Mr. Selig, Tear Down this (DH) Wall
Warm Up Tosses: I hadn’t written anything during June because my path to publication has taken another highly unusual and improbable turn. On July 1, I’m relocating to Las Vegas for the remainder of the baseball season. I spoke about this development during an hour-long appearance on The Damon Bruce Show, on the Bay Area Sports Leader, KNBR 1050, this past Wednesday. You can listen to the interview here where I am featured during Hour 3 on June 27th: http://www.knbr.com/ShowsSchedule/DamonBruce/tabid/1749/Default.aspx (Note that I often have to refresh my browser a couple of times to get the imbedded podcast audio player to appear and list the available shows.)
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Consider this fact-based quandary faced by Investor B: A spacious, 1,200-square foot, one-bedroom apartment in a Manhattan condominium comes up for sale. The condo’s charter allows for the renting of units so two real estate investors decide to bid for the unit with plans to rent it out to tenants. The New York City real estate market allows for pretty transparent price discovery for fair market rents and both investors have access to the same rate of financing. Therefore, except for an assumption about the direction and magnitude of change future rents will take, it’s fairly easy to accurately determine the exact value of the property, from a rental real estate perspective.
However, to the chagrin of Investor B, there is one other factor which will inhibit her ability to outbid Investor A. Investor A already owns a similarly designed 1,200-square foot, one bedroom apartment next to the one currently up for sale. Thanks to a recent trend of families with two children remaining in Manhattan and eschewing a move to the suburbs, a huge premium exists in the rental market for two bedroom apartments. For a fraction of the purchase price, Investor A can knock down a wall and convert the two units into one 2,400-square foot, two or three bedroom apartment, and receive more rent for the combined units than if each unit were rented separately.
As a result, Investor B knows she is going to lose the auction and worse, she can’t blame irrational bidding or deeper pockets of Investor A. The property for sale simply has more utility to Investor A than Investor B.
That’s capitalism at work and, on the surface, there is nothing unfair about it. But I’d ask San Francisco Giants fans this question: What if the property in question isn’t a Manhattan condominium but instead a catcher named Buster Posey?
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I don’t think I’m going out on a limb when I say that when faced with evaluating two teams, the ideal way to determine which is the better team is to compare their records when they play each other. The number of observations matters of course, and there are other factors that could be considered, but head-to-head results would have to be a heavily weighted factor. If the Giants and Dodgers were to play all 162 games against each other and one team won 90 of those games, the other team’s fans would have a hard time disputing the superiority of the opponent.
Since interleague play began in 1997, through last season 2,712 regular season games were played between AL and NL teams. Here are the results by league, 1997 through 2011:
American League record: 1,939 – 1,773 .522
National League record: 1,773 – 1,939 .478
This is fairly compelling evidence that the teams in the American League, over the last 14 years have, on balance, been better than the teams in the National League. That’s the common refrain that baseball fans have heard from commentators for more than a decade. These results have certainly contributed to the narrative that propels that belief.
Therefore, I think I am going out on a limb when I say the American Leagues has been a little bit better than the National League since the advent of interleague play but the margin has been slim enough that it’s possible the difference in results is simple due to randomness.
Why the seeming divergence between the data and my conclusion? For the same reason you wouldn’t say Investor A is superior to Investor B – they’re not competing on a level playing field.
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One of the more amazing constants in baseball is the value of home field advantage. Across the last 100 years, home field advantage has unwaveringly been worth a 4% boost in win expectancy for the home team. Only one decade in the last 100 years, the 1930s when home teams won 55.3% of the time, has home field advantage deviated from 4% by more than one-half percent. This doesn’t mean that every single team will win 54% of its home games over time, but it does mean that no matter the overall level of talent on a team, over time, its home winning percentage should exceed its away winning percentage by 8%. (Away teams, on average, win 46% of the time, or 8% less than home teams.) It also means that when two evenly matched teams play, in the long run the home team will win 54% of the time.
Viewed through that prism, let’s take a look at the results of interleague play broken out by home and away games, 1997-2011.
AL record, away games: 871 – 985 .469
NL record, home games: 985 – 871 .531
Surprised? National League teams have won just over 53% of their home games in interleague play. Since the win percentage is below 54%, this suggests the American League, collectively, has been a little better over the last 15 season than the National League, but the results are possibly within randomness of the 54% level at which we’d conclude the leagues are evenly matched. This would seem to contradict the narrative that the AL is vastly superior. So where are the results that drive that narrative?
Here are the results of games played in American League ballparks.
AL record, home games: 1,068 – 788 .575
NL record, away games: 788 – 1,068 .425
Looking at the results in this subset apparently leaves no doubt: The American League is much better than the National League. But I completely dismiss these results as irrelevant. Why? Because these games are played with a Designated Hitter and all the results prove is that the designated hitter used by American League teams is vastly superior to the marginal batter inserted in the line up nine times a year by National League teams. The reason for this is simple: National League teams have no economic incentive to pay for that ninth bat while American League teams do. Why do AL teams, collectively, pay more for hitters? Because, like Investor A in the apartment illustration above, hitters have more utility for AL teams.
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Conveniently for those that like round numbers, according to Baseball Prospectus (via Cot’s Contracts, the on-line authority for MLB contracts) the 30 MLB teams will spend $3 billion on player salaries in 2012, for a nice round average of $100 million per team. However, when separated by leagues the salary data yields some interesting tidbits: Both leagues spend about $1.5 billion on salaries but, of course, there are 16 teams in the NL and only 14 in the AL. Here’s the average team payroll by league:
AL: $107.0 million
NL: $94.4 million
AL teams spend 13.4% more per team than their NL counterparts. The Yankees are the biggest spending team in baseball with a 2012 payroll of $209.6 million. What if we calculate the league payrolls, ex-the highest spending teams?
AL: $99.2 million (ex-Yankees)
NL: $89.2 million (ex-Phillies)
The Yankees skew the data a little but ex-the highest spending outlier in each league, the AL still spends, on average, 11.1% more on payroll than the NL does.
I’d argue the difference in payroll isn’t because the AL has free-spending, irresponsible owners, or that the teams have a deeper revenue base to drawl from. No, like Investor A, I’d argue that AL teams are simply being rational because the DH rule in the American League creates greater utility and therefore greater value for offensive players.
Taking a look at the biggest contracts in the history of baseball, you have to go all the way down to the 18th biggest contract to find a NL team that outbid an American League team for the services of a free-agent position player. Given that the 18th biggest contract was the $136 million the Chicago Cubs committed to Alfonso Soriano for eight years of services tells you all you need to know: If a National League teams outbids an American League team in an auction for a position player, it’s the very definition of winner’s curse.
This is what should scare Giants fans. In the coming years, Buster Posey is going to be free agent eligible and he will be more valuable to American League teams than he is to the Giants. Look at the way the Twins, Indians, and Rangers utilize Joe Mauer, Carlos Santana, and Mike Napoli respectively. Those “catchers” appear in more games and amass more plate appearances than their National League counterparts because they can be the designated hitter on days that they need a break from the rigors of catching. (It’s also worth asking, would any National League team have traded a pitcher with the ability of Michael Pineda for catcher Jesus Montero? The Yankees off-season trade of Montero was another form of auction.) National League teams don’t have the opportunity to utilize those valuable bats on off-days except in pinch-hitting roles. (Yes, the Giants have used Posey at first base this year, but all that does is block Brandon Belt from getting in the lineup. Don’t get me started on that topic – see this Giants’ preseason preview: http://tradingbases.squarespace.com/blog/2012/3/30/2012-preview-san-francisco-giants.html In essence, the Giants are just trading one underutilized asset for another. That wouldn’t happen in the American League.)
Simply put, this isn’t fair. No National League franchise should be put in the same position as Investor B. All MLB players, (i.e. the assets on which teams competitively bid) should have the same value from a utilization standpoint for all teams. Otherwise, Mark Texeria, Albert Pujols, Prince Fielder, and the NL free agents of the future are all going to end up in the AL.
Since any change in the designated hitter rule requires acceptance from the players’ union, and because we see what the existence of the designated hitter does to total team salaries, it isn’t remotely possible to remove the designated hitter from the American League. Therefore there is only one way to rectify the utility imbalance that currently exists: The National League must adopt the designated hitter.
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Postscript: I started this article after the first round of interleague play when I realized that the quality of National League designated hitters was so bad. After digging through the numbers above, I concluded the AL wasn’t nearly as superior in prior years as was assumed. However, that isn’t the case in 2012. Perhaps it has to do with the off-season talent transfer of Pujols and Fielder plus the addition of Yu Darvish to the American League but this year there is little doubt that the National League is collectively inferior to the American League. NL teams won just 42.9% (and just 45.5% overall) of interleague home games this year, the lowest percentage since the adoption of interleague play. To the extent the Pujols and Fielder defections played a role in that imbalance (the Tigers and Angels went 23-13 in interleague play while the Brewers and Cardinals went 14-16) can be attributed to the difference in league rules.
Mop Up Duty:
Joe Peta is the author of Trading Bases, the Newsletter, a companion piece to Trading Bases, A Story about Wall Street, Gambling, and Baseball* (*) Not necessarily in that order, a Dutton Books/Penguin (U.S.A.) March 7, 2013 release.
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