Why are MLB players contracts getting longer? Bond market.

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Bennyonesix1
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Why are MLB players contracts getting longer? Bond market.

Post by Bennyonesix1 »

I really liked this article. And like the author, I had been wondering about it. It seemed strange that both players and teams wanted these longer contracts (for a lot of reasons (at least to me)). 13 years? That's just bizarre. Totally ahistorical. I've never been particularly bothered by players getting paid huge amounts. I know others are and I get it. It's only possible in a degenerate society/culture. But for me, other things in sports are worse, much worse. The owners and the media and the fans are what grind my gears. But I just could never figure out why these contracts got soooooo long. I wouldn't do it as a player or owner. But that's because I hadn't thought about Bonds and Interest rates.

Tl:Dr The author makes the (now obvious) point that the completely disastrous economic conditions today (admittedly for only 99.99% of the population (who don't matter (Black rock and Vanguard partners matter you dumb pleb))) make extending payments the wise decision for owners. Especially in light of an expectation that these conditions are not transitory and that the salary cap (I know it is a tax (it's a cap)) will increase. High interest rates and the bond market make it so. Owners after all are intensely conscious of the macroeconomic conditions (and they should be). So, the bizarre illogical behavior is a manifestation of clever men doing what they need to do to navigate a broken system.

https://blogs.fangraphs.com/why-are-tea ... contracts/

"If that doesn’t make sense to you, think of it as Correa issuing the Giants a loan as part of his contract. If they paid him based on his contributions each year, he’d get the lion’s share of his money upfront. He’s taking less than his contributions in the early years of the deal, and getting that money back with some interest in the later years. If the rate implied in Correa’s contract works out to a 4% loan, but they’d have to pay 7% on the open market, everyone can be a winner. He gets a better rate than he would by investing in 10-year treasuries, and they get a better rate than they would have by issuing debt. That only works if the deal is long-term; there’s not much benefit to be had in a five-year loan relative to a 13-year one.

That can be a fine deal for both Correa and the team. Even if the team weren’t planning on borrowing money to issue contracts — and it probably isn’t — these longer-term deals let it move production to the present and cost to the future at a good rate on both. The higher interest rates go, the more this kind of deal makes sense. For the same present value of money, teams can present longer deals with higher guarantees, which sounds like exactly what players are always clamoring for. The present value might work out the same, but the headline numbers look decidedly different."


motherjuggs&speed
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Why are MLB players contracts getting longer? Bond market.

Post by motherjuggs&speed »

Any analysis of why an event occurs that doesn't take incentives into account is incomplete at best. These contracts aren't usually done by owners but by the team's General Manager. A GM's time with a given team is short -- none of them will be working for their current team in ten years.

So from the GM's perspective,

1) It isn't his money he's spending
2) It's a win right now or you're fired business
3)He won't be around for the back half of the contract

You've read Essence of Decision, right? The motivations and incentives of the person making the decision matter a lot more than the rational interests of the entity he works for.


Topic author
Bennyonesix1
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Why are MLB players contracts getting longer? Bond market.

Post by Bennyonesix1 »

Bad owners get screwed by bad GMs. Yes. There are very few (I can't think of any) MLB owners anymore who are so incompetent as to allow an exec to ruin a franchise. Almost all of what fans consider incompetence is very profitable intentional behavior. PIT is the one franchise that might be considered incompetent. And even there the owner is completely in charge and directing decisions as to salary etc And he has a plan and is making money hand over fist. Even KC is run by very smart men these days. OAK is a disaster granted. But they're banking on a move to Las Vegas. And have a shitty deal with the city on the stadium. But their behavior is intentional and the GM does not have a free hand.

Some of the best businessmen in the world are running MLB. And the finances show it. Most of the absurd decisions are forced by outside players. US Gov and Finance conglomerates.

I dislike them intensely. But they are very very smart and knowledgeable. Even the rent seekers looking to cash out the franchise appreciation are very smart and knowledgeable. TB even lets the GMs do all kinds of experimental stuff while keeping the reins on salaries. KC (imo) was set to revolutionize the mlb by taking it back to the 70's and 80's game of speed, total bases and stolen bases and defense.

The last recent fiasco, and it was recent, which falls into your theory was PHI and Klentak. Absolutely so. Middleton got hypnotized by "adv metrics" and Klentak. And Klentak was waaaay over his head. Utter incompetence. Amaro got a bad rap in PHI. He did what Middleton said and kept the WS core well after the sell by date. Rollins is famous for saying it was obvious the team was done after the STL loss. Middleton is too patient and emotional and loyal. A weird mix. But someone has him on the right track.

And Dombrowski doesn't hide anything. He is there to spend money and win WSs quickly. He isn't a builder. He doesn't even try. And wouldn't take a job like that anyway. He's flat out the best at what he does and does not gaf.

Moz and STL ownership are imo the best overall. Consistent top quality and profitability while keeping salaries reasonable and fans happy. They're smart enough to stay near the top and wait for another Pujols to come through the system. And until then they'll roll the dice in the playoffs and win a WS every decade or so.

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