Baseball. The Yankees spent 2.55 times more money than the Diamondbacks on their 2013 Opening Day payroll, meaning that any bidding war heavily favors the Yankees.

This principle is similar to a poker game. If one player has significantly more chips than the other, he or she can simply outbid every other player and consequently win the hand. The difference between the poker game and free agency is that in poker all players begin with the same amount of chips.

Money as a Percentage of Total Payroll

Another way to examine this issue is by examining player contracts as a percentage of total payroll. The chart below shows the percentage of total payroll that each team would have to commit to Beltran’s $15 million salary.

Assuming the Yankees’ payroll remains at $228.8 million next season, Beltran’s $15 million deal will comprise only 6.55 percent of their total player budget. That same $15 million would require 16.83 percent of the Diamondbacks’ budget.

As these numbers show, merely matching New York’s offer would require a much more significant commitment for Arizona. But Arizona did not merely match New York’s offer. They beat it with a better one, which would have required 17.96 percent of their player payroll. Using percentage of total resources as a gauge, the Diamondbacks’ offer nearly tripled the Yankees’ offer, but Beltran still signed with New York.

Consequences

The ramifications of such signings are severe. The richest team in baseball gained advantages by having more total resources and not having to use as many of them to sign desired players. The $3 million difference between the Diamondbacks’ offer and the Yankees’ offer essentially bought them a year of Kelly Johnson’s services. This means that, for the Yankees this offseason, $48 million bought them three years of Carlos Beltran and one year of Kelly Johnson. By comparison, the Diamondbacks now have $48 million available to sign or trade for players much lower on their wish list.

This situation was not unique to Carlos Beltran. There were rumors that Robinson Cano's agents, before agreeing to a 10-year, $240-million deal with the Mariners, called the Yankees saying that they would agree on a 10-year, $235-million contract with New York. Again, the richest team in baseball had the opportunity to sign a free agent for less than the maximum bid.

The Yankees aren't always the beneficiary of the hometown or the “preferred town” discount too. There have also been rumors that Shin-Soo Choo turned down a more lucrative contract offer with the Yankees to play for the Texas Rangers. Choo’s seven-year, $130-million deal with Texas is significantly less than New York’s seven-year, $140-million offer, and with the difference between their offer and the Yankees’ maximum offer, the Rangers could have also obtained two years of Rajai Davis's services. It's also worth mentioning that the difference in state income tax between Texas and New York could alter Choo’s total payout, but reports have been conflicting regarding the significance of the difference.

One could object to my larger point that greed among free agents is good for competitive balance by saying that hometown discounts are good if they benefit poor teams. For example, once James Shields hits free agency next winter, it would be good for the competitive balance if he took less money to stay in Kansas City rather than end up with the Yankees or the Dodgers.

As much as I would love to see a poor team sign a top free agent that rich teams are pursuing, this could also skew the competitive balance. If all elite free agent pitchers decided to sign less lucrative contracts with the Rays for the chance to work with pitching coach Jim Hickey, then the Rays would gain an unfair advantage at the expense of every other team in the league, especially the other poor ones. This is certainly far from imminent but it shows that balance does not mean always favoring poor teams.

Is There a Solution?

There are two issues at play: the disparity among payrolls of the rich and poor teams and free agents choosing a preferred team instead of the most money. Though they are related, these problems must be dealt with individually.

Resolutions to the issue of the disparity in payrolls between rich and poor teams range from doing nothing to incorporating a strict salary cap. Resolutions to the issue of free agents choosing a specific team instead of the most money are either absurd or nonexistent. The MLBPA will never agree to turn free agency into a silent auction and the commissioner’s office will never require a player to sign with a specific team.

Instead, this is simply a consequence of the human element of the game. Apart from money, players have interest in playing for a contender, being loyal to the team that drafted them, playing for their hometown team, living in an area with a good school system, choosing a state with a low income tax, or even playing on the same team as a good friend. And it's their right in a free market system to choose the significance of each of these factors.

I can't blame the players for choosing less money to play for a specific team, rather I commend them for recognizing that money is not everything in life. Conversely, money is everything in maintaining competitive balance and players who do not accept the most lucrative contract skew the competitive balance. By always choosing the most lucrative contract, players will isolate the more significant problem of disparity in payroll between rich and poor teams and hopefully bring us closer to a solution.