MLB Team Building: Why Relying on Free Agency Can Be Fatal

Free agency is an exciting time for MLB fans. With so many well-known players on the move, it is understandable that they want their team to do whatever it takes to sign them; the perception of free agents are generally boosted incredibly based on all the rumors and buzz surrounding them. Thus, general managers are praised when they are aggressive when it comes to signing the top free agents, and are often criticized when they don’t make a major move- they are cited as being “too conservative”.

However, what if those general managers are simply doing what they believe is correct? If that is the case, then I believe they are incredibly justified. As we will discuss in this article, free agency is seen as the “saving grace” for MLB teams, when it might actually be the opposite; it may actually be what leads to an organization’s downfall. In my eyes, there are five main reasons why building your team through free agency is a fundamentally poor way to go about running an MLB franchise. After going over these five main points, my hope is that we can realized the perils of free agency, and better understand how to use it to benefit a team’s long-term outlook, rather than hurting it. These five reasons are in no order whatsoever, so it is up to the viewer’s interpretation as to which they see as the greatest issue of trying to “buy a winning team”.

Reason #1: It’s More of a Crapshoot Than We Give It Credit For

A major pushback when teams hold onto their prospects is that they shouldn’t rely on them, as a majority of them do not pan out. Free agency, meanwhile, is seen as a safe way to add talented that are a lock to contribute.

However, are we too confident in free agents to provide teams with consistent production? I believe that is the case.

We have been trying to figure out a specific $/value statistic for years, but struggle because the numbers are going to be skewed by free agents that dramatically overachieve or underachieve their contracts. In reality, teams are paying for what they PROJECT players to do, which brings us to our first problem: projections tend to overshoot free agents by around 10%, according to multiple studies done at Fangraphs. Why is this the case? Unfortunately, although there are several theories in place, we haven’t been able to completely answer that question. Nevertheless, what matters is that projections tend to assign free agents with too lofty expectations, which makes the business of signing them already inefficiency.

There is more to this, however; baseball in general is a volatile sport. Peripherals in general can remain intact, but the surface-level statistics that show up on the field and drive value, such as weighted-runs-created-plus, ERA, FIP, etc., are generally volatile year-to-year. From previous work done on this website, here is the year-to-year coefficient of determinations for each of the “main statistics” of baseball. In other words, how much of a player’s production can be explained by their production in the previous season?

  • On-Base Percentage: .369
  • Slugging Percentage: .254
  • Isolated Power: .393
  • Weighted On-Base Average: .294
  • Weighted-Runs-Created-Plus: .299
  • ERA: .062
  • FIP: .239
  • xFIP: .342
  • SIERA: .337
  • Defensive Runs Saved: .305
  • Ultimate Zone Rating: .267

In other words, there is a lot about a player’s production that is left to variance. Unfortunately, there is not a way to combat this, as that is just the nature of sports overall; that is part of the fun in all of this, as well as the difficulty of analyzing it.

However, teams can combat this variance by putting themselves in a position to not be doomed if they are hit with poor variance. That is much easier to do with someone that you aren’t committing a significant amount of resources on, rather than a free agent on a big contract. The Giants, for instance, didn’t get the production they expected from Hunter Pence this past season, so they were able to move on quickly, and thus opened up playing time for impact producers such as Austin Slater. The Angels, on the other hand, haven’t been able to recover from several poor contracts. The Albert Pujols contract obviously is the one that sticks out, but they haven’t been able to recover from the disappointing returns from Justin Upton and Zack Cozart- they expected these players to fill holes and instead were left with the same needs, but with a lot less spending power.

Speaking of Pujols, he is the perfect transition into my next point:

Reason #2: Aging Curves

When the Angels signed Pujols to a ten-year contract in 2012, they had visions of him continuing to perform like a three-time MVP. However, there was one key detail they overlooked: his age.

At 31-years-old, Pujols should never have been expected to continue to perform to his peak capabilities, especially since he was already on the decline: he posted a career-low 3.9 fWAR in his age-30 season.

In fact, look at Pujols’ consistent regression starting at his age-29 season:

Age 28: 8.4 WAR

Age 29: 6.8 WAR

Age 30: 3.9 WAR

Age 31: 3.3 WAR

Age 32: Injured

Age 33: 2.7 WAR

Age 34: 1.6 WAR

Age 35: 0.8 WAR

Age: 36: -2 WAR

Generally, one’s decline isn’t this consistent, but Pujols does serve as a nice reminder that aging curves do in fact exist. The rule of thumb is for every season after you turn 30, you’re likely to lose about 0.5 WAR. Additionally, players tend to peak between ages 22 and 28.

Well, that would appear to be a major problem. The typical age for a free agent is 29 or 30-years-old, so at that point, you’re already likely paying for a player’s lesser years. Even if the player produced admirably the season prior, the aging curve can come harshly, as evident with Pujols; free agents generally are just starting the beginning of a declining phase, so you don’t know for sure how they’ll react to it. JT Realmuto and George Springer may seem like appealing free agents right now considering that they play premium positions, but will they still holding the value they have right now?

Sure, there will be outliers. However, there has yet to be a pattern as to how to age gracefully, which makes this all a guessing game. In the end, outside of a few younger free agents, you’re essentially paying for a player’s worse years, and that’s only going to get worse for the entire length of contract. There is so much pressure on the front end of the contract to work, but that may be just the start of their regression!

So, now, you not only have to worry about players hitting the wrong side of variance, but also are taking a major risk by hoping regression from age doesn’t hit them like it has for Pujols and several other big free-agent signings. At that point, you’re essentially investing more than you should on lottery tickets. That is not good business when you are trying to build a sustainable winner.

Reason #3: Players Changing Teams Are Worse Value Than Those Who Stick With Current Team

This year’s World Series champion, the Los Angeles Dodgers, had a roster constructed mainly (50%, 11 WAR) of homegrown players.

Wait, but don’t they have one of the highest payrolls in baseball? Well, that doesn’t mean they’re aggressively signing free agents. In fact, of their six highest-paid players, only AJ Pollock was acquired via free agency, while lead executive Andrew Friedman has technically never signed a free agent to a contract worth over $100 million. Nevertheless, they have consistently gotten tremendous value from their players, while their extension with Justin Turner worked out fabulously for them.

Why is this the case? Interestingly, players who sign extensions have generally provide far more bang for a team’s buck than an outside free agent. Per Matt Swartz of Fangraphs, re-signed players cost teams $4.9 million per WAR, as opposed to $6.8 million per WAR, as of 2012. That’s a difference of 39%, which is astronomical!

There are a few reasons signing your own players is the much more efficient use of your money. For starters, homegrown players are more likely to sacrifice some money to stay in a familiar situation, rather than “chasing the most money”.

The best time to re-sign your own players, however, is before they get close to free agency. Once they get to free agency, you are going to face competition from other bidders. Thus, you are less likely to sign them to a team-friendly deal. The farther they are from free agency, though, the more likely they’ll trade in the ability to maximize their earnings for some certainty. This is precisely why, per Swartz, re-signed players signed before the end of the season on two-to-four-year deals cost $2 million less per WAR than those signed after the season! Bargaining isn’t exactly a fun activity, but this is a business, and it is imperative that general managers do so in order to keep their organization functioning.

Plus, you will also have more knowledge on your own players than outsiders. You will know how they interact with your coaching staff, what their buy-in is to developmental strategies, as well as any small details that could explain their actual production not meeting expectations on either spectrum. Heck, even knowing their work habits could be handy as they reach the age where they are likely to regress.

From a marketing standpoint, re-signing your own players also makes sense. As much as there is a certain buzz when you sign a free agent, bringing back players than fans have already grown to admire helps build an organizational culture that ultimately guides a team into building a sustainable contender, and even increases your job security as a general managers. Owners care about how fans react, and although wins or losses are the main factor, retaining players on reasonable contracts that fans already have invested in makes sense. This doesn’t mean you should treat your own players any different than outside free agents, but, rather, that re-signing homegrown players is a better use of finances, and would serve as a useful tiebreaker when deciding between which way to allocate funds.

Reason #4: The Value of Draft Picks

The #1 goal for MLB front offices should be to build a sustainable winner, and that starts through maintaining a deep farm system. To do so, you need to continue to inject talent through the draft and international free agency.

Believe it or not, winning and sustaining a strong farm system are not mutually exclusive. The Dodgers, Rays, Yankees, and Indians, for instance, have consistently made the playoffs, yet continue to have a strong farm system. This is because a) you don’t HAVE to trade your top prospects and b) the draft is generally a major crapshoot, so draft pick spot doesn’t correlate with success the way it may in order sports.

With that in mind, every draft pick is crucial; since prospects are so volatile, you want to add as much depth as possible.

What does free agency have to do with this? Unfortunately, most top free agents are attached with a qualifying offer. This means that the team that signs them will use a second-round pick and fifth-round pick, while the team that loses them will gain a second-round pick. Per Craig Edwards of Fangraphs, a second-round pick is worth around $5.5 million, while the back-end compensation pick a team will gain is worth about $4 million.

Free agency is seen as less risky than trading for a player because the only risk is with the contract, but that isn’t true; you are trading multiple picks for the rights to sign a player. Now, you better be getting adequate value from a $/value basis, as you’re also compensating more than $6 million worth of draft picks. If you are stuck searching for instant gratification, that may not seem like much. Overtime, though, you’re missing out on opportunities to add young talent to your farm system, and when you consider that draft pick position doesn’t correlate strongly with that player being productive, you could miss out on a star player without knowing it. Sure, the prospect could end up busting, but, at the same time, them simply being a cost-controlled utility player holds a lot of value.

What about the pick gained? Should you be open to letting your own free agents hit free agency? It certainly is an interesting thought, and, honestly, that depends more on who the player is. Losing the pick costs a team the ability to add depth, but the hypothetical loss of losing the chance of gaining a draft pick isn’t so costly- you still have your entire draft arsenal. At the same time, this is why I believe more teams should take the risk in offering the qualifying offer. If you are thinking about issuing the qualifying offer, you have to believe that a) the player may decline and b) the player is talented enough to garner interest from other teams. Thus, if the worst case is that you “overpay” for a valuable contributor on a one-year deal, that seems like a no-brainer decision, assuming you have enough payroll flexibility. Look at the Giants, for instance. In 2019, they issues qualifying offers to Madison Bumgarner and Will Smith, who weren’t locks to receive a substantial amount of money on the open market. However, it worked out for them, and they received two extra picks, and the funds to be creative in the 2020 draft. This allowed them to add multiple talented pitchers in Nick Swiney and Kyle Harrison, with the latter requiring a first-round bonus to sign in the third round. This season, they took the same approach with starting pitcher Kevin Gausman. Is Gausman worth $18.9 million? Probably not. However, is this contract any less risky than signing him to a multi-year deal, especially for a team with money to spend? Nope. In this case, this was a low-risk, high-reward situation, and more teams should follow this model; draft picks continue to be undervalued.

For more information on the need to obtain as much prospect depth from the draft, head over to my article at Prospects Live: https://www.prospectslive.com/featured-articles/2020/10/22/how-the-rays-and-dodgers-have-used-the-drafts-to-build-dynasties

Reason #5: It Limits Your Flexibility

Believe it or not, but baseball is not basketball: it is not won through star players. Rather than needing five starting players, baseball rosters require eight to nine position players, five starting pitchers, and eight relievers. This does not account for the need to have pitchers waiting in your organizations when injuries/struggles occur, platooning position players, and much more.

In other words, building substantial roster depth should be the main focus for MLB teams. Ever wonder how the Dodgers, Rays, and Yankees are able to overcome any sort of adversity and continue to churn out talented players? That is because they focus on limiting any weak points, and are built with through depth, rather than stars.

The Yankees are actually a very interesting example here. They finally spent big on ace Gerrit Cole this offseason. Yet, despite having him on board, their rotation struggled, as they dealt with injuries and did not have enough pitching depth to overcome that. They come into this free agency period needing to add multiple arms.

Spending big on one player not only overlooks the key principles of how to build a winning team, but it also severely limits your ability to be flexible. The Phillies, for instance, have had the services of star players in Bryce Harper, JT Realmuto, Aaron Nola, and Zack Wheeler, but since they have decimated their farm system (traded top prospect Sixto Sanchez, have lost two straight picks to qualifying offer, and also have glutted their payroll. Thus, they have a losing record over the past two seasons. The Angels are similar in this regard, while the Mets, Rockies, Red Sox, Giants, and Orioles have fallen into this trap in recent years as well.

Additionally, you have to look at the opportunity cost of this all. Sure, you could pay top dollar for a certain level of production, but what if you could get better bang for your buck by getting the same value through multiple cheaper players? What if you have someone in the organization you can provide cost-controlled production? If you don’t have a deep enough system to need a big free agent to fill a hole, you probably aren’t ready to rely on free agency, while if you do have that depth, you don’t HAVE to sign the star free agent.

I always like to go back to a scene in Moneyball, where Billy Beane attempts to replace Jason Giambi in the aggregate; he replaces his production through upgrades at other areas. In other words, there is more than one way to fill a hole, and it’s not just about filling one position; you’re trying to improve offensively, defensively, and with your pitching, rather than needing to get a catcher or second baseman. Thinking like this ought to allow a front office to build not only the strongest 26-man roster, but the strongest collection of talent in the organization overall.

The Rays, A’s, and Indians, for instance, have managed to make the playoffs without high payrolls? Why? Because this forces them to be responsible. Thus, they are always looking for value, and continue to build organizational depth, rather than relying on a few star free agents. If teams with higher payrolls could have this level of responsibility, as we’ve seen with the Dodgers, the end result could be monumental. Given recent regime changes to the Giants, Mets, and Red Sox, I wouldn’t be shocked if we see the rise of the “smart big-market team”. From there, the incremental advantages that the small-market organizations have go away. For that reason, being responsible in free agency is a necessity, regardless of what your payroll is.

Overview

So, what is the purpose of free agency?

In the end, teams should always be looking to add value. There are always going to be players with certain flaws that are overvalued, which hurts their value- a major market inefficiency. Additionally, free agent classes with a deep collection of talent lead to players having to settle for smaller contracts just because the demand is less. This free agency, for instance, there are plenty of productive platoon catchers who will fall under-the-radar compared to JT Realmuto and James McCann, and the same is true for the starting pitchers; pitchers like Drew Smyly, Corey Kluber, Jose Quintana, Garrett Richards, and even Trevor Cahill are intriguing value plays for teams.

As much as the Dodgers have not “spent big” like you’d expect, they are the prime example of being opportunistic. They, for instance, say a chance to acquire and extend the second-best player in baseball, Mookie Betts, on a below-market deal, and capitalized. Had they previously gone all-in on a free agent, they wouldn’t have had the roster depth to trade for Betts, nor would they have been able to extend him so easily while also having room to keep their own players.

If you focus on developing your own players, re-signing them to team-friendly contracts, and consistently repeating this cycle, you are going to be in a good position to build a sustainable winner. If you think of free agency as a saving grace and overvalue star talent, however, such as the Phillies and Angels, you’ll find yourself in a unfixable position; you will have hurt your long-term outlook without putting yourself in a spot to win immediately. For this reason, I see free agency as a position that separates the more successful organizations from the less successful ones. Small-market organizations, the Dodgers, the Braves, and now some other “smart big-market teams” have been far more responsible than others, which has allowed them to remain superior in terms of overall roster talent, payroll flexibility, and a strong farm system.

At the end of the day, signing well-regarded free agents may lead to more ticket sales and excitement, but will that be worth it in two years when the results aren’t showing up and fans are discouraged? This is the million-dollar question that can be the difference between a sustainable winner and a team forced to “tear it down” in short time.

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