Hardball Times Interviews Vince Gennaro

THT has a must read piece up interviewing noted Baseball economist and Columbia University professor Vince Gennaro, who authored the book Diamond Dollars

. He delves into the changing nature of free agency, how the economy will affect teams among other topics. But what I thought was most timely were his thoughts on the upcoming Baseball draft and the July 31st trade deadline. First,  here’s his take on the draft:

THT: How do you think the economy will affect how teams draft and deal with international signings this year?

VG: I would expect teams to continue to be relatively aggressive in these areas. With the downturn in the economy putting revenue pressure on many teams, these low cost sources of talent are even more important to the long term health of low revenue teams. Teams know that taking a pass on the draft by not stepping up and signing draftees, or pulling back from signing international prospects can set them back a couple of years in their quest to become or maintain competitiveness.

That’s surprising, given how speculative these picks generally are. The draft would seem to me to be the first thing a cost-conscious team would cut back on, as the Mets and Pirates have for many years. Also, with free agent prices coming down and good players available relatively cheap, a team would be even less likely to spend on high-risk draft picks when MLB ready talent is available for short term deals at similar rates. For example, a team like the Mets that is close to contending would rather spend 5 mil for a year of Bobby Abreu than spend a similar amount on a HS kid who may never be a MLB player, and is very likely to never be as good as Bobby Abreu. That would drive prices down for anyone past the top half of the 1st Round. Most Baseball GMs have a short shelf life, they know if they don’t win and fast, they will likely not be around to see the fruits of a high school kid helping the MLB team.

But he may be right with other GMs that have more secure positions, we certainly saw evidence to support his take with Billy Beanes’ eye-popping offer to IFA pitcher Michael Inoa last year. I suspect this market may mirror the MLB free agent market, where the top guys get their money and everyone else’s price collapses. That would benefit the Yanks in both markets, big time. Agents would steer clients to the Yanks (and Sox) knowing they’re the only ones spending any money past the 1st round leading to both teams having drafts deep in high upside talent. But this market could also work in reverse with HS players, where they will simply opt for college and hope the economy improves by next year.

Next, he discusses the trade deadline:

THT: Will the economy change how teams trade players during the year? For example, will teams that get off to a bad start be more willing to trade their more expensive players?

VG: I think teams that are not in contention will be more aggressive in terms of looking to deal players. I really think it will be a buyer’s market and I would expect teams to start shopping players earlier, leading to more transactions in June. There’s very little financial upside in being a 74-win team vs. a 70-win team. Yet a player who might be able to push a team into the postseason may hold the key to unlocking a $30 million revenue stream. It’s always interesting to watch how playing assets get reallocated mid-year to situations where they have the highest return. There are a few teams that have publicly said that they’re stashing some dollars in order to become an acquirer in July. They should be able to make some key additions at a reasonable price.

This interview was conducted months before the season, yet he nailed this. We’re already seeing the Pirates, Indians, Padres and A’s shopping players looking to get out ahead of a market that could collapse at the last minute. The teams that could really get hurt by this are the ones that are currently in contention (Blue Jays, Cincinatti) but don’t figure to stay close all year. They’re too good now to raise the white flag by selling off, but could easily fall out of the race over the next month and see their balance sheet force them to make a last-minute deal, where they are likely to get little in return.  I would throw Milwaukee in this category as well, I still think the Cubs are the best team in that division and will hit their stride eventually. Particularily when Harden and Ramirez come off the DL soon.