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In Major League Baseball
By: Keith Dobkowski, MLB News Writer
The Major League Baseball Winter Meetings came to a close on
Monday, December 15, 2003. ESPN analysts have called this the
hottest winter meetings of all time. Leading with the Alex
Rodriguez rumors and the signing of Miguel Tejada by the
Baltimore Orioles for 6-years and $72million, this years annual
winter meetings have been hyperactive.
As exciting as all the transactions are, or as painful for some
teams, avid sports fans must not only ask who is where, by why
is there so much movement?
Why is this the hottest hot stove of all time?
Why are so many players changing teams?
And what will the end result be of all the transactions?
In my working paper entitled, “Disability Insurance 3, Baseball
Fans 1” I tackle this issue directly. My paper, along with
numerical data, comparisons to other professional sports leagues
and a proposed solution has been made available by Sports
Business Simulations, Inc., and can be found on their website at
www.sbs-world.com under the working paper section.
My theory is as follows: Beginning in the 2002 off-season,
disability policies were limited to 2 to 3 year increments, as
opposed to the entire length of the contract. While this change
in policy length appears simple on its face, it creates a huge
problem for all of Major League Baseball.
When a baseball player signs a contract with a team, the contract
is figured in terms of years and salary. Many contracts contain
options and bonuses for performance goals. For example, Barry
Bonds received a monetary bonus as part of his contract for
winning the Most Valuable Player award. Player’s contracts often
provide escape clauses for the organization in regards to
dangerous off-field activities. Such excluded activities often
include skiing and motorcycle riding. The contract between a
player and team is normally guaranteed, meaning that the years
and money offered must be paid in full. Due to the high risk of
injury, teams take on an additional cost by insuring the health of
their players, essentially insuring the contract money.
For instance, if player A were to sign a 5 year, $10million dollar
contract to play for Team, and player A were to break his leg in
year one, making player A unable to play out the remainder of his
contract, the Team could file a disability insurance claim to receive
back a large percentage of the lost salary.
The risk that exists occurs from the frequency and unforeseen
nature of injuries. Cal Ripkin played in 2632 straight games,
while Albert Belle’s injury sidelined his career in 2000. Due to the
unforeseen nature of injuries, Insurance companies have limited
the length of Player coverage they will offer. Beginning in the
2002 off-season, disability policies were limited to 2 to 3 year
increments, as opposed to the entire length of the contract.
While this change in policy length appears simple on its face, it
creates a huge problem for all of Major League Baseball.
Recall the above hypothetical where player A signs a 5-year,
$10million contract to play for Team. Under the new disability
system that limits the length of coverage, if player A were to
sustain an injury in year one that kept player A from playing the
rest of the five years for Team, Team would be limited in the
amount of money Team could recover. Under the old disability
coverage, Team could have Insurance Company pay for a large
percentage of player A’s salary. Under the new coverage limits,
Team would only receive coverage on player A for two to three
years and Team would then be responsible to pay player A’s
salary in whole for years four and five.
When Insurance Companies limit the length they will insure a
player’s contract for or even offer insurance to, a team is less
willing to accept the risk involved in offering a long-term contract
to a player. Most likely, a team will offer a player a contract of
the same length of the insurance policy, two to three years.
Every year there will prove to be exceptions, but for the most
part, this practice will hold true. The net result is as follows.
Short contracts leads to greater turnover of players. Greater
player turnover leads to less familiar teams being fielded. The
less familiar a team appears to a fan, the more work a fan must
put forth in order to root for the fan’s favorite team or even to
recognize the team. More work by the fan leads to greater
disenchantment by the fan. And eventually disenchantment will
drive fans from the game of baseball.
My theory has held true as in 2002, the average player received
a contract of approximately 2.7 years in length. In the 2003
season, after the new disability insurance rules went into affect,
the average players contract was only 1.6 years in length, over a
40% drop in contract length. This year much like last, with 75
free agents already signed, the average contract length is only
1.7 years.
All information offered can be found in my working paper entitled,
“Disability Insurance 3, Baseball Fans 1.” My paper, along with
numerical data, comparisons to other professional sports leagues
and a proposed solution has been made available by Sports
Business Simulations, Inc., and can be found on their website at
www.sbs-world.com under the working paper section.
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