Tools of Ignorance: The Somewhat Dubious Outlook For the Next Generation of Rebuilds

The all-out, sell-it-if-it-ain’t-nailed-down, multi-year rebuild is totally in vogue. It seems to be working too. The Royals—whose rebuild appeared to have flopped by 2013—are coming off a World Series Championship and consecutive World Series appearances. The team the Royals defeated in last year’s World Series was none other than the fresh-out-of-a-rebuild (or at least just-not-spending-money) Mets. The Cubs, who lost to the Mets in the 2015 NLCS and who entered the 2016 season with the highest odds (per the odds makers) to win the World Series, appear to be perennial contenders after completely overhauling their roster upon the arrival of team president Theo Epstein and general manager Jed Hoyer in 2011. The Astros' drastic rebuild was well documented during their playoff run last year, as is that of the Braves. The Phillies’ rebuild even appears to be going better than planned.

You all, of course, already knew all this, but the point, as maybe unnecessary as it is, is made. It seems that all teams have to do is be diligent about providing a terrible major-league product for several years in order to enjoy success for many years thereafter. For those who have been paying attention, and especially for those who have frustratingly watched their teams stagnate in mediocrity (or worse) for years, the full-rebuild (as we will refer to it here) can appear to not only be a savior, but also optimal strategy.

The question we want to answer is this: Do teams have to be uncommitted to winning in the short term in order to consistently compete in the long term?

Answer: No. The Red Sox, Giants, Cardinals, Rangers, Dodgers, and Tigers have all been near-perennial contenders in the recent past without a commitment to rebuilding. These six teams also have six of the nine highest payrolls in baseball. The Yankees, Angels, Orioles, and Cubs make up the rest of the top 10 highest payrolls in baseball; the first three are all nearly near-perennial contenders, at least over the past three or four years, and the Cubs are just fantastic. In rounding out the top half of MLB payrolls for 2016, we have (in order) the Mariners, Nationals, Blue Jays, Royals, and Mets. The Blue Jays have competed without ever going full rebuild. The Nationals have been perennial contenders, though that to date is inseparable from their having previously been terrible. The Mariners are the first team listed to have failed to see positive results, and they have both rebuilt and, more recently, spent money (and even they could see success this season and in upcoming seasons). They are the one team that has been unambiguously unsuccessful over the past five years. So failure rate on spending money appears to be (at this juncture), roughly, one out of 15, or 6.67 percent, depending on your definitions.

It would be easy to say that all teams have to do is spend a lot of money and they will be competitive, but that would be ignoring some context. Had the Cubs, Mets, or Royals spent the kind of money they are currently spending years earlier, such spending would have (i) been less effective and (ii) decreased the talent currently on hand (they would have likely been slightly better, which would have decreased their draft pools and provided them worse draft picks). But, what if they never rebuilt and just spent money? Would these teams have been in the perennial winner pool? Given the evidence provided in the previous paragraph, these teams could have (if not necessarily would have) consistently competed just by spending money (and selling long-term assets to rebuilding teams for short-term assets).

This brings us back to the “should” in our original question: Should everyone rebuild? The answer is thus dependent on goals. If a team’s only goal or primary goal is to win, then it seems pretty clear that it should spend a lot of money on major-league baseball players. But, if the goal is to be the most profitable or to win a lot without spending over an arbitrary budget, then, yes, it seems that teams should go full-rebuild.

We won’t leave it at “seems,” and instead we will adjust our prior question: Do teams have to be uncommitted to winning in the short term in order to consistently compete in the long term if they cannot be one of the highest spending teams in baseball or if they are trying to maximize profits?

(Note: When I say “profitable” I mean to be as productive (win the most games) as possible, while spending as little money as possible. Obviously, this ignores the actual revenues that teams make, but (i) I do not have access to good information in that regard and (ii) I am assuming that once a team begins winning that they will make money regardless of how much or how little they spend. This ignores how much fan interest teams lose when rebuilding, but we are going to stick to costs and wins in this article and hope to make the analysis complete with revenues on a future date.)

So, let’s talk about why the rebuild worked for the previously mentioned teams. To start, many of the ways in which the league is structured—international signing caps, draft pick pools, the arbitration system, the luxury tax—all incentivize such a rebuild by disallowing prospects and young players to be paid their actual worth. In other words, all of these structures work to limit or disincentivize the amount teams can spend on younger players, thus either causing or leaving available money to be spent on veteran players, thus causing such players to be paid more than they would be worth if money could be properly earned by younger players. This means that if a team wants to get the most production for the lowest cost, it needs to acquire as many productive, cost-controlled players as possible.

As mentioned previously, most of these teams were only able to really start competing once they began spending some money (Cubs, Royals, Mets) and, thus far, these teams have had the most success among rebuilding teams. The Pirates and Astros—who have kept miniscule payrolls despite being potential contenders—have been competing and begun to compete respectively, but have not experienced as much success as the previously mentioned group, at least not yet. The Tampa Bay Rays, who made the playoffs four out six years spanning the 2008 to 2013 seasons, experienced the most success (sans the Royals), but they likely were able to capitalize on being the first to employ the strategy of rigorous asset management and the full–rebuild, so they arguably reaped the benefits of first-move advantage.

Beyond league structures, the full-rebuild also takes advantage of two other phenomena: job security and planning fallacy. Or at least it used to do so. Starting with job security, most general managers (until recently) could not fully rebuild (read: be terrible for many years) and still have a job upon its completion. That meant that most teams were buying for the short term whenever they had the chance (either when they were decent near the trade deadline, when the general manager’s job was on the line, or when ownership agreed to spend more money), which meant it was usually a ripe market for teams willing to trade short-term production for more overall production.

Even when job incentives failed, such teams could take advantage of overconfidence. Daniel Kahneman, writes in Thinking, Fast and Slow, “Amos [Tversky] and I coined the term planning fallacy to describe plans and forecasts that

· are unrealistically close to best-case scenarios

· could be improved by consulting the statistics of similar cases”

So not only is management incentivized to trade for the short term via their desire to be employed, they are also tricked by their own overconfidence (for example, the Padres’ 2015 offseason). Also, teams are thus likely to think that trades will have a greater impact than they likely will (for example, the Blue Jays’ 2012 offseason trades).

Lastly, from a game theory perspective, when you are one of the few games in town (for example, the Rays and A’s in the mid-to-late aughts), then business can be good as limited supply can drive up price for buyers.

So we get it, the full-rebuild, and even lesser rebuilds have been successful over the past 10 years. But will they continue to be effective going forward? (Finally, we get to a worthwhile question.)

While they will almost certainly be effective in reducing costs, there is reason to believe they will not be as effective at leading to wins (either as quickly or in total) as they used to. Mainly, the reasons that worked to rebuilding teams' advantages are now working against them. For starters, supply of short-term production has increased with the increase in the number of teams rebuilding, with the everybody-punts mentality we see in the National League this year. Relatedly, the demand for short-term production has thus decreased as more teams focus on profits (or long-term sustainability) as opposed to wins even when they are competing for championships (see: (at least most of the time) the Mets, Cardinals, Astros, and Pirates).

Additionally, planning fallacy can cut both ways. Just as teams are likely to overestimate their chances of winning or produce forecasts that as Kahneman puts it “are unrealistically close to best-case scenarios,” rebuilding teams are likely to overestimate how quickly and effectively they can rebuild (often ignoring factors such as competitive response—as in, the effects of everyone else also rebuilding).

So nothing is as great as it seems and the obvious does not mandate a 1,600 word explanation. But the interesting part is if not full-rebuild, then what? For one, as mentioned, teams can spend money. That’s one alternative, and I would be curious to see if the revenues side (the part we’ve been ignoring) makes up for the cost side, in that you are not going to lose a fan base by being terrible for several years. Many have pointed out Houston’s fourth-lowest attendance in a season they made the playoffs. The other alternative is to not go full rebuild and take advantage of a better market for short-term buyers and the additional wild card spot. The Blue Jays had success with this last season, and the 2013 Red Sox before that, while the White Sox are having success with this approach thus far this season (cheaply acquiring Todd Frazier, Brett Lawrie, Austin Jackson, and Mat Latos). Even non full-rebuild teams that have not had success in the standings have done well in attendance, in the Diamondbacks and Rockies.

As we have mentioned before, a market inefficiency only lasts until the market corrects itself, and it would thus be unsurprising for some of the current rebuilds to be less successful than their predecessors—just as we saw many teams chasing OBP begin to overpay for high OBP players once the market began to value those players correctly. That said, I think the full rebuild is unfortunately here to stay. (I say unfortunately because bad teams tend to be less fun teams to watch.) Why do I think so? Because it is easier to manage and forecast cost than it is to do so with revenues. There appears to be a shift in the goals of the majority of owners (or at least their true goals have been brought to light), which is to make as much profit as possible, or to stay within a rigidly self-imposed budget. Winning and/or providing the best on-field product appears to become secondary. (How else does David Freese only get a one-year $3MM contract?) The worst part is that baseball teams can justify this by citing recent successes, by saying that the full rebuild will provide the most wins and best on-field product in the long run.

Sometimes a team has been so thoroughly mismanaged and its minor-league system so thoroughly dismantled that such a rebuild is necessary (Astros, Phillies). Often, though, it is not (Brewers, Braves, Reds, Padres). The shame is that however great the case for full rebuilds was five years ago, it is almost assuredly less great a case today for the previously mentioned reasons. So while rebuilds will forever be intriguing, let’s keep rooting for teams to try to win sooner rather than later.