PED Incentives And The Next JDA

The following article originally appeared at MLBTradeRumors.com on November 29, 2013. With the recent suspensions of Dee Gordon and Chris Colabello, the subject of PED incentives has once again entered the spotlight. Although the post initially addresses the situation of a player reaching the free agent market after a positive PED test, it represents an effort to consider functional punishments for a variety of scenarios by attempting to distinguish between players in different situations in setting PED disincentives.

Gordon, of course, is in the first season of a five-year extension. The general rule framework proposed below would result in a much greater financial loss than his actual suspension will cause him, which arguably provides a stronger disincentive — all while limiting the skewing of team incentives and market function to the extent possible. Read the full post below:

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We’ve all seen the range of responses to the four-year, $53MM deal that Jhonny Peralta inked with the Cardinals right on the heels of serving a fifty game suspension for violating the performance enhancing substances prohibitions contained in the league’s Joint Drug Prevention and Treatment Program (JDA). Rather than rehash them here, or take a moral stand in one way or another, I’d like to look at things from a practical perspective.

By guaranteeing four years at over $13MM per, the contract went well beyond the biggest multi-year deals given to other players recently hit with a suspension just before hitting free agency. That doesn’t change the moral calculus, but it does highlight that — as MLBTR’s Steve Adams has explained — teams may not be substantially reducing their valuation of a player based on his past usage of PEDs. Though clubs may factor in some negative PR value, discount past performance during periods of use, or add in a bit of an additional risk adjustment, the net just isn’t that great.

Peralta may well have landed his deal because of his steady production and defense at a position in great demand on the present market, rather than his PED use. But he just as surely did not lose his deal because of the banned substances that he took.

This matters most, it seems to me, because of what it says about incentives. Teams’ market-driven decision-making is apparently not going to provide a significant disincentive on its own. And the fact is, as Cards’ GM John Mozeliak correctly points out, “at this point in the game, there’s nothing that says [Peralta] can’t go play or isn’t free to go sign with another club.”

And, arguably, neither is the JDA itself doing enough to shift the PED equation. Like all punitive systems, the JDA sets up upon negatives incentives to outweigh positive incentives to engage in the behavior it wishes to prohibit. As Diamondbacks reliever and union rep Brad Ziegler said on Twitter: “We thought 50 games would be a deterrent. Obviously it’s not.”

This may be somewhat overstated: the shaming effect (especially given the shift in player sentiment) and suspension process seem to be having at least some effect, as most observers acknowledge that PED usage is not nearly as rampant as it once was. On the other hand, Ziegler is definitely on to something. At least for some players, in some situations, the benefits to using PEDs outweigh the drawbacks — even, perhaps, if they are caught. The meager weight of the current suspension system, I think, is the most worrying lesson from the Peralta deal.

Viewed in its worst light, the suspension system creates a mental process much like the kitchen table scene in Office Space. Playing the devil on the shoulder of his would-be co-conspirators, Peter Gibbons seals their agreement to skim cash from their hated employer by dismissing the downside: “This isn’t Riyadh. … The worst they would ever do is they would put you for a couple of months into a white-collar, minimum-security resort!”

But is it really the case that the use of banned substances could, in some cases, present only de minimus downside for a player? Is Ziegler right that Peralta shows that “it pays to cheat”?

In some ways, that certainly could be the case. Players who get caught with their hand in the cookie jar often claim they used PEDs to help recover from injury, not to artificially boost performance. Now that we’re past the era of cartoonishly outsized sluggers, that may even be the most common and impactful use of PEDs. You know, just getting back to a player’s regular level of production and giving him a chance to demonstrate his value at an opportune time. Sure, he may pay for it later by giving up fifty games worth of salary. But the chance to, say, highlight performance before hitting free agency, or jump at an early-career MLB opportunity, can often be invaluable to a ballplayer.

So, assuming that a blanket ban on the list of disallowed PEDs is in fact the goal — putting aside, in other words, the debate on their use in injury rehab — it seems to me that a more thoughtful disincentive system is plainly needed. As a baseline, it is important to recognize that PED prohibition is an agreed-upon rule of the game, and its enforcement is as much about fairness to clean players (and to fans) as it is about keeping dirty players from using to their own long-term health detriment.

Click below to see my conceptual proposal for some methods that might be employed, individually or in concert, to arrive at a more effective system of PED disincentives. These include: eliminating suspensions altogether; varying punishment based upon service time and/or contract status; and utilizing financial disincentives while minimizing impact on competition and the market.

Eliminating Suspensions and New Team Disincentives

The fifty game suspension has proven relatively weak, at least in some circumstances. The salary hit can be substantial, but it is hardly earth-shattering and could be imposed without the loss of playing time. And the Peralta deal seems to show that, at least if you aren’t otherwise viewed as a problem child, clubs are not discounting heavily what they’re willing to pay PED users.

But, suspension does at least hold the promise of providing disincentives to teams as well as players. And after all, shouldn’t clubs bear some responsibility for ensuring a clean slate of players, or at least for not willingly supporting PED use? Of course, at least to some extent. But the current system hardly makes sense.

As any parent knows, timing and context are critical in how you dole out punishments to your kids. Ryan Braun recently admitted that he took PEDs in late 2011, potentially boosting an MVP season that fueled the Brewers’ division title. On the other hand, he served his suspension at the back end of a lost season for a bottom-dwelling club, and did not even see much of a financial hit since his nine-figure extension has yet to kick in.

Indeed, the suspension/loss of pay system can easily have an ambiguous impact on the team. For instance: Alex Rodriguez is the Yankees’ highest-paid player. At one point, at least, that reflected that the team thought he was its best player. So, suspension is bad for the team, right? But, of course, we all now know, subjectively, that A-Rod is but a shell of his former self, and the suspension will save the Yanks a lot of dough. On the other hand, perhaps with mixed motivations, GM Brian Cashman says he’d rather pay Rodriguez and have him on the field.

And ultimately, it may not be appropriate to punish teams if there is no tie between their actions and that of the player. No public information has suggested that the Tigers were in any way involved in Peralta’s violation, yet they lost him down the stretch while pursuing a division title. In many cases, players will reach the point of suspension with a team other than that for which they played when they actually used the banned substance.

In designing those elements of a new system targeted at teams, there are any number of mechanisms to create major disincentives that are not specifically tied to an individual player’s contract or game availability. Loss of draft picks (along with pool allocation), sacrifice of international spending money, even caps on free agent spending are but a few ideas that come to mind. All make more sense as team deterrents than a suspension. In the alternative — or, in addition — teams could be stripped of titles or face substantial fines if found to have encouraged PED use for competitive benefit.

That still leaves the unresolved question of when teams should face punishment. Some have suggested an automatic punishment for clubs whose players are caught, which I find problematic at first glance. That would make teams the de facto PED guardians, and may not adequately reflect the extent to which players act entirely outside of their organization in obtaining substances. Surely, if the league can obtain evidence of a player’s use, it can dig up information showing whether a team played any role in it, punishing any specific team employees as well as the team itself.

Of course, per se team penalties are arguably necessary to overcome systemic hesitation to pursue the entities that together make up the league and employ its leadership. But if players are as serious about getting PEDs out of the game as they say, then perhaps anonymous or otherwise incentivized information reporting could overcome fears of reprisal.

Service Time and Contract Status

Turning to suggestions for a replacement system, it seems to me that one major problem with the current setup is its single set of punishments. While perfectly tailored disincentives are an impossibility — after all, every player is a different person with different wants and needs — it seems possible to make some adjustments that reflect the very different roster and contract situations that players are in.

As an initial matter, it would be necessary to decide whether to slot punishment based upon a player’s status at the time that they are deemed to have violated the agreement or at the time that the punishment is levied. While the former is appealing, it carries the added difficulty of pinpointing violation timetables and may provide a weaker deterrent, since players generally reach greater earning capacity as they accrue service time.

Further, as already hinted at, it is preferable to limit as much as possible the number of scenarios that carry separate punishments, which will aid implementation and help keep things clear. My preliminary suggestion, based upon my proposed punitive system, would be to separate out classes of players based upon service time accrued as of the date of punishment.

Separation based upon service time would at least allow a rough generalization of the incentives at play for players at that stage of their career, which in turns makes it easier to craft disincentives to shift the equation against PED use. (Remember, we are only talking here about players that have achieved 40-man roster status and are therefore subject to the JDA.) And it allows more flexibility for tailoring disincentives without getting overly complicated.

So, what disincentives should be employed?

Effective Financial Disincentives That Do Not Skew Competition Or The Market

As Ziegler hinted, the key may be to hit offending players’ pocketbooks in a way that makes getting caught a significant threat, not just a cost of doing business. Non-financial possibilities exist as well, such as adding minor league options, delaying free agency, or limiting the length or size of a deal that a free agent can sign. But each of those options would have a real effect on baseball’s player market: the first two, for instance, would clearly benefit the player’s team, and the latter would drastically skew the open market signing process.

Instead, I believe that it makes the most to target player earnings directly. There are three key elements that, I think, combine to best align the competing considerations here:

1. By keeping such “taxed” amounts on teams’ payrolls, but out of players’ pockets, the market-distorting effects can be minimized.
2. By employing an incremental tax rate system to player earnings, it would be possible to hit higher-salary players hard enough to create a real deterrent.
3. Providing a longer term over which the “tax” applies for players with less service time would give the system bite for younger players who might otherwise not see sufficient downside.

Starting with the first point, my suggestion is that players receiving PED punishment would nevertheless continue to accrue service time and negotiate salaries exactly as before. Artificial limitations on earnings would have a massive and hard-to-predict impact in all sorts of situations. If, say, an arb-eligible player lost his eligibility for a year when he’d be a possible non-tender, his current team could enjoy an advantage in retaining him at league minimum. Or, if a free agent was only allowed to sign a predetermined, one-year contract, an attractive suitor might be able to take him away from other clubs who would be willing to spend more.

Instead, my tax concept would allow the player and team(s) to negotiate as before, with the caveat that the player would lose a certain percentage of his actual take-home pay. By taking a percentage (at an escalating rate based on pay level), the player would still have the same incentives to maximize dollars, whether through arbitration, extension, or free agency. By prescribing a specific term of years over which the tax would apply and phase out (even if it extended over multiple contracts), the player would still have the same incentives to maximize years.

As for what happens with the “taxed” sums, it seems that many appropriate options might exist. From the fund of lost PED earnings, the league could set up educational initiatives, provide benefits to retired players, support charities, develop league-wide initiatives, or employ some mix of the above.

Turning to the incremental rate, my proposal would work like much like the tax code, with a greater chunk of salary being taken as the annual value goes up. To illustrate with some wholly arbitrary numbers, the league-minimum level might get a 30% rake while a $10MM salary might be hit at 70%. If a player’s annual salary were to rise during the time period during which they are subject to the tax, their rate would rise with it.

At the same time, a phase-out process would reduce the tax over the prescribed term. So, for example, if a certain player faced a 50% tax based on his salary, but was in a 25% phase-out year, the player would sacrifice three-eighths of his salary for that season. In situations where the salary structure of multi-year deals (whether preexisting, as with Braun, or prospective) could benefit the player, it would be relatively easy to average out the value for purposes of assessing the tax. (Indeed, the CBA already provides such calculations for luxury tax and related purposes.)

While my system would require a good deal of reassessment as players enter new deals, and would make for a specific loss of salary that is far from determined at the point at which the punishment is fixed, it should be possible to craft the details in a workable manner. Players are advised by sophisticated agents who can well explain the significance of these measures. And the overall lesson will be clear: getting caught at an opportune time will not lessen the blow. In many ways this system would function by trying to take away much of the upside of PED use.

But is greater salary loss for better-paid players the right approach? In many ways, the incentives are greater for PED use by younger, more marginal players. But given the greater educational, public relations, and exemplary harm caused by violations by more prominent players, there is ample justification for hitting them hardest. And as supposed by the competitive fairness principle I espoused above, the key is in finding appropriate deterrents for players of different contract classes, not whether they are necessarily equal as between those classes.

The last point, then, relates to the length of time that the tax would have effect. By hitting players with less service time with a longer-running term, the prospect of a serious hit to future earnings would enhance the deterrent effect while avoiding a potentially unfair (or, in other cases, ineffective) hit to early-career, lower-level earnings. On the other hand, players that have already reached free agency are in most cases already at or past their peak earning capacity, and would instead receive a steeper, more immediate blow to their income that would phase out in a relatively shorter time period.

While I won’t get into specifics here, it might make sense for, say, a pre-arb player to receive a six-year tax period with phase-out reductions dependent upon their service class each year. Meanwhile, a six-plus-year veteran might get a three-year ramp-down period.

Additional Measures and Repeat Offenders

In addition to docking salary, a new system could also consider conditioning continued pursuit of a baseball playing career on participation in relatively demanding treatment, education, and/or public service programs. Much like the terms of probation, failure to meet certain requirements could result in a reversion to more severe punishment. Rather than allowing players caught with PED use simply to utilize a self-prescribed PR campaign to return to the game’s good graces, this would require actual, concrete steps to restore their status.

One other way to ensure continuing impact is by addressing the issue of repeat offenders. For instance, the CBA and JDA could contemplate a stock contract clause that applies to players who have been found to have previously violated the JDA, which would be added to current contracts and/or included in future contracts on either a mandatory or a negotiated basis. In addition to enhancing/extending the financial penalties discussed above, inclusion of such a clause could convert guaranteed years to club option years if the player is caught a second time.

As Max Scherzer has argued with respect to Braun: “He still has his contract and he’s still financially gaining from this. You gotta start cutting out contracts. I’m for that.” This would build off of that idea. Of course, it would also re-introduce the problem of having competitive and market impact.

Perhaps more importantly, it would largely work by enhancing financial disincentives that failed to work the first time around. There are diminishing returns, at some point, to going after pocketbooks. Depending upon the tax rates applied, offending players might not have much left to go after. And it is at least worth asking whether, if financial disincentives failed once, other kinds of disincentives are necessary.

For that reason, I think that a better repeat offender provision would be essentially different in kind: a second time violating the JDA would result in a lifetime ban. Matt Holliday is among the players to have advocated this result. The current iteration of the JDA already provides a ban on a called third strike, so the players and league are already prepared for it. Perhaps it is time to make the threat of a lost career a realistic threat for those players who have proven unable or unwilling to abide by a baseline rule of the game.