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.

12 Responses “Valuing Mark Ellis”

  1. Tim Dierkes says:

    I agree that Ellis is undervalued in the statistical sense.  But anyone saying he’s undervalued in the market needs to reasonably suggest what team was willing to pay him, say, even two years and $20 mil guaranteed coming off shoulder surgery.  Who are we to say that all 30 teams don’t undervalue Ellis (and second base defense in general)?

  2. Ellis’ numbers as a hitter have been all over the map during his career.  I think he’s a better hitter than Mark Bellhorn, but no less a slave to the fluctuations of his batting average.  Maybe his defense is stellar, but as a 31-year-old second baseman, I’d see him as a huge gamble at the $17.5M/year your model projects him as being worth.

    I think the A’s got a pretty good deal, but I don’t think it’s <i>that</i> good a deal.  And I think it carries quite a bit of risk (both upside and downside).

  3. JC says:

    I generally believe that most individuals make smart rational decisions that increase they’re wealth. I suspect that neither Ellis nor his agent are not dumb guys.  When I see a large deviation in my estimates and the market, I do get worried. Thus, I agree that his injury may be quite significant, and that this could explain his depressed value. I probably was a bit too condemning in my post, and I should have made stronger mention of the role of his injury. 

    I should also add, that in my estimates, though I do value his defense, it’s not what makes him most valuable. An average second basemen who plays as much as Ellis is also quite valuable. Everyday second basemen are expensive.

  4. David says:

    I’d be interested to see how injuries affect player values.  If there are lasting effects (as there are with shoulder injuries), then the impact is not only in games missed but in decreased performance in games played.  In his situation, I would have expected an incentive-laded 1 year deal at most, so he’s probably happy to have a two year agreement with the team option for a third.

    The trade market will likely be hot for 2nd and 3rd base, especially with the weak free agent market at the two positions. I think it will be interesting to see what Orlando Hudson gets, since he ended the season with an injury too.

  5. Jason S. says:

    I’m wondering if your method is giving him way too much credit for playing second base.  What I mean is that if you were to put him against all hitters in MLB, his number are pretty ordinary and there is no rational way anyone would conclude he is worth almost $18 million a year.  If you restict your subset of matches to just other second basemen, his numbers look a lot better, but almost $18 million?  I don’t see it.  The reality is that some jobs are valued more than others.  The best relief pitchers make good money, but they don’t get starter money.  Does your method value McCann at about $20 million or something closer to his actual salary?   If your method concludes that Ellis is worth significantly more than McCann, I’d have to have some doubts about it.  Maybe your method just broke down in this case.  Honestly, Ellis probably sold himself cheaply, but logically I can’t agree that your method is right for him and that he willingly threw away over $10 million a year just to stay in Oakland.

  6. James P says:

    “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.”

    That seems a little unfair. Maybe that extra money will go to surrounding Ellis with better teammates, increasing his team’s chances of winning a World Series.

  7. Millsy says:

    I think on Free Agency, Ellis would have trouble finding a job with a larger market team.  Many of these teams like the Yankees (Cano), Red Sox (Pedroia), Angels (Kendrick), Phillies (Utley) aren’t looking for a second baseman, which would keep his value from reaching it’s full potential as it would with one of the larger market teams in the bidding.  The Mets and Dodgers already have payrolls that may not allow for signing a guy like Ellis to a larger contract, considering they have other worries (bullpen, resinging guys like Furcal and Manny…the probable departure of Maddux, etc.).  I’m not sure adding Ellis would increase these teams marginal revenue as much as it would others in the bidding.  The middle market teams also have holds on second basemen that would keep them out of the running for a mediocre 2B like Ellis (despite his fielding ability): Baltimore (Roberts), Seattle (Lopez), Chicago (DeRosa), Texas (Kinsler), Atlanta (Johnson), Florida (Uggla), Detroit (Polanco), Chicago W (Alexei), etc.  So the bidding would probably be between a number of small market teams who are looking to win in the near future since Ellis is 31 and injured.  I still think Ellis could have gotten more than that, but the $12 million hit for wanting to remain in Oakland, I would think, would be a little high of an estimate.

    One thing I’ve been curious about in your model, JC, is whether it takes into account the likelihood of specific market teams participating in the bidding process for a player.  This would seem to play a large role in the contract a player accepts in the year of his free agency.  Even if there is one small market and one large market team, I would think that the contract would not be equal to the marginal revenue for the large market team, as to sign the player it would only need to be $0.01 more than the marginal revenue the player brings in for the small market team (I’m simplifying this, of course).  Although it could be considered a closed bid auction for the player, it seems that a large market team could fairly accurately estimate marginal revenue of the player to their competitor with available information and bid somewhere in between to be sure they win the player.  Any thoughts on this?

  8. JC says:

    there is no rational way anyone would conclude he is worth almost $18 million a year

    I think the method I laid out is rational. It doesn’t mean it’s correct, but the method I used—estimating the value of runs from team revenues and measuring what players contribute to run production/prevention—is based on sound logic.

    One thing that I have found when looking at salaries is that we place too much emphasis on past salaries when forming expectations about future salaries. Revenue growth in MLB has been strong for many years. $18 million seems like a lot now, but it will not in a few years. Year after year, commentators react to rising salaries like Charlie Brown when Lucy pulls away the football. In my own analysis, I often find myself making such comparisons. Maybe humans really do have adaptive expectations.

    If your method concludes that Ellis is worth significantly more than McCann, I’d have to have some doubts about it.

    For a two-year deal signed today, I have McCann valued at $21 million/year.

    I can’t agree that your method is right for him and that he willingly threw away over $10 million a year just to stay in Oakland.

    I am open to other methods. Would you care to share yours? That this feels too high isn’t all that satisfying an explanation to me. Like you, and most everyone else who has commented onthis signing, I am puzzled as to why he signed for a salary so far below projected estimates. I’m trying to make sense of it, too. I believe that humans make good choices more often than bad choices. So far, I think the injury is the best explanation.

    That seems a little unfair. Maybe that extra money will go to surrounding Ellis with better teammates, increasing his team’s chances of winning a World Series.

    Maybe the money will go back into the team, but that is up to the wealthy American businessman.

  9. Jason S. says:

    Thanks for the explanation, JC.  I have to apologize though because my intent was not to criticize your method, but re-reading my post it certainly seems like that.  Let me try to make one of my points another way.  I think if you were to take, say, a dozen baseball fans of reasonable intelligence with some decent understanding of the game and show them Ellis’ career stats, his salary info to date and his age and ask them to predict the value of his 2 year contract, it would not be rational to expect them to say “2 years at $35 million total”.  However, you are certainly right in saying that fans generally do put too much emphasis on past salaries.  I’m guilty of that for sure.

    Your method seems logically consistent within itself.  My intention, which I failed miserably at, was to provoke a discussion on your method and perhaps ultimately suggest ways in which it might be improved.  But one of the problems is that you are very defensive.  You will argue to the death when someone disagrees with you and you have to have the last word on everything (you can have it here if you wish – no problem).  Maybe this is from your personality or your work in academics (having to defend a thesis may make you prone to this) or both.  But it does mean that you’re not really interested in differing opinions too much.  When faced with a situation where there is a giant disconnect between what you predicted (Eillis’ value) and his contract, you question the data (you think he sold himself cheaply) rather than considering whether your methodology might need improvement.

    I had some suggestions for your method, but I’m not going to provide them.  Not out of spite or anything like that.  I realized first of all that you’re probably smart enough to have asked the same questions I would raise.  Secondly, if you’re not smart enough to have asked those questions, I doubt based on your personality that you would regard such questions as “helpful” but instead resort to defending yourself.  Finally, it dawned on me that the real problem here is that you are talking about apples, I am talking about oranges, and you are using a method for apples to predict the price of oranges.  What I mean is that I have finally realized that your method is NOT a predictor of contract value.  It is a way to express “value” to a team based on what a player did, league revenues, and so on.   It may be completely valid for Ellis to have a “value” (and that means whatever it means in the context of your method) of $18 million a year, but that doesn’t mean he’ll get paid that on his contract.  Perhaps it is wrong of you to use your method to predict contract values because it seems that your method isn’t really designed to do that.   Maybe your method is really good at predicting contract value and this is one of the rare cases in which it didn’t do a good job, but I don’t have enough data to know.   If that’s the case, then it may be fine as it is.   Based on what little info you provide to us here, it does seem that your method may not be a good predictor of actual contract value.   These comments are not meant as criticisms of you.  Heck, you’re the only guy I know who has any way of trying to predict contract value.  I just question whether your method is really designed to do that, but only you have the data to know if your method is right enough of the time to be a good tool or wrong enough of the time to need more work.

  10. JC says:

    That’s it, I’m just being difficult and never willing to change my mind.  My disagreements with others, and my rebuttal of arguments that I perceive to be be incorrect, can only me motivated by stubbornness. [sigh] I guess everyone’s a pop psychologist these days.

  11. JC says:

    One thing I’ve been curious about in your model, JC, is whether it takes into account the likelihood of specific market teams participating in the bidding process for a player.

    I do not take this into account. All values are based on the marginal value of a player to a .500 team. Teams of differing needs, markets, and quality will affect their individual valuations. The MRP is a highly specific number that is difficult to know. The number I give is a benchmark, from which we can expect deviations. 

  12. Millsy says:

    Thanks JC.  I agree that many of us, including myself, look at the salaries relatively to others and kind of freak out (Lohse for example).  The explanation of the .500 team MRP explains a lot of the deviance from projected contracts from year to year in your model and I think it is important for people to understand what the value implies.  Of course, we all need to understand that there is more to the bidding process in contract negotiation and competition than a simple regression.  I’m curious if there’s an empirical way to think about this or if it’s just way too complicated to estimate.