First of three parts
THE MOST encouraging thing to come out of Andy MacPhail's introductory news conference as the Phillies' president-in-waiting was his admission that his three-year absence from the game is an obstacle that he will need to surmount in order to build a front office capable of creating sustainable success.
Such self-awareness offers some hope that the longtime executive will emerge from his three-month transitional period having realized that the business of baseball has changed dramatically since he last inhabited a major league front office.
Virtually every avenue of talent acquisition and retention has been fundamentally altered by a set of new variables introduced in the 2012 collective bargaining agreement, signed after MacPhail left the Orioles in 2011. Given the interconnectedness of these changes, we have witnessed a radical transformation in the craft of organization building, particularly with regard to big-market teams like the Phillies.
Over the next few days, we are going to take a look at some of the lessons MacPhail should learn during his self-prescribed three-month crash course on baseball's rapidly evolving landscape and the Phillies' place in it. First and foremost is the need to hire a progressive general manager who possesses a strong economics background and an analytical mind and a coherent plan for adding assets to the Phillies' portfolio and maximizing the realized value of their current ones.
Forget about sabermetrics. The teams that will dominate the future will be the ones with the most accurate econometrics.
In Major League Baseball, money doesn't play like it used to. The introduction of hard slotting and draconian penalties in the draft and international markets make it nearly impossible for a team to build for the future by outspending its rivals at the top of the market. Meanwhile, the free-agent market is both wildly inefficient and largely inadequate for teams looking to do anything more than supplement an existing core of players with a final piece or two. Both characteristics are due to the remarkable influx of television revenue, national and local, that we have witnessed over the last five years.
Agent Scott Boras noted recently that every team in the majors begins its financial year with $120 million in revenue before it even sells a ticket or draws a ratings point. That's not Boras being Boras: That's how much each team receives from national TV and MLB Advanced Media.
The explosion of revenue has two effects on the free-agent market. One, fewer players reach free agency because of the ability of even historically frugal teams to sign homegrown stars to contract extensions (see Giancarlo Stanton, Andrew McCutchen, etc.). Two, on the rare occasion that a star does reach free agency, there are more teams with more combined dollars bidding on him.
During MacPhail's four years in Baltimore, total payroll spending among all major league teams increased by an average of 3.2 percent per year, from $2.68 billion in 2008 to $2.81 billion in 2011. Over the last three years, total payroll spending has increased by an average of 8.7 percent per year, from $3 billion in 2013 to $3.66 billion in 2015, according to salary figures from USA Today.
Over the last three years, half of the teams in the majors have increased their payrolls by an average of at least 12 percent per season. Six of those teams have averaged 20 percent growth. From 2008-11, only seven teams averaged 12 percent growth and two teams averaged 20 percent. Last year, teams committed twice as many guaranteed dollars to free agents as they did before 2010 ($1.7 billion compared to about $850 million).
Within these numbers lies the flaw in Pat Gillick's logic when he scoffs that the current front office didn't just "get dumb" overnight. The implication is that they were smart to begin with. From 2008-11, the Phillies' payroll expanded by an average of 18.1 percent per year, the third-highest growth in the majors, where the median was 4.4 percent. Each year of their dominant run at the top of the NL East, the Phillies' front office had four times as much new money to spend as their average rival. In building the 2009 and 2010 squads, they mostly flexed that financial muscle wisely in the free-agent market, which is not true of all front offices. They signed Raul Ibanez instead of Manny Ramirez or Milton Bradley or Pat Burrell. They would have been better off with Adrian Beltre than Placido Polanco, but they avoided something disastrous like Chone Figgins or Mark DeRosa.
The greatest flaw of Ruben Amaro Jr.'s regime has not been its evaluation of talent. Rather, it has been the valuation of it. Jonathan Papelbon has been one of the best closers in the games since signing in Philadelphia. Marlon Byrd ended up being a solid signing, as did Roberto Hernandez and, until his injury, Aaron Harang. Cliff Lee gave the Phillies three Cy Young-caliber years. The misses have been mostly inconsequential (Danys Baez, Mike Adams, Laynce Nix) and have been balanced by a similar number of hits (Chan Ho Park, Jose Contreras, in addition to Hernandez and Harang).
The development side tells a similar story. While the buck ended up stopping at former assistant GM and amateur scouting director Marti Wolever, the Phillies did draft Jonathan Singleton, Jarred Cosart, Trevor May, Travis d'Arnaud, Aaron Nola, and J.P. Crawford on his watch. Throw in international signees Domingo Santana and Maikel Franco and you suddenly have a team that is only a free-agent signing or two away from possible playoff contention.
The Phillies' blind spot has been the macro-valuation of that talent, within the context of both sheer market appraisal and the impact of opportunity cost on the organization. For example, Papelbon has been a great closer, but the Phillies paid way above market value for him, and they neglected more pressing needs to do so. Hunter Pence filled a need and had a successful year, but to acquire him the Phillies made one of the biggest overpays in prospects in recent history.
In addition to the five division titles, the legacy of the Gillick/Amaro regimes will be their disastrous failure to foresee the long-term macroeconomic trends of the sport and adapt accordingly. This failure almost certainly has direct roots in their reluctance to incorporate a big-data component to their valuation and evaluation methods, because big data is how one measures and forecasts macroeconomic trends, just like big data is how one measures and forecasts the weather. Meteorologists don't predict that it is going to be sunny because they remember a day back in 1972 when the sky looked exactly like it does now and it gave them goosebumps. They use data. Lots and lots of data.
Payroll disparity is only going to decrease. The economic playing field is only going to level. The success and failure of front offices will not depend on their ability to sign the right big-ticket free agents. It will depend on their ability to find value in an increasingly competitive and efficient marketplace.
The decisions that will determine the Phillies' future are not, "Should we sign Milton Bradley or Raul Ibanez?"
They are, among others . . .
* Given the volatility of relievers' health and performance, is Ken Giles at his peak value and should we make a concerted effort to trade him?
* What is the expected value of Maikel Franco's performance over the next three, six, nine and 12 years? How much money might we save by signing him to X dollars now? How much risk do we assume if we sign him? How much risk do we assume if we don't?
* How much is Aaron Nola worth as a trade chip? Is there an Anthony Rizzo out there to be acquired in exchange for a team that desires an Andrew Cashner?
* How do we maximize our draft bonus pool?
* Is there more value in splurging for a year on the international market and being forbidden from signing top-shelf players for two years, or in remaining at or below our allotted international bonus pool?
* Are there any emerging markets where talent is currently undervalued? Is there a type of pitcher that is undervalued? A type of hitter? A type of prospect?
* Is it worth it for us to go over the luxury-tax threshold? By how much? For how long?
These are just some of the economic questions that will help to determine success in a marketplace where financial advantages are diminishing. MacPhail has acknowledged that he does not have experience operating with these types of variables. His first move should be to hire somebody who does.