Buy Now or Pay Later

At some point today, Major League Baseball is expected to announce the details of the new Collective Bargaining Agreement that was negotiated with the player’s association. While there are some pretty major changes to several areas of the game, perhaps the most influential move is the addition of a second wild card team in each league. While qualifying to participate in a one-game play-in isn’t quite the same as being awarded a spot in the Division Series round, the new rule does essentially give two extra opportunities to play in October, and while it may not seem like a drastic change, I do think we’re going to see significant repercussions in how and when teams acquire talent.

An additional playoff spot has the obvious effect of increasing every team’s chances of making the playoffs, and as a byproduct of that result, the value of short-term wins just increased. Under the old system, a team needed to win at least 90 games to have a legitimate chance at winning the Wild Card. Of the 32 teams to get into the playoffs via the extra playoff spot since 1997, only three had finished with 89 wins or fewer – in fact, in the American League, the 91-win 2011 Rays had the lowest win total of any AL Wild Card team since the 2000 Seattle Mariners. The average wild card team has won 93.3 games per season, so the non-division-winning playoff team has still been quite excellent in most years.

The new system lowers the barrier to entry by a significant amount, however. Back in April, our own Wendy Thurm looked at how interleague play would have affected a hypothetical second wild card team for the National League had it been in place since 1998. As you can see, more often than not, the runner up in the NL Wild Card race finished with a win total in the 80s, and the average win total was just 89.2 wins. There has historically been a pretty significant drop-off in quality between the wild card team and the runner-up, but now that runner up will also get a chance to continue their quest for the World Series.

The result will be a shift in the curve that measures the value of a win. Right now, the value of a win is fairly linear up until about win #85, at which point each additional win (up until about win #98) becomes significantly more valuable, as those wins have the greatest impact on a team’s odds of making the playoffs. The new wild card is going to dramatically increase the value of wins starting at around #82, while also flattening the win curve a bit sooner, as the second wild card will all but ensure that a team with 95+ wins will make the playoffs, and the value of each additional win beyond that will diminish slightly.

This shift in the win curve is going to be reflected in how willing teams are to buy and sell wins. Right now, most teams that think they’ll finish below .500 in the following year will generally act as sellers, moving present talent for future talent. However, with a lower bar to clear to make the playoffs, it is now going to be far more valuable to put together a team that can at least hold their own and have a chance at sneaking into the mid-80s in wins. Even if a team doesn’t end up capturing the second wild card, they’re now going to be in a significantly better position to give their fans a pennant race in September, and the number of teams that will be playing meaningful baseball down the stretch just increased.

As such, I believe we’re going to see a dramatic decrease in the number of teams that are willing to act as sellers in July. For instance, look at the standings from July 30th, 2011 – if a second wild card and had been in place and teams only needed to believe they could win 89 games to get into the playoffs, which teams do you believe would have been willing to trade talent away?

In the AL, the Angels would have been in possession of the final playoff spot with a 59-49 record on the day before the trade deadline. I think you could have safely assume that Toronto, with their 54-53 record and only trailing the Angels by 4 1/2 games at that point, would not have been so willing to move present value for future value. The same is likely true of the White Sox, whose record stood at 52-53. In fact, only five American League teams would have been far enough behind the Angels to convince themselves that they really didn’t have much of a chance last summer.

In the NL, the story is the same. The Diamondbacks would have held the lead for the final playoff spot with a 58-49 record, but seven teams would have been within 7 1/2 games on the day before the deadline, leaving only the Dodgers, Padres, Cubs, and Astros as obvious sellers. Perhaps Washington and Colorado would have still decided to move present talent for future talent due to their below .500 records, but the decision wouldn’t have been as easy, nor would the price have been the same – teams wanting to buy talent from those rosters would have had to compensate for the fact that the bubble teams were essentially punting better chances of making the playoffs, so the cost of downgrading the roster in July is greater.

Realistically, under the new system, there probably would have been no more than 10 or 11 teams willing to move talent in July. While not all of the other 19 or 20 teams would have acted as buyers, there would have been increased motivation to hang onto talent already on-hand, and that alone would have decreased the supply of talent available mid-season.

Under the new system, having twice as many July buyers as sellers is likely to become the norm, and as such, I’d expect the cost of acquiring talent in-season to increase dramatically. We’re going to see supply decrease at the same time that demand increases, and the sheer lack of quantity of talent available to fill all the needs that will pop up after the season starts means that we’re likely to see shortage-driven buying.

We’ll likely see inflation in pricing for talent in the off-season as well, since present wins are now going to be relatively more valuable than they were previously, but I’d expect that the biggest change will be the price of talent mid-season. However, if MLB teams also come to expect that the price of wins is going to increase dramatically during the year, they may adjust their strategies by being more aggressive in upgrading their roster during the off-season, which could lead to further inflation in the price of acquiring talent during the winter.

I don’t think there’s any question that the second wild card is going to directly lead to teams paying higher prices than we’re previously used to seeing in terms of free agent signings and trade acquisitions. The structural change to the sport shifted some value from prospects to players with the ability to produce sooner than later, while also decreasing the number of teams who are going to be interested in selling off talent in lieu of making a run at a playoff spot.

When analyzing contracts handed out this winter, we’re going to have to keep these changes in mind. There is now extra incentive for teams to build good teams in November and December so that they won’t have to pay significant mark-ups to try and improve their talent base during the summer.