Baseball’s New Labor Deal Is Bad for Small-Market Teams? I Don’t Think So.

The stadium scene.
Dec. 8 2011 2:03 PM

Hooray for the Rays

Baseball’s new labor deal is great for small-market teams. Why is everyone saying the opposite?

Bud Selig.
Bud Selig pushed hard for a luxury tax during the recent labor negotiations.

Photograph by Patrick McDermott/Getty Images.

Last week, Major League Baseball’s players union approved the sport’s latest collective-bargaining agreement. To lock down five more years of labor peace, players and owners agreed to some big changes (the addition of a second wild card team per league) and some small ones (“All Players will be subject to a policy governing the use of Social Media”). But one change in particular has preoccupied baseball’s chattering class: For the first time, the sport will essentially regulate the price of its incoming amateur players, imposing a “luxury tax” and other penalties on all spending over a certain baseline figure. This approach has been blasted by baseball analysts from Buster Olney to Jonah Keri as a disaster for small-market clubs. Dave Cameron of FanGraphs summed up both the objection and the outrage in a piece titled “Did a Steinbrenner Write the New CBA?”: “Congratulations, Major League Baseball, you just screwed every team that doesn’t have the capability of running out a $100+ million payroll.”

Bud Selig has pushed hard for the new system, which would normally be reason enough to oppose it. But this is a rare instance where the commissioner has it right and his critics have it wrong. In fact, the CBA’s opponents can be easily refuted by a recent piece of baseball scholarship. I’m talking, of course, about a little book called Moneyball.

Before we turn to Michael Lewis and Brad Pitt, though, we need to sketch baseball’s old system. In 1965, the sport implemented an amateur draft with two main goals: distributing talent evenly and tamping down costs. It worked pretty well on both counts—at least until Scott Boras got involved. During the 1980s, baseball’s most-prominent agent chipped away at the draft structure. Then, in 1991, he found his jackhammer. After the Yankees selected a high-school pitcher named Brien Taylor, Boras gained leverage by enrolling his client in a junior college. Boras eventually got Taylor an unprecedented $1.55 million, though not before a scout allegedly representing the commissioner’s office showed up at the player’s North Carolina trailer home and warned him, “You’re making a big mistake.”

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Over the next decade, draft bonuses inched higher and higher. So, in 2000, baseball rolled out a method of cost control only slightly less absurd than the one it tried on Taylor: the slot system. Every year, the commissioner’s office would issue “recommendations” for what each draft pick should receive—a $4 million bonus for the first pick, $3.25 million for the second, and so on. Since this slotting wasn’t binding, Selig’s only shot at enforcing it was a blend of secrecy and wrist-slapping. Baseball hosted “negotiating seminars” for the teams’ scouting directors; when those directors still went “over slot,” someone called and yelled at them. Selig also applied pressure to the owners themselves, with better results. There were rumors of forfeited chances to host the All-Star Game, and of fines levied on other dubious grounds. When a scouting director called Selig and explained why he needed to go pay more for a player, the commissioner would call the team’s owner to badmouth the scouting director. Then he’d yell at the owner, too.

The whole thing felt very high school. It also didn’t work. While baseball was pushing its slot recommendations, the best amateur athletes were circulating bonus figures and saying: This is what it’ll take to keep me out of junior college or off the football field. Many of those players dropped to large-market teams like the Yankees and Red Sox, who happily ignored their slots in order to sign some of the draft’s top talent. At the same time, small-market teams resorted to drafting cheaper, less-talented players. One of the best examples came in 2007, when the Pittsburgh Pirates, who had the fourth pick in the draft (and who hadn’t made the playoffs since 1992), passed on the Scott Boras-represented super-prospect Matt Wieters. The Pirates picked Daniel Moskos instead, signing him for $3.5 million less than Wieters and issuing a press release touting their new bargain as someone “ranked by Baseball America as the fifth-best pitcher available.” (Remember, they drafted Moskos with the fourth pick overall.)

And yet the crazy thing about the slot system was that it drastically undervalued amateur talent. After all, the same year the Pirates settled for Moskos, they also threw $3.5 million at a major-league pitcher so lousy he couldn’t even stay in the team’s rotation. Young players like Wieters, who remained cheap for their first few seasons, offered a far better value than mediocre veterans. In fact, the smart small-market play wasn’t to avoid expensive draft bonuses—it was to load up on them.

The Kansas City Royals took full advantage of this strategy. In 2006, the Royals, who hadn’t made the playoffs since 1985, hired a new general manager named Dayton Moore. In his job interview, Moore promised team owner David Glass the best farm system in baseball. Glass, to his credit, gave Moore the cash to build it. The Royals had previously skimped on the draft, just like everything else. (A favorite tactic: draft a mediocre college senior and offer him a flat $1,000.) Under Moore, however, the Royals started spending like drunken Steinbrenners. They splurged on first-round picks (and Boras clients) like Mike Moustakas ($4 million) and Eric Hosmer ($6 million). They also targeted over-slot players like Wil Myers, a third-rounder who wanted to play college baseball—until the Royals offered him $2 million, or five times the approximately $400,000 baseball recommended.

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