Editor's note: This essay earned the author a 2012 Herb Moss Business of Baseball Scholarship from Ohio University's E.W. Scripps School of Journalism. Moss is a longtime SABR member and a 1968 graduate of the Scripps school. He established the scholarship to recognize the importance of business and economic news, and to follow his love of baseball. Moss is VP at UBS investments, which specializes in financial services. The essay is being republished in its original form at SABR.org with the permission of Herb Moss.
By Allan Smith
Since the mid-1970s, when Major League Baseball began to grant its players the right of free agency, player salaries have been growing exponentially. At the forefront of these growing salaries are the New York Yankees, who since the inception of Free Agency have been spending like it was going out of style, starting off by giving out big deals (at the time) to superstar pitcher Jim “Catfish” Hunter and Hall of fame slugger Reggie Jackson. For the past ten years, the Yankees have had the number 1 payroll every year, recently surpassing the $200 million mark in 2005 and staying above it every year since 2007. Ironically, these free spending practices have not yielded the results that you would expect to see, as the legendary Yankees have only won 1 World Series this century, as multiple players on their team are earning over 20 million dollars per year. The reason for this is simple, the rules of baseball allow for player salaries to be controlled at team-friendly rates for the first three years of playing time, followed by another three years of salary arbitration where an independent arbiter decides what the player should make if the two sides can't agree to a figure beforehand. This allows for teams such as the Tampa Bay Rays, who I will focus on in this essay as well, to keep their young, top tier talent for six of their best years while not breaking the bank.
Until Recently, the only statistics that really mattered when determining a players value was batting average, home runs, RBI, runs scored, and stolen bases for a batter with ERA, strikeouts, and Wins being the stats of importance for a pitcher. Now in the digital age, a new statistic has emerged that has completely changed the landscape of the game and caused teams to re-evaluate how they build a team. It's known as Wins Above Replacement, or WAR, and it measures how many wins a player provided a team compared to how many a replacement level player would have. While even the most hardcore of baseball fans would be at a loss for words at how this stat is calculated, it basically ties in a batters offense, defense, and speed and all of the ways to measure good pitching. WAR has become the stat that becomes the largest factor in giving out a large contract to a player, and it has made the value of young, inexpensive players jump through the roof like they have never been. This has allowed for the stingy Tampa Bay Rays, who build from within, to be neck and neck in recent years with the New York Yankees, even though the Yankees spend more then 160 million more then they do. That is 5 times as much that they are spending, yet the results are nearly identical, with both teams making the playoffs three of the past four years and each one making it to one World Series. The Yankees highest paid and most famous player, Alex Rodriguez, made $32 million last year and will have made nearly $450 million dollars once his career is over, a number unmatched by any in sports history. Rodriguez's WAR last year was 2.7, so essentially, the Yankees were paying Rodriguez 11.85 million for each Win Above a Replacement level player. You don't need to have a PhD in Economics to know that that is an absolute waste of money, there is no value at all in paying a player that much to provide that amount of production, even though the player is a future hall of famer who is one of the most famous in the sport. The Tampa Bay Rays 3rd Basemen, Evan Longoria, who made ‘only’ $2 million on a much more team friendly contract, since Longoria was drafted and brought up by the Rays as opposed to signing him as a free agent, had a WAR of 6.3. That means that Longoria cost $317,460 for each Win Above Replacement he contributed. Numbers like these have caused free agents to not be as sought after in recent years, made teams re-evaluate the resources they pour into player development, and have even caused the high-spending Yankees to slow down on the big contracts and try to groom their own players. Teams such as the Tampa Bay Rays and the WAR statistic have completely changed the economic landscape of baseball, which was formerly about teams throwing lavish amounts of money at decent players, to a league that has teams carefully allocate dollars, causing for a level of parody the sport hasn't seen since before the inception of free agency.