From Craig Goldstein at Baseball Prospectus on April 17, 2019:
I recently observed on Twitter that baseball teams are acting a lot like insurance companies. What I meant is that they’re pooling together groups of like players and offering them contracts en masse as a means of diversifying their risk and getting as many bites at the apple as possible. Surely, some of these deals won’t pan out. Maybe Brandon Lowe won’t justify that investment, but even if he doesn’t, the risk spread out over the length of the deal, is minimal and the Rays have a good shot at Blake Snell out-producing his contract to the point that Lowe’s “bust” status would be irrelevant. Or vice versa.
My contention was that this approach was a bit like insurers offering plans to different people who are pooled together and thus if one person ends up getting sick or injured, the company’s loss on that coverage is offset by the rest of the people within the pool remaining healthy. That was the idea, anyway, but it’s not the most apt comparison. A better one is probably investment or venture capital funds.
Read the full article here: https://www.baseballprospectus.com/news/article/48534/deep-but-playable-the-cost-of-security/
Originally published: April 17, 2019. Last Updated: April 17, 2019.