Reading the New Economic Tea Leaves

After Alex Rios was waived by the Blue Jays and claimed by the White Sox, CBS Sportsline’s Danny Knobler attributed J.P. Ricciardi’s decision not to seek compensation for Rios to “new economic realities.“  Then the Brewers dumped J.J. Hardy and Bill Hall as much for money as performance.  We may be watching a historic salary restructuring that witnesses the shrinking of both team payrolls and individual salaries.  That could be the very different message of the “new economy.” 

Ricciardi was willing to let Rios walk away because he has a contract that averages almost $12 million a year stretching to 2015.  The Toronto GM has a history of bad investments– B.J. Ryan another recent example.  But with so many others freeing up salary to be buyers in a bargain shoppers market, Ricciardi’s performance has been lost as just more of the newest economic trend.  Everyone is doing it with a few notable exceptions. 

The new baseball economy started in the winter of 2009 when the economy tanked and players were willing to take less in the face of genuine concerns about the bottom line by MLB teams.   It has continued with lower attendance across the board and lower revenues in general. 

Some teams–like the Blue Jays–look like banks with toxic assets on their books threatening to drag them under.  Rios and Ryan were millions of dollars of bad debt.  The wholesale salary dumping in Toronto raises questions not just about the wisdom of the GM who committed ownership to that bad debt, but to the owership group’s overall financial health.  Toronto’s ownership seems relatively sound financially, but there are plenty of reasons to wonder about the health of Milwaukee, Cleveland, Texas and other fanchises.  

The White Sox look to be one of the healthier ownership groups.  They have been willing to take on salary and added the over-valued Rios to solve their long term center field problems–as Keith Law pointed out at ESPN.  Rios and Jake Peavy are long term investments for a team that seems un-worried about their ability to meet payroll.

Across town, the Cubs share the same market and have always been able to tap into the more affluent north side crowd.  The Tribune Company were buyers coming into 2009 amassing the third largest payroll in the game–ahead of every other non-New York team.   Attendance at Wrigley Field is high and the team remains in competition in the NL Central going into the stretch run.  But the Tribune Company like most media conglomerates is in deep trouble.  They were extremely quiet during the June and July trading frenzy and seem unlikely to be buyers in the off season.

Other ownership groups being hit hard by the recession may weather it quietly like the Cubs.  Detroit is also a contender but has been very quiet in the deadline trading market.  Their lead in the AL Central may be masking a wider Michigan reality bought by the collapse of the auto industry.  Attendance is off in the Motor City, but not sharply. 

Will the Volt and “Cash for Clunkers” save the Tigers?  Their off-season activities–like those of the Cubs–will tell the tale.

Then there are the Cleveland Indians.  Last season the Cleveland Indians bought Mark DeRosa for the stretch run.  Now they have joined Pittsburgh and other rustbelt franchises in the small market foxhole and they have been bailing as fast as they can.

For all of the economic gloom that has fallen over a wide swath of the two leagues, the rich are still rich.  They will continue to support high salaries for the best players the way the Yankees did in 2009.  Teixeira and company will continue to see fat, long-term contracts.   

The Red Sox have kept the market afloat almost single-handedly.  Bring me your failed Casey Kotchman project or your over-priced Adam LaRoche.  Their shopping frenzy made little sense to the Annie Hall franchises, but when you’ve got it, flaunt it.  So they kept going until they finally found what they were looking for in Victor Martinez.   

Going forward it looks as if the Cardinals, the Los Angeles teams and the White Sox are the only teams that will try to keep pace with the Yankees and Red Sox.  After this elite grouping there is considerable falloff.  The gap between the rich and the poor has not only widened, but the numbers of small market teams is expanding. 

Cleveland is the newest member, but there will be others whose membership credentials may surface in the off-season.  When the December meetings roll around this winter the relatively well-off teams will have the big ticket free agents to themselves.  After the big dogs have had their way, the little dogs will have to feast on the remains. 

Fewer clubs will chance arbitration in the days after the season.  Who wants to trust that mechanism when the market is so skewed.  So there will be a glut of free agents on the market and GMs across the board seem to be betting that salaries will drop, that come next February players will be squeezed to take much, much less.  The question is what kind of value will be left when it is your team’s turn?

How should the smart teams play the game of new economic reality?  How do they position themselves to take advantage of the new economic situation?  My preference would be not having to wait for something to fall my way in the off season.  That looks like a crap shoot.  Bidding against the Yankees and Red Sox is a big loser, but waiting to find out who they don’t want–regardless what the bargain price–seems a loser’s bet as well.  

I still prefer the approach Cleveland’s Mark Shapiro has taken.  He not only shed some of his highest paid players, but at the same time he raided the best young talent of other organizations.  More than any other GM Shapiro has restocked his system.  If there are holes that young players cannot fill, he has salary room to go after other solutions.  He does not need to fill as many slots as Ricciardi and has more options in his minor league system.

No one knows for certain who is reading the tea leaves of the new economy correctly.  Maybe those that stockpile young talent are ahead of the curve, maybe those hoping to bargain shop in February have it right.  But either way, winning on the cheap has not been made easier by the “Great Recession.”  With the rich teams on a higher pinnacle than ever, and the rest of MLB teams in the economic soup, it has gotten much, much more difficult.