Thursday, February 17, 2011

The Market Will Balance

With a new season rapidly approaching much is being discussed about the contracts players signed over the course of the off season.  Many teams added new faces to the mix, some payed big money to bring in key pieces to help them succeed.  I seen a few articles that have placed the market value for a player at around $5 million per win they will give the team.  Measuring how many wins a player is worth is not easy to do but I feel Fangraphs has done a pretty good job with their WAR ratings.  If you place a market value on players of $5 million per WAR then it would stand to reason that the team must be making more than that for each win the team has.  I looked up team revenues again to see how true this is across the league.
Using the revenues listed on Forbes team valuation tables what I found is that $5 million/ win is a very steep number to being paying.  Looking at a few mid-market teams first I found they were averaging about $1.7-1.9 million in revenue for each win from 2000-2009.  That puzzled me a bit at first but then I realized the mid-market teams don't set the price for players the big market teams do.  So I looked at the Yankees figuring that they must be making at least that to handle the payroll they have.  I was wrong.  Even the Yankees don't make $5 million/ win. They come by far the closest of any team with their 2009 revenue coming in at $441 million and winning 103 games that year they made about $4.28 million for each win. However, that is the closest to $5 million they came.   On realizing that not even the Yankees, who appear to have bottomless pockets to put a team together, can't bring in $5 million/ win I realized the importance of having a good farm system even more. 
Upon further consideration what this brought to my attention was that even the Yankees have to keep players available to fill the roster that they can keep under their value.  Phil Hughes comes to mind from last years team.  He isn't even arbitration eligible but he won 18 games last year with an 4.19  ERA.  Last season he only made $447,000.
The more important thing that this made clear to me is that teams can't continue to pay such high amounts for players.  With a linear progression of the win to revenue values of the Yankees they will break the $5 million/ win plateau around 2013 in theory but the rest of baseball is well behind them. I believe that unless something changes player values may drop for the first time since free agency came into the league. In free markets their are always ebbs and flows so to speak and it looks like player value is about to ebb to correct itself as much as the players won't like it.  

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