Free agent value and building teams from withinby Matt Swartz
April 03, 2012
Doug Pappas introduced a revolutionary way of looking at the performance of front offices in 2004 when he looked at marginal payroll per marginal win. The idea is simple: if you fill a team with fringe players available on the free agent market for the league minimum salary, you would win about 43 games and spend about $12 million. Therefore, a team should not be evaluated only on how many wins it can get beyond that baseline of 43, but on how efficiently it can use its resources to exceed that number.
For example, the Rangers averaged 85 wins and $74 million from 2007-2011, so they spent $62 million above league minimum to get 42 wins above a replacement-level team. They spent about $62 million to get about 42 wins, which equals $1.47 million in marginal payroll per marginal win.
The idea changed baseball analysis—efficiency is an essential concept for team construction. However, if we look at how teams rank in this crucial statistic, we start to see its limitations.
Looking at the last five years, the Marlins are unsurprisingly on top and the Yankees are unsurprisingly at the bottom. However, despite the fact that the Marlins have been able to average about 79 wins per season (about 36 wins beyond what a team of retreads would cobble together) at a rate of $0.78 million per marginal win, that does not mean that the Yankees could have realistically achieved their 17 extra wins per season at the same efficient clip. To win 17 more games, the Yankees used mostly free agents, who cost an average of $5.4 million per fWAR (the Fangraphs’ version of Wins Above Replacement) over the last five seasons.
Here are the rankings for 2007 through 2011. This is just the top five and bottom five. The full table is at the bottom of the article.
Unlike winning pennants, the way to win the marginal-payroll-per-marginal-win prize is to not spend money on free agents. About 70% of all major league WAR comes from players who are not eligible for free agency in the first place, so the average team would go 69-93 by retaining all players in its system until they were eligible for free agency.
But it’s neither good business nor good baseball to sit on your hands at that point. Opening up your checkbook may put you over the top and into the playoff race, which could be far more profitable than sitting tight near the 70-win mark.
Performance from players yet to reach free agency
There are really two different sources of per-dollar efficiency when we look at marginal payroll per marginal win:
(1) How well a team gets production from players not yet eligible for free agency
(2) How efficiently a team spends on free agents
So, for the following analysis, I will use two classifications of players that are particularly important.
(1) NM = Non-Market Players, who are either bound to their team by the reserve clause or eligible for arbitration
(2) AM = Auction-Market Players, who are eligible for free agency or are at least eligible for auction by being professional amateurs from countries like Japan and Cuba.
Taking the analysis further, I considered two different definitions of a Non-Market player:
- NM Drafted & Signed: where the signing team gets credit for the player’s performance, even if that team had traded him to another team. For example, Neftali Feliz’s WAR is credited to the Braves (who signed him as an amateur).
- NM Players: where the team that holds the player on its roster gets credit for the player’s performance. In this case, Neftali’s Feliz WAR is credited to the Rangers (where he played).
Players who are playing for the team that originally signed them are included in both definitions.
Both versions exclude any player who had six years of service time (or was signed as a professional out of Japan, Cuba, or elsewhere). To estimate the impact of a specific player, I calculated the difference between the team’s record and the player’s WAR.
The Red Sox, for example, would have won an average of 79 games per season by keeping players from their system who had not yet reached free agency, but traded away about 11 wins, leaving them with 68 wins from NM Players still on the team. They then supplemented those 68 wins with 25 wins from the free agent market or by acquiring free agents signed by other teams.
On the other hand, the Dodgers’ payroll averaged $110 million over the last five seasons, but they might have been just as good if they had just retained their own draftees and amateur signings. The only cost would have been about $30 million in arbitration and league minimum salaries, and they would have been about as good as they were spending $110 million.
The following table ranks teams by the amount of non-market talent they developed, regardless of whether they held onto that talent of traded it away. The first column sums up the talent they originally signed, the second column sums the wins from non-market players on the team and the third column reflects the team’s actual performance.
In other words, the difference between the second and third columns is a reflection of how much talent each team signed through free agency.
Using this metric, we can see which teams had the most productive systems, and gave themselves the best jumping off point, and which teams had the worst head starts.
The Braves, like the Dodgers, traded away a lot of young talent, but they at least supplemented the talent they lost with free agents that made a difference. The Dodgers lost 16 wins of non-market talent they had in their system and only added 18 wins of auction-market talent back, while the Braves lost eight wins of non-market talent that they had in their system and added 17 wins of auction-market talent back on to their total.
The Diamondbacks and Rockies were good at scouting and acquiring amateur talent, and good at retaining it too, but they both did a relatively poor job supplementing this talent with free agents necessary to put them into the playoffs continuously.
The Padres, Royals, and Astros have been unsuccessful in recent years primarily due to a dearth of in-system amateur talent. While none were particularly spendthrift when it came to free agents, they had terrible starting points, and would only have been able to cover so much of this gap by opening their wallets.
Bang for your buck
The other element of front office efficiency is getting the most bang for your buck when you do supplemental your non-market talent with free agents. As you can imagine, there were large differences between teams in terms of how efficiently they spent their money. The Cardinals were able to buy wins at a rate of approximately $3.3 million per WAR. On the other hand, the Athletics, despite their prowess in terms of marginal-payroll-per-marginal-win, had to spend over $13 million for every WAR they acquired on the free agent market.
The $/WAR numbers below include an adjustment for the WAR lost from draft picks lost due to free agency signings, as well as the bonus money saved. This is most obvious when we look at the Pirates. The Bucs only managed to purchase 2.5 WAR from free agents, but did so at the expense of a few draft picks that actually were worth about 2.6 WAR.
All salaries are considered relative to the yearly league minimum as well, and then credited to the team that signed the deal (so Manny Ramirez’s WAR in 2009 as a Dodger went to the Red Sox).
Table 3 below lists teams $/WAR from free agents alone. Notice that even though the Cardinals generated a lot of their efficiency by buying Albert Pujols’ wins on the cheap, they had good contracts on a lot of players.
Note: The Pirates lost 2.6 WAR from the value of their draft picks, so their net $/WAR was negative.
Putting it all together and building a team
Comparing the rankings in terms of marginal payroll per marginal win in Table 1 to the equivalent statistic for free agents in Table 3, we see stark differences.
The Marlins had the best ranking in the Table 1, getting wins at a rate of $0.78 million, while the Yankees’ $3.71 million puts them at the back of the pack. However, Table 3 shows both teams are square in the middle in terms of how much they spent on free agent talent—the Yankees spending $5.4 million per win, and the Marlins spending $5.6 million per win.
The real difference was that the Marlins averaged 35.4 non-market WAR and only 2.0 auction-market WAR, while the Yankees averaged 18.7 NM WAR and 33.0 AM WAR. The Yankees spent far more than anyone else on free agents, presumably because they got the most value from doing so. Winning in New York is valuable. They were only okay at producing talent from within, but they were not at the bottom of the pack.
Looking at the teams at the top and bottom of the rankings, we can learn a little bit more about what these front offices have done. The Padres were actually quite efficient when they did spend money, but they just didn’t spend that much. Their position in the Table 2 explains why. The production from within their system was so weak that they would have gone broke trying to supplement it with free agents.
The Rays were second on the marginal payroll per marginal win ranking for a few reasons. They were above average with 30.7 WAR from their amateurs who had less than six years of service time, and also made some great trades to supplement this, leading the league with 38.8 non-market WAR for their players. On top of that, they still only spent $3.8 million per WAR for free agents. The reason that they were not running away with the AL East every season is that they just didn’t spend that much money.
Below I provide the full tables for all 30 teams. Each team’s story becomes a little bit clearer when looking at Table 2 and Table 3 than looking at Table 1. Marginal payroll per marginal win is useful, but it does not differentiate between being productive by buying underpriced talent and by being cheap. The Marlins may have looked very efficient from 2007 to 2011, but I bet they’ll make more profit with their newfound approach to spending on the free market.
Appendix of Tables
Table 1A: Marginal Payroll per Marginal Win, 2007-11
|Rk||Team (2007-2011)||Avg. W-L||Marginal $/Win|
Table 2A: Production from Within, Retention of Young Talent, and Actual Records
|Rk||Team||NM Drafted & Signed||NM Players||Average W-L|
Table 3A: Team Dollars per WAR from Free Agents
|Rk||Team||FA fWAR||FA $/fWAR|
Note: The Pirates lost 2.6 WAR from the value of their draft picks, so their net $/WAR was negative.
Matt Swartz finished his Ph.D. in Economics at Penn in 2009, and now applies his degree to the serious topic of baseball. Matt also writes regularly for FanGraphs, and has published at MLB Trade Rumors and Baseball Prospectus. He can be reached at matthewTswartz at gmail, or on Twitter @Matt_Swa.