Monday, October 29, 2007

A-Rod's Contract Again

I usually agree with Rob Neyer, but I don't agree with this blog post, where Neyer contends that Alex Rodriguez isn't worth the money he's now earning or will earn. As evidence that A-Rod is overpaid, Neyer cites Nate Silver's study of the first years of A-Rod's present contract.

I see three problems with Neyer's case.

First, and most trivially, Neyer cites the contracts of Rodriguez, Mike Hampton, and Manny Ramirez as regrettable decisions by irrational owners: "All three franchises, within just a few years, regretted those deals. Terribly regretted those deals." Sure, Hampton's deal was a disaster, but doesn't it seem a little nuts to criticize Boston for the Ramirez deal in the very week that the team wins its second World Series? I mean, I discount the meaning of postseason performance as much as anyone, but it's hard right now to imagine a better way for Boston to have spent that cash.

Second, the Neyer/Silver argument may be outdated. Neyer doesn't account for the increasing revenues in MLB. The increases may not be enough to change the big picture, but they need to be accounted for.

But the more fundamental problem with Neyer's argument is that he's making a case about a market that simply doesn't exist. Baseball owners don't get to sign free agents on the basis of Silver's calculations of their value. The asking price of free agents is (give or take) the amount of the richest competing offer plus a little bit. In such a market, top free agents will always and necessarily command more than their demonstrable value, while top young players in the present salary structure receive less. The owner who offers the Silver-Neyer price for free agents simply won't sign any of them. The rational price is above the median assessment of a player's demonstrable value. That is, the right price is what Neyer would wrongly call an irrational one.

The interesting quirk of this situation, however, is A-Rod's act of opting out of his present contract, which costs the Yankees $23 million. Avoiding that loss should be worth a lot to the Yankees; they could rationally pay, say, $20 million more than A-Rod's free agent price to extend him. The fact that A-Rod appears to be turning down a contract extension means a) he's bluffing, b) he really doesn't want to play for the Yankees anymore, or c) he and the Yankees are each betting on evaluating the free agent market better than the other. I'm guessing A-Rod wins that bet.