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Jerry Dipoto and the winner’s curse

What does Jerry lose by avoiding bad free agency contracts?

Toronto Blue Jays v Seattle Mariners
Jerry and Scott talkin’ game theory and advanced econometrics
Photo by Stephen Brashear/Getty Images

The Seattle Mariners are obsessed with the winner’s curse.

No, I’m not referring to a two-decade hangover following the best regular season in MLB history in 2001 — though I suppose that’s happened as well. Rather, I’m referring to a specific econ term that I vaguely remember learning about in a college class on game theory.

Imagine you’re participating in an auction; let’s say you’re bidding for a special kind of tale called a “Trevor” story. You’ve assigned a value to this story (perhaps $120), but you don’t know the value that other buyers have assigned to Trevor, which means you don’t know the true market value of Trevor.

Here’s the rub: If your goal is to extract value for every dollar you spend, then there’s no way for you to win given the value you assigned this story. Perhaps you over-bid to make sure that you got Trevor — poof, on day one you’ve lost value, since you spent more than you think Trevor is worth. If you under-bid, odds are you won’t wind up with Trevor. And if you bid exactly what you think Trevor is worth, well, that’s the winner’s curse. In that scenario, every other bidder thought Trevor had a lower value than the $120 you offered. Unless you had a different set of data points & information, you’ve proven that the other buyers’ average value of Trevor is less than the $120 you paid, and therefore the value of this story is less than you anticipated.

Does this sound like a lose-lose game? Congratulations, you’ve figured out why Jerry Dipoto shuns MLB free agency.

In seven offseasons as the general manager of the Seattle Mariners, Jerry Dipoto has signed only seven free agents to guaranteed multi-year deals:

  • Robbie Ray (5 years, $115m)
  • Yusei Kikuchi (4 years, $56m)
  • Juan Nicasio (2 years, $17m)
  • Marc Rzepczynski (2 years, $11m)
  • Steve Cishek (2 years, $10m)
  • Ken Giles (2 years, $7m)
  • Chris Flexen (2 years, $4.75m)

You’ll probably note a couple things. For starters, they’re all pitchers, which I think is more of a fun quirk than anything else. Secondly, there are a lot of relievers here, and some mediocre ones (Juan Nicasio?!?). Finally, most of these contracts are for relatively paltry amounts, with only Kikuchi’s and Ray’s deals approaching significant payroll commitments. For my money, that’s because Jerry Dipoto wants to avoid the winner’s curse as described above.

We know that Dipoto has to deal with a limited budget — that is, he does not have infinite money to spend on players (which would result in utter chaos that even Steve Cohen couldn’t imagine). Therefore, every dollar he spends represents an opportunity cost, since he has less to spend elsewhere and fewer roster spots to dole out. As a result, I think he wants to win every deal he makes, focusing on extracting net positive value rather than simply winning at all costs.

I don’t mean to suggest that Jerry doesn’t want to win; he’s a former MLB pitcher, and everything we’ve learned about him suggests that he’s intensely competitive. Rather, he doesn’t view agreeing on a $120m contract as simply adding a superstar. Instead, he sees the opportunity cost of spending that money elsewhere, and perhaps spending it on players who have $120m+ of value. The winner’s curse (as crudely described above) makes it really really hard to do that in free agency, since any signing means you’ve assigned that player a higher value than any other team in MLB.

Perhaps that’s why he likes making trades (121 so far!). Perhaps that’s why we don’t have any particularly onerous contracts on our books (instead, we’re the ones taking Eugenio Suárez’s contract from the Reds to reduce the prospect cost). And perhaps that’s why projection systems have the Mariners sitting smack-dab in the middle of the division this year.

Eschewing free agency as a method of team-building isn’t the worst thing in the world, and it means there won’t be many deals where you “lose” value from day one. But it does mean that you better hit on your trades, and that you better hit on your drafting & player development. There’s a separate case to be made that the Mariners’ payroll is far too low for a team with its spending history and revenue streams, and many others have articulated that case in the past. Instead, all I’m saying is this: By focusing on avoiding the winner’s curse, Jerry Dipoto has won the game of value, but is walking a tightrope in the game of making the playoffs.