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The Yankees lost out on another potential trade target when Gio Gonzalez was traded to the Washington Nationals for a package of prospects. At the price the Nationals paid, the Yankees probably weren’t a player for Gonzalez anyway, so the trade really doesn’t alter the team’s offseason strategy. However, it does further an interesting development taking place around baseball, and particularly in the N.L. East.

Nationals' fans may get down on their knees after their team acquired widely coveted Gio Gonzalez. (Photo: Getty Images)

There are a variety of differing opinions on Gonzalez. Some believe he is gradually emerging as one of the best young arms in the game, while others suspect he may not be able to continue outperforming his relative inability to throw strikes. As with most young pitchers, it’s hard to predict what path Gonzalez will take in Washington, but regardless, the Nationals’ aggressive move speaks volumes about the internal view they have about their team as well as the economic boom taking place throughout the game.

When the Angels signed Albert Pujols and C.J. Wilson, we learned that Arte Moreno’s shopping spree was being funded by a new multi-billion television deal. Similarly, the Rangers aggressive spending since being sold to the ownership group fronted by Nolan Ryan has been linked to TV money. Now, it seems, we can also add the Nationals to that list.

According to a report in the Washington Examiner, the Nationals are in the process of negotiating a new payout from MASN that could be substantially higher than the $29 million fee they currently receive. With the expectation of increased revenue, the Nationals’ decision to accelerate their rebuilding strategy makes perfect sense. Even though Gonzalez, who is entering his first year of arbitration eligibility, won’t cost the Nationals much initially, the price in prospects was very steep. The team’s willingness to cash in so many future chips for instant gratification must mean the Nationals either think they are ready to contend now, or have the financial wherewithal to significantly expedite the process. When Washington broke the bank to sign Jayson Werth last year, many pundits scratched their heads, but clearly, the organization has adopted a very optimistic outlook. Even though GM Mike Rizzo probably already regrets the decision to sign Werth, it says a lot that he and owner Mark Lerner remain undeterred in their attempts to quickly improve the team.

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Recent times have not been kind to Fred Wilpon.

The last five seasons haven’t been very kind to the Mets. Whether on the field or in the board room, the team has been besieged by a myriad of unfortunate circumstances ever since Carlos Beltran was mesmerized by a Adam Wainwright curve ball to end the 2006 NLCS. Not surprisingly, the Mets’ hardship has led to much ridicule, particularly from the less compassionate segment of the Yankees’ fan base. Despite the dark days still ahead, however, there is every reason to think the Mets could still have the last laugh.

In the three years since Bernie Madoff’s massive securities fraud was uncovered, Fred Wilpon has been desperately trying to maintain his hold on the New York Mets. Despite insisting at the time that the scandal would have no impact on his ownership of the team, subsequent events have proven otherwise. Since that time, which, unfortunately for the Wilpons, coincided with poor play on the field and a corresponding decline in revenue, the current ownership group has relied on debt to remain afloat. According to a recent report in the Daily News, those loans are about to come due.

The team is not for sale, not a piece of it, not a part of it. We are not for sale. We have no reason to sell. We have other money. Just because you guys don’t know how much money we have, we have other money outside of this, from diversity.” – Fred Wilpon, quoted by the New York Times, December 17, 2008

Despite Fred Wilpon’s fervent desire to remain as majority owner of the Mets, the prospect of looming debt payments and even further deflated revenue in 2012 could soon force his hand (while creditors, and perhaps even the commissioner, slowly pry loose his fingers). As Frank McCourt has learned with the Dodgers, the weight of debt can become too much of a burden, especially when the alternative is selling out and making a handsome profit.

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Albert Pujols was supposed to be a Cardinal for life.

Albert Pujols’ decision to take his talents to Southern California has inspired great joy among Angels’ fans and, not surprisingly, a considerable amount of vitriol from those who root for the Cardinals. Phony, trader, liar, mercenary, and fraud have all been used on twitter and talk radio to describe Pujols because he opted for a mega 10-year deal worth $254 million (with $30 million in extra incentives) over a hometown discount. Apparently, charity begins in St. Louis.

Although it’s understandable why Cardinals’ fans might feel betrayed, such sentiment is both incredibly naïve and logically absurd. According to fangraphs.com, Pujols has provided $194 million worth of performance in excess of the $104 million the Cardinals have paid him since 2002 (if 2001 was included, that figure would be even higher). In other words, the Cardinals already got their discount. What’s more, not one, but reportedly three different teams offered Pujols a better deal than the Cardinals, so it sure seems as if it was the team, and not the player, that had an unfair sense of his worth.

Albert Pujols’ Salary vs. Value, 2002-2011
 
Source: fangraphs (value) and baseball-reference.com (salary)

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With all the big numbers being thrown around this offseason, there have been articles suggesting that teams are unwise to backload contracts. The basis for this opinion is the belief that teams will not have the money to pay the escalating costs, so would be better off paying the upfront fees. For individuals who lack fiscal discipline, it might be better to pay more upfront (kind of like withholding too much from your paycheck so you don’t get stuck with a tax bill in April), but presumably, major league franchises are employing cash management procedures to ensure they can meet future obligations (although the Dodgers and Mets may be teams who disprove that notion).

When a team backloads a contract, the money “saved” doesn’t disappear. If the organization is being run as a healthy business, the additional cash on hand is either invested or put to use in other ventures expected to earn an attractive return. Although these approaches can be risky, strong companies develop plans to ensure cash flow can meet near-term obligations. Tied up in this approach is something known as the time value of money.

Without going into the financial details, a dollar today is usually worth more than a dollar tomorrow (kind of like a bird in the hand is worth two in the bush). So, absent mitigating circumstances, such as the luxury tax threshold, teams are always better off delaying the payments owed to the players they sign. Listed below as an illustration is a present value comparison of Jose Reyes’ contract with the Marlins versus what would be owed if he was paid the average annual value each season. Based on included assumptions, the Marlins are saving $3.3 million by backloading Jose Reyes’ contract. Although that may not seem like a lot, especially in relation to the size of the contract,  it is a savings nonetheless. (more…)

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During the winter of 1996, the Florida Marlins shocked the baseball world and altered its financial landscape by spending almost $90 million on new players, including $18 million per season for Moises Alou, Bobby Bonilla, and Alex Fernandez. Fifteen years later, the now Miami Marlins are at it again.

Days after celebrating the Marlins’ World Series championship in 1997, owner Wayne Huizenga began dismantling the team.

Two days after signing Heath Bell to a three-year, $27 million contract, the Marlins also reeled in Jose Reyes, who was inked to a six-year, $106 million deal. The combined amount owed to both men in 2012 is almost 30% more than the team paid its entire roster just four seasons ago. And, if rumors are correct, the team isn’t done spending yet, with several impact names like C.J. Wilson, Mark Buehrle and even Albert Pujols reportedly still in play.

Wayne Huizenga’s lavish Hot Stove spending resulted in a World Series title in 1997, but the championship was largely overshadowed by the fire sale that followed shortly thereafter. Almost immediately after Edgar Renteria’s game winning base hit in game seven bounced past the outstretched glove of Tony Fernandez, the Marlins began slashing payroll. Huizenga cited mounting financial losses for his decision to dismantle a championship team, but subsequent analyses suggested the 1997 Marlins were profitable and the fire sale was nothing more than part of a plan to sell the team. It’s impossible to say how much Huizenga’s decision stunted the growth of baseball in South Florida, but the team’s attendance has never come close to the 2.3 million fans who watched the team in 1997.

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Even in peace, MLB finds a way to get bruised. Instead of focusing on the unprecedented 21 years of labor peace that will result from yesterday’s new collective bargaining agreement (CBA), the focus of many, if not most, has been on elements of the deal they don’t like. Interestingly, the strongest objections have been for items like draft slotting and expanded playoffs, which just so happen to be heralded in other sports. In some ways, that’s unfair, but baseball has always been held to a higher standard (see steroids) because it is the National Pastime.

We are headed for massive problems in the next CBA. Competitive balance is going to get progressively worse.” – Anonymous GM, quoted by Ken Rosenthal, November 23, 2011

The most repeated criticism of the new CBA is it has the potential to dampen competitive balance by restricting the amount of money that small market teams can spend in the draft and international free agent market. Because teams like the Royals, Pirates, Royals, and Padres have become the most prolific spenders in the draft, the theory goes, curtailing the amount of money spent will limit their ability to be competitive. However, there is a flaw to this logic. The reason those teams have spent more is twofold: they have amassed more picks and bonus payouts at the top of the draft have been increasing exponentially.

Top-10 Spenders in the Rule IV Draft, 2007-2011

Team Total Bonuses
Pirates $52,057,400
Nationals $51,084,600
Royals $45,204,900
Red Sox $44,097,250
Orioles $41,219,700
Rays $40,582,200
Blue Jays $38,429,600
Mariners $36,055,900
Padres $35,768,100
Diamondbacks $35,261,000

Source: baseballamerica.com

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Labor peace in baseball has become a given, which is remarkable considering the contentious history between the players and owners. However, after reading a summary of the new CBA unveiled this afternoon, it appears as if the partnership between owners and players is even stronger than imagined.

In the past, negotiations between the two sides were more like a battle of attrition in which changes were enacted only by give and take. This time around, both parties seemingly took a more pro-active approach, co-authoring some of the most sweeping changes in recent history. Although many of the final details have yet to be revealed, enough information is available to make an early assessment about the new CBA. A summary of the key changes is listed below, with an analysis provided after each section.

Baseball's new CBA was the product of a partnership, not battle, between the owners and players.

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