Archive for December, 2008
I write this from the perspective of a Braves fan, but the analysis is relevant in general. On Friday, A.J. Burnett spurned the Braves to sign a five-year, $82.5 million contract($16.5./year) with the New York Yankees. In October, I suggested that Burnett should have accepted the Blue Jays contract extension, which would have been equivalent to a four-year, $52 million deal ($13.5 million/year). Shows what I know.
Supposedly, the Braves had a similar offer on the table, but Burnett picked the Yankees. I think this is good for the Braves. Over the next five years, I estimate Burnett to be worth $71.25 million ($14.25 million/year). On top of this, I think it’s an extremely risky value due to his injury history. If he continues to pitch as he did in 2008, then he will be worth his contract. If he pitches like he did in the preceding two years, it’s a disaster. Given the makeup of the Braves current roster, I don’t think it would have been a good risk for the team to take on at the rumored five-year, $80 million price.
What I do wonder is why the Braves are not expressing any interest in Derek Lowe? It seems to me that if you are in on one, you should be in on the other. Even though he’s older, I think Lowe is a better bet than Burnett.
Kerry Wood was in Cleveland on Wednesday night to take the physical needed before he can finalize a two-year deal with the Indians worth about $20 million.
$10 million a year for Kerry Wood?! And I thought the K-Rod contract was excessive. Kerry Wood was a more valuable pitcher ($5.72 million) than Francisco Rodriguez ($4.62 million) in 2008, but he was limited by injuries during the four previous seasons. Assuming that Wood pitches exactly as he pitched in 2008, I estimate he will be worth approximately $6.5 million per season for the next two years. I reiterate: this assumes that one of the most injury-prone players in the league performs as he did last year. He made $4.2 million pitching for the Cubs last season, and the Cubs didn’t even offer him arbitration. Given his injury history, I think that was probably the right call.
I consider the Indians to be one of the smartest organizations in baseball—in my book I rate Cleveland to be the best-managed franchise in the American League—therefore, this move shocks me even more. What could be going on? I can think of only one explanation: Kerry Wood has been able to demonstrate such good health that teams think he can start. If Kerry Wood can get back to his 2002–2003 form he would be a $14 million/year pitcher over the next two seasons. Maybe his agent has been shopping his potential as a starter.
Apparently, CC Sabathia and the New York Yankees have agreed to a seven-year $160 million contract, which is just under $23 million per season. [Update: Tim Brown is reporting the deal is for $161 million (exactly $23 million per year) and has an opt-out clause after three years.] Previously, I had projected Sabathia to be worth $24 million in a six-year deal. (Since I made that initial estimate, I corrected a minor error in my model that resulted in a very slight undervaluing of Sabathia.)
For the next seven years, I have Sabathia valued at just under $26 million a season, so the Yankees are paying about what he is worth.
I continue to be amazed by the over-valuing of closers in the baseball labor market. Yesterday, the New York Mets and Francisco Rodriguez agreed to a 3-year, $37 million contract. The deal also includes an option for a fourth year for $13-$14 million based on easily-attainable criteria. What an absolute waste of money. I have K-Rod valued at $6 million per season over the next three years.
I’ve been saying for a while that closers are overpaid. Rodriguez has been a very good closer, but the problem is that closers don’t pitch much. Over the past three seasons, K-Rod has faced 4.7% of the team’s opposing batters; a decent starter will face three times as many batters. While we see K-Rod pitch at the end of games, often when games are on the line, he’s not pitching much. The Met’s would have been better off spending that kind of money on a good starter who would prevent run scoring over many more batters. A few more million a year could have brought in A.J. Burnett or Derek Lowe whose superior pitching would prevent situations that closers can rectify.
Addendum: I received a question about the role of leverage—the difference in the importance of when a pitcher typically appears within a game—in determining values. I’ve been asked it before, and my answers have been scattered over several different locations. So, here is my e-mail reply explaining why I value all innings pitched the same.
I have considered the impact of leverage, but I don’t think leverage can explain the vast differences in my estimates and what is happening in the market. Leverage is a product of outside factors when a pitcher faces the same rules during all times of the game. The quality of his pitching is the same in the 5th inning as it is in the 9th. (There is the argument about pressure, but I don’t buy this explanation at this level of competition.) Now, the fact that he is good enough to pitch in a high-leverage situation is worth something; however, I don’t believe the value is twice the average. And the fact that a pitcher has pitched in high or low leverage situations doesn’t mean he ought to get all the credit for it.
For example, take Scott Linebrink and Francisco Cordero. Last year, both pitchers signed four-year deals for $19 million and $46 million. I estimated that Cordero was worth about $2 million more than Linebrink, yet he was paid more than twice what Linebrink got. The only difference in their pitching histories is that one is considered to be a middle reliever and the other considered a closer. It’s the performance that matters and ought to determine their salaries, not when they pitch. If Cordero is worth $46 million because he pitches in high-leverage situations, then Linbrink should have received a similar salary to reflect his opportunity cost—he could have pitched in high-leverage situations, but he didn’t. I think the market is putting too much value on the “Closer” label.
Another factor is that better pitchers in earlier innings affect the leverage in later innings. So, a good starter preventing runs as an impact on reducing leverage later in the game by creating bigger leads. I’m not sure exactly how to value that. So, I believe that the proper method is to treat all pitcher innings the same, while acknowledging that some elite relievers have some extra value in that they could be used in more valuable spots. But this value doesn’t necessarily come from when they pitched in the past.
I’m also a believer in patchwork bullpens. Take a bunch of bad castoff starters, platoon them, and tell them to pitch as hard as they can.
Here is a list of the top-25 most valuable pitchers in baseball over the past three seasons. Estimated values are the sum from 2006–2008 in 2007 dollars.
Rank Player Estimated Value 1 Brandon Webb $49.65 2 C.C. Sabathia $48.62 3 Roy Halladay $46.33 4 Johan Santana $42.32 5 Danny Haren $41.50 6 Roy Oswalt $40.15 7 Javier Vazquez $38.81 8 Aaron Harang $38.27 9 Derek Lowe $37.95 10 John Lackey $37.85 11 Josh Beckett $37.40 12 Andy Pettitte $36.68 13 Jake Peavy $36.05 14 Mike Mussina $34.87 15 Bronson Arroyo $34.70 16 Joe Blanton $34.60 17 Aaron Cook $34.06 18 Greg Maddux $33.76 19 Matt Cain $33.70 20 Mark Buehrle $33.43 21 Gil Meche $33.36 22 Ervin Santana $33.04 23 Jon Garland $33.02 24 Tim Hudson $32.64 25 Felix Hernandez $32.45
Tom Boswell, as quoted in The Hidden Game of Baseball:
the more ambitious the stat, the more complex and arbitrary it almost always becomes. What it gains in sophistication and the intuitive wisdom of its creator, it loses in simplicity and objectivity. How can you love a stat, or use it in arguments, if you can’t really explain it?
Per Gwinnett Daily Post:
The elimination of emergency medical services and closing of the county prison are possibilities in Gwinnett’s financial crisis.
They were among 152 recommendations in the draft report of the Service-Value-Responsibility study, and could cut as much as $79 million in the county’s budget.
From the cutting of small programs such as the annual lighting of the Christmas tree and Fourth of July celebration and providing lights on Interstate 85 to cutting staff, furloughs and possibly implementing a four-day work week, those recommendations and the county’s finances in a time of tight revenues will be the main topics of discussion during a three-day county government retreat beginning today in Young Harris. …
The cost-cutting recommendations were formulated over the past three months by 70 employees working in nine teams, investigating county spending by functions, such as public safety efficiency, rates and fees, administrative departments review, back office functions such as human resources and purchasing and supplies and inventory.
The goal of the study was to find $35 million in savings in the county’s operating expenses, which was roughly the same amount of spending of the county reserve fund expected in 2008. In 2009, though, that could increase to $43 million, according to a proposed budget released earlier this week.
One measure, the cutting of more than 100 positions in the Planning and Development and Water Resources departments, was announced last month.
But more cuts could include the elimination of funding for the Gwinnett Public Library, community schools, Parternship Gwinnett, the hospital, revitalization efforts and more.
It’s too bad that the needed $35 million is almost exactly what the County will be spending on the new Braves stadium next year.
But don’t worry, the County is hard at work finding new revenue.
Revenues could be found from increasing business license fees, ambulance transport fees and the cost to adopt a pet from the animal shelter. Officials could even consider selling advertisement space on county water towers.
Why not just raise taxes on Tiny Tim? And if the County can’t even sell naming rights to the Braves stadium, then who’s going want to buy the rights to paint over “Gwinnett Is Great” and “Success Lives Here”.
While neighboring counties encourage recycling, Gwinnett County’s new solid waste management ordinance puts teeth into it. The ordinance provides for a civil fine of $500 for violations, which includes those who fail to “source separate residential recovered materials.”
A morning meeting prevented me from posting this earlier, but I heard two interesting interviews with Braves General Manager Frank Wren this morning on 680 The Fan and 790 The Zone (audio link). Here are some highlights. The quotes are paraphrased from my memory.
— On Javier Vazquez, Wren stated that using “sabermetric” methods—“taking into account park factors, defense, and other factors”—Vazquez should have won 16 games and had a sub-4 ERA last season. He repeated this in the second interview, both times using the term “saber”. So, I nearly crashed twice on my way to the office.
— On left field, Wren stated that there just aren’t many options on the free agent market. He stated that they want guys who can not only hit home runs but can play good defense. My translation: Adam Dunn and Pat Burrell are off the table. He also stated that Kelly Johnson would not be moving to the outfield.
— On the Jake Peavy negotiations, he made some curious comments. One interviewer asked him if having many GM-types in the Padres front office complicated the deal. He responded, “I’ll let you say that.” Another interviewer stated that it must have been difficult to discuss a deal with the San Diego front office leaking offers to the press. Wren’s response, “Thank you!” Though, he did qualify his remarks by saying he did not think the leaks came from the front office, but that the leaks were frustrating. He also said that he has a good working relationship with Padres GM Kevin Towers.
— On Mike Hampton leaving for the Astros, he said that he was not surprised. He said that he was aware of Hampton’s desire to move elsewhere for family reasons in September, and he feels no betrayal. This runs counter to some sentiments expressed by the local media.
He commented on a few other things, but these are the highlights. They were informative and candid interviews. I commend Wren’s willingness to speak directly to local fans.
…just like everyone else. Six years for $40.5 million: what’s not to like? You lock up a young Dustin Predroia whose net worth is tied to a single undiversifiable asset—the ability to play baseball well—for a price well below what the team expects to pay out in a series of one-year contracts. I stated the logic in my analysis of the Evan Longoria deal.
Individuals tend to be risk averse, meaning that they are willing to sacrifice income to reduce risk. Just ask Marcus Giles about what it’s like to go from an All-Star to waiver wire fodder before he even finished his arbitration years. Thus, it’s not surprising to see a player trade away higher probabilistic income for lower guaranteed income.
But don’t the Rays face the same risks? What if he never lives up to his potential and is out of baseball in three years? Then the Rays are on the hook for a player whom they could have waived for free. This is true. But, unlike individuals, firms tend to be risk neutral, and price assets equal to their expected value. Baseball teams are firms that invest in many assets, many of which are players. Teams can diversify risk to minimize losses in a way that players cannot by investing in a bundle of assets. If a player stinks, he stinks; and there is not much he can do about it. Teams have many players. Some players signed to long-run contracts will exceed expectations while others will fail. On average, the successes and failures ought to average out.
By taking advantage of players’ risk aversion, teams can sign several players for less than their expected value and come out ahead in the long run. For example, assume we have two players who are expected to be worth $10 million/year for five years (total salaries of $100 million). Let’s say that one player ends up being worth $5 million/year, while the other is worth $15 million/year, the team still ends up getting $100 million in value. However, this is not where the big savings come in. Had the team gone year-to-year with the players, paying each of them their exact annual worth, the team does not save any money. Because players are willing to trade income for financial security, teams can sign players for less than their expected value. Therefore, the team in our example ought to be able to sign the players for less than $10 million per year each.
The Red Sox will pay Pedroia a signing bonus of $1.5 million with annual salaries of $1.5 million, $3.5 million, $5.5 million, $8 million, $10 million, and $10 million from 2009 to 2014. In addition, the club holds an $11 million option for 2015. In 2009, the Red Sox could unilaterally renew his contract close to the league minimum. In 2010–2012, his salary would have been subject to arbitration. After that, he would have been a free agent.
The Sox might have been able to get him cheaper in his unilateral renewal and arbitration years, but the team gets an absolute bargain during free agency. Given his past performance, aging, and the historical trends in revenue and salary growth, I estimate that Pedroia will be worth three times his salary in the free agent years. Unless he just tanks, he’s going to be worth more than $11 million in 2015. In addition, I’m not sure that Pedroia wouldn’t have earned much more in arbitration than the typical player. Pedroia’s 2008 MVP gives him a strong argument that he should be compared to the best players in the game—many who have signed lucrative free agent contracts—as opposed to his service-time cohort. Arbitrators felt Ryan Howard’s MVP was sufficient to trigger the “special accomplishment” clause that allows players to be compared to higher-salaried players. Thus, the Red Sox may be getting a break on during his arbitration years as well.
But, let’s add one more wrinkle. Let’s say Pedroia’s MVP 2009 is just the beginning of a series of excellent performances. He’ll be so valuable to the Red Sox, that his presence on the field will be a large determinant of the team’s success; thus, he might threaten a hold-out for a bigger contract. If he’s a $30 million player in 2014, he can say “I’m not going to play until you give me a new deal.” The Red Sox can stand firm on the old contract as much as they want, but they may be in a position that they know they’d suffer tremendously without him. He’ll have a lot of bargaining power, and don’t think his agent doesn’t know this.
First thought: I like the deal.
According to the AJC the Braves have acquired Javier Vazquez and Boone Logan from the White Sox for Brent Lillibridge, Tyler Flowers, Jon Gilmore, and Santos Rodriguez. The Braves get a good starter under a reasonable contract for the next two seasons in return for three prospects of decent quality.
Second thought: I still like the deal
Vazquez is scheduled to earn $11.5 million a season for the next two years. I have him valued at around $14 million year over this period, which means he’s generating $5 million in surplus. Logan
is arbitration-eligible for the next three seasons isn’t arbitration-eligible until 2010. He’s a soon-to-be 24-year-old lefty reliever with major-league experience. His surplus value is harder to project, but it is similar to Vazquez’s (possibly higher).
The prospects the Braves forgo are just that: prospects. Lillibridge was horrible in 2008, and nothing special in 2007. Scouts like him, and hitting the majors at 24 is a good sign. Flowers is certainly a hot prospect. He had a good season in Myrtle Beach and in the Arizona Fall League. But, he’s a long way off. He may turn out to be a star or never play a game in the big leagues. He’s just not that close. The two lesser prospects are too far off for me to evaluate.
Final analysis: good deal.
The Braves fill big holes in the rotation and the bullpen without having to give up major-league talent. This is exactly the type of move that the win-now Braves need to be making. White Sox fans don’t need to fret as the team gets some good prospects. Seems like mutually beneficial exchange…imagine that.