Treating Players Like Property
Now thirty years later Kuhn's decision seems almost quaint. Today, free agency enables any club willing to dedicate the funds to stock its roster with players at all levels of quality. Clubs willing to pay even have advantages in trades: veterans in the final years of large contracts are often exchanged for inexpensive rookie or minor league players. Although rare, clubs can even compete financially for the Japanese star "posted" to the American major leagues.
So money is clearly the bottom line in player movement. Yet, dating back to the Fingers-Rudi-Blue sale, baseball still retains its limitation on the direct sale of major league baseball players. Kuhn set the maximum at $400,000 for all cash deals; Bud Selig has raised the number to (what I last understood to be) $1,000,000. Now, in the wake of the Matsuzaka deal, surely some struggling MLB clubs eyed with envy the neat $51 million the Red Sox mailed the Seibu Lions for the right to negotiate a contract with the young pitcher. Just as surely these struggling MLB clubs hold much of their capital in player contracts. These clubs (and these contracts) would be worth more if the clubs were able to sell contracts for cash to clubs willing to pay.
Why does MLB limit the sale of player contracts? I like the posting system for Japanese players so much, I think it's time to import something new.
1. It is axiomatic that an item of property is more valuable if the owner enjoys the right to sell it. Among other reasons, the ability to sell an item ensures a measure of liquidity and helps owners get out of acquisitions that in retrospect didn't pay off. Liquidity is good.
2. Let's say a baseball team is in contention late in the season; adding an additional bullpen pitcher could put the team over the top. But pitchers are expensive; so this team, to raise the funds needed to pay a pitcher, decides to sell some of its prospects. It then takes the sale proceeds and purchases the pitcher. Is this scenario problematic? Does it threaten the integrity of the game? Clearly this exchange could happen today (within the trade period) as long as the prospects were exchanged directly for the pitcher. No cash limitations would apply; no matter what amount the pitcher's compensation, the prospects could be accepted in trade.
3. But if the team with the pitcher wanted cash instead of prospects, the team could receive no more than $1,000,000. Or, if the team wanted prospects or players other than those available from the trading partner, then a third team with desirable and surplus prospects would have to be located.
4. Why prohibit a team from doing directly (exchanging prospects for cash to acquire the pitcher) what it may do indirectly (by trading the prospects for the pitcher) or more indirectly (by involving a third team and cash and extra players)? The fear, cited by Commissioner Kuhn, that relatively wealthy clubs would translate their financial advantage to competitive advantage seems trivial. Wealthy clubs have plenty of avenues to use wealth to their advantage. Wealthy clubs can and do buy players through free agency and through their willingness to absorb expensive player contracts in trade.
5. If MLB allowed the direct sale of player contracts, without commissioner-imposed cash limitations, the marginal competitive advantage would accrue to poorer teams, not richer ones. The Yankees and their like already have ample liquidity and can use that liquidity in free agent player acquisitions. Poorer teams hold most of their wealth in player contracts. Yet MLB's cash trade restrictions inhibit the liquidity of player contracts. To move a player to the Yankees for a pennant run, a team like the Royals must take their payment in players and prospects (and the permissible cash), and will be limited (practically speaking, given the difficulty of three-way trades) to players and prospects who are owned by the Yankees and who are in some sense surplus players for the Yankees.
6. In addition, trading a bullpen pitcher for some surplus prospects or players is dicey business, given the failure rate of minor league baseball players. Wouldn't the Royals (often) prefer to get a check from the Yankees for some number like the 20-50 million dollars paid this fall to the Japanese clubs in exchange for what appear to be quality major leaguers, and then be able to use that cash to acquire established major league players from any club where they are surplus? Liquidity is good, cash is king. The rich clubs have plenty of both. Allowing the poorer clubs to sell players would help, not hurt.
7. It costs a ton of money to develop young players, especially starting pitchers. Most prospects don't make it to the major leagues, never mind major league stardom. So investments in developing young players are risky propositions. Which clubs are better able to absorb the risk inherent in investing in prospects? The wealthy teams. Yet the current system basically makes the poorer teams carry this risk, as they trade their established players for uncertain prospects instead of for the cash to acquire more proven players. A risk is a cost. So, in effect, the limitations on cash deals makes the poorer teams carry risks they may not want; the restrictions on cash make the poorer teams poorer.
8. The result of poorer teams carrying the risk of prospects is that the poorer teams inevitably function like farm clubs. Look at it this way: today, the Red Sox draft players and send them to the farm club in Pawtucket. In a few years, once some of the prospects appear ready to help the parent club, the Sox call them up, sending new draftees to take their place. That's the farm system. Now change the name Pawtucket to Kansas City and what's the difference between a farm club and the Royals? Both take prospects and develop them and exchange them for more prospects. The Royals, unable to trade the best of these prospects for cash will always draw poorly (who wants to see a AAA team lose so often to superior major league teams?) and so will always be poor and so will always have little choice but to perpetually take back inexpensive prospects in trades.
9. Except for very sure things (Jonathan Papelbon), wealthy clubs like the Red Sox will never want to bear the risk of prospects. The large profitable market the team has created for itself in New England means that the club's and the league's revenues will be maximized by putting proven players on the field to produce perenially competitive teams. Even the Royals profit from this arrangement, given revenue sharing. So it may well be that the Royals willingly play the role of the farm club; just food for thought. In other words, one could argue that MLB restricts the sale of players in order to make the Kansas City's of the league into de facto farm clubs. But this would be odd given the vast farm system MLB already has and given that the continued profitability of the revenue-sharing clubs depends in part on rival teams like the Royals fielding competitive teams.
10. Even as a perpetual farm club, a team like the Royals would still be better off if it could sell players for cash, if only to pour that money into a greater number of prospects, furthering the odds of some of them paying off while they were still comparatively underpaid. MLB also prohibits the alienation of draft rights, which also impoverishes those clubs that hold the highest draft positions (the biggest losers, usually poorer clubs). The right to alienate property is a valuable attribute of property ownership. Why does MLB continue to impoverish itself?

