Archive for July, 2007
In The Baseball Economist, one of the things I do is examine how baseball franchises are managed. I examine how much value players bring versus how much the club pays out in salary. I then rate the organizations according to their performance on the field and the efficiency with which they purchased players. Cleveland (which will reportedly ink Travis Hafner to a four-year extension today) and Seattle (reportedly about to sign Ichiro Suzuki to a five-year deal) finished at the top and bottom of the American League in my rankings.
I believe the signings of these two players illustrates the differences in managerial skill between the two organizations. Using my method for valuing players in a given season, along with some rough adjustments for increases in player salaries, aging, and defensive value—this is not necessary for Hafner, who is primarily a DH—I’ve projected the dollar values that these players are worth over the course of their new contracts.
Hafner gets a $9 million raise for this season and next along with $48 million over the following four years. Analyzing the deal is a bit complicated since the Indians could have had Hafner for about $9 million over the next two years, but the deal is so good for the Tribe, it looks good no matter which way I slice it. Let’s just say the Indians get Hafner for four years at $57 million. From 2009–2012 I have Hafner worth about $87 million ($21.75 million per year); that’s an expected $30 million in value the Indians get that they don’t have to pay for.
Buying out free agent years in advance is a strategy the Indians are known for, and it usually pays off. Hafner gets security, while the organization can diversify its risk that the contract goes bad in many other ways (e.g., signing other players to similar deals). Yes, some long-term deals go bad, but if you sign several deals like this, the good and bad ought to cancel out. The team benefits from players taking less than their expected value in order to minimize risk.
Ichiro reportedly has agreed to sign a five-year, $90–100 million deal. Ichiro is particularly difficult to value because he is a good defensive player (I include only a rough value of defense), excels at stealing bases (something I don’t include in my model), and may generate revenue through his ties to Japan. I’ll go with what I have and acknowledge its weaknesses. Over the next five years I have Ichiro valued at about $80 million—$10–20 million less than his reported contract. But, acknowledging the potential problems with the estimate, let’s assume that the Mariners valued him properly and that he is a $20 million per year player. (I think kicking in $20 million is pretty generous.) At best the Mariners are getting what they pay for, at worst they are losing money.
Compared to what the Indians did with Hafner, this is an example of why the Indians excel and where the Mariners fail. Why wait until he is nearly a free agent and having a good first half (he’ll slip in the second)? If management considered Ichiro to be part of the future plan, why didn’t the organization lock him up a few years earlier and take advantage of risk averseness? That extra cash could be used to improve the team in other ways. This is part of the reason why I expect more success from the Indians than the Mariners in the next few years.
That was the question that Anthony McCarron of the NY Daily News asked me. Here is what I said.
J.C. Bradbury, a professor at Kennesaw State University and the author of “The Baseball Economist”, said an average annual value of $30 million “isn’t unreasonable.”
“I don’t envision him breaking $40 million, but somewhere in the mid-30s is probably his ceiling,” Bradbury said.
Where did that number come from? Using the method that I detail in The Baseball Economist (along with a modification to include defensive value), I calculated A-Rod’s potential contributions to team revenue over the next few years—as league salaries rise and his skills decline with age. In the end, I concluded that a five-year, $175 million contract ($35 million per season) was about right. I guess we’ll have to wait until the offseason to see what happens.