Changes to the game reshaping how rosters are built
Conversations between two key members of the Dodgers' ownership team, president and CEO Stan Kasten and chairman Mark Walter, are so often peppered with a particular catchphrase that it's becoming an inside joke of sorts, albeit one that seems incongruous to the outside perception of Los Angeles' team-building plan. The way Kasten tells it, each chat with Walter culminates in similar fashion.
"He'll end every paragraph with, 'The answer is you have to grow your own players,'" said Kasten, who was Braves president for their NL East dynasty of the '90s and Nationals president for the early growth of their current club. "He'll laugh and say, 'I know that because you've said that to me a million times.' Everyone understands that: more scouts and better scouts get you better players.
"That is what everyone is trying to do."
And, increasingly, it's what everyone
Though Los Angeles' big league acquisitions and its nine-figure contracts have obscured all other efforts, the new ownership's initial vision for rebuilding was through scouting and player development. The Dodgers may be a franchise that has ample major league talent in place -- and the overwhelming financial resources -- to assemble an immediate contender while also taking the long view of enhanced player development, but even they understand the latter is the best method of sustainability.
Every team, though, is being affected by the confluence of three recent changes in the game that have reshaped the player market: exponential growth in television revenue, a league-wide trend to sign young stars to contract extensions before they reach free agency and changes to the collective bargaining agreement.
The result of those developments has accelerated the inflation of salaries and put further onus on each organization's scouting and development apparatus to churn out players who are both productive and cost-controlled.
New national television contracts go into effect for 2014, generating $12.4 billion in revenue over eight years and roughly doubling the previous deal; also on the rise are local TV contracts for many markets, headlined by the Dodgers' new deal, which is expected to be worth about $7 billion over 25 years.
A record 14 teams are spending at least $100 million on payroll this year and a record $1.4 billion was spent in free agency this offseason, with rises in the number of multi-year contracts and average annual value.
Such money has enabled all teams, no matter their market size, to sign their own superstars to long-term contracts. This spring alone, we've seen long-term contracts signed by players a year or more from free agency, including Justin Verlander, Buster Posey, Felix Hernandez, Adam Wainwright, Elvis Andrus and Allen Craig. Last year we saw similar deals for Joey Votto, Matt Cain and Cole Hamels, among others. Even the small-market Rays extended Evan Longoria to a nine-figure contract back in November.
As a result, fewer players are reaching the free-agent market, though those that do are benefitting tremendously.
"It was a good year to be a free agent," Reds general manager Walt Jocketty said. "There wasn't as deep of an inventory of players, so there were a few players that really capitalized on it and benefitted from it. Then there were a few guys that didn't fare so well."
That second subset consisted of players whose future destination was tethered to a lost draft pick. Overall, however, the rising tide of revenue lifted more players than it sank.
An inflationary free agent market
Free agent signings this winter followed a predictable pattern. There was a report, usually on Twitter, of the two sides nearing a deal. There was a tweet confirming that a contract had indeed been agreed upon. After a short delay, the terms of agreement were leaked.
Then, the final stage of this modern-day process was a collective gasp from within and outside the industry reacting to the gaudy details of multiple years and bloated dollars, a consensus refrain from pundits and anonymous executives alike condemning the deal as an overpay.
SI.com studied the last five free-agent classes and found that the average major league contract was longer and richer than in any of the four previous offseasons, reinforcing everyone's gut reactions that there seems to be real change afoot.
Comparing free-agent classes can be tricky, given the discrepancy in talent that is available, but what's most remarkable about this winter is that the majority opinion was that it was a weaker class, yet many still got paid more.
The Giants gave centerfielder Angel Pagan four years and $40 million, for instance, and the Reds gave reliever Jonathan Broxton three years and $21 million. Those are both productive players, but those are bigger contracts than we're used to seeing for a player who has never made an All-Star Game (Pagan) or a reliever who wasn't immediately installed as the team's closer (Broxton).
"I think a lot of us felt like it wasn't a great free agent year," Mariners general manager Jack Zdurencik said, generally, about the market. Though a few teams signed players early -- such as the Braves with B.J. Upton and the Tigers with Torii Hunter -- many clubs waited. "If you see what happens and then want somebody, the competition creates good contracts [for the players]," Zdurencik added.
It's about time we forget our previously formed frame of reference because, while some teams have been spending on the promise of new revenues, the reality of that new money is soon to line their coffers.
The SI analysis, which used contract data compiled in ESPN.com's Free Agent Tracker, showed that the average cost of one year of a free agent's services was $7.80 million, the highest in the period studied and a 28 percent increase over the average value of a free-agent year during the first three years (before the 2009, '10 and '11 seasons), which was $6.1 million. (Note: Only players who signed major league free-agent contracts were included.)
Stars weren't the only beneficiaries. In most winters, roughly a quarter or a third of all free-agent contracts are for multiple years, but this winter nearly one-half -- 47 percent -- of all contracts were for at least two years.
"It's not just the top, it's the middle threshold getting higher too," Jocketty said. "People always thought [rising salaries] would stop at a certain point, but it never seems to."
For instance, infielder Jeff Keppinger and lefthanded specialist Randy Choate received three-year deals; reserve players, such as infielder Jack Hannahan and catcher David Ross, signed two-year deals.
"The challenging thing is that there used to be one or two teams that spent over $100 million," Oakland GM Billy Beane said, "but now there's a significant number of teams that are well above. The median has really climbed in terms of payroll."
As recently as 2005, only three clubs spent north of $100 million; the median payroll that year was $66 million. Every club now has the ability to lock up one of their own premium players, but not everyone can or wants to engage in open-market bidding wars.
"I've never been in a market where I've been heavily active in the free-agent market," said Diamondbacks GM Kevin Towers, who previously held that post in San Diego, "so I don't feel comfortable in the free-agent market, to be quite honest."
Towers signed outfielder Cody Ross and starter Brandon McCarthy in free agency this winter but for a combined $41.5 million. Mostly, Towers has successfully built contenders through development and through a series of trades.
"We want to set ourselves up to be in a position where we only have to dip into the free agent market for bench players and bullpen guys," he said. "We've seen the price of poker continues to go up, specifically this year. It's only going to get worse so let's be ahead of the curve a little bit here.
"Looking at our franchise, our market, we cannot get into a position where, to make us a winner, we've got to go out and get that free agent and spend $100 million on a frontline starter. We've got to sign him, develop him or trade for him at an early age."
Investing in infrastructure
The corollary of rising salaries for veteran players through free agency is, of course, a need to build from within, using homegrown players either in the lineup or as trade chips. That's the case even for wealthy clubs like the Dodgers whose infusion of star talent to the big league roster was more a result of opportunity more than ambition.
"We came in planning to do the long-term build -- that was always the M.O. because all successful teams have done it that way -- and certainly that was going to be our plan," Kasten said. "We didn't know what was going to be available."
This spring GM Ned Colletti noted that the multi-pronged approach to rebuilding the Dodgers franchise wasn't limited to the trades for Hanley Ramirez, Adrian Gonzalez, Carl Crawford, Josh Beckett and Brandon League.
"As far as baseball operations, there are two drastic alterations since 12 months ago," Colletti said. "One, you can tell by the players -- the Florida deal, the Boston deal, the Seattle deal for Brandon, the other FAs we were able to sign. But under the surface there's really international too."
Los Angeles invested money in its international scouting, hiring nearly a dozen new scouts, as well as to hire Bob Engle, its new vice president to oversee international scouting.
Building from within has always been sound policy, but there's another reason for its enhanced importance now, one that goes hand in hand with this spate of contract extensions: the new collective bargaining agreement.
Under the old CBA, the top 20 percent of free agents at a position were designated Type A and earned the player's old team two top picks (his new team's first-round pick and a supplemental first-round pick), while the next 20 percent were Type B players and earned one new pick (in the supplemental round).
"A big part of what we were doing is, we weren't spending a lot of money on big league payroll, but we were spending a lot of money from an infrastructure standpoint," Blue Jays GM Alex Anthopoulos said. "We spent quite a lot of dollars on the draft, on Latin America. We got a lot of draft picks. We let a lot of good big league ballplayers walk away in order to get draft picks, whether that was [Marco] Scutaro, whether that was [Rod] Barajas, Scott Downs, whether that was [Kevin] Gregg."
The new rules mean the Rod Barajases of the world won't net a pick -- only elite players to whom a qualifying offer (of $13.3 million this winter) is extended. With the supplemental draft round shrinking, increased value will be restored to second- and third-round picks, though it becomes more imperative not to miss as it becomes harder to stockpile additional picks early in the draft. "There's no question we need to be more accurate and improve as evaluators," Anthopoulos said.
Also, the new CBA's spending caps on amateur players signed internationally or through the draft means that clubs looking for an edge can't just sign players to over-slot signing bonuses as in the past. Instead, they must invest in the infrastructure of scouting and development.
That's what the Dodgers are doing internationally; it's what the Blue Jays did, by hiring three dozen new scouts after Anthopoulos ascended to the GM chair in 2009; and it's what the Astros have emphasized in their first year and a half since Jeff Luhnow took over as their GM.
By those new rules, Luhnow said, the Astros can spend some $20 million this year after spending roughly $15 million last year. After a few years, they'd have nearly $100 million of player talent in the farm system, which a refined system of development can enhance.
"What you hope is that the $100 million that's in your pipeline turns into $300 million when it gets to the big leagues," Luhnow said. "What your multiplier is in the big leagues is very much going to depend upon how you manage that work in process, to use a manufacturing analogy. That's why you want to have the best process, the best instructors, the best facilities -- all of the things that we're making an investment in are ultimately going to help these players achieve their potential."
As revenues rise and free agency grows more lucrative, finding and multiplying value from within has never been more important.