Will Carroll (best known for gathering info about sports injuries) devotes a Baseball Prospectus blog post to the recent Wall Street meltdown: "Saul Hansell takes a solid look at what some are calling a failure of the quantitative analysts on Wall Street and already, some are wondering if the same kind of backlash will happen in baseball." (hyperlink in original)
(The gist of the Saul Hansell piece is that financial analysts gave their computer models bad initial assumptions, for example (this part is my jumped-to conclusion, certainly not Hansell's per se) underestimating just how many American homebuyers would turn out to be deadbeats.)
Anyhow, shortly after reading that blurb I saw Todd Zywicki, a Volokh Conspirator, ask readers which analogy was more apt between "liquidity problem" or "misvalued assets." There's a lot of both, of course.
Full circle between the financial world and the baseball world, I can finally reconstruct the question I asked Sandy Alderson at a 1999 symposium about players vs. owners, big market vs. small market, etc. (This was at baseball's winter meetings, sponsored by Baseball America; as I recall the panelists were Scott Boras, Gene Orza, and Jerry Glanville; and Sandy Alderson, Randy Smith, and Jerry Colangelo.)
The prevailing meme at the time had been that teams like the Pirates or Royals couldn't afford to sign the best/most expensive free agents. So my question was something like this (nine years after the fact, this is a paraphrase at best):
Did they really mean to imply that it would be unprofitable, even in the long run for a small-market team to sign a big star? Since the very best athletes tend to bring a team marginal revenue well beyond their salaries, wasn't what-can-the-Royals-afford-to-pay-their-players just a liquidity problem that could be easily solved with judicious lending/borrowing? But if the real issue was that signing big stars wasn't worth the opportunity cost (versus sucking but consistently profiting, like the Pirates do), why couldn't they just admit that instead of crying poor?
Boras visibly enjoyed the question; Alderson pretended not to understand it.
The biggest flaw with my premise is of course that a big star will make a much bigger financial difference in a market with more viewers or ticket buyers at stake. If a player would be "worth" $100M to the Yankees or $50M to the Royals, the Yankees could offer $50.1M and reap a big gain. Then again, the flaw with the flaw is that arguably, aside from needing to borrow the money, the small-market teams could have been the top bidders on some particular stars (obviously not others - here's where baseball common sense comes in, e.g. don't overpay mid-30s veterans about to hit a career cliff) and still come out positive (just not necessarily ahead of their otherwise-most-profitable option)
P.S. Speaking of Boras, he certainly knows how to start with an ostensible fight against an arguably unjust situation and extract maximum rent for his client in exchange for letting the broader injustice slide.
Posted by Matt Bruce at September 22, 2008 01:21 PM