Are Teams “Buying the Dip” in the Relief Market? by Travis Sawchik January 16, 2018 At the completion of trading on January 5, the S&P 500 reached a milestone, having endured the longest interval in its history without experiencing a 5% decline, according to Spencer Jakab of The Wall Street Journal. In another WSJ story, reporters Chris Dieterich, Ben Eisen, and Akane Otani note that declines have “grown shallower” over the last two years and “are snapping back sooner.” These trends, according to the authors, are a result of “economic optimism” and a growing awareness of the returns enjoyed by those who remained invested in “riskier assets” during the rebound from the Great Recession. Investors are jumping on the smallest signs of value, buying the smallest declines. From that piece: “The investor base has been conditioned to buy the dip,” said Mohamed El-Erian, chief economic adviser at Allianz SE. “And the reason why they have been conditioned is because it has been an extremely profitable trade.” Buying the dip has been profitable — and particularly so in this bull market. This author is not a trained economist. Speaking anecdotally, however, it appears that more people in more industries are thinking more and more alike, have more and more information — often similar information. The result? It’s more and more difficult to find value. It’s perhaps becoming easier to create bubbles. Baseball appears not to be exempt from this trend. As noted recently by Kiley McDaniel, teams are thinking more and more alike. Front offices look more and more alike. Dominant technologies like PITCHf/x and Statcast have given teams an incredible wealth of information, but it is the same information. The next big thing often becomes quickly adopted, whether it be pitch-framing or defensive shifts. Teams are trying to think differently, but it’s a copycat game. We might be seeing yet another example of this phenomenon at play this winter — not just with regard to the slowly developing free-agent market but the one group of players in which teams have invested: relief pitchers. As of Jan. 16, MLB teams have spent $321.0 million on relievers (24 pitchers), and just $94.8 million on starting pitchers (nine pitchers), according to Spotrac. Craig Edwards wrote an interesting piece earlier this month on the craziness of the reliever market. Over the holiday break, I wrote something about reliever spending for ESPN. Since the publication of those pieces, nothing has changed. The biggest-name starting pitchers remain unsigned. Wrote Edwards: With last year’s great class of closers we saw a roughly 80% jump in multi-year guarantees despite fewer deals. This season, without that star power, relievers have maintained those gains. …. Perhaps teams are valuing relievers more highly due some revolution or another. Maybe there just isn’t a whole lot out there for teams to spend their money on. Some combination of the two seems likely. Revenues have soared and the free agent class of two years ago was a great one. The last two years have been rather lackluster, but teams have to spend their money somewhere. A lot of decent relievers are benefiting as the rest of winter remains on hold. The game is awash in cash. The last couple of free-agent classes haven’t been great. Still, teams are choosing to be more aggressive with relievers — it’s the only player group to be aggressively courted thus far this offseason — while many of the perceived top free agents remain available. Relievers are being more valued. One possible reason is that they are receiving more work. As I noted for ESPN, relievers accounted for an MLB-record 38.1% of innings thrown in 2017, an increase of three percentage points (35.2%) from just 10 years earlier. Three points equals 1,200 innings in a season. Thirty years earlier, bullpens recorded 31.8% of innings, and 50 years earlier, bullpens accounted for 26% of them. Teams have also increasingly allocated resources to relievers to find more affordable, quick fixes to their run-prevention capabilities. Even with the spike in bullpen spending last season, relievers were still a relative value compared to starting pitchers. Teams spent $43,824 per inning thrown by a starting pitcher last season, and $35,433 for every inning thrown by a reliever. And relief arms rarely enjoy a contract term greater than three seasons. While the average inning thrown by a starting pitcher is more expensive, relievers were also more effective on average. Across major-league baseball last season, starters produced a 4.49 ERA, 4.41 xFIP and a 12.5-point K-BB% mark. Relievers combined for a 4.15 ERA, 4.16 xFIP, and 14.2 K-BB%. While there are perhaps many factors at work in this reliever spending, perhaps teams see that there remains value to be extracted in the reliever market. And perhaps many teams are thinking in similar ways and looking for value in the same places. It would explain why we see teams having spent three dollars on relievers for every one dollar on starting pitchers as of Jan. 16. According to Spotrac, relievers were paid $425 million last offseason, leading all positional groups. The previous four offseasons (2012-15), starting pitchers were the highest-paid position groups and according to Spotrac data, while relievers, collectively, ranked second, second, third, and fourth, respectively. Like with dips in the markets, perceived competitive advantages are being exploited as quickly as they ever have been in baseball. Relievers are still a relative value, but they will not be for much longer if teams continue to spend like this. It’s hard to find value when everyone is targeting and spending on the same perceived inefficiency. Like others, this one will likely even out, as well.