Archive for October, 2008

Evaluating the Angels’ Recent Moves

Whatever happened to the moratorium on major announcements during the World Series?

Yesterday, the Angels announced three player moves: they picked up the options on Vladimir Geurrero and John Lackey, and they declined the option on Garret Anderson. I like all three moves, and I don’t think any of them were surprising. But, let me comment on the value of each player.

Vlad continues to be an excellent player as he enters the decline phase of his career. The good news is that aging declines aren’t cliffs and Guerrero has always been a good player. I have him valued at $20 million for next season, making his $15 million contract a good deal.

Lackey is an underrated player; at least, I don’t hear much about him from the media. From 2005–2007—before his injury troubles to start this year—Lackey was one of baseball’s top-5 pitchers. He’s near the peak of his aging curve, so I expect he’ll heal well and be a bit better than his 2008 campaign, which really wasn’t bad. He’s worth about $15-16 million and his option was for $9 million: another good deal.

Garret Anderson will turn 37 half-way through the 2009 season. His most recent contract wasn’t a good one for the Angels, and it should have been expected that the Angels would chose the $3 million buyout over his $14 million option. Still, he’s a useful major-league player; and major-league players, including the non-stars, are valuable. I expect he’ll end up with a two-year deal that averages $8-9 million a season.

Who Gets Jake Peavy’s Surplus?

It turns out that Jake Peavy thinks he does, and I think he’s right.


Last week
, I discussed how the Padres’ ownership of Peavy’s contract rights for the next four seasons would allow the team to reap the benefits of the difference between his expected income generation and his salary. But, it turns out that Peavy and his agent Barry Axelrod plan to exercise some rights of their own to ensure that the Padres don’t capture the entire surplus.

“It’s not that far of a stretch to say this is a free-agent situation,” Axelrod said, “and if there is a guy like Sabathia out there, we would have to look at what any given team is going to pay Sabathia, because he and Jake won the Cy Young award in the same year, and we’re going to put Jake on the same plane as this guy.”

He added that “there might be some places where it is a more palatable deal to Jake than any other places.”

Axelrod already has said that whatever club would trade for Peavy, 27, likely would have to extend his full no-trade powers through contract’s end. …

“Making this about money is not my style, nor Jake’s style,” Axlerod said. “I think we proved that. But at the same time, I don’t think Jake should have to sacrifice anything.

“Jake signed an under-market deal with San Diego because he wanted to stay in San Diego. It was worth it for Jake to take less.”

Translation: if you don’t give us cut, we’ll exercise the no-trade clause. Peavy can use his veto power to make sure that he captures a good portion of the economic rents generated by his contract. And it sounds like he’s negotiating for more money, possibly through an extension or a salary supplement (I’m not sure if the latter is allowed under the current CBA). When it’s all said and done, the prospects the Padres can expect might be so bad and few—as his salary demands rise—that the Padres decide to keep him on the roster. And hey, if he likes playing in San Diego so much, maybe the Padres should reconsider their desire to trade him. Jake Peavy didn’t agree to a below-market contract so that the Padres could enrich themselves by trading him.

Thanks to MLBTradeRumors for the pointer.

The Peavy Salary Myth

I keep reading that one reason that teams want to acquire Jake Peavy is because he makes only $15 million a year. David O’Brien is the latest offender.

Among other pitchers available, Peavy is the most accomplished and would have a lower salary than comparable free agents.

The logic seems simple. An ace like CC Sabathia will get $20+ million;therefore, Peavy’s $15 million contract represents a big savings over the free-agent alternative. (Peavy actually isn’t quite as valuable as Sabathia, but let’s just assume they are for simplicity.)

But the $5 million difference in salaries does not represent savings to the acquiring club. Peavy and Sabathia are assets who represent future income streams to their employers. Teams ought to be willing to pay salaries equal to the discounted present value of these revenue streams. As a free agent, Sabathia will capture all the returns of his expected value, and so would Peavy if he could be signed as a free agent. Instead, the Padres own the right to an annual income stream of greater than $15 million which they gladly lease for $15 million a season for the next four years. The fact that Peavy only gets $15 million doesn’t mean that’s all he costs. The Padres must be compensated for that additional lost income stream—a price that his new team will pay.

The only team who benefits from Peavy holding a good contract is the Padres, and this is likely a big factor in the team’s decision to move him. They hold a valuable asset and plan to cash it in.

World Series Predictions

Rich Lederer has collected World Series predictions from several past Baseball Analyst contributors. He asked each participant to comment on the winner (1), the series length (2), and why (3)?

Here is my prediction.

J.C. Bradbury, economist and operator of Sabernomics.com:

1. Rays

2. 7 games

3. I believe the Rays have the edge with starting pitching.

I was a bit briefer than most with my explanation, but I think it’s really that simple. The teams appear to be quite equal, but I think the Rays superior starting pitching will win out. I’m looking forward to an exciting Series!

Valuing Mark Ellis

I’m going to join the chorus in calling the A’s signing of Mark Ellis to a two-year, $11 million deal a steal for the Athletics.

I have Ellis valued at around $35 million for the next two seasons. $11 million is quite a discount, and I have to wonder what is going on here. Could my model be wrong? That’s certainly a possibility, but you don’t even need a fancy model too see that he’s worth a good bit more than $5.5 a year to his team. Just check out his previous contract with the A’s.

Prior to the 2006 season, Ellis signed a three-year that paid him $2.25 million, $3.5 million, and $5 million. At this time, Ellis was a first-year arbitration eligible player with the bargaining strength slated heavily in favor of the A’s. He agreed to a long-run contract that would void his opportunity to seek arbitration raises to potentially higher salaries in return for a guaranteed salary. Ellis missed the entire 2004 season with an injury, so I suspect he was quite aware of the risk-reward tradeoff. And with that contract heavily affected by the A’s superior negotiating position, the A’s agreed to pay him the exact salary in 2008 that it will pay him in his first post-free-agency contract in 2009: $5 million. $5 million is a lot of money, but it’s a lot less than he could have earned on the free agent market. Some people may laud Ellis for not just caring about money; but, the money he’s not collecting isn’t going into third-world hunger relief, it’s going to a wealthy American businessman.

And to top it all off, Ellis agreed to a club option for 2011 at $6 million. If his play drops off after two years, the A’s can simply cut him loose. If he plays the same as he has or he improves, then he cannot test his value on the free agent market until he is 35.

Ellis must really like playing in Oakland or his shoulder injury is quite serious. At double the wage he accepted the A’s would still be getting a bargain. The contract is so low that the A’s almost have to be suspicious that he might pull an Al Czervik from Caddyshack (.wav).

Addendum: As Tim points out in the comments, I am being a bit too harsh on Ellis. My point is that if this is a hometown discount, this is one hell of a discount. It shouldn’t necessarily follow that this was a discount; instead, a more plausible explanation is that his shoulder is in really bad shape.

World Series Ticket Advice: Wait!

Justin Wolfers points to a study by Andrew Sweeting on changes in MLB ticket prices over time.

Sweeting has meticulously crunched the data on baseball ticket sales for 2007 on StubHub.com, and he cross-checked his analysis with data from another (anonymized) online source. He documents a rather striking fact: the prices of baseball tickets tend to fall through time. …

You might be concerned that this result simply reflects all the better tickets being sold early. But Sweeting’s dataset (of over three million ticket sales!) contains such amazing detail that the chart reflects comparisons among tickets within the same game, section, and row.

In fact, Sweeting’s biggest concern in my giving this advice is that his data cover only regular season games, while different patterns may apply to the post-season. But the economic forces behind Sweeting’s law probably apply even more strongly to the World Series. He argues that regular season-ticket prices are higher in advance of game day because people have to make plans in advance, which increases demand.

It seems likely that a greater share of the World Series crowd will be traveling to Philly for the game, and these folks will be especially keen to purchase game tickets before investing in airline tickets. As such, expect today’s ticket prices to be sky-high as these folks make their plans — and hopefully prices will start falling over the next few days.

More support for my theory (or is it a life philosophy?) of rational procrastination.

My experience with buying secondary-market tickets at sporting events is that the closer you get to the venue, the lower the price.

More on Peavy

Paul DePodesta of the Padres front office comments on the team’s reason for trading Jake Peavy.

We are looking to get better.

It’s really that simple. We’re not trying to trade certain players, and we’re certainly not looking to move players just to move them. As with any off-season or trading deadline, we’re assessing the market value for our players to see whether or not that value surpasses their value to the Padres. If you have something you value at one million dollars, it would be foolish to refuse to consider selling it for twenty million dollars. On the flip side, it would also be foolish to sell it for anything less than one million. The thing that makes the market work is that each player has a different value to virtually every Club.

I have found that the market value for Peavy’s services for the average team exceeds what the Padres are paying him. And given the state of the team, it is likely that several teams value Peavy more than the Padres. DePodesta also doesn’t dismiss the idea of acquiring major-league players.

Is Manny Worth $150 Million?

Tim Dierkes links to a few stories stating that Scott Boras is floating the potential of a six-year, $150 million deal for Manny Ramirez.

Projecting the value of a player Manny’s age is somewhat difficult, because we don’t have a good sample for estimating age effects. Yes, many players have played past their 40th birthday, but many more players have hung up their spikes so that we can’t see how they would have played. And in most cases, many of those players were no longer capable of playing at the major-league level. I think the biggest danger to signing older players is that they are more likely to be permanently hobbled by an injury, and have no financial incentive to rehab the injury to get back on the field. But, I’ll take a stab at it using a continuous aging curve based on an increasing decline in performance.

For the next six years, I estimate Manny to be worth about $128 million, which is just over $21 million per year. I like Manny, and I enjoyed watching him play in person for the Triple-A Charlotte Knights. He is truly a gifted hitter who will go into the Hall of Fame, and I think he has plenty of good baseball left in him. However, I cannot see any team shelling out $150 million over the next six years. Even if he remains healthy, he’s not worth it. And, there is a decent chance that age force him to quit playing before the contract would be up. I think four years at $80 million is about the best deal he can hope for, and consider that to be just an educated guess.

The Baseball Project Contest

Win a copy of The Baseball Economist. Here’s the contest.

Can You See Into the Future?
If the answer is yes, we’d like you to use your powers to try and guess the World Series winner. Email your pick (and in how many games) to thebaseballproject@gmail.com, with the subject reading: “World Series Pick.” The winner will receive a Baseball Project t-shirt and baseball as well as a copy of J.C. Bradbury’s The Baseball Economist.

Also, I’ve done some guess posting over at The Baseball Project Blog about Ted Williams and Gerald Scully.

Addendum: Please, do not submit contest entries here. Use the e-mail address listed in the post.

What is Peavy Worth on the Trade Market?

The San Diego Padres appear to be making it widely known that they plan to trade their ace Jake Peavy. Peavy is one of the most valuable pitchers in baseball. He pitches well, he pitches a lot, and he’s just entering his prime. For these reasons, the Padres signed Peavy to an extension less than a year ago. The new contract locks Peavy up for the next four seasons at a total price of $60 million ($15 million/year). There is also a $22 million team option for a fifth year.

My model estimates that he will be worth a total of $72 million ($18 million/year) over the next four seasons. His projected value for the optional fifth season is equal to the $22 million salary that would be owed to him. Thus, he will generate approximately $3 million more than he costs per year for the next four years. Also relevant is the fact that Peavy did spend some time on the DL this year with a “sore elbow.” Though an MRI revealed no problem, and he pitched fine after the DL stint, teams may be wary of a future injury. If we view Peavy as a financial asset, we can ponder what Peavy might bring in return on the trade market.

$3 million a year doesn’t buy a lot of major-league talent. That buys a decent reliever or a bench player. But it does buy is potential major-league talent with a high upside. For every Evan Longoria there are several Andy Martes. I suspect that the Padres are trading Peavy because they don’t see winning in the near future—though, strangely, the Padres are going to offer a contract to Trevor Hoffman—so I expect the Pads are looking for a prospect.

What kind of prospect can you get for $3 million a year for four years? That is a question that I am investigating right now. I am in the early stages of finding an answer, but from what I can tell from what I’ve done so far is that the expected value of even the best low-level prospects is low. Thus, I think Peavy’s contract will yield sufficient return to generate a top-tier prospect.

There has been much speculation about the possibility of Peavy landing with the Braves. However, I don’t think this will happen unless the Braves part with Jason Heyward, Tommy Hanson, or Jordan Schafer. And even one of these guys might not be enough. (For those of you who are high on Freddie Freeman, call me when he puts up some decent numbers above Low-A ball.) Frank Wren has stated that Hanson and Heyward are off limits. I don’t know what to think of Schafer, but apparently the Braves don’t have him on the public no-trade list.

Another possibility is Kelly Johnson. He has three more arbitration years left, which would give some value to the Padres. But, I don’t know enough about San Diego’s situation to know if they could use him. And then we have to wonder when the Padres think they’ll be competitive again and how much cash they want to free up. If they think they can contend in 2010 and just want a few more dollars to shore up some other areas of the team, then a Peavy-for-Johnson swap might work.

Anyway, I really don’t like to speculate about potential trades because there are too many unknowns involved. But, I think it is unlikely that the Braves get Peavy without giving up Heyward or Hanson. The main point of this post was to assess what Peavy is worth to the Padres, and I think his contract is good enough to net a top prospect.