Economics, Politics, Social Commentary and occasionally Superstring Theory.

Tuesday, December 07, 2004

The BoSox Model

The New York Times (registration required) has an interesting story on the Sox's model of acquiring and retaining players. I found the following particularly noteworthy:

"The 2004 championship has emboldened the Red Sox, so far, to stick to club policies: no player is given a no-trade clause or a contract that guarantees more than four years."

Any personal service contract is an attempt between the principal and agent to predict future performance. The team (principal) has a number of options if a player (agent) performs at a level lower than that anticipated. One of those is trading the player to another team for different players, money, or both. The player who gets traded often has to shoulder the costs of relocation and something of a stigma that goes along with being traded. Another option the team has is to release a player at the end of the contract. By dealing only in (relatively) short-term contracts, the team takes less of a risk on a player by minimizing the team's exposure to a smaller number of years. This provides less stability for a player who may perform at lower level for reasons beyond her control.

No-trade and long-term clauses also create disincentives for players to perform at their best. After the level of compensation has been set, a team retains very little in terms of sanctions to address a player who is not giving enough effort. The ability to trade a player is one of those sanctions. If a player knows that her position on the team is not definite, she has an incentive to perform better than a player who believes her position is definite. Imagine you couldn't get fired from your job or get a pay-cut. How would it effect your job performance? (Be honest.)

A short-term contract also gives a player more of an incentive to perform well during the entirety of the contract term. If a player performs with an eye to increase her market value, she will perform well when that performance has the greatet impact on said value. Other teams aren't looking at how a player performs during the first year of ten year contract. But they'll be paying special attention to how she plays in the ninth and tenth year for two reasons. 1) The more recent trend in performance is more likely than less-recent trends to reflect future performance. 2) Other teams will assess their own needs as the player gets nearer to market availability. Because a player's performance will have a greater marginal impact on her market value towards the end of the contract than its beginning, short-term contracts should encourage better average performance than long-term contracts.

The downside of this policy lies in the potential impossibility to lure Tier I players to the Red Sox. Because high-value players are in a relatively better bargaining position than their lesser-valued peers, they have greater options for contract terms. If teams other than the Red Sox are willing to offer no-trade clauses or long-term contracts, Tier I players may disproportionately avoid the Red Sox for other teams. This would leave the Red Sox at a competitive disadvantage due to their inability to attract top tier talent. (The article does mention that the Sox made an exception for Ortiz.) However, the Red Sox have apparently decided that flexibility in their lineup is more important than attracting such talent. Time will tell if it becomes a dominant strategy.


Blogger Jeremy said...

10:21 PM


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