MLB Free Agent Marketplace Functioning Just Fine


After spending the entire Winter Warm-Up weekend surrounded by people who consistently referred to Bryce Harper and Manny Machado using some variation of "those two big names out there", I've got #Hachado fatigue. It's real. Just check WebMD for symptoms like "doesn't care about rumors" and "tired of the narrative".


That two 26 year-old superstar free agents remain unsigned in late January doesn't constitute a marketplace crisis or necessarily mean that the market is slow to develop. If anything, the situation may indicate that the market is working exactly as it should. If you overprice something and nobody is initially willing to pay the asking price, then there is zero market at that price. Since that initial asking price is effectively set by the seller, the onus is on the seller to decide whether or not to reset the price.


Sticking with the original price and waiting out the buyers is always an option, but there is risk. Similarly, buyers risk losing out should they wait for the price to drop. We're talking about buying and selling on a massive scale, but the variables involved aren't significantly different than those involved with many other buying and selling decisions. Think of the car buying process for example.


What do you actually need? What do you actually want? What can you afford? What are you willing to pay? How long must the purchase last for it to be worth the price you are paying? Do you expect your ability to make payments for the purchase to change in a positive way over time? What happens should the purchase break down for a significant length of time? What are the opportunity costs associated with making this purchase?


All these questions are just for the buyer's side and do not include the competition factor. In MLB, there are 30 potential buyers in direct, constant competition with one another for players. If you go to buy a car, you've got things to consider, but the possibility that your neighbor is going to buy the car before you do probably isn't one of them.


This is all complicated, and it's the high profile of "those two big names out there" driving much of the discussion. While that discussion centers around where they will go and how many truckloads of cash they will receive, it has also sparked conversations about the marketplace, competitiveness, tanking, approaches to rebuilding, and a host of other related topics.


Perhaps we're witnessing an actual shift in the buying side of the free agent market as a function of collective learning as applied to long term deals.


If teams aren't extremely reluctant to offer deals in excess of 7 years, then maybe they should be. Check out the Cot's Contracts site (Baseball Prospectus). They have a page dedicated to the highest paid players which includes sections for highest average annual value and highest total value among other things. Take a gander and see how many of those huge deals really worked out well for the teams. I'll wait.


I lied. I didn't actually wait. Not sorry.


Part of me embraces the notion that owners have learned their lessons, and they are getting smarter about how they spend their money. To a certain extent, greater emphasis on player development, resourcing talent from the international markets, and investing in better player assessment methods supports that notion. On the other hand, one could argue that these are all attempts to improve competitiveness by means that reduce reliance on free agents. Being smarter is relative and doesn't preclude the possibility that they will still offer 10 years / $400M to someone in the near future.


Maybe the marketplace can handle that now. Maybe not. I'm not actually sure either one would be a solid indicator of how healthy the game is right now. There are absolutely teams out there with the ability to make that deal, and it just takes one to raise the bar.


From an economic standpoint, I think raising that bar would have the unintended consequence of stretching the pay gap by expanding the entire compensation spectrum. That sounds wonderful for the players in the top tier who have age in their favor, because they can use the precedent as a reference point. It may also help guys going through their arbitration eligible years. Unless there is somehow a trickle-down effect, it doesn't do anything for the guys making the minimum.


Not that I feel bad for the guys making the minimum, but they play alongside guys who are eyeballing free agency in the near future. Those future free agents may also be union representatives, and that's quite a lot of vested interest that may take focus away from helping everyone. Do you really feel that the 31 year-old perennial All-Star 1B about to hit free agency is worried about you making pennies on his dollar, when he's talking about how #Hachado remaining unsigned is a bad thing for baseball? If the health of the game is defined to a large extent by big stars getting even bigger money, then I think we're all looking at this the wrong way.


Ultimately, I think it's about the compensation distribution throughout the entire MLB ecosystem, and that ecosystem is already more top heavy than Bartolo Colon swinging at a slider. The league average opening day payroll projects to roughly $120M, and that's before taking #Hachado into consideration. Only 11 teams project to be above that mark, so the other 19 sit below the mean.


Some below that mean have plenty of room to grow (Phillies), and some well above the line are in luxury tax territory. Another handful would likely infringe upon that territory by adding Machado or Harper, so that means most of the biggest spenders are not even part of the discussion. To a significant extent, the marketplace was already defined by past decisions made by teams years before #Hachado reached free agency.


That's how the marketplace works, because opportunity costs are real. Spending money today means you don't have that money to spend next week. As a result of committing money a year or even five years ago, some teams effectively eliminated themselves from the #Hachado bidding war. The door is wide open for an opportunistic team with money to burn to step in and sign one or both.


Now look at the teams set to clear significant payroll after this year and imagine #Hachado hitting free agency after 2019 instead of right now. There's an argument to be made that Harper and Machado aren't really suffering from a broken marketplace so much as they are victims of bad timing. Poor things...