Should Tanking Be Discouraged?

The 2016 World Series champion Chicago Cubs, built their foundation by tanking from 2010-2014. Despite being a large market club, they cut their payroll from $142 million in 2010 to $92 million in 2014. As a reward, they earned the opportunity to draft Javier Baez, Albert Almora, Kris Bryant and Kyle Schwarber.

The 2017 World Series champions, the Houston Astros, also built their foundation by tanking from 2011-2014. They went from a payroll of $103 million in 2009 to $26 million in 2013 and $72 million in 2015. For their reward, they earned the opportunity to draft George Springer, Carlos Correa and Alex Bregman.

The latest team to tank in order to save money and have the opportunity to stock up on high draft picks is the Philadelphia Phillies. Meanwhile, the Yankees and Dodgers have apparently both decided that they’d rather have their payroll under the luxury tax for 2018 instead of adding free agents that could help them compete.

In part, this is because teams are getting smarter. Dan LeBatard recently had an interview with Rob Manfred, in which Manfred stated that “The strategy that, apparently, the Marlins have adopted is one that is tried and true in baseball. I’m not saying it’s without pain. As a matter of fact, I think the fans in Houston endured some bad seasons. But it was a process that ultimately produced a winner, and that process is really dominant in terms of the thinking in our game right now, in terms, particularly, of smaller markets’ ability to win.” Craig Calcaterra translated this as meaning that “the Commissioner of Baseball is now on record as saying that teams should tank to win.” Teams realize that if they tank for a few years, they can build a foundation to compete in the future and make profits by cutting payroll costs.
 
If we use WAR to measure production, then most production comes from players under team control. According to my calculations, in both 2016 and 2017, about 410 WAR was produced by players with 0 -< 3 years of service (i.e anything less than 3 years). Another roughly 320 WAR was produced by players with 3-6 years of service (i.e 3 year up to 6 years exclusive). Only roughly 270 WAR was produced by players with 6+ years of service. Matt Swartz comes up with similar numbers for 2016.  For 2016, my final results differed from his by roughly $2-3 million in salary (out of $2.6 billion) and 12.4 fWAR (I use RA9-WAR to determine pitcher value while he likely uses WAR itself so slight discrepancies should be expected). These results are also in line with the results I found back in 2014. The vast majority of production comes from players that are under team control.

The free agent market has always been a disaster and teams are beginning to lose interest in squandering their money. Teams are still turning to the free agent market in the hopes of being able to add talent to help them win in the future. Individual free agents are receiving more now than in the past. Player salaries have increased from $2.1 billion in 2003 to $3.9 trillion in 2017, showing how players have profited over time. But players are receiving a lesser share of revenue now via salaries than they have in the past. Nathaniel Grow argued this point back in March 2015 when he noted that the players’ salary portion of revenue has dropped from 56% in 2002 to less than 40% in 2014. My own research suggests that for 2017, the players’ share of revenue via salary (as opposed to benefits) was only 38%.

MLB claims that it consistently pays over 50% of net revenue to players when taking the minor leagues, amateur signings, player benefits and major league signings into account. The CBA has since been changed to limit the amount of dollars that can be spent on international players. This claim by MLB also only uses net revenue as opposed to gross revenue from MLBAM.

The extension market doesn’t have much better results. In 2016, the cost of a win for a player with 6+ years of service time was nearly the same for extended players as for players signed in free agency. A large number of extended players were worthless (here’s looking at guys like Ryan Howard, Ryan Zimmerman and Matt Cain).

Teams have strict rules about how much they can spend in the minor league draft and on international amateur players. There are rules limiting how much teams need to pay players in the first six years of their careers. These rules help ensure that there’s significant competitive balance in baseball. However, they also ensure that teams are spending significant amounts of cash in some of the most inefficient ways possible. It further forces big market teams to subsidize spending for minor market teams so that they can also spend money in some of the most inefficient ways possible. This gives teams incentives to limit their spending.

The question is whether tanking is fundamentally good for baseball or any other sports. If so, then the MLB should be happy as more teams will eventually copy this pattern. If this isn’t a good thing, then the MLB and MLBPA should work together to fundamentally change how players to ensure that tanking becomes less valuable. 

There are a number of ways of doing this. Rewarding teams monetarily for making it to the playoffs is a good start. Increasing the minimum salary significantly reduces the savings a team earns from using all team controlled players. Changing the draft system so that the worst record in the league doesn’t necessarily get the first pick in the draft would help. A plan that incorporated these three ideas would help ensure that teams are disincentivized to tank and the proper players are rewarded appropriately.