Investing in Executive Structure

One of the curiosities of the 2016 Brewers rebuild withstood the trade deadline. Mysteries about whether Jonathan Lucroy would be traded (he would), relievers would be traded (they would), starting pitchers would be traded (nope!), any position players would be traded (Aaron Hill), or any top prospects graduated to the MLB (Welcome, Orlando Arcia!) were all answered. So, the inquiring fan might like another question to dig into as the season runs deeper: where have the Brewers spent their $40 million to $60 million surplus? This question is especially interesting given the Brewers’ (expected) coming surpluses in the next few years.

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When the issue of the Brewers’ additional revenue surfaced earlier in the season, fans typically stated that the club could plug that money into a huge Latin American July 2 spending spree, improving minor league pay or resources, or other analytic or research and development projects. (With a couple of affiliate contracts expiring, it is also worth investigating the value of purchasing and controlling minor league clubs). Thanks to the prospect industry press, fans know that the Brewers did not spend very much in the International Free Agency season (perhaps finding “the new market inefficiency”?!?), although the club did spend the penalty-free maximum in June’s Rule 4 draft. Minor league spending, analytics spending, and research and development will unfortunately not make the press, given the typically opaque nature of MLB information sharing.

2016-2017 Revenue Surplus ($M) $80 to $120 Million
$10 Research and Development Infrastructure
$20 Minor League Pay / Nutrition / Conditions
$30 July 2 International Amateur Free Agency
$60 Executive Pay and Extensions

Now that the rebuild is coming along steadily, one might advocate for investments in corporate structure and front office positions, perhaps more than improved minor league pay or sinking capital into machines and other analytical production enterprises. There is a real sense that if the Brewers are going to successfully rebuild, the future values must come to fruition from the minors (hence necessitating improved minor league pay and conditions) and the club must produce good knowledge.

It remains to be seen if the current front office will successfully rebuild the club into a consistent contender. However, at the moment, one can use various tools to argue that the club has excelled at acquiring future value throughout the system. So, in this sense, the Brewers ownership board could be quite justified in investigating extensions and promotions for key front office members. As it stands, the Brewers feature a number of potential future GM candidates within their front office. Vice President, Amateur Scouting Ray Montgomery was already a GM candidate when the Brewers hired him into his current position; Vice President and Assistant General Manager Matt Arnold was also quite a sought after executive prior to coming to Milwaukee.

It is extremely early to ask such a question, but the Brewers do not have the market status to mistakenly undervalue front office talent: when should Milwaukee rekindle the President position (last held by Doug Melvin) and provide promotions for their braintrust?

Brewers Corporate Structure
Chairman and Principal Owner Mark Attanasio
Chief Operating Officer Rick Schlesinger
General Manager David Stearns
Executive Vice President Finance & Administration Bob Quinn
Vice President Departments Administration / Baseball Operations / Consumer Marketing / Corporate Marketing / Entertainment & Broadcasting / Finance / Human Resources / Information Systems / Media Relations / Miller Park Operations / Brewers Community Foundation

One can expect fans to despise such an idea. Milwaukee is hardly three trading cycles into their rebuild, and the current staff has not proven they can build a winner. However, one can also argue that the rebuild is a “process;” in this sense, the process itself can be analyzed, including the extent to which each transaction either expands future value for the big league club, potential trades, or current performance value for the MLB club. There are multiple layers to this within the Brewers system. Furthermore, by the time the Brewers are on the cusp of contending, a couple of hiring cycles could pass, thereby opening the Brewers braintrust to new interviews and front offices eager to reward an analytical proponent with a shot at running their own organization.

The simple issue is whether the Brewers can afford to lose members of this team prior to contending (or on the cusp). If this front office has begun the process toward contending, and they are producing effective systems of knowledge, the Brewers arguably cannot afford to underprice this team of executives.

Highest Paid Executives Approximate $(M) Years Title
Friedman (Dodgers) $35.0 2015-2019 President of Baseball Operations
Epstein (Cubs) $18.5 2012-2016 President Baseball Operations
Duquette (Orioles) $10 2015-2018 Executive VP Baseball Operations
Hart (Rangers) $6 2002-2004 Preceded Jon Daniels

Unfortunately, executive compensation data are not as readily available as player compensation figures. This should not be surprising to the extent that the purpose of MLB front offices is to control information; while a strong labor structure benefits from freely available contract information, it is less apparent how a front office will benefit by advertising its compensation scheme. Front office members are also rewarded with additional aspects of professional prestige unavailable to MLB players (the most basic being that MLB players cannot receive a promotion via title and responsibilities). While data are scarce on Cot’s Contracts, FiveThirtyEight recently modeled front office analysis and professional development in several different directions. Suffice to say, analysts may be underpaid, too.

Corporate Structure Potential Brewers Front Office (Yr/$M)
President Baseball Operations David Stearns (4/$26)
President Baseball Systems Matt Arnold (4/$17)
President Scouting Ray Montgomery (4/$17)

[Of course it is worth stating that if each of these three executives were promoted and signed to four year, $20 million contracts, they would each surpass Theo Epstein’s Cubs contract.]

Offering extensions and promotions could appear more palatable if one considers that (1) the salaries for top baseball executives have suddenly exploded, and (2) the Brewers will also have an additional $40-to-$60 million to stash in 2017. With this in mind, the Brewers could fortify their organization by improving minor league pay and investment, sinking a huge sum into the July 2 deadline (unless the new Collective Bargaining Agreement changes that process), and putting an elite executive compensation structure into place. Here, the Brewers can ensure that each aspect of their process, from labor to management to research apparatus, will be financed in a manner that creates incentive for success while also aggressively rewarding the first steps of the rebuild.

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