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Rational Choice: the Todd Helton and Troy Tulowitzki extensions, and what it means for the rest of the MLB

I believe that the MLB player procurement process, from drafting, to international free agency, to signing MLB free agents, to locking players already under control into contract extensions, is a pretty good example of rational choice theory in action. Owners and general managers aren't out to deliberately undermine their own teams and their own employment or sources of revenue, and that generally we should assume a basic level of competence for their jobs and the ability to make informed decisions toward their own well being. This doesn't preclude these rational actors from making bad decisions based on the information they have, and the inferior ones will do it more frequently than others, but assuming that they're ignorant of information that is freely available seems more far-fetched to me than to assume that they've processed it along with other information to come to the decisions that they have made.

Second, because of this belief that the MLB follows a rational choice model, I think that the behavior of these parties follows the same basic patterns that we see in other rational systems, for instance, that choices or actions that prove damaging cease to be made and try to get undone. When we see a team actively try to trade or dump a long term contract within a year or two of signing it, we know a bad decision has been made. When the team is willing to cause themselves further hurt, i.e. absorbing a large part of the contract without significant or equal value exchange, as the Rockies did with Mike Hampton and the Rangers did with Alex Rodriguez, we know that hurt was so deep as to cause significant damage to a franchise and to impair the ability of said franchise to stay in this rational mode.

The response to future opportunities to make the same mistake by these actors is as predictable as the response of a child who has a second opportunity to touch a hot stove. They don't. The Rockies haven't even glanced at available elite pitchers from outside their own system, either in the trade market or the free agent market since Hampton. The Rangers haven't set the market for an elite free agent position player since Rodriguez.

Conversely, actors that have made successful decisions in the past can be expected to attempt to replicate them. The White Sox have been trying to recapture their successful formula from 2005 for five seasons. The Yankees and Red Sox keep on pouring boatloads of money into free agency because they keep on deriving many more boatloads of money in gate revenue from these players. It's a successful action that gets repeated. Meanwhile, Florida and Pittsburgh keep on dispatching young players before they reach arbitration and get expensive because they have figured out that they can make boatloads of money from MLB's revenue sharing system this way. It too is a successful, rational action that gets rewarded in repetition.

I think this is probably where we need to make an important point: the primary impetus of nearly all decisions in the MLB is monetary. Teams put lip service to wanting to win first, to build legacies, but the bottom line is to take care of the bottom line first. Winning, while a very important factor in the decision making process, is second to the financial considerations. This is a multi-billion dollar industry and you can be certain that the actors therein are going to be working to protect its value. Winning obviously helps teams make more money, but as the Pirates and Marlins' cases have pretty clearly shown over the last few years, it's not the only way for a team to make a buck, and not necessarily the primary motivation for franchises.

This isn't to say that teams don't make poor financial decisions. They do. I think I pointed out a few obvious cases already, but like I also pointed out, when teams make these mistakes, a natural pattern of attempting to undo the mistake and then not repeating the action follows. We usually can't look at the books, but we can look at the consequences by a team's subsequent actions and it makes it clear when there were financial blunders.

Which is what brings us to Todd Helton, Troy Tulowitzki, and why the contract extension to the latter tells us a lot more about the extension to the former than people seem to realize. The majority of public opinion seems to feel that Helton's extension was, in Alex Remington's words "an unmitigated disaster" for the Rockies. The significant problem with coming to this conclusion is that the observed consequences for the Rockies of the Helton contract do not fit the pattern of this level of a mistake. We've observed with the Hampton and Neagle fiascoes that Dan O'Dowd responds naturally when he makes glaring financial errors with the team, but he didn't do so here. In fact, as the Tulowitzki extension is an acknowledged repetition of the same act that the team made with Helton, it's fitting the pattern we'd instead expect of a successful action the first time around. What's more, the team is making an effort to repeat the action again with Carlos Gonzalez.

Why is there this discrepancy? If we're to believe Remington and the broad public opinion on the subject, that the Helton contract was a mistake, then we are also to have to assume that in extending Tulowitzki, not only O'Dowd, but also a notoriously spendthrift ownership group, has somehow collectively lost their ability to function rationally and follow their own established patterns of behavior at the same time. Or, we can assume the opposite, that the Helton contract wasn't in fact a financial mistake, and that O'Dowd and the Monforts retain their marbles and are repeating it because it was a successful action.

This brings us to a basic question which Remington asks, but in my mind  doesn't sufficiently answer:

Why did the Phillies, Rockies, and Twins hand out free agent dollars to players under team control? Did they really save money?

The way the second question is worded makes it clear how Remington might be missing the real point of these extensions to franchise players, that the goal for these teams isn't to save money at all in signing them before they hit free agency, but to make it. Before I get too far in this direction, however, I want to say that while his arguments aren't sufficient to answer the problem he poses, Remington's not coming at this without thought. He understands that the basic set of facts at the core of his argument, that the contract extensions awarded to these players, including Helton, are not equal to the win value of their play on the field afterwards. As Rawktober and Jeff Aberle have pointed out, this assumption itself might be false in Helton's case, but even assuming he's right there, Remington errs in his presumption that a majority of these teams lost money in the extension deals because of those discrepancies.

I'm not going to spend much time on the other contracts he cites (Rawktober's Fanpost arranges them nicely by WAR value return) but I would suggest that to really find out if teams are making or losing money on the deals, one needs only ask if they've continued making them since. In the case of the Yankees, it's pretty clear that they find value in their player extensions whether the player performs to that level of salary or not, while somewhat curiously, the Mets have been reluctant to go out on a Santana like limb with young players like Jose Reyes or David Wright. The infrequency which other clubs attempt to make these deals suggests that really finding a profit with them may be very rare.

So why Colorado?

One of the real ramifications that Colorado likely found financial success with a contract like Helton's that doesn't necessarily jive with the win value added on the field is that Rockies fans are willing to reward the team disproportionately for their position players compared to what other fans would. Given what we know about how baseball works at altitude, this makes some sense. The perception of fans in Colorado would be that Helton, Tulowitzki, Gonzalez, etc.., are better players than the perception would be of them elsewhere, and therefore local fans will be more willing to spend their money to see them. I'm not saying that these would be bad players by any means on other clubs, but I'm saying that casual fans who see them at Coors Field will view them differently than the generic baseball going public, and that this perception of higher value will be reflected in the amount these fans are willing to spend on Rockies baseball. Since most baseball revenue is derived locally, this would have a significant impact on the shaping of the club.

This idea that perception of quality and value can be substituted for actual quality and value among baseball consumers can lead a few interesting directions for the way teams shape themselves. Don't be so naive to think that this phenomenon would be unique to Rockies fans, either, as this playing with consumers' perceptions of value is obviously common commercially, and given how easily they can absorb bad contracts, it seems likely to be just as true of Yankees fans as it is of Rockies fans.

Another direction this leads is to one of a specific local value for players in each major league city. Before Ken Griffey Jr. was traded from Seattle to Cincinnati in 2000, he turned down a $148 million, eight year contract extension with the Mariners. His hometown Reds signed him to a $120 million extension after completing the trade. Both clubs felt they would be getting their money's worth (they both proved wrong, but that's a moot point) so the discrepancy indicates that player values in Cincinnati may be off 20% or more of what they are in Seattle. People talk about what a great deal Evan Longoria's contract is with the Rays, and there are some that feel that Carl Crawford was an overpay by the Red Sox, but if a player in Tampa only has a third of the value to the club as he does in Boston, it should affect how we evaluate their deals. The monetary return to the clubs could be remarkably similar despite the large discrepancy in dollar value to wins provided.

Finally, this indicates that the teams signing these extensions with franchise players are likely looking at them as an investment in the player's added monetary value to the club, in added merchandising, advertising, ticket sales, etc.., above and beyond their win value. Given that these deals still take place in a rational market despite being seemingly obvious overpays, rather than being incredulous like Remington, I would suggest that the average discrepancy between the dollar value of the contract and the win value provided by the players in question would be a place to start in quantifying the elusive value that a "face of the franchise" would have over your Adam Dunn types that don't seem to get the same premium. While there are some clear misses (Hampton, Vernon Wells, presumably Jayson Werth) these contracts don't keep on getting made by multiple GM's if some of them aren't successful investments.  Thanks to the Tulowitzki extension, we can now safely assume that the Todd Helton deal was one of them.