|Bill DeWitt III|
On insuring player contracts.
"Different teams deal with the risk of injury in different ways. It is a spectrum. Some teams completely self-insure. They don't take on any player insurance. Other teams insure all their long-term contracts and even some shorter-term contracts. I'd say we are closer to that side of the spectrum. Generally speaking, we insure our long-term contracts. It's not like your car insurance where you sort of fit it into your family budget. You are talking millions of dollars of insurance expense to insure a $100 million payroll. We think it makes sense.
"Actually, when you look over time, over the last 10 years, we've had some claims that we were able to receive money for when guys have gone down (with injury) and we've also not insured some guys who have gone down, and paid a lot on insurance for guys that were fully healthy, so we lose that premium. I would say we are about even on all of that. We view it as a nice hedge that does cost a lot of money. Generally speaking with one-year guys, we probably wouldn't insure them.
"The other thing about the player insurance market is that it is not what you would think. It is not like, as soon as a guy goes down, all of a sudden, that guy's salary starts going to the club. There is usually like a 90-day deductible, meaning you can't start receiving salary until they have been out that many days. They exclude all kinds of things. If a guy has elbow surgery, the exclude him from being able to pay out.
"So, it's kind of tough. I ask myself, ‘What am I doing this for, again?' What you are really insuring for is that kind of catastrophic loss, an injury that would take a player on a long-term contract out of the lineup in a full-season kind of way. That is really what you are doing it for. Not so much as if I broke my wrist and was out for six weeks. Those kinds of things don't generally create a pay out."
DeWitt explains why a salary cap is not likely to be implemented.
"Will we ever have a salary cap in baseball? Probably not, is my guess. The owners would love it, but there is that little thing called the Players' Union that is generally opposed to it – vehemently.
"As a whole, what the owners have tried to do is give up on that issue – the salary cap issue – to try to figure out other ways. Because ultimately, what a salary cap does is create competitive balance. What is also does is for those big market teams, if they can't spend above a certain number, then all that incremental revenue above that amount just goes into their pocket. And the players don't like that.
"Small markets can't be profitable because they have to spend up to the cap or else their fans yell at the owners and that is no fun. A cap, even though it is ideal from an ownership standpoint, it is not realistic with our current union and the way we have evolved. What we have done as a group is to try to work around that with some other ways to create competitive balance in the game."
On how the Cardinals analyze player investment.
"What they are doing in the analytic department is taking stats from the players and slicing and dicing them in such a way that gives you a feel for what the player's true contribution is to winning on the field.
"Win shares is a rough approximation of what we do. What we do is get a little more granular than win shares, but it is the same idea. You are taking the player's offense, his defense, his baserunning and you are adjusting it. You are projecting into the future – what you think the combination of all those three skills is going to do in the future – and you overlay on that curve the age decline curve. That curve is created by a statistical approach of averaging aggregated (sic) from everybody that has ever played and what that curve looks like on average – a regression analysis. You overlay that curve onto the projection and voila, you've got a prediction of that that player's career is going to look like over the next 10 years.
"Now, does reality match the curve? It never does. It is getting smarter about your decisions. That is the bottom line. People get hurt and all kinds of things happen in the real world, but I would much rather have a decision based on the logic and intelligence of using all of that information to come up with a great guesstimation rather than just go, ‘He's kind of a good player and has a great body type for long-term performance.' Things that scouts used to use, but frankly is old-school. Not a lot of clubs do that any more.
"We do come up with a single metric that we project forward. We rank every player in the league on that same basis. So you are not just evaluating your own players, but the entire league. You also have a budget in terms of what you think you can afford. That is sort of an iterative, creative process – you have some art and some science.
"If we had signed every free agent out there this off-season and our payroll would have bloated up to $400 million, our revenues would only have gone up – how much more can you sell than a complete sellout, right? – you couldn't make that work. I am just using an extreme example.
"On the other hand, if you get chintzy and drop your payroll just to make money – if you drop it to $50 million - it is possible we would start losing and that spiral would go down and we would actually lose money. So you have to find that balance of what your budget is.
"Once you make that determination, we've had reasonable stability in terms of our revenues so we can be around the $100 or $110 million mark in payroll. What that does is that it says is, ‘OK, let's take that $110 million and efficiently allocate it across 25 roster spots.' That is the key. It is not, ‘Let's see if we can get the biggest, brightest superstar on the planet to play for us.' That doesn't have anything to do with it.
"In Albert's case, we went beyond reasonable metrics because of how special and how much he meant to us. But the bottom line is allocating your fixed payroll number across 25 spots in the most efficient manner possible to win games.
"That is what the general manager's core job is. He's got all these other jobs of developing talent, scouting, player development, international, all that. In terms of allocating payroll resources, that's the game. You use all the numbers and stats and things to get you to the decision point. Then it becomes a mixture of art and science."
Other articles in this series:
A Look Inside St. Louis Cardinals Revenues
Cardinals Competing as a Mid-Market Club
Cardinals Season Tickets and Dynamic Pricing (coming)
Brian Walton can be reached via email at firstname.lastname@example.org. Also catch his Cardinals commentary daily at The Cardinal Nation blog. Look for his weekly minor league column during the season at FOXSportsMidwest.com. Follow Brian on Twitter.
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