I’m having a lot of fun with this year’s hot stove league, mainly because I’ve got a new system for analyzing what players are worth based on the revenue they generate. I’m not claiming it’s perfect, but I’m surprised when I run a number that matches what the system projects. For example, today Mike Celezik titles his column: “Zito a $100 million man? Ridiculous: Free-agent left hander is good but not worth $17 million a year”.
Well, it just so happens that I had been discussing how to value long run contracts in my sports economics class on Monday. To do so, I had set up a worksheet to calculate the size of contracts based on the players recent performance and marginal revenue product estimates. Then, if we assume salaries grow at the same rate they have for the past two decades (10%—a figure that still seems high to me, but history doesn’t support my instinct), then we can estimate the size of the contract for different lengths. It just so happens when I go down to the 6-year projected value of Barry Zito, the model spits out the ridiculous figure of $100.49 million. This is right in the neighborhood of a rumored 6-year contract offer from the Rangers. But that’s nothing: Zito isn’t even the best pitcher on the market. For a six-year deal, I have Jason Schmidt getting a cool $129 million.
Ridiculous? We’ll see. But, I have to admit, these numbers make me swoon.
Thanks to Repoz for the pointer.