January 5, 2019


You are damned if you do; and damned if you don't.


It continues to be a quiet off-season for the Cubs, though president of baseball operations Theo Epstein said in the Chicago Tribune  that the team remains active in exploring various options for upgrades.  “There are times to be aggressive and times to be patient, and there are times when you can be aggressive and times where you have to be patient,” Epstein said.  “Every off-season is unique. We’re working hard, and there are a lot of things we’re trying to do behind to the scenes to make sure we have a successful season next year.  I know thus far we haven’t added the big names that get the fans excited. I understand that’s part of the expectations in the off-season.”  Trades, more so than free agents, have taken up much of Epstein’s time as of late, he told Paul Sullivan.  They cannot make a big play for a free agent like Bryce Harper only if they can carve out enough payroll room.

Ken Rosenthal wrote that baseball’s “current economic system is outdated and flawed.”  Teams are increasingly leery of signing players to ultra-long contracts, yet are also just as worried about signing players to contracts with fewer years but higher average annual salaries out of fear of crossing the luxury tax threshold.  The result is “baseball’s version of a Catch-22,” Rosenthal writes, and he also points out that teams seem unnaturally adverse to making luxury tax payments given that relatively tiny amount of money actually spent on the tax.

Rosenthal's analysis is only rudimentary. Baseball's economic business model is changing towards uncertainty. The sport has had very good revenue, but the idea that current revenue partners like cable television distributors are going to poor billions into national and local TV rights is a thing of the past. Cable viewership is being slashed on a monthly basis. The main entertainment demographic (24-54) is moving quickly toward on-demand choices through streaming services, internet videos and on-line game platforms.

Baseball, first and foremost, is a business. On both sides of the labor issue. Each side wants to get the maximum out of a contract. Owners have been burned by long term deals that turn into dead money. Players want to be paid for past performance and/or market values tied to other (better) players rather than statistical projections of future performance (which is usually less valuable).

A team wanting to sign a $400 million player contract for 10 years must have some reasonable guarantee that their team net revenue is going to go up at least $40 million a year. With some teams local broadcast rights hovering around that number to begin with, it is extremely difficult to think that those fees will double overnight to pay for a superstar. And teams with high attendance cannot imagine that signing a superstar will increase the gate and ticket revenue. Many teams believe that they have hit revenue ceilings.

As such, owners will not lose money long term. Ownership is getting more cautious and strict on how much money a GM can spend on players. These are not artificial constraints but business reality for teams with high debt loads, and mortgage covenants. Player agents do not realize the potential squeeze some teams may be under.

 The other aspect of cost control is a team's minor league system. More GMs are focused on building a deep minor league system because those players can be cost controlled for six years. Teams have found winning formulas by playing young players at the major league level. You do not have to field a team of All-Stars (at high salaries) to be playoff competitive.

This is the second off-season where the new economic shift is taking agents back a few steps from their client expectations. Only one team, the Phillies, announced that they were willing to spend like a drunken sailor. But there has been little action as quality first and second tier players start to get antsy as winter rolls toward spring.