The Mariners and Jerry Dipoto have a principal-agent problem right now

Mariners President of Baseball Operations Jerry Dipoto recently did what Mariners President of Baseball Operations Jerry Dipoto does and made a trade, breaking the seal for the 2022 trade deadline season. It was a relatively inconsequential trade for Seattle, acquiring Carlos Santana for a couple minor league relievers whose results so far have been pretty mid. But bigger decisions loom.

The Mariners will have to decide whether to buy, sell, hold, or buy-and-sell, and whether to do hard or soft versions of whatever course they choose. Then they need to execute that plan with specific transactions (or refusals to transact). I certainly have an opinion about what they should do, and I bet you have one too, but I don’t know the right moves for sure. What I do know is that the person who will make those decisions, Dipoto, has a conflict of interest right now.

The principal-agent problem arises when one party employs another to make decisions on their behalf. In this case, the Seattle Mariners are the principal, and Jerry Dipoto is the agent. The Seattle Mariners is a weird sort of entity, the complications of which warrant their own article. But for the purposes of this one, we’re going to assume that the organization’s primary interest is in increasing revenue by winning the World Series as many times as possible as cheaply as possible.

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Now consider Dipoto. Originally hired in the winter before the 2016 season, he was signed to a three-year deal and told to build a winner out of the then-existing core of Félix, Seager, Canó, and Cruz. Evaluations of how well he did at that vary, but the 2018 season was going well enough that mid-season, he received a three-year extension that would take him through 2021. When the 2018 team collapsed, Dipoto convinced ownership that the best thing for the Mariners was to change course and rebuild the roster. By mid-2021, that project seemed to be going well enough that he received a “multi-year” extension.

Now it’s 2022, and after six years with Dipoto at the helm without a playoff berth, the first season in the planned contention window hasn’t been going great. If things don’t turn around, there’s a very good chance that Dipoto could (and maybe should) lose his job. So it would be in Dipoto’s interest to buy at the deadline so that even if they don’t make the playoffs, the team looks better by season’s end.

But the Mariners have short-, medium-, and long-term interests that need to be balanced against each other. Buying too hard for a ~15% shot at the playoffs may well be the wrong balance to strike, even if having a resurgent second half and finishing the year looking like a good team is better for Dipoto personally. Maybe buying hard is the right thing to do, but Dipoto’s not well positioned to evaluate that objectively. Even if he’s trying his best to do what’s best for the franchise, he has to make these decisions with his employment status hanging over his head, which can create an unconscious bias.

This is a classic case of the principal-agent problem, where a party and his agent have different interests. Other famous examples include when a sports agent doesn’t tell the athlete about an offer because the agent wants a bigger deal, when an advertising agency wants autonomy to do edgy work that will get the agency noticed, but the client just wants to move product, or when a real-estate agent doesn’t get a client the best price because they want to do a favor for another agent.

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There’s a degree to which every ball club and its general manager (or equivalent) have a principal-agent problem, and indeed, there’s a degree to which almost every agency relationship has this problem. But incentives can be more aligned or less aligned. And right now, the Mariners and Dipoto have relatively misaligned incentives right on the cusp of decisions that could alter the course of the franchise.

To try to solve this puzzle, I asked my friend Lizzie, who TA’ed our negotiation class in law school (and her husband, John) for advice on how to solve a principal-agent problem. We discussed four principles that I have tried to apply to the Mariners situation.

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Option 1: Get a new agent

When there’s a principal-agent problem that is specific to the individuals involved, one of the best ways to resolve that is to get a new agent. I’m sure that firing Dipoto would satiate many Mariners fans for totally unrelated reasons. But it’d be an extreme measure if you’re only trying to resolve this particular problem.

And in any event, it wouldn’t viably resolve this issue. If the Mariners got a new GM, that person would have their own conflict of interest—coming in at the very beginning of a new contention window could unravel all the work that’s been done. And in the pressure cooker of the trade deadline, it would be particularly chaotic.

Gutting a system to bring in your own guys is a years-long process that can drastically delay winning. A new GM could shift the blame for any immediate failures to Dipoto, and use it as justification for bringing in their own players. They’d also likely turn over the entire front office, player-development department, and coaching staff. Again, maybe you think that’s worth doing because you think this crew is doing a bad job. But as a solution to the principal-agent problem, it creates more problems than it solves.

As a separate point, it would be wrong. If you want to fire Dipoto because you think he’s done a bad job, then fine. But it’s not his fault that his incentives are misaligned—and it’d be unfair to fire him for it. True enough, baseball isn’t fair, but we should aspire to be fair when we can.

Option 2: Get the principal more involved in decision-making

Alternatively, you can try to address one of the underlying reasons that the principal-agent problem arises: information asymmentry. The principal doesn’t always know what the agent is doing, so they’re not well positioned to stop the agent from making a decision against the principal’s interest. You could address that by trying to get the principal in the room.

Here, Dipoto could get buy-in on a general plan (for example, the Mariners will trade impending free agents for minor leaguers). This almost certainly happens on every team before the winter and before the deadline. But that still leaves the transaction-by-transaction decisions. And unless the agreed-on plan is to go all in on 2022, Dipoto would still be at least unconsciously biased when making specific transactional decisions.

You could get John Stanton more involved in the transactional decisions themselves. But ownership meddling in those decisions is a famously bad idea. I don’t trust John Stanton to know how to evaluate those transactions, and if he’s smart, he doesn’t trust himself either. This is why you hire an expert, why a principal gets an agent in the first place.

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Option 3: Give the agent the same short-, medium-, and long-term interests

The best solution to a principal-agent problem is to try to better align the incentives. Often, this is accomplished by having the agent work on commission or setting up a profit-sharing arrangement. But that’s not viable here. Instead, the most obvious way to align Dipoto’s incentives with those of the Mariners is to give him an extension, which would allow him to more appropriately balance the franchise’s short-, medium-, and long-term interests.

But there’s a problem with that too. I’ve seen plenty of people who like what Dipoto’s doing, who think that the ship he’s built is one that should be able to sail and that 2022 has been a series of mishaps, exacerbated by cheap ownership, for which he’s not to blame. These people want to give Dipoto a chance in 2023 to see if more balls bounce Seattle’s way before giving up on the Dipoto project. But I don’t know anyone who thinks he deserves a new multi-year extension. He hasn’t actually produced a winner yet, and the Mariners shouldn’t lash themselves to him and commit new guaranteed money before he’s actually proven he can do it.

Option 4: Change how the agent is being evaluated

If extending Dipoto isn’t an option, there may be more creative ways to align his incentives with those of the franchise. If the concern is that Dipoto will over-invest in the short run, perhaps the Mariners can convince him that he’ll receive a more holistic evaluation of his performance. But leaving this to Stanton’s sense of the vibe of the team’s direction doesn’t seem like a good way to run an organization, and it’s certainly not going to unbias Dipoto’s decision-making.

To make it more objective, maybe Dipoto and ownership could agree on a shared set of metrics by which he’ll be evaluated. This could work in theory, but it would be heavily dependent on making sure reasonable metrics exist. I have my doubts about what they’d be. Pythagorean record? Total WAR from the roster? Farm-system rankings? Some combination? This seems pretty hard, but if Stanton and Dipoto can agree on some metrics, it would work. If they do agree, then Dipoto could feel more secure that he will not be punished for considering the team’s entire contention window when making moves at the deadline.

This seemed like the most promising angle, but hard to operationalize. After posing the question to the rest of the Lookout Landing staff, our resident suit, Grant Bronsdon, had a decent idea. If we want to ensure that Dipoto will be evaluated holistically, but without relying on Staton’s sense of the vibes, maybe you could expand the decision-making group. Stanton and Dipoto could agree to put a third party or group of third parties on retainer to evaluate how well Dipoto balanced the needs of the organization. This would increase objectivity and fairness by ensuring it’s done by recent baseball executives who understand the modern game, folks like Dan Duquette or Neal Huntington. Just probably not Billy Eppler.

I think there’s a good chance that both Stanton and Dipoto would be insulted by this. But if they’re committed to trying to resolve the principal-agent problem, it’s a solution that could work. And given the dearth of other options that would work, I think they should consider it.