Thoughts about our National Pastime and occasional thoughts for the Good and Welfare of the Reader (and maybe the writer)

Sunday, April 26, 2009

Disabled List All-Star Team

I was thinking about the rash of early season injuries. We can blame the WBC. We can blame the extra long spring training season. We can blame improper conditioning by players, including off season routines. We can blame improper conditioning routines managed by the teams. Or, we can blame the Baseball Gods. Or we can blame all of the above. Of course some postings are strategic – borderline injuries that permit a roster move that would otherwise not work.

Regardless, I was looking at a list on the recent long flight from London to Miami and, while knowing that some changes have been made since, I was considering what an all-star team might look like. So here is mine:

Catcher – Joe Mauer, a Minnesota DL Perennial

1st Base – Dmitri Young, Washington Nationals or Russell Branyan, Mariners

2nd Base – slim pickings here, but I will go with Ryan Freel. Actually I want badly to put in Dan Uggla and bring him back in June, but he plays badly while healthy in the early season

3rd base – Aramis Ramirez, Chicago Cubs

Short Stop – have to exercise some schadenfreude here and cite the Red Sox Julo Lugo. Close runner up, Jack Wilson of the Pirates

Right field – Xavier Nady of the Yankees, eased by the good fill in role, being handled by Nick Swisher

Center field – Milton Bradley, of the Cubs although that may be a courtesy DL listing to conceal how angry Pinella is with him. Nate McClouth fits this slot under normal circumstances

Left field – Marcus Thames, Detroit Tigerss

DH – Vladimir Guerrero, only because I gave right field to Nady

You could fill an active roster with quality pitchers on the sidelines. So, in no particular order, the starting rotation might look like: Kelvim Escobar, John Lackey, Jeremy Bonderman, Hroki Karuda and Brandon Webb.

And, there are just too many relievers, raising an interesting question. Wouldn't you think that with so many relief pitchers injured, someone would rethink the notion of one inning/throw your arm out if you have to/bullpen management?


Wednesday, April 22, 2009

Price Elasticity in Baseball

What I think I like best about baseball is despite the geometric patterning of the field, the outcome is always in doubt.

What I think I like best about finance and economics is that, despite the Philips Curve and the Kondratieff Long Wave and dozens of related theories, the outcome is always in doubt.

What got me to thinking like this is when I read that that the Nationals (known in some circles as the Natinals) had come to a agreement extending Ryan Zimmerman’s contract. That led me to wonder about other players whose contracts expire at the end of this season. I know, I know -- it is still very early into this season but I can make three fearless predictions so why not jump ahead?

1. The Marlins will not win 100 games.
2. Baltimore will not finish ahead of Tampa Bay.
3. Players and agents will be at odds with general managers over the value they bring to a team and the debate will be widely circulated.

And, I can predict that there will be an irrational free agency season going into 2010. The names available will likely include some significant players, as usual: Jason Bay, Matt Holliday, and Rick Ankiel come to mind. But we are in a Great Recession and a new economy is emerging, so some of the outcomes are in doubt.

A number of players are coming up to their eligibility with relatively cheap club options. Victor Martinez’ $7 million option can be bought out for $250,000 for example. It will cost the White Sox $1 million to not pay Jermaine Dye $12 million and the we train the best and keep the rest Pirates only need $600 thousand to encourage Freddy Sanchez seek his fortune elsewhere.

The outcome I am thinking about, though, is the price elasticity of demand, called PED for short. PED is a measure that economists like to use and that some marketing professionals actually understand. My favorite reader does not like the use of the term, but so far she has not come up with an alternative. Here is how PED works:

In theory, as prices rise, either consumer demand should decline or new suppliers should be induced to enter the market, thus driving down price. However, sometimes the demand curve is not altered by a higher price. The degree to which a demand curve reacts to a change in price is said to be the curve's elasticity. When consumers continue to buy despite price increases, we say that the price is elastic, i.e., it can be stretched. Elasticity varies among products because (this is the part that marketing guys get) there is sufficient brand loyalty to support the higher price. On the other hand, there are goods and services for which there is a price point above which consumers will look for substitutes or do without. Necessity = Elasticity, remains the prime rule.

In baseball’s free agent market, there are only 30 consumers (the teams). In fact, the number is usually lower for any one player. As teams review their rosters and farm systems, they will find themselves declaring certain positions vital, hence certain players, become more of a necessity to those teams than others. Add to that the notion that certain positions are more talent rich than others. A standout like Brian Roberts in the market for second basemen becomes better able to stretch the price than will Jason Bay in a league rich in left fielders.

Up until now, the sellers, the agents, have enjoyed the benefits of demand elasticity and have been driving up free agent prices. Those prices keep increasing but buyers have not retreated in the face of the escalation.

The question is, are their alternatives to competing in the free agent market? And, of course, there are. The most popular alternative is called “grow your own.” Supplement that with a strategic use of the Rule V draft. Add into the mix the ability to trade an established star for a bevy of up and comers and what do you have?

Want an example, consider how the Marlins have created a blue print for avoiding expensive free agency and reducing the tension of the price elasticity of demand while winning 2 world series and playing under the worst lease in baseball.

Friday, April 17, 2009

The 6-inning Start

Lead sentence from Halladay threw six sharp innings in a 7-6 victory over the Washington Nationals.

Lead sentence from the Chicago Tribune: Koji Uehara solid in 6 innings

From Jimenez pleased with scoreless 6 innings

In an article published on line by that goes back 1o 1992, David W. Smith wrote, "The quality start is a relatively new statistic devised by sportswriter John Lowe in an attempt to evaluate the performance of starting pitchers in terms other than the traditional values of ERA and wins and losses. A starting pitcher is credited with a quality start if he pitches at least six innings and allows three or fewer earned runs."

I cannot accept that getting two-thirds of the job done is a quality start. Follow the math and let me know if I am wrong, a pitcher starts 32 games, pitches 6 innings in each game and gives up 3 runs in each game. In giving up those 3runs, let us postulate that he walks 4, strikes out 4 and gives up five hits, one of which is home run in each game. Understand, I am making up those numbers, but they are within the realm of reason because they emulate what a line score would be if 3 runs scored – 3-5-0 – and that looks reasonable to me.

He has pitched 192 innings which is not bad, but if you define Paul Byrd and Kyle Lohse as quality, that is what they turned in last year.

His ERA is 4.50 and that is not a quality ERA. I lose interest in a pitcher when the 3.50 line is crossed.

His WHIP is an astronomical 9.00. Even if he walks no one, in a statistical world that venerates the sub 1.00 WHIP and assigns the word to quality to 1.5 and below, a WHIP that hits 5.00 is sub standard.

My definition of a quality start is 7 innings, allowing the same 3 or fewer earned runs.


Tuesday, April 7, 2009

Can a Curmudgeon Enjoy a 12-6 Win?

Opening day: Marlins vs. Nationals.

Florida fans, i.e., the reporters on the Sun-Sentinel, are in the state that other fans get to around mid-September when their team clinches a pennant or a playoff slot. Come to think of it, clinching a pennant is like dialing a phone. It used to mean something but in today's world of glutted playoff slots, it is just another way into the post-season.

Some terrific things did happen at the ballpark yesterday as the Marlins went 8-8 lifetime in opening day wins. But, it was the Nationals. They can score runs, but everyone knows they cannot stop runs. Julian Tavarez was first out of the bullpen. I am surprised he did not use a golf cart like Stan Musial did to throw out the first ball in St. Louis.

Even a curmudgeon would have been moved from the start when an air force pilot deployed in Iraq appeared live on the big screen to tell us that his son was on the mound. The kid threw out the first pitch. Of course, he did miss the plate.

I like the part where they call out the whole team from the clubhouse guys on up at the start of the season. Of course, Josh Willingham who was traded from the Marlins got close to standing ovation and he is now on the other team.

Chicago performed the National Anthem, no Susan (my favorite baseball newbie), not the Cubs or the White Sox – the band. Problem is their powerful horn section blew away the singers on a windy day.

There were 34,000 plus in the stands. Next time we see that, will be when the Yankees hit town. Problem is it was harder to park close and I did not have an empty seat on both sides of me.

Everyone is raving this morning about the Marlins first turn at bat. Emilio Bonifacio (remember that name because he will be on the all star ballot and the rookie of the year ballot) singled in his first opening day starter appearance. He promptly stole 2nd and scored a few seconds later when Adam Dunn misjudged a fly ball tripped on his own feet (or maybe a blade of grass) and let the ball drop for a double. OH. John Baker got the RBI.

Then Hanley Ramirez came to bat and bunted the ball to move Baker to third. Cantu's ground out scored Baker and the 2-0 lead grew, faded, and grew again and so on.

What did the curmudgeon see?

Dunn never touched the ball so the rules say that it was a double. The error rule has to be expanded to include being clumsy and turning a routine fly ball into a base hit.

But the worst part of that sequence is the bunt by Ramirez. He is the #3 hitter; before the game he was given the silver slugger award (Susan. That means he was voted the best batter at his position – short stop); and he is feared for his ability to power the ball. Mets scout Bryan Lambe leaned over to me and said, "Would you have called a bunt there?" By the way, it wasn't even that good a bunt.

My guess? Marlins manager Freddie Gonzalez was showing off the new speed and small ball philosophy. But the fans cheered louder for the four home runs – including Bonifacio's inside the park sprint. For me, the inside the park home run is the most exciting play in baseball. But, did anyone else notice that Lansing Milledge fell down chasing the ball and had he not – nothing to cheer about.

Bottom line. Curmudgeons can have fun at the ballpark.

Saturday, April 4, 2009

Detour into the Economics of the Mortgage Market Part I

Spring training is over, the 25 man rosters are set and opening day looms. For me, it will be Monday and a not sold out Dolphins (a football team) Stadium. So, let's turn our attention to the other hippo in the room – the housing market and its real estate lending companion, the mortgage.

I have been, from to time, critical of both Fannie Mae and Freddie Mac. So it is fair to discuss this further. After all, spring training have wound down but the economy is still wound up.

My biggest question, the one I keep trying to focus on is that since the US government has taken over both Fannie Mae and Freddie Mac why there isn't more discussion of merging them. In other words, what economic justification exists for the maintenance of a duopoly?

Both started out as government agencies and later evolved into what are known as government-sponsored entities. They have formal names – The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. They do the same thing. Before the housing holocaust, between them they control close to 90% of the secondary market for mortgage loans. In fact, I once in a meeting at Fannie's headquarters when the topic of competition came up. I was told that they measured their market share against Freddie, and they try to maintain it at 55%. I asked what about other competitors? I was told that they were only concerned about maintaining the balance between them and Freddie because otherwise people might wonder if Freddie shouldn't be merged in with the.

I asked what would be wrong with that – this was in about 1998. I was told that it is what it is. And, the very next day my project supervisor was told to take me off the project. The reason given was that I was asking irrelevant questions and probing in the wrong areas.

Fannie Mae is the older and is a creature of the depression. It was designed by the Roosevelt administration to support a mortgage market that was being stressed by the second of the two depressions of the 1930s. The idea was similar, but different, from what is being discussed today. In the Great Depression, unlike today, the federal government did not try to monetize the bad loans. What I mean by that is that banks were permitted to fail and money went out of circulation. It was not that banks would not lend, it was that they could not lend because they had no free capital with which to lend.

Factoring into the equation, although the mortgage loan existed, retail banking as we know it did not. Most commercial banks focused on business accounts and business loans. Consumer lending was the province of mutual savings banks, the brand new savings and loan association industry, and the predecessor of today's credit unions – known as building and loan societies.

Home ownership, nevertheless, was woven into the DNA of the United States. From its inception, people strove to own land, to build homes in order to provide shelter for their families. Canada, our neighbor to the north, achieved its expansion through mercantilism. Led by the Hudson Bay Company, land was acquired by enterprises and then parceled out to the workers and farmers they needed. In the US we expanded through movements like the Free Soil Party. We opened new territories and encouraged people to strike out for the west and claim their space.

When the Great Depression hit and people had to surrender their homes, The Roosevelt Administration set a goal to restore widespread homeownership. Fannie Mae was created to put mortgage funds into circulation by buying mortgage loans from lenders who were loath to carry loans on their books for the long terms that existed for mortgages. There will be more about that later.

In 1968, the LBJ administration privatized Fannie Mae chartering it like any other bank with a few notable exceptions. Fannie Mae did not take deposits and it did not lend directly to the public. Instead, it continued to function by buying loans. To finance Fannie Mae, the charter permitted it to issue bonds, secured by the mortgages it was buying and carrying the implicit guarantee that the US government stood behind those bonds. Why did LBJ do this? He needed to relieve the pressure on the federal debt ceiling because he was financing the war in Vietnam.

Two years later, in 1970, the US government (we are now in the Nixon administration) created Freddie Mac. It was an exact duplicate of Fannie Mae. It did exactly the same thing and it was funded exactly the same way – bonds, carrying a more or less government guarantee. The reason given at the time was that economic growth had expanded home ownership and the mortgage market to such an extent that Fannie Mae would be too large if allowed to function as a single entity.

What happened next is the story of the housing market, compounded by inexplicable decisions by the management of both GSEs.

Tune in next time for Part II of this too big to fail saga.

Wednesday, April 1, 2009

Baseball is not a Perfect Market

OK gang, first we have to define it then we have to discuss if it matters that baseball is or is not. So, get out your economic text books and let's plunge into another chapter of thinking like an economist does.

We are going to look at this from team to team standpoint. You could argue that the team to fan enterprise is a market, and it is. It might also be possible to look at this question on a league to league basis, but today, let's stick with the market for players – a market that was created with he advent of baseball.

A perfect market is a market where there is perfect competition because of the set of conditions or assumptions. Perfect competition, while it is a theory out of classical economics, is often used in evaluating a sport – although the term more often used is competitive balance. The idea is the same, though. The concept is that all the competitors are striving to achieve the best result and that all have the same opportunity to do so.

The following assumptions describe a perfect market. Let's see how MLB holds up.

There are a large number of buyers and a large number of sellers. Major League Baseball is a private market with only a few members -only 30 teams. It is better than it was before free agency but on any given day, all 30 can be buyers or sellers or, sometimes both. So, it can be said that the buyers and sellers represent 100% of the market, but there is a limited number of players.

The quantity of goods bought by any individual transactor is so small relative to the total quantity traded that individual trades leave the market unaffected. Because of the effort of Scott Bores and others in his profession, to constantly stretch the limits, a single free agent deals can affect the market, at least for the super stars. However, the arbitration process is heavily dependent on creating valuations based on statistics and so below the top handful, no other individual transaction will move the needle.

The units of goods sold by different sellers are the same and the product is homogeneous. The unit of goods is one: one player. We could be here all day on the question of whether all players are same, but we know they are not. And, player values change based on team needs. Just today, the usually stingy Marlins went over their per-player limit to obtain Ross Gload who is a Kansas City cast office. He had no value to the Royals, but the Marlins were without a left hander on their bench. Even the players union recognizes that some players are worth more than others. The union agreement sanctions a top 17% who are eligible for arbitration one year earlier than the rest, for example.

There is perfect information. In other words, all buyers and sellers have complete information on the prices being asked and offered in other parts of the market. This is a condition that agents disrupt. They dissemble, exaggerate and otherwise make false information known so as to gain a bargaining advantage. As my old statistics professor used to say, "Figures don't lie, but liars figure."

All decisions are rational. Two words: George $teinbrenner.

There is perfect freedom of entry to and exit from the market. MLB scores well on this attribute. A team can be a buyer (Yankees, Red Sox, and Dodgers) or a seller (Pirates, Marlins) or an intermittent entrant (Braves) or a sideline sitter. And, a team can move from one category to another at the beginning, the middle, or the end of any season.

Fellow students, the player pool that is controlled by Major League Baseball is not a perfect market and cannot be until there is a salary cap, a minimum payroll, and open free agent auctions.

So for the foreseeable future, fans in some cities will squirm in their seats from year to year; fans in some cities will ride roller coasters; and The Great Rivalry between the Yankees and the Red Sox will continue to destroy the concept of competitive balance.