3/31/2015

What are the Economic Effects of Sending a Future Star Player Back to the Minors?

Just recently the Chicago Cubs sent prospect Kris Bryant back to the minors.  This has caused a great deal of controversy amongst fans, agents, the MLBPA and the teams.  The Cubs cite the reason for him being sent back to the minors as he is simply not ready.  Theo Epstein has stated “he has never in 13 years had a rookie start on the major league roster”.  But, is there more to this than he is simply not ready?  Under the current Collective Bargaining Agreement, if the Cubs send him down for at least 12 days they will gain an additional year of control before he can become a free agent.

When looking at the economics of this it is hard to miss the underlying reason for him being sent down.  He is simply worth more in 2021 than he is for 12 days at the beginning of the 2015 season.  And when you factor in Scott Boras as his agent, and the reputation he has for testing the free agent market with his clients, it only adds to the case of sending him down.  Furthermore, the Cubs know his agent rarely accepts extension offers, all but ensuring he will end up as a free agent.

The biggest thing in Bryant’s favor is the extra experience he will have when it comes time for arbitration or to negotiate his next contract.  By delaying his service clock, the Cubs have given him the opportunity to prove himself longer and he will be able to demand a higher price during arbitration.  So while he may have to miss the beginning of the season he is being put into a situation he may benefit more from.

When thinking about the way MLB handles the players, is if fair to the player to be held back a full year from receiving a big contract for only 12 days of service at the beginning of their career?  What options do the players have considering they play in a monopolistic environment where there is no close substitute?  Let me know what you think in the comments below.

5 comments:

Dave Tufte said...

Cubbies: 100/100

Oh gosh ... I know nothing about this player, but I'd be almost certain that they sent him down to activate that extra year of control.

Of course, I do think that if he was actually contributing to winning games, that they'd keep him up in the majors. So I'm thinking he really isn't that ready for prime time, and that this is like putting a protective put on their investment.

I like the way Cubbies made the argument about the players' value to the Cubs now vs. later ... but I think it forgot about discounting. What's the discount rate on a top prospect? Maybe Dave Berri or Josh Price would know ... but I'm guessing that it's at least 10%/yr. That kills the present value of him in 2021.

As to the rights of players, for better or worse, MLB has a protected monopoly like no other industry.

Andy Dufresne said...

I think that the Cubs still won’t make it to the World Series no matter what they do. Oops, that’s not the subject of the post! Anyway, it seems a bit silly that the player’s union would allow for such a thing to happen, that players can be sent down to the minors for such an small and arbitrary amount of time, and that it has a seemingly large effect on the ability of the player to control his future: an extra year added for the team. They still have to pay him, just not as much as a new, negotiated contract. This must have been a necessary bow to the pressure from owners during the approval of the latest bargaining agreement. Players must be very proactive in what they include in their contracts to try to avoid these situations, but that’s only if the agreement allows this in writing new contracts. It doesn’t seem fair, but there’s not much a player can do about it. I hear there is still a Japanese league.
PS. Does anybody actually enjoy rooting against the Cubs so that the longest World Series drought is continued?

Bruce said...

The decision to send Kris Bryant to the minors for two weeks definitely has an economic aspect to it, the leverage of having an extra year of control. Especially considering that he led the league in home runs and hit .425 in spring training, the preseason of Major League Baseball. Businesses should always consider the economic effects of their decisions, and baseball is a business. It is interesting that many of the media reports attempt to make the Cubs out as a villain, almost as if they are stealing from the poor kid. Lest they forget that the Cubs gave him a $6.7 million signing bonus two years ago and that he already has an endorsement deal with Adidas that pays him what an all-star caliber player receives.

With all this being said, there are some legitimate baseball reasons for sending him back to the minors for a couple of weeks even though he is major league ready. The first two weeks of the season are loaded with off-days and are known for having many weather postponements. At the most, eight games will be played in the first two weeks, of which, he may have had a direct effect on the outcome of two or three games maximum. The beginning of the season is filled with hype and bringing him up after that hype has diminished will give him a better opportunity for early success.

Sorry for the rant, back to the economics of the situation. Scott Boras, Kris Bryant's agent, is know for being one of the best agents in sports and his involvement in this situation has had a direct effect on the media involvement. Scott Boras wants the leverage of one less year of control by the Cubs and the Cubs want the leverage of one more year of control. This situation will be forgotten in about two to three years if Kris Bryant produces at his expected level. Both sides will agree to sign a new contract so the player receives a lot of money earlier in his career and the Cubs will retain his services for a longer period of time. This is nothing new in baseball, Mike Trout was in an almost identical situation three years ago.

Dave Tufte said...

Bruce: 50/50

I don't follow baseball enough any more to have much more of an opinion on this.

Most of this discussion seems to be about the benefits to the Cubs of sending Bryant down, and the costs to Bryant. Would anyone like to comment on whether there are negatives to the Cubs, or positives to Bryant for this action?

Dr. Tufte said...

Andy: 50/50

Oops, I missed Andy's comment at the time it was posted. My bad.

I laughed at the Cubs joke. I'm originally from Buffalo, and got a big kick out of it back in the late 90's when they incorporated the Bills not winning the Super Bowl into the X-Files as one of their conspiracy theories.

I think the gist of your comment is correct: this seems like something the union shouldn't have accepted in bargaining. My guess is that there was some horse trading going on, and the union got something to give this up.

P.S. And yes, I have a friend at the University of Toledo who is a diehard Cubs fan. Has been since I first met him as a senior about 30 years ago.