Zito: The $100 Million Man

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.

8 Responses “Zito: The $100 Million Man”

  1. studes says:

    That’s wild, JC. Are you willing to share your system, or perhaps the overall framework? I haven’t figured out a good way to factor contract length into the conversation.

  2. JC says:

    Well, the salary escalation isn’t much of a system. Basically, I take my MRP estimates (which I explain in my book) and assume a 10% annual growth rate in salaries. It’s pretty simple, but I think it’s interesting that it “fits” with what we’re observing so far.

  3. David Gassko says:

    Tango has a nice chart here:

    http://www.tangotiger.net/salary.html

    For a player to be worth $100 million over six years (in today’s market), he has to be a 4.5 WAR player now. Zito’s a bit below that, though I worry about him dropping off a cliff for some reason.

  4. Jonathan says:

    Schmidt: 3 years $47 million.

    By your method, I back into $109 MM over six years. ($14.2 to start yields $47 after 3 and 109 after 6, no?)

  5. tangotiger says:

    My method says around 6/81.

  6. JC says:

    Let’s not think that I’m getting carried away here. I was just surprised that my number hit the Zito-number everyone has been throwing around. The model I’ve put forth is very simple. We’ll see how it looks in February.

    For a three-year deal, I have Schmidt at $55 million. However, he will be in his age-34 season next year, so more drop-off is to be expected than for Zito (and, I’m not predicting Zito will not drop off). Also, Schmidt wanted to pitch on the West Coast. Aaron Gleeman, who is doing a great job covering the meetings, thinks he may have taken a discount.

  7. tangotiger says:

    My chart has Schmidt at 3/46 to 3/53.

  8. Cyril Morong says:

    JC

    Any comments on any of the free agent signings so far? Are any of them getting too much? What do you think Albert Pujols would get right now if he were a free agent?